Part 8: The accountability framework for Māori Trust Boards

Central government: Results of the 2004-05 audits.

8.1
We have previously expressed concerns in 1993, 1995, and 19981 to Parliament about the audit and accountability arrangements for those Māori Trust Boards (MTBs) governed by the provisions of the Māori Trust Boards Act 1955 (the Act). As the legislative framework for the MTB sector remains largely unchanged since we last reported publicly in 1998, and the Auditor-General is still the auditor of all the MTBs that are subject to the Act, we considered it timely to report again to Parliament.

8.2
This Part outlines the accountability arrangements for MTBs under the Act, and our views on the shortcomings of these arrangements. In forming our views, we have drawn on our discussions with the 12 MTBs we have met with over the last year. We continue to believe that a review of the Act is urgently required.

8.3
We also set out the status of MTB annual audits for the last 4 years as at 31 December 2005.

What is the Māori Trust Board sector?

8.4
A significant number of Māori organisations, formed along both tribal and non-tribal lines, operate in the non-government sector. They exist for a wide range of commercial, social, and cultural purposes.

8.5
MTBs exist to manage tribal assets for the general benefit of their beneficiaries. They are able to provide money for the benefit or advancement of their beneficiaries and to apply money towards the promotion of health, social, and economic welfare, and education and vocational training.2

8.6
The Act defines a beneficiary as any person for whose benefit the assets of a MTB are administered under the Act.3 Part 1 of the Act further defines who constitutes a beneficiary for each of the MTBs governed by the Act. Each definition is slightly different. Generally speaking, though, MTB beneficiaries are those persons who have genealogical links to the tribe(s) that the MTB represents.

8.7
Many MTBs are negotiating Treaty settlements with the Crown, or preparing to receive fisheries assets under the Māori Fisheries Act 2004. This means many MTBs are reconsidering their legal form (particularly because a MTB under the Act does not meet the criteria for receiving fisheries assets under the Māori Fisheries Act 2004). This has led to a gradual reduction in the number of MTBs – from 19 in 1993 to 16 by mid-2005.

8.8
Seventeen MTBs were governed by the provisions of the Act for all or part of the 2004-05 audit period.4 They were:

  • Aorangi;
  • Hauraki;
  • Maniapoto;
  • Ngāti Whātua ki Orakei;
  • Taranaki;
  • Tauranga-Moana;
  • Te Arawa;
  • Te Aupōuri;
  • Te Tai Tokerau;
  • Te Rūnanga o Ngāti Awa;
  • Te Rūnanga o Ngāti Porou;
  • Te Rūnanga o Ngāti Whātua;
  • Tūhoe-Waikaremoana;
  • Tūwharetoa;
  • Wairoa-Waikaremoana;
  • Whakatōhea; and
  • Whanganui River.

8.9
These MTBs are public entities under the Public Audit Act 2001, and are therefore audited by the Auditor-General. The Auditor-General is not the statutory auditor of any MTB subsidiary entities. However, he has accepted audit appointment requests for a number of MTB subsidiary entities under section 19 of the Public Audit Act.

8.10
The Act prescribes the responsibilities and obligations of the Minister of Māori Affairs (the Minister) for MTBs. However, and importantly, MTBs are not Crown entities; nor are they in any other way an institution of the Crown.

8.11
Over the years, MTBs’ operations have become more sophisticated. Many of the MTBs operate subsidiary companies and trusts that conduct both non-profit and profit-based activities for the overall benefit of the MTBs and their beneficiaries. For example, one MTB that we audit owns a number of commercial properties, and is involved in (through its subsidiaries) retirement village businesses and a health clinic. Some MTBs also manage fishing quota, and operate significant education, training, and social services providers. It is the defined nature of MTBs’ beneficiaries (MTB “benefits” not being distributed to all New Zealanders), and the very complex and modern nature of their activities, that led many of the representatives of MTBs that we have met with to question the relevance of the Act.

What is the accountability framework for Māori Trust Boards?

8.12
The Minister has a significant role in the governance of, and accountability arrangements for, MTBs. The specific details of the Minister’s role are set out in the Act. Various aspects of the accountability framework are outlined below.

8.13
In planning their activities, MTBs need the Minister‘s approval for their annual statement of estimated receipts and proposed payments for the next financial year.5 MTBs are then required to keep full and accurate accounts of all of their receipts and payments.6 The Act also requires MTBs to prepare annual statements that set out their financial position and financial operations at the end of each financial year. These must be audited by the Auditor-General, who in turn forwards copies of the financial statements and audit report to the Minister.7

8.14
While the Act does not specify a statutory deadline for providing financial statements for audit and completing the annual audit, the Auditor-General requests that his auditors complete the annual audit on his behalf within 5 months of the balance date. For the most part, this means that MTB audits are due to be completed by 30 November each year. However, there are 4 MTBs with a 31 March balance date, which means that their audits are considered outstanding if they are not completed by 31 August each year. The current status of the 2004-05 audits for the MTB sector is discussed in paragraph 8.22.

8.15
The accountability framework also requires an MTB to seek the Minister’s approval for the remuneration of an MTB’s Secretary (equivalent, in some cases, to a general manager or chief executive),8 and for any benefits paid to a Board member using Board funds that are not related to their capacity as a Board member. The prior approval of the Minister is also needed if an MTB proposes to make total payments in any year that would exceed by more than 10% the total of payments in the budget approved by the Minister (see paragraph 8.19).

8.16
While the Minister is a central figure in the present accountability framework provided for under the Act, an MTB’s “books” may be inspected and copies taken free of charge by any beneficiary, any member or officer of the Board, or any person authorised by the Minister.9 Many of the MTBs are also governed by their own Act of Parliament (such as the Orakei Act 1991 and the Hauraki Māori Trust Boards Act 1988), which places other requirements on their activities. For example, 6 of the MTBs that were established in the late 1980s have an obligation in their own Acts to hold annual meetings to report to beneficiaries on their activities and their plans for the future. These meetings are publicly notified.

Are Māori Trust Boards meeting their accountability requirements?

8.17
There has been an improvement by MTBs in complying with some aspects of the accountability requirements set out in the Act, but certain other requirements, particularly relating to timeliness, are still not being met by many MTBs.

8.18
Generally speaking, most MTBs do not have the Minister’s approval for their annual statement of estimated receipts and proposed payments (budget) for the next financial year before that year begins – by 1 July for those MTBs with a 30 June balance date, and by 1 April for those 4 MTBs with a 31 March balance date. Based on information provided by Te Puni Kōkiri,10 none of the 16 MTBs11 had their 2005-06 budgets approved before that financial year began. However, Te Puni Kōkiri advised us that 10 of the 16 MTBs had their 2005-06 budgets approved before 31 December 2005. The time taken to process some of these applications meant that, in some instances, there was a delay between the dates that the budgets were submitted to the Minister and the dates of Ministerial approval.

8.19
In addition, there were no instances in 2004-05 where an MTB sought the prior approval of the Minister for expenditure in terms of section 32(3). Neither were any retrospective applications made to the Minister during 2004-05 for this purpose.12

8.20
Where legislative breaches occur, we encourage MTBs to disclose them in the notes to their financial statements. If such disclosures are not made, we consider whether the audit opinion should draw attention to these breaches.

8.21
The Act requires MTBs to prepare annual statements that set out their financial position and financial operations at the end of each financial year. The Auditor-General requires the auditors he appoints to complete the annual audits of MTBs within 5 months. In each of our previous reports to Parliament in 1993, 1995, and 1998, we have expressed concern about the timeliness of MTBs’ preparation of their financial statements, and how this detracts from the purpose of having audited financial statements. As at 31 December 2005, our audits of financial statements for the 2004-05 year had been completed for only 7 MTBs.

8.22
Of the 10 MTBs that had outstanding audits for 2004-05, 6 of them also had audits still outstanding for earlier years. Two MTBs have yet to have an audit opinion issued for the 2001-02 financial year. The outstanding audits by year are show in Figure 8.1.

Figure 8.1
Status of Māori Trust Board audits as at 31 December 2005

Some audits are still outstanding for the 2002, 2003, 2004, and 2005 financial periods.


 2002 2003 2004 2005
Number of MTBs in audit portfolio 17 17 17 17
Number of audits completed 15 14 11 7
Number of audits in arrears 2 3 6 10

8.23
There are several reasons for these outstanding audits, including:

  • delays by MTBs or their accountants in producing financial statements for audit;
  • delays by MTBs or their accountants in making the necessary amendments after initial audit work has been completed;
  • delays in the completion of MTB subsidiary audits that are needed for group consolidation purposes (as noted previously, the Auditor-General is not the statutory auditor of MTB subsidiary entities);
  • difficulty in resolving technical accounting and auditing issues, such as the valuation of assets; and
  • competing demands on audit resources when the initial timeframes set to complete the audit are not met due to the reasons outlined above.

8.24
At a sector level, MTBs also appear to have difficulty complying with some of the more minor aspects of the current accountability framework. For example, in 2004-05, the Minister’s approval was never sought in advance for the remuneration of an MTB’s Secretary. One application for retrospective approval was made (see footnote 12).

8.25
The Minister processed 4 requests to provide benefits from Board funds to an MTB member that were not related to their board membership, as required by section 37 of the Act.13 All 4 of these requests were approved before the MTB provided the benefits to its Board member (see footnote 12).

Is the accountability framework for Māori Trust Boards appropriate?

8.26
We consider that there are a number of shortcomings in the current framework governing MTBs. The statute dates from 1955, and does not adequately encompass the usual characteristics of modern accountability frameworks; nor does it reflect the current operating environment for MTBs.

Accountability framework

8.27
In our recent meetings with MTBs, many of the Board members and Secretaries have expressed concern about aspects of the current framework. Some MTBs told us they consider that the compliance costs of meeting all of the legislative requirements in the Act outweigh the benefits of their (sometimes limited) receipt of public funds. Many of these MTB representatives also noted that each funding arrangement with a Crown agency often incurs its own specific reporting requirements in addition to the provisions in the Act.

8.28
The role of the Minister seems to give some MTBs comfort that they can demonstrate proper use of MTB resources. At the same time, MTBs seem to hold equal concerns about the relevance of the Minister’s role, and about the practicality of meeting some of the provisions in advance.

8.29
In 1995, we noted that it was unclear why the Act places the Minister at the focus of the accountability framework for MTBs.14 The legislation remains unchanged.

8.30
In 1998, we set out our view of the basic requirements of any revised accountability framework for MTBs. These remain relevant as general propositions in 2006. We consider that MTBs should be required to:

  • consult with and advise their beneficiaries of their plans for the forthcoming year; and
  • report against their plans to the beneficiaries each year at a general meeting and in an annual report (which includes audited financial statements) generally available to beneficiaries.

8.31
As a general principle, we consider that a trust’s beneficiaries and their trustees should have a direct accountability relationship. Such an arrangement enables beneficiaries to hold trustees to account for their performance. In our view, Parliament and policy makers could usefully consider how this general principle could underpin any reform of the Act.

8.32
We also consider that any review of the Act should examine the appropriateness of Ministerial involvement in the activities of MTBs, the application of the Fees and Travelling Allowances Act 1951 to payments to MTB members, and the auditing arrangements.

8.33
Another consideration in any review of the Act could be the currency of the election provisions set out in Part 3 of the Act, given that many MTB beneficiaries live away from their tribal areas, and the sophistication of digital technology. There could be a range of options for providing for a more efficient and flexible election process.

Remuneration arrangements

8.34
The remuneration of MTB members is governed by the Fees and Travelling Allowances Act 1951. Some resetting of the levels of fees paid to MTB members has occurred since we last reported to Parliament. However, given the largely non-public nature of MTB activities and the complexity and diversity of some MTBs’ operations, we consider that the appropriateness of this framework for setting MTB member remuneration levels should be reconsidered.

Accounting and audit arrangements

8.35
In 1993, 1995, and 1998 we queried why the Auditor-General is the statutory auditor of MTBs. MTBs seem to prefer the current audit arrangements because the Auditor-General is independent. Some MTB staff told us that they feel that this helps them with any concerns about transparency that beneficiaries might have.

8.36
In the context of a review of the accountability framework, we continue to prefer a revised provision that allows for MTBs’ beneficiaries to appoint an independent auditor at an annual general meeting. At the same time, the legislation could clarify MTBs’ requirements to prepare financial statements that comply with generally accepted accounting practice in New Zealand. This is not explicit in the Act at present, but it is a requirement that we impose on MTBs because our audits must comply with the professional auditing standards set down by both the New Zealand Institute of Chartered Accountants and the Auditor-General. Setting a statutory timeframe within which an audit must be completed would also be desirable.

Conclusions

8.37
The most recent reform of the legislation governing the MTB sector occurred in 1996. A discussion paper proposing further reform was released by the Minister in June 1996. While several consultation meetings on this discussion paper were held with interested parties around New Zealand later in 1996, no further action has been taken on the proposals set out in the discussion paper.

8.38
Although the number of MTBs governed by the Act has been gradually reducing for the reasons set out in paragraph 8.7, this is a slow process. In our view, the accountability framework needs to be changed so that it meets modern standards for holding governing bodies to account for their performance and stewardship of an entity’s operations. We again recommend that some legislative reform be given urgent attention by the Minister and Te Puni Kōkiri.

1: First Report for 1993 (parliamentary paper B.29[93a]), First Report for 1995 (parliamentary paper B.29[95a]), and Second Report for 1998 (parliamentary paper B.29[98b]).

2: Section 24.

3: Section 2.

4: By 30 June 2005, there were 16 MTBs – with the disestablishment of Te Rūnanga o Ngāti Awa as an MTB governed by the Act on 24 March 2005, as part of its Treaty settlement process with the Crown.

5: Section 32.

6: Section 30.

7: Section 31.

8: Section 19.

9: Section 30.

10: Te Puni Kōkiri is the Māori name of the Ministry of Māori Development – the agency that undertakes a number of tasks relating to MTBs on behalf of the Minister.

11: We have deliberately excluded Te Rūnanga o Ngāti Awa from this analysis, as it was disestablished as an MTB under the Act on 24 March 2005.

12: The information has been obtained from Te Puni Kōkiri because not all the 2004-05 audits are complete yet.

13: These benefits are usually in the form of consultancy fees or loans. It should be noted that the Minister does not always grant retrospective approval to such applications.

14: First Report for 1995 (parliamentary paper B.29[05a]), page 122.

page top