Part 2: Dealings between Housing New Zealand Corporation and the contractor

Inquiry into certain allegations about Housing New Zealand Corporation.

2.1
In this Part, we describe:

the circumstances surrounding the contractor’s engagement with the Corporation;
the contractor’s raising of his allegations, and the circumstances of his departure from the Corporation;
the Corporation’s initial investigation of the contractor’s allegations; and
the events leading up to, and following, the settlement agreement.

2.2
We discuss our view on the Corporation’s management of these events in Part 3, and discuss the Protected Disclosures Act 2000 and the appropriateness of the non-disclosure clause in the settlement agreement in Part 4.

The engagement of the contractor

2.3
The contractor was engaged in February 2005, to fill the role of Programme Logistics Manager (see Figure 1) at the Corporation’s Manukau office while the incumbent was seconded elsewhere. The role entailed helping the Special Programmes Manager (who was the contractor’s line manager). Important outcomes for the role included ensuring that:

robust systems and reporting frameworks were in place, to provide timely and accurate information to assist delivery and monitoring of special asset improvement programmes; and
appropriate data and information were collected and reported.

2.4
The engagement was made through an executive leasing company (the leasing company). Under the contract between the leasing company and the Corporation, the leasing company agreed to supply staff to fill the Programme Logistics Manager position for 40 weeks from 18 February 2005. The contract also included a weekly review of the contractor’s activities. The Corporation had the right to end the assignment at its discretion, and was to notify the leasing company – not the contractor – if this was the case.

2.5
There was no contract for services directly between the Corporation and the contractor. However, for the duration of his engagement, the contractor worked largely as if he were an employee of the Corporation (for example, he was based at the Manukau office, worked normal office hours, and had been issued with a mobile telephone for business use).

Figure 1
The position of the contractor within Housing New Zealand Corporation and other positions and teams discussed in this report

Figure 1.

2.6
The contract between the Corporation and the leasing company also stated that all contractors on assignment with the leasing company understood that their engagement was as a contractor, and should not be regarded as an employment relationship with either the leasing company or any company to which they were on assignment.

2.7
The Corporation has a robust induction programme for new employees, but its induction policy is silent on induction procedures for contractors. New employees attend a 3-day National Induction Programme covering (among other areas) making and resolving complaints, taking action on harassment, and employee assistance programmes. In addition, the Corporation’s internal policies and procedures (the Quality Management System or QMS) are available through the intranet, on every computer desktop.

2.8
Although the contractor was provided with guidance and support, we were told that he did not attend the formal induction programme. No one, including the contractor, recalled any information being provided to him about the Protected Disclosures Act 2000 by the Corporation. However, information about “whistle-blowing” under the Protected Disclosures Act was available in the QMS on the contractor’s computer desktop.

Raising allegations, and the contractor’s departure

2.9
The contractor told us that he had had concerns for some time before his engagement ended on 8 August 2005. He could not be specific about the date, but said that he raised the concerns with the leasing company. The contractor told us that the leasing company told him that it had a “liability contract” with the Corporation, and had advised him to do what he was told.

2.10
The leasing company told us that it advises contractors to raise issues with it, but also emphasises that contractors should raise issues with the organisation they are working for. In this case, the leasing company became aware of personal conflicts between the contractor and others in the Corporation around June or July 2005. The contractor, a representative of the leasing company, and the Special Programmes Manager met to discuss these conflicts, but not any allegations. The leasing company’s representative at this meeting recalled that they had reminded the contractor that he was a contractor, was to follow the Special Programmes Manager’s directions, and was to avoid upsetting people.

2.11
On 18 and 19 July 2005, the contractor e-mailed his concerns about some accounting issues to several colleagues in the Corporation’s Manukau office. The contractor told us he had been working on a “reporting model” for the Community Group Housing (CGH) programme, and had formed a view that the Corporation was slow in putting CGH capital expenditure into Rentel (the Corporation’s housing asset tracking system).

2.12
We were told that the contractor’s e-mails upset Transaction Processing Unit (TPU) staff. We were told by Corporation staff that an informal meeting to discuss these e-mails was arranged between the contractor, the Special Programmes Manager, and the National Property Improvement Manager (the senior manager responsible for Special Programmes) on or about 19 July 2005.

2.13
However, although the contractor told us that he was prevented from contacting TPU staff after 19 July and was told to apologise, he did not recall the meeting.

2.14
The Corporation’s managers involved told us that, as the line managers of staff involved, they considered a “cooling off” period would be beneficial, and the contractor was asked to stay away from the TPU for only a couple of days. They added that there was little reason for the contractor to have regular contact with the TPU. The National Property Improvement Manager also told us that he suggested the contractor apologise to the Financial Services Manager (who is the TPU manager). He recalled that this was a suggestion, not a direction, to aid working relationships within the office. There are no records of these discussions.

2.15
Precisely what happened between 18-19 July 2005 and the contractor’s departure on 8 August 2005 is unclear. Several factors appear to have been intensifying around this time. First, the contractor had concerns about the Corporation’s accounting policies and practices. Secondly, the contractor believed that he had been told to apologise to TPU staff or leave the Corporation. Thirdly, Finance staff were beginning to challenge the contractor’s understanding of accounting issues, and had identified what appeared to be a financial error by the contractor (see Part 5). Fourthly, the Financial Services Manager had previously discovered inappropriate personal use of the Corporation’s mobile telephone by the contractor. Finally, because of the first and third issues noted above, the contractor had been involved in a bruising e-mail exchange with TPU staff.

The contractor’s departure

2.16
On 8 August 2005 the contractor sent an e-mail to the Chief Executive of the Corporation stating his “…intention to resign from my contract at [the Corporation], effective immediately”. The subject line of the e-mail was “Why do I need to apologise?”, and it alleged:

inappropriate financial practices;
abuse of power by certain Corporation staff; and
lack of respect and fairness by certain Corporation staff.

2.17
The contractor copied this e-mail to 4 other senior managers in the Corporation: the Manukau-based Financial Services Manager, the Wellington-based Financial Controller, the General Manager Support Services (who was overseas, and did not return to New Zealand until some 3 months later), and the General Manager Asset Services (the GM Asset Services). The e-mail was not copied to the Special Programmes Manager.

2.18
The Chief Executive told us that she did not know of the contractor before receiving his e-mail. She was concerned about the e-mail she received, and asked the GM Asset Services to prepare a response. (The GM Asset Services is a member of the Executive Team, based in the Corporation’s Wellington office, and responsible for the National Property Improvement team in which the contractor worked.) The Chief Executive told us that she would not have regarded it as inappropriate for someone in the contractor’s position to inform the Chief Executive directly of concerns about alleged wrongdoing in the Corporation.

2.19
On 9 August 2005, the Financial Services Manager e-mailed a response to the allegations to the Chief Executive. The response said that:

the annual audit of the Corporation had been carried out by Ernst & Young, and Ernst & Young had not raised any concerns of the kind now raised by the contractor;
he and other staff rejected the contractor’s allegations of abuse of power by Corporation staff; and
the contractor’s concerns about lack of respect were not justified.

2.20
The contractor did not turn up for work on 9 August 2005, which is consistent with his stated intention to “resign” with immediate effect. However, the Special Programmes Manager told us that, when he rang the contractor early that day to find out where he was, the contractor said he was sick. He made no mention of his e-mail to the Chief Executive the day before, purporting to “resign”. The Special Programmes Manager found out about the e-mail message only later that day.

2.21
The contractor told us that he spoke with the Special Programmes Manager and offered to work out a 2-week notice period, but was prevented from returning to work after 8 August 2005. The Special Programmes Manager did not recall this conversation, and was adamant that the contractor did not give 2 weeks’ notice. Many of the staff we spoke to who had seen the contractor’s e-mail of 8 August told us that they considered he had effectively terminated his own assignment with the Corporation.

Involvement of the leasing company

2.22
Under the contract between the Corporation and the leasing company, the expectation was that the leasing company would handle any performance or termination issues. The contractor told us that he was clear that he was a contractor, not an employee. However, the contractor “resigned” from the Corporation without involving the leasing company.

2.23
On 10 August 2005, a representative of the leasing company met with the contractor, the Special Programmes Manager, and one other staff member. We understand that the meeting was mostly about the contractor repaying money owed to the Corporation for personal use of a mobile telephone, and returning the mobile telephone and office access keys. There was little discussion of the contractor’s concerns. The leasing company representative recalled making the contractor aware that the Protected Disclosures Act 2000 (referred to at the meeting as the “Whistleblowers Act”) offers certain protections.

Use of the Corporation’s mobile telephone

2.24
The Corporation’s policy regarding mobile telephones is not included within the QMS. However, the Corporation told us that any equipment provided to staff, including mobile telephones, is essentially for business purposes. The Special Programmes Manager told us that the contractor was advised, when the mobile telephone was provided, that it was to be used only for business purposes. The Corporation’s guidelines on discretionary expenditure provide that one call home a day, up to 30 minutes long, is considered reasonable on any business travel of more than one day.

2.25
The contractor used the mobile telephone for personal calls, including international calls, that incurred charges that amounted to $1,909.62. The Financial Services Manager brought this matter to the attention of the contractor on 30 June 2005. This followed the usual procedure where inappropriate use of the Corporation’s equipment or resources is identified. The contractor agreed that he would repay this amount to the Corporation.

2.26
The Financial Services Manager is the Corporation’s “gatekeeper” on sensitive expenditure.

The initial investigation of the contractor’s allegations

2.27
The Chief Executive told us that, on or about 11 August 2005, after the initial response from the Financial Services Manager, she asked the GM Asset Services to prepare a fuller response to the contractor’s allegations. The contractor was informed of this by e-mail and telephone.

2.28
The investigation included making inquiries of the National Property Improvement Manager, the Financial Services Manager, and the internal auditor. The GM Asset Services also attempted, although without success, to obtain further information from the contractor (both directly and through the leasing company) about his allegations. The contractor told us that he was willing to provide further information if the Corporation apologised to him.

2.29
There was further correspondence between the contractor and the GM Asset Services during this period. On 30 August 2005, the GM Asset Services sent an e-mail to the contractor, in which the GM Asset Services:

noted that the contractor did not wish to provide further information;
expressed regret that the contractor did not think his concerns were being appropriately addressed;
explained that his concerns were being taken very seriously, that they were being investigated, and that an audit had been commissioned; and
pointed out that payment of the charges for unauthorised mobile telephone calls was yet to be received from the contractor.

2.30
During August 2005, the Corporation’s internal auditor undertook an investigation at the request of the GM Asset Services. On 31 August 2005, he reported to the GM Asset Services that he had reviewed the ledger accounts that the contractor had referred to in his 8 August 2005 e-mail. The internal auditor concluded that the accounts appeared to be operating correctly, and that he had not found any areas of concern. However, he also said that the contractor’s e-mail had not fully explained his concerns. The internal auditor recommended that the contractor be approached again and told that a review of the limited information he had provided showed no concerns.

2.31
The next day, the GM Asset Services sent an e-mail to the contractor. He explained that the internal auditor had completed his investigation, but that he did not have enough information to fully understand what the contractor’s detailed concerns were, and to date had identified no instances of inappropriate accounting. The GM Asset Services mentioned that the internal auditor had asked whether the contractor would be prepared to be contacted directly by him so that he could follow up on the contractor’s concerns.

2.32
In the contractor’s response to this e-mail, he said that he would be prepared to co-operate with an investigation if it was undertaken by the Corporation’s external auditor (that is, Ernst & Young, followed by a report directly to the Corporation’s Board.

2.33
The GM Asset Services advised the contractor that the investigation was being directed by the General Manager Assurance Services (the GM Assurance Services), to whom responsibility for the matter was subsequently transferred. The GM Assurance Services is responsible for the internal audit function, reports directly and independently to the Chief Executive, and is accountable to the Assurance Committee of the Corporation’s Board.

2.34
The GM Asset Services discussed this further with the contractor during a telephone conversation on 6 September 2005. The contractor said that he was willing to talk to the GM Assurance Services, and would “pinpoint specific detail” for him. The contractor also told the GM Asset Services that he:

believed that the Corporation’s Board had been misled (although he did not say how);
considered that he had no choice but to end his engagement with the Corporation; and
would go to the media or the Minister of Housing if he was not satisfied that his complaints were being addressed.

Events leading up to, and after, the settlement agreement

The GM Assurance Services’ initial investigation

2.35
The GM Assurance Services was given responsibility for the investigation. He met the contractor on 9 September 2005, and obtained some further detail about the alleged financial irregularities. However, the contractor refused to provide full details without receiving an apology for the way in which, in the contractor’s view, his contract with the Corporation had ended.

2.36
On 13 September 2005, the GM Assurance Services met with the Chief Executive for one of their regular meetings. The contractor’s allegations were on the agenda. According to the Chief Executive’s notes from this meeting, the GM Assurance Services reported to the Chief Executive on his conversation with the contractor. The conversation included that the contractor had concerns about the circumstances in which his engagement had ended, that the GM Assurance Services intended to continue to attempt to identify clearly what the contractor’s allegations were about, and that the GM Assurance Services would arrange an appropriate investigation if specific details of the allegations could be provided. The Chief Executive endorsed this course of action.

2.37
The GM Assurance Services became ill soon afterwards, taking 2 weeks’ sick leave followed by a period of substantially reduced hours between 15 September and 25 October 2005, when he did some work from home. The GM Assurance Services told us that, on his return to the office, it took some time before he was working at full capacity again.

2.38
Progress during this period slowed, but did not stop. The internal auditor was asked to investigate the contractor’s allegations further, and the GM Assurance Services informed the contractor of this on 12 October 2005. However, the internal auditor did not receive any further information from the contractor. The matter was taken up again by the GM Assurance Services after his return from sick leave.

2.39
The contractor began to press for payment, sending an invoice for $1,226.68 (including GST) to the GM Asset Services for “payment in lieu of notice” dated 12 October. At the time, the GM Asset Services’ view was that the contractor was not eligible for such a payment because he had not been an employee.

2.40
During the next several weeks, the contractor continued to communicate regularly with the GM Assurance Services. The record of e-mails shows that the contractor became more insistent that he wanted “payment in lieu of notice” and an apology. He continued to link providing more information about his allegations to such an apology.

2.41
The contractor viewed the GM Assurance Services as independent, and told us he had confidence in him. The GM Assurance Services, in turn, gradually formed a view that the contractor was someone who had “fallen out” with his superiors. The GM Assurance Services told us he thought that the contractor’s unhappiness with how he had been treated had clouded the contractor’s view about the allegations, although he did not believe that the contractor was dishonest. The GM Assurance Services was determined to investigate the allegations further – and saw building a good relationship with the contractor as pivotal to gaining the information needed to investigate successfully. The GM Assurance Services told us that he had some sympathy for the contractor’s request for a payment in lieu of notice. The GM Assurance Services also spoke with the Special Programmes Manager. The Special Programmes Manager told him that the contractor had worked hard for the Corporation while the contractor was there.

2.42
The GM Assurance Services kept the Chief Executive informed of his discussions with the contractor during late October and November 2005. The GM Assurance Services also mentioned, in general terms, to the Assurance Committee in late October that a former contractor had raised concerns about some of the Corporation’s practices.

2.43
The GM Assurance Services told the Assurance Committee that Ernst & Young, the external auditor, might need to be involved, but the Corporation would have to first see if there was any substance to the allegations. Ernst & Young was not formally involved during this time, but was made aware informally that the Corporation was investigating some allegations. We have seen no evidence to suggest that the Board was aware of the precise nature of the allegations at this time, or of the terms of the settlement ultimately reached.

2.44
During November 2005, the GM Assurance Services and the contractor worked on an agreed list of the contractor’s allegations. After a number of revisions, the document was agreed and signed by the GM Assurance Services and the contractor on 23 November 2005. The Chief Executive saw and approved the final version of the list of allegations, which would form the basis for a further investigation.

Events leading up to the settlement agreement

2.45
Communication continued between the GM Assurance Services and the contractor after the list of allegations was agreed. The communications included repeated requests by the contractor to be paid an amount in lieu of notice.

2.46
The GM Asset Services had earlier (in August 2005) told the contractor that there was no direct contractual relationship between the Corporation and the contractor. In October 2005, the GM Asset Services told the contractor that he was not eligible for a payment in lieu of notice because he was not an employee. Further, the Corporation’s contract with the leasing company did not require the Corporation to give any period of notice.

2.47
The Corporation continued to pursue reimbursement of money owed for personal mobile telephone calls. We understand that the final amount owed by the Corporation to the leasing company was, with the agreement of the contractor and the GM Asset Services, offset against the $1,909.62 charged for personal calls made by the contractor using the Corporation’s mobile telephone. After this, the contractor still owed the Corporation $441.49. E-mail correspondence between the GM Asset Services and the contractor in mid-October 2005 showed that the contractor agreed he owed this amount, and would pay it to the Corporation.

2.48
In an e-mail on 24 November 2005 to the GM Assurance Services, the contractor acknowledged that there was no contractual entitlement for him to receive any payment in lieu of notice, but he contended that the circumstances under which he had not been allowed to return to work at the Corporation were questionable. He also referred to a recent employment law case that, he said, set a precedent likely to be in his favour. He commented that he would “take this matter as far as it can go”. The contractor wanted a payment to be made to him before 15 December 2005, although he was prepared for the apology and investigation to take longer.

2.49
The GM Assurance Services told us that he discussed the issue of payment in lieu of notice with one of the Corporation’s external legal advisors in the first week of December 2005, and was advised orally that there was no legal requirement for the Corporation to pay any amount to the contractor as a payment in lieu of notice. The GM Assurance Services told us that the advice he received suggested that he could pay the equivalent of up to 3 or 4 weeks’ pay to the contractor in resolution of the contractor’s concerns about the circumstances of his departure, but that the Corporation should resist any claim for more money by the contractor. We are not aware that the contractor at any time asked for more than about 2 weeks’ pay in lieu of notice.

Authorisation of the financial parameters for the settlement

2.50
The GM Assurance Services told us that, on receiving the legal advice, he formed the view that the settlement of the contractor’s grievance should include a payment to the contractor to recognise the abrupt nature of the contractor’s work finishing with the Corporation. He decided to seek the Chief Executive’s approval for this. He approached the Chief Executive by telephone on 9 December 2005, but was unable to speak with her. Instead, he left a message on her voicemail, explaining the legal advice that he had obtained, that the contractor was asking for the equivalent of about 2 weeks’ pay, and that the contractor was threatening to take legal action against the Corporation.

2.51
The Chief Executive confirmed that the GM Assurance Services left her a telephone message on 9 December 2005, indicating his intention to negotiate a settlement with the contractor and seeking her approval of a financial limit of $6,000. We were shown the record of a voicemail message she left for the GM Assurance Services on 9 December 2005. It said –

Thank you for your message about [the contractor]. I’m very happy for you to go to that $6,000 limit. I’m very happy for you to use your judgement generally about that cost. I don’t think it’s exorbitant at all.

2.52
We asked the Chief Executive why she considered it necessary for her to approve the settlement in this way, and what she had intended her approval to signify for the GM Assurance Services. She told us that it was the practice at the Corporation that the Chief Executive agree with the relevant General Manager the maximum sum that could be paid when settling an employment issue with an employee. She explained that the rationale for this involvement in financial settlements is to alert the Chief Executive to both the organisational risks and the financial risks associated with settling any disputes with employees. Her recollection was that the figure of $6,000 that she authorised was to pay the contractor an amount that he believed he was owed under the balance of his contract.

2.53
However, the Chief Executive also made it clear to us that she did not consider that, by giving her approval in the manner she did, she either approved in advance the terms of the settlement or implied that she expected to be asked for a further approval. She told us that the GM Assurance Services had not discussed the proposed terms of the agreement with her, other than the amount, nor would she have expected him to do so. She regarded finalising an agreement as a matter for her managers, with input from Human Resources staff and legal advice.

2.54
On the next day, 10 December 2005, the Chief Executive travelled overseas on leave, and did not return until the evening of 14 December 2005.

2.55
We sought confirmation from the Corporation of its policy for severance payments involving employees. The extract from its Human Resources Guidelines that we were provided with mentions “managed exits”, and states that the sign-off for an agreement is to be by the relevant General Manager. The employee’s manager must consult with the Human Resources Account Manager and the Human Resources Leader, and obtain sign-off from the People Capabilities Manager. It does not mention a requirement to obtain approval or sign-off from the Chief Executive.

2.56
The Corporation explained that any “severance payment” or its equivalent made to a contractor would usually be authorised according to the Corporation’s standard financial delegations.

Negotiating the terms of the settlement

2.57
The GM Assurance Services told us that his intention in entering into a settlement agreement with the contractor was to provide finality to the issue of a payment in lieu of notice, and the related contractual arguments raised by the contractor. The GM Assurance Services mentioned an increase in the contractor’s demand for a payment from the equivalent of about one week’s pay in August 2005 to 2 weeks’ pay. He told us that a payment of $3,000 did not seem unreasonable to put an end to the dispute, and would enable him then to focus on the investigations into the contractor’s concerns.

2.58
On 12 December 2005, the contractor sent an e-mail to the GM Assurance Services saying that he was prepared to enter a settlement, on the understanding that:

the GM Assurance Services had overall responsibility for investigating the contractor’s allegations;
the action took into account the serious nature of the concerns;
the Corporation paid for 2 weeks’ in lieu of notice, less $400 for the personal mobile telephone calls; and
the contractor would receive a fair and reasonable reference from the Corporation.

2.59
The contractor said that, in return, he would:

not raise his concerns with the Minister of Housing, the parliamentary opposition, or anyone else;
provide the external auditor with specific details about the allegations; and
not raise the matter further once the investigation had been completed.

2.60
The contractor also sent to the GM Assurance Services an invoice for 2 weeks’ “payment in lieu of notice” of $3,000, less $400 (roughly the outstanding amount owed for personal telephone calls). The total amount on the invoice was $2,925, after the inclusion of GST.

2.61
On the same day, the GM Assurance Services drafted an agreement based on the terms contained in the contractor’s e-mail, and referred it to the Corporation’s external lawyers for comment. Their advice on the draft was again given orally. The GM Assurance Services’ recollection of this advice was that there could be difficulties with enforcing some of the terms of the agreement, but there was no suggestion that they were illegal.

2.62
The GM Assurance Services told us that he understood that the contractor was obtaining his own legal advice about the settlement agreement. The leasing company was not involved in the negotiation of the settlement agreement.

2.63
The GM Assurance Services discussed the situation with 2 members of the Human Resources team in the Wellington office. The Human Resources Manager's recollection is that they met with the GM Assurance Services at his request on or around 12 December 2005. The Human Resources Manager told us that she advised the GM Assurance Services that the Corporation's practice (applicable to employees) was that a confidential settlement agreement could be entered into only according to the terms of the Corporation’s Investigation and Escalation Protocols. This usually involved mediation or an agreement being reached between the parties' lawyers and signed off by a mediator. The Human Resources Manager told us she advised that this would also be the preferred path in the case of this contractor.

2.64
The Human Resources team was not consulted on the later negotiation of the settlement agreement with the contractor, nor on the terms of the settlement agreement.

Execution of the agreement

2.65
The draft agreement included a provision that the agreement was to be executed by the GM Assurance Services on behalf of the Corporation, but “subject to Chief Executive approval”. The GM Assurance Services told us that he understood that he needed authorisation from the Chief Executive for the agreement.

2.66
We ascertained from telephone and facsimile records that neither the GM Assurance Services nor the Acting Chief Executive contacted the Chief Executive while she was overseas on leave, and that there was no discussion at any time with the Chief Executive about the terms of the agreement other than the financial limit mentioned in paragraph 2.51. Both the GM Assurance Services and the Chief Executive confirmed this in their evidence to us.

2.67
On 14 December 2005, the GM Assurance Services faxed a copy of the proposed settlement to the contractor. The contractor signed the letter and faxed it back to the GM Assurance Services at 2:53pm.

2.68
Later that afternoon, there was some e-mail correspondence between the GM Assurance Services and the contractor about obtaining the necessary approval for the agreement. The GM Assurance Services sent an e-mail to the contractor explaining that the Chief Executive was away, but that he would see if the Acting Chief Executive was prepared to authorise the agreement so that it could be settled that day.

2.69
The GM Assurance Services told us that he met with the Acting Chief Executive about the settlement agreement on 14 December 2005. The GM Assurance Services told us that he would have explained to the Acting Chief Executive that he already had the approval of the Chief Executive to the amount of the payment, and that he had received legal sign-off from external lawyers. He believed that he showed the Acting Chief Executive the draft agreement, explaining that it needed to be finalised. He told us that he wrote the Acting Chief Executive’s initials on the draft agreement and put a tick against them, which he told us confirmed that the Acting Chief Executive’s approval had been obtained orally. The Acting Chief Executive did not recall the meeting, or discussing the draft agreement with the GM Assurance Services. However, the Acting Chief Executive explained to us that he had a busy work day on 14 December, including off-site meetings, and had no reason to believe that this discussion with the GM Assurance Services did not occur.

2.70
The GM Assurance Services also recalled discussing the enforceability of the confidentiality clause with the GM Asset Services, in particular the difficulty of enforcing the clause if the information became public, because the damage (in this case to staff reputations) would have been done. He likewise made a tick against the GM Asset Services’ initials that he wrote on the draft agreement. The GM Asset Services told us that he was sure that the GM Assurance Services would have discussed the settlement in general with him as a matter of courtesy, but he did not recall any particular discussion with the GM Assurance Services about the settlement agreement or its terms.

2.71
The GM Assurance Services told us that he then signed the version of the agreement that the contractor had returned to him, and inserted after the words “subject to Chief Executive approval” the comment “now given”. He initialled that addition, and faxed the letter back to the contractor. The GM Assurance Services told us that this reference to approval being “now given” was to the Acting Chief Executive’s oral approval.

2.72
The final version of the settlement agreement, with names deleted, is set out in Appendix 2.

2.73
The Chief Executive told us that she did not see the final settlement agreement until 16 March 2006.

Events after the settlement agreement – the Corporation’s investigation of the agreed list of allegations

2.74
The agreement provided that the GM Assurance Services was to be responsible for ensuring that the investigation of the agreed list of allegations was concluded to the satisfaction of the external auditor.

2.75
The GM Assurance Services told us that he considered the allegations could best be addressed as part of the normal internal audit programme, rather than through a separate investigation. The GM Assurance Services said he had doubts about whether there was substance to the allegations, and was influenced in this view by many factors. These included:

the contractor’s insistence on an apology before providing further information;
his own view that the contractor’s unhappiness with the Corporation affected the contractor’s view of the Corporation’s practices;
the payment in lieu claim;
the result of the initial internal audit into some of the allegations in August 2005;
the comfort received from the external auditor’s sign-off of the 2004-05 financial statements; and
knowledge that the Corporation is subject to an extensive internal audit process, and an external audit.

2.76
The GM Assurance Services told us that, although he viewed the matter as arising from an upset former contractor who had fallen out with his superiors, he treated the allegations as serious and needing investigation. However, given his reservations, he thought that a special investigation was not warranted because of the business interruption it would cause. Rather, the investigation formed part of the internal audit programme. It was his intention to get sign-off from the external auditor on the results of the investigation, as agreed with the contractor in the settlement agreement.

2.77
The GM Assurance Services was on leave during the Christmas period until 13 January 2006.

2.78
The GM Assurance Services met with the Chief Executive for a regular performance review on 10 February 2006. The Chief Executive told us that she recalled that the investigation was a task on the GM Assurance Services’ list of matters outstanding. There was a discussion about it, and the Chief Executive told us that she asked the GM Assurance Services to ensure that he was getting on with the investigation.

2.79
On 16 March 2006, after the first of the contractor’s public statements about his allegations, the Chief Executive met with the GM Assurance Services for another routine meeting. Her notes of the meeting record that “very little” had been done on the investigation, that she was not satisfied with the lack of progress, and that she wanted a progress report the next day. The GM Assurance Services was unable to meet this deadline, but provided an update on 24 March 2006. The GM Assurance Services explained in the update that not all of the contractor’s allegations had been investigated, but that progress had been made in trying to determine if there was any validity to the contractor’s concerns.

2.80
The Chief Executive told us that she was concerned that the Board should receive a full and proper explanation of the investigation that was being made. She accordingly directed the GM Assurance Services to provide a full written report identifying the nature of the allegations, the people who were investigating each of the allegations, the provisional responses, and when the investigation would be finished.

2.81
The GM Assurance Services provided a comprehensive report on 29 March 2006.

2.82
During this period, the contractor continued to contact the GM Assurance Services requesting news of progress with the investigation. It is apparent from this correspondence that the contractor expected the Corporation’s external auditor to conduct the investigation. On 2 April 2006, the contractor sent an e-mail saying that his understanding was that his allegations were to be investigated by the external auditor. The GM Assurance Services responded by referring to the settlement agreement, and the statement that it was his responsibility to ensure that these matters were concluded to the satisfaction of Ernst & Young.

2.83
In late October 2005, the GM Assurance Services mentioned to Ernst & Young that a contractor had made some allegations, and commented that he would need to talk to Ernst & Young about the allegations. In December 2005, the GM Assurance Services again informally said to Ernst & Young that its assistance would be needed. In February 2006, after the Assurance Committee meeting, the GM Assurance Services mentioned to Ernst & Young that he needed to get a review done to Ernst & Young’s satisfaction. This is consistent with the GM Assurance Services’ statement to us that the Corporation was committed to following this matter through.

2.84
No more details about the nature of the investigation were given to Ernst & Young until late March 2006, when Ernst & Young was formally briefed. Ernst & Young told us that it explained to the Corporation that Ernst & Young could be satisfied with an investigation only if Ernst & Young did it, or were heavily involved in the investigation. Ernst & Young advised us of the allegations soon after the meeting, in keeping with its obligations as the Corporation’s external auditor.

2.85
The Corporation’s investigation was continuing when we carried out our inquiry.

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