Summary
The Auditor-General decided in October 2007 to conduct an inquiry into the operations of the West Coast Development Trust (the Trust), after receiving information on the workings of the Trust, including allegations of conflicts of interest. The inquiry considered:
- the management of conflicts of interest by the Trust;
- compliance with procedures and policies for providing funding to Trust applicants;
- use of Trust resources to benefit Trust applicants; and
- roles and responsibilities in the governance and management of Trust operations.
After completing our inquiry, we have one recommendation to make − that the group of trustees urgently find a way to work together so that they can take effective collective responsibility for the governance of the Trust.
All trustees need to focus on the legal and ethical responsibilities they owe, individually and collectively, to the Trust and to the community of the West Coast region. If trustees cannot make that change, and remain unable to fulfil their responsibilities, then they should consider stepping down. Unlike other public entities with elected boards, there is no other ready mechanism for resolving this level of dysfunction.
Until we see evidence that the group of trustees is able to take effective collective responsibility for the governance of the Trust, we are unable to provide assurance that the Trust is able to deliver fully on its purpose of generating sustainable employment opportunities and economic benefits for the people of the West Coast region.
The Trust, which uses the trading name Development West Coast, was established in April 2001 to administer $92 million of a $120 million funding package given by the Crown to assist the West Coast economy to adjust to the Government's policies to end logging of indigenous forest. The Trust is a charitable trust to benefit the community of the West Coast region. It was initially governed by 12 trustees (some elected and some appointed by local authorities and other organisations). The number of trustees reduced to six in 2007, and recently increased to seven.
As we noted in May 2006 in our performance audit report Management of the West Coast Economic Development Funding Package, the Trust began well. But it has encountered significant difficulties in recent times. Those difficulties have centred on personal and political conflicts mainly at a governance level, and have affected the operation of the Trust in a range of ways. Important relationships 6 Summary have broken down, and behaviour has emerged that is less than satisfactory in a public entity.
The most important challenges facing the Trust now are questions of governance and management. Our inquiry looked at the overall role of the Trust, its external and internal relationships, its systems for disclosing information and the consequences of unauthorised disclosure, and the different views that have been held about the authority for decision-making. We conclude that, as a result of the cumulative effect of these various issues, the Trust is dysfunctional at a governance level and has been so for some time.
With respect to management of conflicts of interest by the then chairman, Mr Frank Dooley, and the then chief executive, Mr Mike Trousselot, we conclude that:
- the Trust generally has appropriate systems for managing conflicts of interest, and that there is good awareness of the systems and of the general principles;
- there was no evidence of any trustee (including Mr Dooley) taking part in decisions in which they had a conflict of interest − although, in keeping with the legal advice to the Trust, trustees did sometimes present information to a meeting on matters where they had acknowledged a conflict of interest;
- Mr Dooley had a good understanding of conflicts of interest, and in the documents we examined it was generally made clear when he was acting as a professional adviser to an applicant rather than as a trustee;
- there has been one example, in November 2005, when Mr Dooley did not manage a conflict of interest situation properly – although we acknowledge that the situation was complex and that he took advice on how to manage what he regarded as a difficult and urgent ethical issue; and
- it was reasonable for the Trust to appoint the chief executive, Mr Trousselot, as a director of companies in which it was investing, and consideration was given to the terms of engagement and how conflicts of interest should be managed. The arrangements would have been stronger if they had been more carefully and clearly documented and explained, and if staff reporting lines had been formally changed for all issues relating to those companies.
We encourage the Trust to further amend its systems to enable conflicts of interest to be identified before meetings, and the appropriate response to be agreed between the relevant trustee, the chairperson, and the chief executive. It is important that trustees take individual and collective responsibility for managing conflicts of interest in practice, to protect the integrity of the Trust's decision-making systems.
We also investigated a number of other issues raised with us but found no basis for the allegations.
In conclusion, the major challenge facing the Trust is that it is dysfunctional at a governance level. On the specific concerns put to us on the actions of Mr Trousselot, we found a small number of matters that could have been handled more effectively. On the specific concerns about the actions of Mr Dooley, we found only occasional instances of poor judgement. In both cases, however, these conclusions need to be set against seven years of effective administration of the Trust and against a deteriorating governance and operating environment in recent times.