Part 10: Inquiry requests during 2007/08

10.1
During 2007/08, we received about 75 requests for the Auditor-General to investigate the actions of public entities in the central government sector. Nine of these came from members of Parliament. During 2007/08, we completed 78 inquiries, some of which had been carried over from the previous year.

10.2
The Auditor-General has a mandate to inquire into a public entity’s use of its resources, at his discretion. An inquiry usually involves looking into financial, accountability, governance, or conduct issues.

10.3
We do not begin a formal inquiry for every request that we receive, but we consider each request to decide how to proceed appropriately. It might be that the correspondent raises concerns that are not substantive or relevant to the Auditor-General’s role, or we might not be the most appropriate authority to consider the issues. On the other hand, we might decide to take the matter further and formally investigate the entity’s actions.

10.4
In making this decision, we often carry out preliminary enquiries of the auditor and the entity to ensure that we sufficiently understand the background of the issues that have been raised. This preliminary work puts us in a better position to understand the main issues and the extent to which further investigation may be required.

10.5
In this Part, we discuss some of the larger inquiries we completed in the central government sector during the year.

10.6
In June 2008, we released the terms of reference for an audit and inquiry into a range of integrity concerns arising out of Immigration New Zealand, part of the Department of Labour. This is a substantial piece of work that is ongoing.

Health sector

District health boards

10.7
In 2007, the Auditor-General received requests to inquire into the management of contracting activity and conflicts of interest in the Hawke’s Bay District Health Board (the Board). We decided not to carry out an inquiry at the time because the Director-General of Health had already announced that an independent review panel would inquire into the same issues. However, we carried out some additional work on procurement and conflict of interest policies and practices in the context of the Board’s 2007/08 annual audit. We reported the results of that work to the Board, the Minister of Health, and the Health Committee of the House of Representatives. The Board was taking steps to address the deficiencies we found.

10.8
In February 2008, the Minister of Health dismissed the Board and replaced it with a Commissioner and Deputy Commissioner.

10.9
The independent review panel released its report on 17 March 2008, and we received further formal requests to carry out an inquiry.

10.10
We did not inquire further into past contracting activities and conflicts of interest issues at the Board. Instead, the Auditor-General carried out work in the 2007/08 annual audit, in addition to that already planned on procurement practices for all district health boards (see Part 5 of this report). Again, we reported the results of our work to the Board, the Minister of Health, and the Health Committee of the House of Representatives.

10.11
We are also working with the Ministry of Health (the Ministry) as it prepares additional guidance material for district health boards in this area. We continue to promote the guidance and expectations set out in our good practice guides on conflicts of interest and procurement, and our performance audit report completed in 2007 on Management of conflicts of interest in the three Auckland District Health Boards.

Ministry of Health

10.12
The Auditor-General received some complaints about the Ministry’s involvement in problem gambling services.

10.13
One complaint was about the Ministry’s process and supervision of the providers of these services. In previous annual audit work, we reviewed the systems, policies, and processes that all entities that report to the Government have for funding arrangements with non-government organisations. The goal of this review was to establish how consistent they were with the relevant guidelines of the Treasury and our Office. Contracts for problem gambling services tend to fall into this area, and our review included the Ministry.

10.14
At the time, we did not find any significant breaches of the Ministry’s policy for such contracts. However, we identified a number of instances where the Ministry could improve the documentation of its monitoring of providers of these services. We maintained a watching brief on the Ministry’s progress, but did not consider it necessary to carry out a formal inquiry.

10.15
Another complaint was about the Ministry’s use of the problem gambling levy funding. We considered:

• whether the Ministry had carried out the required consultation and whether proper Parliamentary authority had been given through the appropriation process;
• the proportion of the departmental costs (departmental output expenses) for the total cost of the problem gambling programme, compared with the proportion of departmental to non-departmental expenses for other new health initiatives over the same period; and
• any variances from the Ministry’s budgets (and any reasons for this).

10.16
We found that the Ministry’s budgets for departmental costs for the problem gambling programme were appropriately consulted about and authorised. The proportion of budgeted departmental costs to overall programme costs were within the range we observed for other health initiatives. The actual departmental expenditure exceeded the budget, and we received satisfactory explanations for the variances from budgets. The Ministry clearly documented actual expenditure on administrating the services in most areas. However, the Ministry needed to improve its documentation about public health expenditure on administrating the problem gambling programme.

10.17
We did not make any formal recommendations to the Ministry. Our follow-up suggests that the Ministry has taken positive steps to address all of our comments.

New Zealand Police

10.18
We received a request to review the purchase of stab-resistant body armour by the New Zealand Police (NZ Police). Various concerns were expressed to us, including that the budget had “blown out”, that the quality of the body armour appeared to be second grade, that there were mistakes in measurements, and that it was unclear whether the costs disclosed publicly were accurate.

10.19
We decided to make some enquires into this matter to establish the facts and our views on the procurement processes that NZ Police had followed.

10.20
Our main concern was that NZ Police decided to take its own measurement of staff and provide these measurements to the supplier of the body armour. Under the contract, the supplier could take the measurement for a cost (but with a 99% correct guarantee). If NZ Police used its own measurements, any incorrectly measured vests would be at NZ Police’s cost. NZ Police considered the option of having the supplier carry out all measurements, but decided this would be too expensive. The supplier instructed NZ Police on how to correctly measure its staff , but variances in the measurement occurred, and about 2000 new sets of body armour had to be re-ordered because of incorrect measurements. This amounted to about 20% of the total order of body armour.

10.21
Correct measurement of officers for the body armour was fundamental to the delivery of the services under the contract. We commented that, in future, NZ Police needs to fully consider the risks when taking on functions under a contract that may be better carried out by the contracted party – particularly where such functions are fundamental to the delivery of services. NZ Police should also ensure that it puts in place appropriate processes to manage such risks.

Funding arrangements for a proposed cuisine school

10.22
We were asked to inquire into a proposed international cuisine school for the Wairarapa. The international cuisine school was to be established by the Universal College of Learning (UCOL), as part of a wider Wairarapa Cuisine and Fine Wine (MRI) programme funded by New Zealand Trade and Enterprise (NZTE). Concerns had already been raised with us when UCOL indicated that it would not be proceeding with a cuisine school in the Wairarapa. We carried out extensive preliminary enquiries into this matter, but did not proceed with a formal inquiry.

10.23
The business plan for the MRI programme was prepared by Go Wairarapa, which was then the economic development agency for the three Wairarapa district councils. The business plan was prepared after consultation with leaders from the wine and food industries in the Wairarapa and with the support of the three councils. Part of the funding arrangement with NZTE required the three councils to provide $300,000 towards establishing the infrastructure component of the MRI programme.

10.24
Go Wairarapa, and subsequently Grow Wellington, was responsible for administering the MRI contract with NZTE. It subcontracted the cuisine school component to UCOL.

10.25
There was no suggestion that the councils’ funds were used for purposes other than the purposes for which they were contributed. However, the councils might not have realised that their funding was specifically for the infrastructure component of the MRI programme, and only indirectly for the cuisine school and wine strategy components. Comments from the three councils suggested that the structure of the funding arrangement administered by Go Wairarapa was not clear to them.

10.26
UCOL had the authority to decide to change the location of the cuisine school. UCOL was the entity responsible for building the school facilities and obtaining the funding to do so. However, this decision could have been more collaborative. We also noted that there was an “at risk” element to the funding and its success. While the parties intended for there to be a cuisine school operating in the Wairarapa, there was no guarantee that this would be the outcome.