Part 10: Our inquiry work in the central government sector

10.1
In our recent annual reports to Parliament, we have noted that the inquiries function of the Office is coming under increasing pressure. The volume of requests has increased and, more significantly, the scale and complexity of the issues we are being asked to consider has also increased.

10.2
We last commented on inquiries in the report on our central government work for 2007/08. In 2008/09 and 2009/10, our work was dominated by a number of large and high-profile inquiries that we were asked to carry out by public entities or by their responsible Ministers.

10.3
In this Part, we discuss:

• the number of inquiries in the central government sector that we have dealt with in the last two years;
• how we approach requests for inquiries; and
• the issues we have considered in inquiries during the last two years.

The number of central government inquiries dealt with

10.4
Figure 19 shows the number of requests for inquiries in the central government sector during the last two years, and the nature of our response. For both of these years, central government matters provided just under one quarter of our total work on inquiries.

Figure 19
Inquiry work in central government, 2008-2010

	2008/09	2009/10
Total requests: central government (received and carried forward from previous year)	84	92
No inquiry	45	40
Routine inquiry*	22	35
Significant inquiry*	10	4
Major inquiry*	1	3
Total inquiry responses	78	82
Carried forward to following year	6	10

* See paragraphs 10.11-10.12 for an explanation of these terms.

10.5
One of those carried forward at the end of 2009/10 is our inquiry into the administration of certain types of expenditure in Vote Ministerial Services. We published a first report on this inquiry in March 2010, and we expect to publish the final report in December 2010.

10.6
In addition, two long-running and major inquiries were nearing completion at the end of June and have since had reports published. In July 2010 we published a report on the payments the New Zealand Defence Force made to officers seconded to the United Nations, and in August 2010 we published a report on our inquiry into the Plumbers, Gasfitters, and Drainlayers Board.

How we approach requests for inquiries

The Auditor-General's inquiry role

10.7
Our primary function is to audit the approximately 4000 public entities in the public sector. We have some discretionary capacity to examine in more detail issues of concern that are raised with us, but there are limits to that capacity. We receive a large number of requests for inquiries each year. Often, if an issue is a matter of public controversy, we receive a number of requests about it. We consider them carefully to decide the most appropriate way to proceed.

10.8
Some requests raise issues that are outside our mandate, have not yet been raised directly with the relevant public entity, or are better dealt with by another organisation. In such cases, we advise correspondents that we cannot assist, and may suggest other steps they could take.

10.9
For those requests that we decide are correctly directed to us, we consider each one to determine the most appropriate way to proceed. We examine requests to identify whether the issues raised suggest financial impropriety, problems with the organisation's overall governance and management, or other systemic or significant concerns that may be important for the organisation or the sector, or of general public interest. Other factors we consider include the seriousness of the issues raised, whether we have the resources and technical skills to consider the issues, and whether the issues may be better addressed through other avenues. We do not see ourselves as an avenue for resolving individual complaints or concerns about how a public entity has handled a particular matter. Rather, our focus is on whether there may be organisational or systemic problems that need examination.

10.10
As a result, many requests do not result in us carrying out a formal or in-depth inquiry. More often, we will carry out enough preliminary work to be able to understand the problem and to gain assurance that the issues are or will be addressed by those directly responsible. We are then able to respond to the correspondent with an assurance that the matters are being appropriately dealt with by others.

How we classify inquiries

10.11
We classify inquiries into three categories – "routine", "significant", and "major" – depending on the seriousness of the issues raised and the level of response required by us. A routine inquiry involves straightforward issues, and can often be carried out either by a review of documents or through correspondence and discussion with the public entity. It will not usually result in a published report. We always advise the correspondent of our conclusions and the reasons for them, and in some instances we advise the public entity of the matter. As noted, much of this routine work can be concluded by referring the issue back to the responsible organisation.

10.12
Significant and major inquiries involve more complex issues and may attract a broader level of public interest and attention. During these inquiries, we will often review the entity's files and may also formally interview people. We sometimes report the results of these inquiries publicly, as well as advise the correspondent and the entity.

The limits of our role

10.13
The correspondence we receive shows that many people do not understand the role of the Auditor-General and its limits. For example, we get a wide range of requests asking us to:

• intervene in decision-making by local authorities;
• injunct or stop activities and contracts;
• make a judgement about the legality of actions; or
• review individual decisions with which the correspondent disagrees.

10.14
It is often not our role to consider or review the matters raised, or we have no power to provide the response that is sought. In such cases, our response inevitably disappoints the correspondent and adds to their frustration.

10.15
Therefore, we are working to improve the information we make available about the role of the Auditor-General and our approach to requests for inquiries, so that it is easier for people to understand when we can usefully get involved and why.

The range of issues we have considered in inquiries

Routine and significant inquiries

10.16
We have looked at a wide range of issues and organisations in our inquiry work during the last two years. For example, we have carried out significant pieces of work about:

• the way in which purchase advisers were engaged for Ministers;
• procurement and conflict of interest questions in the health sector;
• procurement processes in the transport sector;
• regulatory activity by the Civil Aviation Authority; and
• the management of contracts and accountability for the use of funds in the tertiary education sector.

10.17
Our more general workload, on routine matters, has spanned many parts of central government activity, from taxation questions to the funding of retirement villages. Common topics of complaint include the management of procurement processes and other contracting activity, financial accountability when third parties such as non-government organisations are contracted to deliver services for the government, immigration and Accident Compensation Corporation matters, and concerns about the behaviour of individual officials and allegations of fraud.

10.18
In the remainder of this Part, we discuss the major inquiries we have carried out in the central government sector during the last two years. Five of these six major inquiries were as a result of requests from Ministers. All of these inquiries have been significant pieces of work for us, and have involved a considerable amount of work by our staff and those in the organisations that we were examining.

Inquiry into the Plumbers, Gasfitters, and Drainlayers Board (August 2010)

10.19
In September 2008, the then Minister for Building and Construction asked the then Auditor-General to consider carrying out an inquiry into the Plumbers, Gasfitters, and Drainlayers Board (the Board). The request was prompted by concerns about the number and nature of complaints received by the Minister and the Department of Building and Housing, many of which suggested that the Board was not carrying out its core functions adequately.

10.20
During 2008/09, we examined in some detail how the Board was carrying out its functions under the Plumbers, Gasfitters, and Drainlayers Act 1976. We found problems with how it was carrying out most of its functions. The problems differed for the various functions, but included unclear or non-existent policies, poor communication, poor processes, decisions and policies that were not clearly well grounded in the legislation, and little awareness of the need to embed basic administrative law disciplines into the Board's everyday work and decision-making.

10.21
We also talked to many individuals and organisations working in the building and construction sector about their interactions with the Board. We encountered a sector that was characterised by suspicion and discontent. Many plumbers and gasfitters we spoke to were unhappy with the work of the Board at many levels.

10.22
Our report acknowledged that the members of the Board had worked hard since 2008 to address the problems. It had put in place many initiatives to improve the organisation's management and communication with the sector, and to tackle the high failure rate for examinations.

10.23
However, we regard the problems with the Board's activities as deep seated. The changes that have been introduced by the Board are a good beginning, but are not yet enough. Some of the matters that concerned us about the Board's operations under the Plumbers, Gasfitters, and Drainlayers Act 1976 continue to present risks with the introduction of the Plumbers, Gasfitters, and Drainlayers Act 2006. In addition, the Board has significant challenges for the future, including:

• changing its organisational culture;
• developing the Board's capacity and capability to better manage emerging challenges;
• ensuring that it acts lawfully;
• producing comprehensive, clear, and practical policies and procedures; and
• rebuilding trust in the Board.

10.24
The Board has accepted our report and committed to implementing all of our recommendations. We understand that the Minister and the Department of Building and Housing are monitoring the Board's progress. We will carry out some follow-up work in due course, to assess whether the necessary level of change has been achieved.

Inquiry into New Zealand Defence Force payments to officers seconded to the United Nations (July 2010)

10.25
In 2008, the Minister of Defence asked the then Auditor-General to inquire into a number of matters associated with the payment of accommodation assistance by the New Zealand Defence Force (NZDF) to four officers whom it seconded to the United Nations Department of Peacekeeping Operations in New York.

10.26
A military Court of Inquiry had already investigated and reported on how four officers seconded to the United Nations (UN) over a number of years had wrongly claimed accommodation assistance by submitting false declarations. This practice enabled them to receive additional accommodation assistance from the NZDF outside the terms of the UN secondment. The request to the Auditor-General asked us to look more deeply at the causes of the problem, and in particular to identify whether anyone in the NZDF had encouraged or condoned the wrongdoing.

10.27
The inquiry found that this issue had arisen because of poor policy development and other failures at critical points. The issue had been mismanaged from start to finish. The policy process was slow at every point and provided advice that was either flawed or totally wrong. Administrative and disciplinary responses were also slow.

10.28
The inquiry also found that the rationale on which NZDF had decided to pay the seconded officers NZDF accommodation assistance was incorrect. In its initial analysis, NZDF had compared the financial positions of NZDF officers posted to New York on NZDF conditions with NZDF officers seconded to the UN in New York. It had determined that the seconded officers would be significantly worse off if they were paid only through the UN system, with indicative figures suggesting that the difference might be as much as $100,000 a year. We found that, in fact, the seconded officers would have been in a generally comparable financial position under the standard UN conditions, and may have even been better off sometimes. Therefore, there was no need to pay the seconded officers NZDF accommodation assistance, and the problems that ensued could have been avoided.

10.29
The inquiry considered what had caused the problems to arise and how they could persist for so long when so many people in NZDF knew that what was being done was wrong. We concluded that three aspects of the organisational culture in NZDF headquarters contributed to the problem:

• a strong silo mentality, which enabled people to see the issue as someone else's problem;
• the military discipline of hierarchy and command lines, which enabled people to see it as inappropriate for them to question decisions apparently made by their superiors; and
• a general desire for practical solutions to problems, and an inadequate recognition of when those solutions may conflict with fundamental public sector values of integrity and legality.

10.30
NZDF accepted the findings of the report, and undertook to act on all of our recommendations. It had already begun to overhaul its personnel policy-making processes and to restructure its head office to promote better collaboration and clearer accountability.

10.31
In an NZDF report released in October 2010, resulting from a Court of Inquiry into the employment of Mr Stephen Wilce, the Chief of the Defence Force noted that there were parallels between the two issues – in particular, the question of whether NZDF was receptive enough to the concerns that were raised with it. He stated that he has directed relevant managers to draw up procedures to ensure that concerns about bad behaviour by members of the NZDF can be elevated to the appropriate level for rapid resolution.⁴⁶

Inquiry into certain types of expenditure in Vote Ministerial Services: Part 1 (March 2010)

10.32
On 2 March 2010, the Auditor-General released terms of reference for an inquiry into certain types of expenditure in Vote Ministerial Services that provide or could provide private benefit to a Minister. The inquiry was initiated by the Auditor-General after receiving separate requests from the Prime Minister, Mr Phil Heatley MP, and the Department of Internal Affairs.

10.33
The purpose of the inquiry was to:

• audit the spending by Mr Heatley's ministerial office from when he became a Minister in November 2008 to when he resigned from his ministerial portfolios for Housing and Fisheries on 25 February 2010;
• review the rules, policies, and procedures to see whether they are appropriate and effective, and identify any improvements that could be made; and
• consider any other matters that the Auditor-General considers relate to, or arise from, the above.

10.34
The report addressed the first part of our inquiry's terms of reference. It summarised the general principles that apply to public spending where there could be private benefit and our overall findings and conclusions, followed by a detailed report about our audit of Mr Heatley's ministerial office spending.

10.35
Mr Heatley's overall ministerial office spending was reasonable compared to spending incurred by other ministerial offices for the period we looked at. We found that a total of $1,402 of Mr Heatley's spending – $608 in Vote Ministerial Services and $794 in Vote Parliamentary Services – was outside the rules. In all cases, Mr Heatley thought that the spending was within the rules, but he did not understand the rules correctly. In the case of the spending in Vote Parliamentary Service, the Parliamentary Service was also administering a rule incorrectly for members of Parliament, and Mr Heatley is not the only member who will have been affected.

10.36
We expect to publish a second report on the remaining terms of reference, namely the adequacy of the rules, policies, and procedures supporting administration of this spending, in December 2010.

How the Ministry of Education managed the 2008 national school bus transport tender process (October 2009)

10.37
In February 2009, we announced the terms of reference for our inquiry into how the Ministry of Education managed the 2008 national school bus transport tender process (the 2008 bus tender process). Our inquiry examined:

• how the Ministry prepared its overall procurement strategy and Request for Proposal (RFP) for the 2008 bus tender process;
• the extent to which the RFP reflected the Ministry's earlier consultation with stakeholders, where appropriate, and the clarity with which any important changes to the RFP were communicated to stakeholders;
• the extent to which Ministry staff, contractors, and the Tender Evaluation Committee correctly and consistently applied the RFP rules; and
• the extent to which the Ministry responded promptly and effectively when concerns were expressed about aspects of the 2008 bus tender process.

10.38
Overall, the Ministry's procurement approach was sound. No process is perfect, and we identified improvements that we expect the Ministry to make in any subsequent bus tender processes. The errors and inconsistencies we found did not, in our view, undermine the overall outcome of the 2008 bus tender process. However, we commented that the Ministry should strengthen the quality assurance arrangements in subsequent bus tender processes.

Inquiry into Parliamentary and Ministerial accommodation entitlements (October 2009)

10.39
In September 2009, the Auditor-General received a number of requests to inquire into the way Parliamentary and Ministerial accommodation entitlements and how they had been applied to Hon Bill English.

10.40
In relation to reimbursement of accommodation costs by the Parliamentary Service and Mr English's "primary place of residence", we concluded that Mr English had correctly completed the declarations he was required to as a member of Parliament, and provided other information on his accommodation arrangements, to claim Wellington accommodation costs. The Parliamentary Service or successive Speakers had considered and approved as appropriate Mr English's various declarations and claims relating to his "primary place of residence" and accommodation costs. That Mr English was being reimbursed for the cost of renting a house owned by his family trust was not exceptional, and the administrative system now includes protections such as a market evaluation of rent.

10.41
In relation to the provision of a ministerial residence, we concluded that Ministerial Services had not considered the status of a home owned by a family trust until Mr English asked whether Ministerial Services could take over the lease of the property he was already renting from a family trust. Ministerial Services asked Mr English to sign a declaration that he did not have a pecuniary interest in the family trust. He signed the declaration, and attached a copy of the advice he had received about what amounted to a beneficial interest in a trust for the purposes of Standing Orders.

10.42
Having received that declaration, Ministerial Services got a market evaluation of the rent, took over the existing rental agreement, and provided the house as a ministerial residence. In our view, the advice that Mr English relied on to make his declaration was not applicable to this situation and was based on too narrow a test for the Ministerial Services' situation. We considered that Mr English did have an indirect financial interest in the trust.

10.43
At Mr English's request, the rental agreement between Ministerial Services and the trust ended, and Mr English reimbursed the rent and other costs that had been paid.

10.44
The Prime Minister then announced that a new policy was to be implemented under which Ministerial Services would no longer provide accommodation directly for Ministers. Instead, Ministerial Services now simply provides a fixed level of financial assistance to Ministers, who make their own accommodation arrangements. This approach means that the question of whether a Minister has a personal financial interest in a property is no longer relevant.

Inquiry into immigration matters (two reports) (May 2009)

10.45
In May 2008, the then Prime Minister and the then Minister of Immigration requested that we carry out an inquiry into a range of integrity concerns arising out of Immigration New Zealand, which is part of the Department of Labour. The request was in response to various concerns that had been discussed in the public domain. This inquiry did not find widespread integrity and probity issues within Immigration New Zealand. However, the inquiry did identify a need for the Department of Labour to improve the systems and processes that Immigration New Zealand used to support staff who make visa and permit decisions, and some organisational issues of concern. Volume 1 of the report included a list of 20 recommendations addressing these various concerns.

10.46
Volume 2 of the report set out our findings on the public sector recruitment processes involving Ms Mary-Anne Thompson and the handling of recruitment-related concerns. We found that, in general, the recruitment processes that had involved Ms Thompson throughout most of her public sector career had been in keeping with standard practices at the time. The process for her recruitment into the Department of Labour in 2004 deviated from standard good practice expectations in some respects. With the benefit of hindsight, we considered that those who had identified questions about her qualifications should have done more to investigate them or draw them to the attention of others.

10.47
Since we reported in May 2009, the Department of Labour has begun a range of projects to implement our recommendations. We intend to carry out further work to follow up on the Department's response to our recommendations at an appropriate time. Ms Thompson pleaded guilty to criminal charges in relation to the use of a curriculum vitae with false information in February 2010.

Conclusion

10.48
Across our inquiry work in central and local government, we have noted that both the number and complexity of the issues being raised with us are increasing. There has also been a trend for organisations, either through the responsible Minister or chief executive, to ask the Auditor-General to inquire when issues first emerge, rather than waiting for others to request an investigation.

10.49
We are happy to accommodate such requests, but note that the number of major inquiries of this kind under way during the last two years has had a significant effect on our resources. Major inquiries of this kind, examining systemic and cultural issues, can also take some time.

10.50
We note that several of the major inquiries we have recently completed have raised concerns about systemic and cultural issues within organisations. They serve to remind public sector leaders that it is important to be vigilant about values, organisational culture, and basic systems. It is possible for practice to drift away from its roots and for individual decisions to start to go awry, especially in long-standing areas of activity.

---

46: Report of Court of Inquiry into the Circumstances in which Mr Stephen Wilce was employed as Director of the Defence Technology Agency, October 2010, page 55, available on www.nzdf.mil.nz. page top