Part 4: Governance and monitoring

4.1
In this Part, we outline the Council's governance and oversight of the LA Galaxy event, including risk management and monitoring and reporting to the Council by council officers. We expected to find a clear allocation of responsibility for implementing the event, and a system for reporting on and monitoring progress towards the event. Such actions and processes would ensure that the appropriate people within the Council were kept informed, and would help with identifying and managing risks.

4.2
When the Council agreed to proceed with the event on 28 April 2008, it assumed that the match would be profitable. Despite taking on the role of promoter and underwriter for the first time, there is no evidence that the Council or council officers thought that this project should be treated differently from any other event at Mount Smart Stadium. The Council decided that "officers [should] proceed with the Mt Smart Stadium international football opportunity project as recommended by the Mt Smart Stadium Advisory Group and as outlined in the report".

4.3
We have noted in Part 2 that the Council's decision was made without any agreed understanding of the appropriate business model for the stadium, or of its willingness to take on commercial risk in connection with the stadium. In those circumstances, it is not surprising that the expectation was that governance and monitoring of the event should simply follow the Council's normal processes.

Delegations

4.4
The Council gave us a copy of its delegation manual for 2007–2010, dated 23 September 2008. Section 1.2 of the manual describes the Council's philosophy:

[The Council] believes that it is essential, in the interests of an efficient and effective administration, to encourage the delegation of decision making to the lowest competent level. This in turn will promote the development of responsive managers and achieve the maximum benefit from the abilities of elected representatives and senior officers. Staff who are given the responsibility for a task or function should always be given the delegated authority to carry it out effectively.

4.5
The manual includes (in paragraph 6.1.12) a specific delegation to the Chief Executive of:

... all budgetary expenditure and income as approved in the Annual Plan/LTCCP and the power to sub-delegate to any other officers the necessary financial delegations to ensure the proper and efficient management of the Council operations.

4.6
The manual defines general and specific delegations (in section 2.1). A general delegation "implies the granting of authority to determine a range of matters of a similar kind, as and when they arise, over a period of time, without further reference to the delegator". A specific delegation describes authority that the Council may delegate "from time to time … to determine a specific issue and this authority will subsist only as long as the matter is unresolved and will then lapse".

4.7
The Council gave us copies of the financial delegations to the General Manager Parks and the Group Manager, Mount Smart Stadium. The delegations permitted the incurring of expenditure up to $250,000 plus GST for a transaction for the General Manager Parks, and up to $50,000 plus GST for the Group Manager, Mount Smart Stadium. Each also held an explicit "revenue delegation" authorising him to receive revenue on behalf of the Council up to the limit stipulated ($250,000 plus GST and $150,000 plus GST respectively). We have not seen copies of any general delegation to those officers or their offices. Nor was there any specific delegation to officers for the LA Galaxy event.

4.8
We found the delegation manual unclear. However, there is no evidence that the council officers involved sought any clarification of their authority to carry out the necessary tasks. They seemed to have had a general understanding that they were required to operate within their specific financial delegation, and otherwise within council decisions and policies. That approach is consistent with the most sensible interpretation of the manual. However, we note that the Council appears not to have any policy for carrying out major events such as the LA Galaxy event.

Monitoring and reporting

4.9
The Council's practice is that council officers implement the decisions of Council, working as necessary with the chairperson of the relevant committee. A council resolution may require particular reporting on the implementation of a matter. Otherwise, reporting on how decisions are implemented is through reports to relevant council committees and the chairpersons of those committees, through monthly financial management reports, and to the Chief Executive by those who report directly to him.

4.10
The Council's decision on 28 April 2008 to pursue the LA Galaxy opportunity did not seek any particular reporting from the council officers concerned. (Its only stipulation was that the Chief Executive consult the councillors on the Stadium Advisory Group and the chairperson of the Finance Committee before purchasing the US currency required – and that consultation did not occur.) Instead, monitoring and reporting, such as it was, occurred largely in the ordinary course of business.

4.11
In practice, this included:

• monthly reporting to the Parks and Heritage Committee, because it was the committee responsible for Mount Smart Stadium;
• "catch-up" meetings between the chairperson of the Parks and Heritage Committee and the General Manager Parks – scheduled weekly, but cancelled if either party was unavailable;
• monthly financial management reports to the Finance Committee, which included a page on the Mount Smart Stadium business unit financial results and significant events at the stadium; and
• other irregular reporting to the councillors most closely involved in the event – the members of the Stadium Advisory Group (although this group did not actually meet during the relevant period) and the chairperson of the Finance Committee.

4.12
At the council officer level, it included:

• monthly catch-up meetings between the Chief Executive and the General Manager Parks, as well as frequent informal conversations;
• brief reports on progress of the event, under the item "Hot issues, Parks", by the General Manager Parks to meetings of the Council's executive management team; and
• reports by leaders of various work streams to the fortnightly meetings of the project steering committee.

4.13
The most comprehensive reporting was to the Parks and Heritage Committee. Council officers covered significant issues about the event in written updates to that Committee's monthly meetings and gave oral updates at meetings to provide current information, as the written reports were usually out of date by the time of the meetings.

4.14
Council officers reported to the three councillors on the Stadium Advisory Group in the early stages of the project. There was less formal reporting later on, and there is no evidence that the relevant councillors received written advice of the concerns about viability in June 2008. We found little evidence of reporting to Councillors about the low number of ticket sales as the date of the event approached.

4.15
The council officers involved told us that they gave councillors informal updates from time to time as part of their ordinary contact during council business. However, the councillors we interviewed emphasised the inadequacy of the reporting to them. They noted that:

• they did not know of matters such as the responsibility for costs of the Oceania "All Stars" team and the falling exchange rate, which changed the project from that which the Council agreed to in April;
• they were therefore unable to have input to the decisions about such matters; and
• they were not advised about the low number of ticket sales until a few days before the match.

Risk identification and management

4.16
The proposal that the Council considered on 28 April 2008 advised that the Council would be "the principal promoter, organiser and underwriter of the event". The proposal also said that while the Council "would essentially take the financial risk involved with such an event it would also take the profit from this". The paper identified as primary risks that:

• the event would not be attractive enough to a wide range of potential ticket buyers; and
• ticket prices would be set too high, deterring potential ticket buyers.

4.17
Also implicit in that paper was the acknowledgement that the composition and quality of the opposition team constituted a risk to the success of the event.

4.18
However, the council officers assessed as low the possibility that these risks would materialise, largely based on the success of the LA Galaxy match in Wellington, and the assumption that Auckland's larger and more ethnically diverse population would have a keen interest in football and in David Beckham.

4.19
Neither the Council nor council officers appear to have considered whether the Council had the in-house capacity to organise the event. It does not have an in-house "major events team", as Auckland City Council does, because major events are not core business for a regional council. The Council's Communications and Marketing Group and the Parks Department were more accustomed to managing smaller community events than large commercial events.

4.20
We found no evidence that a risk-sharing arrangement was considered, either by seeking a greater contribution from Auckland City Council and the Confederation or by proposing a profit/loss sharing arrangement to LA Galaxy. Other managers of stadiums that we talked to emphasised the importance of minimising risk through such arrangements.

4.21
Further, we saw no evidence that the council officers tried to make the LA Galaxy and Confederation contracts "back to back" – that is, deferring entering into a binding contract with LA Galaxy until it knew that the Confederation could provide a high-quality opposition team.

4.22
Council officers reconsidered the viability of the event in June 2008, when the cost of the required US currency increased with the fall in the value of the New Zealand dollar, and LA Galaxy wanted an increase in the match fee to cover the withholding tax it would be required to pay. As discussed in paragraph 3.50, there is no evidence that councillors were informed of these matters. However, when the withholding tax issue was resolved, the event proceeded.

4.23
Although the value of the New Zealand dollar recovered to 0.76 USD when officers were reconsidering the event's viability in June 2008, it never increased to 0.79 USD (its level at 28 April 2008 when the Council agreed to the LA Galaxy proposal). In the earlier stages of planning and organising the event, council officers had a clear view that the event would not be financially viable if the New Zealand dollar value fell below 0.76 USD, a figure later revised to 0.78 USD. However, council officers appear to have lost sight of this risk. The falling exchange rate triggered reconsideration of the viability of the event in June, but once the New Zealand dollar recovered to 0.76 USD, the exchange rate seems not to have figured greatly thereafter. The Council eventually purchased US currency at about 0.71 USD.

4.24
When tickets went on sale in October and November, it became apparent that sales were slow, and sales of the more expensive tickets were particularly slow. Also, as described in paragraphs 3.73-3.76, the Oceania "All Stars" team lacked the star players originally intended. In short, the major risks were eventuating.

4.25
The response of the council officers involved was to work even harder to make the event a success. They purchased additional radio, television, and print advertising during the final weeks. They arranged for sponsors and the ticketing agency to send mass emails to their customer databases to encourage them to buy tickets. Three days before the event and after LA Galaxy had arrived in Auckland, the Council announced a two-for-one ticket deal, but even this did not boost ticket sales enough to reach the break-even point. There were also fewer sales on the day of the match than expected.

4.26
As noted above, we found little evidence of formal reporting to councillors that things were going awry. Although it is unlikely that better internal reporting at that late stage would have had much effect on the outcome, the lack of reporting meant that the Council had no opportunity to alter its strategy. Nor did the Council have adequate time to consider how it would respond to the likely failure of the event.

Comment

4.27
In our view, there were inadequacies in the Council's monitoring and reporting for the LA Galaxy event, and in its risk assessment and risk management, stemming largely from its treatment of the event as "business as usual". The event never became a focus in its own right, other than for the small group of council officers with direct responsibility for it. From a governance and management point of view, it was simply one of a number of activities happening in the Parks Department of the Council.

4.28
Good governance requires good quality reporting. Combined with the lack of focus on Mount Smart Stadium as a commercial operation with commercial risk, as discussed in Part 2, the absence of a specific monitoring and reporting regime for the LA Galaxy event meant that opportunities to identify and manage risk were lost.

4.29
We recognise that we are carrying out this inquiry because the Council incurred a loss when the event failed. Had more people chosen to attend the match, so that ticket sales met or exceeded the break-even point, the reporting and monitoring that occurs in the Council's ordinary course of business might have proved adequate.

4.30
However, treating the LA Galaxy event as business as usual meant that:

• Neither councillors nor council officers considered what governance and monitoring might be appropriate for an event such as the LA Galaxy match.
• There was no consideration of whether additional resources or expertise were necessary to carry out a major event. The responsibility for managing the event fell on the General Manager Parks and the Group Manager, Mount Smart Stadium, who reported to him. Although there was support from other parts of the Council, most of the workload fell on those two council officers and other staff in the Mount Smart Stadium business unit, which had only five staff.
• The Council did not require any special monitoring or reporting for the event. The one specific consultation requirement – that the Chief Executive consult the councillors on the Stadium Advisory Group and the chairperson of the Finance Committee before purchasing the US currency – was not met.
• There was no recognition that the Council had no specific policies or processes to guide running a major event, or a risk management framework for Mount Smart Stadium.

4.31
That said, we acknowledge that even had there been an appropriate governance and management structure for the event, it may not have made much difference to the financial outcome. A wider range of people, with responsibility to make decisions about the event, might have decided in June that the Council should not proceed with the event. However, the prevailing view was that the event would be a success, and even profitable for the Council. In October, it was too late to withdraw, and unlikely that anyone could have made much difference to ticket sales. However, better knowledge of impending financial loss would have given councillors the opportunity to consider how to deal with the consequences of that failure.