Auditor-General's overview

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

A military Court of Inquiry had already investigated and reported on how four officers seconded to the 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 NZDF outside the terms of the UN secondment. The request to the Auditor-General effectively asked my Office to look more deeply at the causes of the problem, and in particular to identify whether anyone in NZDF encouraged or condoned the wrongdoing.

Our inquiry was carried out by staff from the Office of the Auditor-General, assisted by Ms Kristy McDonald QC. In this report, I present to Parliament the factual findings, conclusions, and recommendations of our inquiry.

The current Chief of Defence Force has accepted from the outset that this issue has arisen because of poor policy development and other failures at critical points. The conclusions of the inquiry confirm that view: this issue was 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.

In particular, in the final stages of our inquiry, my staff worked with NZDF to reconstruct the basic calculations that compared what officers would receive under the UN system and under the NZDF posting system. The initial advice, in 2000, had been that officers would be substantially worse off if they were paid only through the UN system. The indicative figures suggested the difference might be as much as $100,000 annually. My staff and NZDF recalculated the relevant comparisons for three of the four officers. This analysis showed that the officers would each have been in a generally comparable financial position under the standard UN conditions. They may even have been better off sometimes. The rationale for paying additional accommodation assistance to the officers was therefore never valid. The whole saga was unnecessary.

In keeping with the terms of reference, our inquiry went further and considered what had caused these 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. The inquiry team 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 taken 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 relating to integrity and legality.

This report does not question the importance of the command and control culture within NZDF. It is fundamental to any military organisation that lines of command are clear and effective. The question posed here is the more complex one of how far that command and control discipline should extend into the policy, administrative, and financial work of NZDF headquarters and other non-operational roles. During the inquiry, too many people told us that the command requirements prevented them from raising concerns about the integrity and legality of what was being done, and too many people accepted it as plausible that they were being directed to behave unlawfully.

The inquiry team's concern about the unspoken message that NZDF staff may be receiving about legality is brought out most clearly by the fact that the four seconded officers – all highly regarded and senior people – were all willing to accept as plausible that NZDF headquarters was expecting or ordering them to complete a false declaration to manipulate financial entitlements. My staff have interviewed each of them on oath. They all told my staff that they believed they were being ordered or were expected to do this.

I find it extraordinary that any officer could see this as something that NZDF headquarters might require of them. The fact that they did raises a question about what values they are implicitly picking up as being important to the organisation.

Cultural issues are difficult for any organisation to address. I am aware that balancing command and control discipline with the need for healthy debate and testing in the policy and administrative context is an ever-present tension. Without constant reinforcement, it is easy and natural for staff to revert to the organisation's dominant expectation, and do whatever a superior officer says.

I endorse the recommendations in this report, which are designed to help NZDF headquarters to actively promote a full and balanced set of values for its staff that clearly sets the core public sector values of operating within the law, scrupulous honesty, integrity, transparency, and accountability alongside the military values that NZDF already recognises. It is important for any public sector organisation to manifestly live by these values, so that all staff can see that transgressions are taken seriously and attract a swift response.

This was a lengthy inquiry, which required a great deal of detailed examination of records and people on events that went back a decade. I would like to thank the staff at NZDF who assisted my staff with the inquiry, and all those who were interviewed. I would also like to thank Ms McDonald QC for her assistance.

Lyn Provost
Controller and Auditor-General

13 July 2010