Part 8: Overall conclusions and comments

Inquiry into New Zealand Defence Force payments to officers seconded to the United Nations.

8.1
In this Part, we set out our overall conclusions and comments. We provide our summary of what happened, and our conclusions on the specific questions in our terms of reference, before discussing:

NZDF's poor policy process;
NZDF's organisational culture; and
how NZDF treated the four officers who were seconded to the UN.

Our summary of what happened

8.2
Some nine years after the fact, it has been difficult to determine what exactly occurred in the events discussed in this report. People's memories have faded over time and there is a lack of documentation within the files, making it difficult sometimes to determine what people involved knew or did, including what discussions they might have had, and with whom. Nonetheless, our inquiry has produced a clear picture of what took place:

In 2000, Personnel branch staff did not understand the UN's requirements for "non-gratis" secondments and did not give enough consideration to what arrangements such secondments would need from NZDF's perspective.
Personnel branch staff prepared advice for the Assistant Chief Operations that showed that an officer seconded to the UN would be significantly worse off financially compared to an NZDF officer posted to New York. On this basis, they recommended that the seconded officer be paid NZDF accommodation assistance in addition to their UN salary and allowances.
In fact, the financial position of NZDF officers seconded to the UN was generally comparable to that of NZDF officers posted to New York. There was therefore no need to pay them additional NZDF accommodation assistance. The advice was deficient in two ways: the assistance being recommended was not only inappropriate, it was also unnecessary.
The Chief of Defence Force^A agreed in principle that NZDF would provide accommodation assistance to a seconded officer on the basis of the incorrect Personnel branch advice. The problems that later arose were a result of the incorrect advice and were entirely avoidable. There was no evidence that anyone within NZDF, including the seconded officers, was ever aware that the premise that seconded officers would be worse off without payment of the NZDF accommodation assistance was incorrect, until our work in May 2010.
There was also no thought given to reporting or administrative command lines for the seconded officers, meaning that there was no clear responsibility for those seconded officers. Different people operated on different assumptions.
When Officer 1 took up his secondment in early 2001, it was his understanding that NZDF expected him to obtain the UN's rental subsidy, which would then be used to offset the accommodation assistance that NZDF paid. He told us that he understood this effectively as an order to do what was needed to achieve that result, and so made a false declaration to the UN.
Later in 2001, a Defence Force Order was finalised that reflected that approach – seconded officers would receive the UN's rental subsidy as well as NZDF accommodation assistance. The Defence Force Order was silent about whether the seconded officer was to declare their NZDF accommodation assistance to the UN.
By late 2002, it was clear to a reasonable number of people that either the Defence Force Order was inconsistent with the UN's requirements or that the arrangements for the seconded officers did not comply with the UN's requirements and that the current arrangement in practice relied on the seconded officer making a false declaration to the UN. It was openly discussed with Officer 2 and the later seconded officers when they started in New York and was presented as "the way things were done".
During 2004 and 2005, when the Personnel branch was amending the Defence Force Order, there was much discussion about the problems with the existing arrangements. Initial drafts of policy papers recognised the inconsistency and considered possible solutions. Personnel branch staff still did not identify that officers seconded to the UN were in a financial position that was generally comparable to that of NZDF posted officers. Therefore, Personnel branch staff did not question the underlying reason for paying the seconded officers NZDF accommodation assistance.
The key policy paper was changed at a late stage to remove all reference to the problems and to recommend that the existing arrangements continue. Although some staff understood that this meant that the problem would continue, the Assistant Chief Personnel^C told us that he thought the issue had been resolved when he sent the final paper to the Chief of Defence Force^B.
In 2007, the problems emerged when the UN received a complaint about Officer 4 and raised it with New Zealand through diplomatic channels. During the investigation carried out by NZDF, other issues with the legality and appropriateness of Officer 4's actions were uncovered. Issues about his conduct had also been raised with NZDF before his secondment.
Officer 3 remained on secondment in the UN and continued to receive accommodation assistance, despite NZDF being aware that it was likely that his accommodation assistance had not been disclosed to the UN and that paying him accommodation assistance would probably affect the rental subsidy the UN paid to his wife.
The Defence Force Order setting out the NZDF accommodation assistance entitlements was finally revoked in June 2008, at which point NZDF ceased paying accommodation assistance to Officer 3.
In June 2008, Officer 4 pleaded guilty to two charges at a court martial relating to his conduct during his time as Military Adviser^B. There was some associated publicity about the accommodation assistance issue in late June and early July 2008. NZDF established a Court of Inquiry in July 2008, to understand how the problems with the accommodation assistance had developed.
The Minister of Defence considered that there were some matters that the report of the Court of Inquiry did not resolve to his satisfaction. He asked the Auditor-General to review the findings of the Court of Inquiry and to independently examine and report on matters he considered had not been resolved by the Court of Inquiry.

8.3
We have concerns about a number of points that emerge from these findings. They relate to:

the poor process for policy development on this personnel matter, which was slow at every stage, poorly informed, and focused on the wrong questions;
aspects of the organisational culture that appears to have been operating within NZDF headquarters and that enabled people not to recognise the seriousness of the issues involved, and to believe that it was inappropriate or not their responsibility to question a financial or administrative decision that had been made by a senior officer, even if they knew it was wrong; and
the overall effect of this issue on the staff involved.

8.4
We comment on these concerns in more detail later in this Part.

Our conclusions on the questions in our terms of reference

8.5
Our terms of reference identified three specific questions:

how NZDF addressed the question of arrangements for staff seconded to the UN, particularly for housing allowances and consistency with UN requirements;
whether any individuals within NZDF or parts of NZDF encouraged, condoned, knew of, or acquiesced in the practice of seconded personnel signing false declarations to the UN; and
whether NZDF was consistent in its treatment of individuals involved in the housing allowance issue.

How NZDF addressed arrangements for staff seconded to the UN

8.6
The Court of Inquiry report identified failings in the policy process and administration of the housing allowances issue. The preceding Parts of this report have set out the facts we have established about how NZDF addressed this issue, as a matter of policy and practice. Our work has confirmed the overall factual picture described by the Court of Inquiry, which the Minister of Defence described as institutional failure.

8.7
Our inquiry produced one further significant finding – that the payment of NZDF accommodation assistance to the seconded officers was unnecessary. NZDF officers seconded to the UN were in fact in a financial position that was generally comparable to that of NZDF officers posted to New York. However, all Personnel branch advice since May 2000 had incorrectly shown that it was necessary to pay the seconded officers NZDF accommodation assistance as without it they would be significantly worse off financially than NZDF posted officers.

8.8
We note that the current Chief of Defence Force has accepted from the outset that this issue has arisen from poor policy development and other failures at critical points.

8.9
We agree with his assessment. We set out our comments on the deficiencies in NZDF's policy process later in this Part.

Did anyone in NZDF encourage, condone, know of, or acquiesce in the practice of signing false declarations?

8.10
This is a complex question. As the preceding Parts make clear, different people had different levels of knowledge and understanding at different points in time. At several points, those who knew of the practice interpreted decisions as effectively condoning the practice. However, those who were taking the decisions do not appear to have been aware of the practice or to have understood how the decisions would be interpreted.

8.11
The seconded officers themselves obviously all knew about the practice. Along with the Military Adviser^B, some encouraged it in that they advised their successors that this was the accepted practice. During the policy review in 2005, the Military Adviser^B also openly supported this practice as a simple way through what was by then recognised as a difficult issue in the UN community. The Personnel branch staff working on that policy review also knew about the practice, which informed their initial advice on the need for change.

8.12
A number of other staff also had some understanding that the general approach being taken did not meet the UN's requirements, even if they may not have realised that false declarations were being signed. They included Services directorate staff, the Deputy Chief of Defence Staff, the Chief of Air Force, Assistant Chief Strategic Commitments and Intelligence, Assistant Chief Personnel^B, Assistant Chief Personnel^C, Deputy Assistant Chief Personnel^B, and other Personnel branch staff. The Military Adviser^A also reviewed the proposed policy in 2001, and advised Services directorate staff that it did not comply with UN requirements. He then moved to another role and had no further involvement in the issue.

8.13
The practice was unwittingly encouraged when the first Defence Force Order was made in 2001 and when the revised Defence Force Order was issued in 2005. Both Defence Force Orders confirmed the status quo of the officers receiving a rental subsidy from the UN, which was then topped up by an accommodation allowance from NZDF. The Defence Force Orders were therefore understood by those directly involved as endorsing the way in which that was being achieved in practice. The bulk of the evidence we have received, however, is that in both cases neither the relevant Assistant Chief Personnel giving the advice nor the Chief of Defence Force making the Defence Force Order were aware that this was how the Defence Force Order would be understood.

8.14
We comment later in this Part on the reasons why these different layers of misunderstanding were able to occur and to persist for so long, without being addressed.

Did NZDF treat the four seconded officers consistently?

8.15
There had been some public questions, at the time of Officer 4's court martial, that he had been treated unfairly on this issue. We set out our detailed findings on his treatment in Parts 6 and 7. We conclude that he was treated differently on the housing allowance issue primarily because it was his declaration that brought the problem to light and because it was initially intertwined with the investigation into his conduct during his time as the Military Adviser and shortly after. Once NZDF determined that it was not going to lay any charges against Officer 4 in relation to the UN allowances in February 2008, it treated Officer 4 in a similar manner to the other officers.

Poor policy process

8.16
In our view, the policy process used by NZDF on this issue was poor in several ways:

Personnel branch advice that seconded officers would be significantly worse off financially compared to NZDF posted officers without payment of the NZDF accommodation assistance was incorrect. This mistake was made in May 2000 and was never identified by NZDF. Had the mistake not been made in the May 2000 advice, it is unlikely that all of these problems would have arisen.
Personnel branch took a long time first to develop the policy, then to implement it by way of a Defence Force Order, and finally to revoke that Defence Force Order.
In developing the policy in 2000 and 2001, the Personnel branch did not understand the UN's requirements and incorporate them into that policy and subsequent Defence Force Order.
When Personnel branch staff worked on the amendments to the Defence Force Order in 2005, they were aware that the Defence Force Order did not comply with the UN's requirements, but they failed to promote the necessary changes or to raise or document concerns about the amended Defence Force Order that still did not address the inconsistency.
The policy focus on ensuring that seconded officers' conditions of service and entitlements achieved parity with those of posted officers meant that Personnel branch failed to adequately consider the nature of a "non-gratis" secondment and what it might require from an NZDF perspective.

8.17
The deficiencies in this process have to be seen in the context of how busy the branch was. Personnel branch is the branch in NZDF headquarters responsible for developing and implementing policy for NZDF personnel, as well as for dealing with personnel issues. Therefore, developing personnel policy is only one aspect of their work. We note that, during 2000 and 2001, alongside its usual work, it was deploying personnel, often at short notice, to a number of overseas locations, including to East Timor. It was also involved in carrying out a major upgrade of Personnel Policy and a review of overall remuneration. We also note that, during 2005, the branch was affected by high staff turnover in senior positions. Staff in some positions were posted to other parts of NZDF and were not immediately replaced. In 2005, the Personnel branch was also working on significant projects in a short time frame – in particular, a Strategic Human Resource Plan, a Strategic Human Resources Framework, and a Human Resources Implementation Plan.

Delays in sorting out entitlements and conditions of service for individual officers

8.18
There were long delays in Personnel branch providing advice to some of the seconded officers about what their conditions of service and entitlements would be. For example, NZDF had not clarified the conditions of service or entitlements for Officer 1 before he accepted his UN offer or before he started his secondment. The Defence Force Order was not finalised until some 11 months after Officer 1 started his secondment.

8.19
Similarly, Personnel branch did not decide whether Officer 3 would be paid accommodation assistance until six months after his secondment started. NZDF continued to pay Officer 3 that accommodation assistance for nearly a year after the UN had found out about Officer 4's undeclared accommodation assistance. This was also several months after it had received legal advice that the payment of accommodation assistance did not comply with the UN's requirements and that the Defence Force Order needed to be revoked.

8.20
In both these instances, because Personnel branch delayed providing advice to the two officers about their conditions of service and entitlements, the officers had no idea how their NZDF conditions of service and entitlements would fit with their UN contracts and whether to accept their UN contracts.

8.21
It may be common in an operational context for NZDF to deploy personnel overseas urgently and before the conditions of service for that deployment have been finalised. But, in that situation, there is a practical need for urgency, the staff member is still working for NZDF, and it is possible for people to proceed on the basis that NZDF will look after its personnel appropriately. There is no need for NZDF to negotiate with the individual or another organisation before deploying them.

8.22
A long-term secondment to a different organisation, where the connection with NZDF is effectively suspended during the secondment, is quite a different context. It needed a different approach. NZDF had been considering a secondment nine months before the first seconded officer took up his role. In our view, it should have been able to consider properly how the secondment would work and its effect on an officer's NZDF conditions of service and entitlements in that time. It needed to work through in detail the conditions of service and entitlements for the seconded officers with the UN and with the individual officer.

Delays in the policy development process, and in amending and revoking the Defence Force Order

8.23
The Personnel branch had known since October 2000 that Officer 1 was to be seconded to the UN. Officer 1 started his secondment in early 2001, but it took until November 2001 to finalise the policy for seconded officers' entitlements and conditions of service. In our view, that was too long. It meant that arrangements were developed as they went along for Officer 1. As already outlined, the absence of arrangements that were clear and properly thought through at that time started this chain of events.

8.24
We accept that the policy was originally intended to apply to only one officer at a time, and therefore the development of this policy was likely to take lower priority in the Personnel branch compared to policies that affected all NZDF staff. We also understand that other urgent operational matters would have had priority. Nonetheless, the policy still took a very long time to be developed and implemented as a Defence Force Order.

8.25
In mid-2004, Personnel branch staff had identified that the Defence Force Order did not comply with the UN's requirements and were aware that Officer 2, who was then on secondment, was not complying with the UN's requirements. However, they did not finalise the review of the Defence Force Order until December 2005, more than a year later. NZDF should have addressed this more promptly.

8.26
There were further delays in revoking the Defence Force Order after the Military Policeman had advised the Vice Chief of Defence Force, in September 2007, that there were three other officers who received accommodation assistance in accordance with the Defence Force Order. They were possibly not complying with the UN's requirements by not declaring that accommodation assistance to the UN. The Defence Force Order was not revoked until June 2008, some nine months later. We understand that the Directorate of Legal Services had provided advice to Personnel branch in February 2008 that the Defence Force Order should be revoked. However, this was not done until just two weeks before the Court of Inquiry on 1 July 2008 and Officer 4's court martial at the end of June 2008.

8.27
As a result of Personnel branch's delay in revoking the Defence Force Order, Officer 3 continued to be entitled to be paid accommodation assistance under the Defence Force Order, which he in fact was paid.

8.28
In our view, Personnel branch took too long to determine the conditions of service and entitlements for seconded officers and to implement those decisions by way of a Defence Force Order. Once the UN became aware that NZDF was providing accommodation assistance and that this was not being declared by the seconded officers, Personnel branch again took too long to revoke the Defence Force Order. We conclude from the delay that Personnel branch did not regard the non-compliance as significant.

Personnel branch failed to understand the UN's requirements

8.29
As we discussed in Part 2, in 1999, the UN had changed the way it seconded employees from states. NZDF had seconded officers under the previous system, but not under the new system. The two systems were fundamentally different. Under the old system, seconded employees were paid by their state, so their normal terms and conditions continued. Under the new system, the UN paid the seconded employees, so their terms and conditions had to change. This required specific agreement with the UN and the individual.

8.30
There was some information on the requirements of the new system in the various UN documents that the Military Adviser^A sent to NZDF in 2000 and that were brought to the Personnel branch's attention again in June 2001. We understand that some staff at NZDF were aware that the system had changed, but none of the people we interviewed appeared to understand the details of that change.

8.31
Personnel branch, in providing advice to the Assistant Chief Operations in 2000 that the payment of accommodation assistance to seconded officers was acceptable to the UN, had either failed to refer to the UN documents that the Military Adviser^A had sent or did not understand them. Services directorate staff advised Personnel branch in June 2001 of the existence of the UN's requirements and the fact that the Military Adviser^A had sent these documents to NZDF, including to staff in Personnel branch in 2000.

8.32
In our view, Personnel branch staff in 2000 and 2001 simply failed to understand that the UN's secondment system had materially changed in 1999. In particular, they failed to understand the UN's requirements for paying its rental subsidy and to translate that into a Defence Force Order that complied with the UN's requirements. Nor did they address how the seconded officer would fit into NZDF administration command lines while employed by the UN.

8.33
We expected Personnel branch staff to have obtained copies of the UN's requirements under the new system and considered in detail how the conditions of service and entitlements of an NZDF officer who was to be seconded would need to be changed. This analysis was done by the Military Adviser^C in New York, in consultation with UN staff, after the problems emerged in 2007. It showed that the changes needed to an NZDF officer's conditions of service and entitlements to fit with the UN's requirements would not have been difficult to achieve, if they had been clearly identified in advance.

Personnel branch failed to amend the Defence Force Order in 2005

8.34
Personnel branch staff were aware from around mid-2004 that the Defence Force Order did not meet the UN's requirements, and that the seconded officers were not complying with the UN's requirements by not declaring their accommodation assistance. However, when the Personnel branch finally referred the amended Defence Force Order to the Chief of Defence Force^B for approval, the Defence Force Order did not refer to the non-compliance and did not change the Defence Force Order so that it required the seconded officers to comply with the UN's requirements.

8.35
Personnel branch also failed to identify that NZDF officers seconded to the UN were in fact in a financial position that was generally comparable to that of NZDF officers posted to New York, and that there was therefore no need to pay the seconded officers NZDF accommodation assistance.

8.36
We consider that, once Personnel branch had identified that the Defence Force Order did not comply with the UN's requirements and that seconded staff were not complying with those requirements, it should have acted promptly to deal with the issues.

8.37
Personnel branch had the opportunity in 2004 and 2005 to amend the Defence Force Order to comply with the UN's requirements, and to make compliant arrangements for Officer 3 and for any later seconded officers. NZDF could have done so without adversely affecting seconded officers who had been paid under the existing Defence Force Order.

8.38
This opportunity was missed because of miscommunication or inadequate understanding of the issues.

Policy was overly focused on parity

8.39
It is clear from the documentation and our interviews that the key focus of Personnel branch staff as they developed the initial arrangements and later policy was on ensuring parity between seconded officers and posted officers – largely to the exclusion of other matters.

8.40
There is a requirement in section 45 of the Defence Act 1990 that, in setting conditions of service for members of the Armed Forces, the Chief of Defence Force is required to have regard to the need to:

achieve and maintain fair relativity with levels of remuneration received elsewhere;
be fair to both the member and the taxpayer; and
recruit and retain competent people.

8.41
The same general provision is in the Remuneration Authority Act 1977, which sets the approach the Remuneration Authority takes to setting salaries for senior office holders in the state sector.

8.42
It appears to us that Personnel branch translated this requirement into a simpler focus on fairness to and between staff, leading to their overriding concern to ensure parity in conditions of service and entitlements between seconded and posted officers. In our view, that is an overly simplified view of what section 45 requires, and does not adequately consider the difference between an ordinary posting within NZDF and a secondment to another organisation.

8.43
In our view, parity was only one consideration that should have been taken into account in making the arrangements for Officer 1 and in drafting the Defence Force Order. A more significant consideration should have been whether the arrangements for Officer 1 or the Defence Force Order complied with all legal and administrative requirements both in New Zealand and the UN.

8.44
It is also important to note that a secondment to the UN brings with it benefits that were not necessarily financial. The UN, through its salaries and post adjustment, recognises the high cost of living in New York and provides for that in the salary package. As we discussed earlier, there was no need for NZDF to pay seconded officers NZDF accommodation assistance, as their UN remuneration was generally comparable with what they would have received from NZDF if they had been posted to New York.

8.45
It would have been possible for NZDF to prepare a Defence Force Order for seconded officers that complied with the UN's requirements.

Policy process review

8.46
As a result of the Court of Inquiry, NZDF is reviewing the way it makes policy. It has sought assistance with this from the State Services Commission. We also understand that the Evaluation Division of the Ministry of Defence carried out a review of NZDF's systems and processes for managing orders and instructions issued for the direction and management of NZDF and the services. In that report, the Ministry has recommended that all draft Defence Force Orders be reviewed by the Directorate of Legal Services. We understand that the policy process has recently been amended so that any draft Defence Force Orders now require signed approval from the Directorate of Legal Services before they are approved by the Chief of Defence Force.

Organisational culture

8.47
It is clear from our inquiry that, during the nine years when these events occurred, there were a large number of NZDF employees who were aware that the seconded officers were not complying with the UN's requirements, or that the arrangements that NZDF had made for them were flawed. We wanted to understand why these NZDF employees had not raised this non-compliance with other branches of NZDF, more senior staff, the Directorate of Legal Services, or the various Chiefs of Defence Force.

8.48
A number of the NZDF employees we interviewed told us that to raise the issues with anyone other than their immediate line manager was simply inappropriate. The reasons why they saw it as inappropriate fell into two main cultural influences:

a "silo" mentality, where people saw strong boundaries between organisational units and did not see any need to draw attention to the mistakes being made by others; and
military hierarchy and the operation of command lines within the organisation, which meant that some people saw themselves as unable to raise concerns about decisions made by more senior officers.

8.49
During our work, we also identified a third strand of influence, which we characterise as inadequate recognition of when an issue may touch on fundamental public sector values of integrity and the rule of law.

8.50
We discuss each of these three cultural influences in more detail, before giving our perspective on the cumulative effect they appear to have had on the culture at NZDF headquarters. Overall, we question whether the organisational culture that we have observed in NZDF headquarters reflects a sufficiently full and balanced set of public sector values.

Silo mentality within NZDF headquarters

8.51
Compartmentalised responsibility was a significant factor that emerged when we asked people why they had not raised concerns with staff in the Personnel branch.

8.52
A number of people told us that the Personnel branch sets the policy, and they just applied it. We also saw several comments in the documentation showing that people were willing to let other parts of the organisation take flawed decisions and watch the difficulties unfold, rather than take any personal initiative to put things right.

8.53
These views are symptomatic of an organisation that operates in silos and compartmentalises responsibility. We gained a clear impression from this inquiry that the separate parts of NZDF headquarters tended to work on their own and did not take a collective approach. Some of those we interviewed specifically confirmed that this was the dominant ethos when these events began.

8.54
The strength of this aspect of the culture in NZDF headquarters is shown by the fact that it prevailed even when the organisation was potentially breaking the UN's requirements. Questions about legality and integrity were not enough to prompt people to intervene in the actions of another branch.

Military hierarchy and command lines

8.55
NZDF is a strongly hierarchical organisation. It is fundamental to any military service that command lines are clear and effective: in an operational context it needs to be clear who has authority to give orders and for that authority to be respected. Lawful orders have to be followed. NZDF expects that its staff are able to and should distinguish between lawful and unlawful orders, and are only required to follow lawful orders.

8.56
It was explained to us that that same requirement to obey lawful orders translated through to all administrative matters as well, even in a head office context. Any instruction from the person who was effectively your commanding officer should be regarded as an order, whether the instruction was about what action to take, what administrative process to follow, or what time a meeting was to be held. Failure to comply was potentially a disciplinary matter.

8.57
We were repeatedly told by some of the people we interviewed that military personnel could not and would not question decisions that had been made by more senior staff. The point was made quite graphically in one interview, when we asked why a recipient of an email did not take any action when he knew that what was in it was wrong and would perpetuate the problems. He responded by counting for us the number of "stars" in the address list (that is, he pointed out how senior all of those who were party to the discussion and decision were). He regarded it as impossible for him to challenge more senior people in that way.

8.58
Similarly, Officer 1 clearly stated that it was not possible for him to question with a senior person in NZDF headquarters what he believed he was being asked to do when he took up the secondment in 2001. In 2005, the Director of Military Personnel Policy Development^B also believed he was being instructed by the Assistant Chief Personnel^C to prepare a Minute recommending the Defence Force Order be amended so that it still did not meet the UN's requirements.

8.59
We do not question that hierarchy, or that clear and effective command lines are an important part of NZDF's way of operating. However, we were surprised to find that in this case that same approach seemed to be operating so strongly in the context of the policy development, financial management, and administrative work being carried out within NZDF headquarters. In particular, we were concerned to find that some of the people we interviewed felt unable to question policy and financial decisions that they knew were inconsistent with the UN's requirements and depended on false declarations.

8.60
Although some of the people involved referred to the concept of obeying only lawful orders as they reflected on their past actions, none of them appeared to have seen that as a relevant limit at the time.

8.61
We note that some very senior officers we spoke with disputed this view and thought personnel could and should be free to question instructions of this kind. However, our investigation showed that, at least on this issue, that was not the perception of some of those lower down in the organisation. It is clear that a number of individuals involved in this issue believed that they could not or should not question decisions or instructions that appeared to have been made by their superiors. This was explained to us as a matter of military command and discipline, but it may also have been a simple question of a strong sense of hierarchy.

8.62
We were also told by several people, including senior officers, that one of the advantages of employing civilian staff in critical administrative positions in NZDF headquarters was that they were more able to question and challenge senior people about the appropriateness of decisions. In our view, this is a sign of an unhealthy confusion about the appropriate boundaries of the command and control culture. The ability of an employee to debate a policy matter under consideration, or to question the appropriateness of administrative and funding decisions of this kind, should not depend on whether the employee is civilian or military.

8.63
We cannot extrapolate across all NZDF from a single investigation and the comments of a relatively small number of staff. It is also possible that this is primarily an issue for NZDF headquarters, where much of the work is of a different nature from general military work and requires a different way of interacting. Even within NZDF headquarters, however, we would be concerned if there was a more widespread perception that the command culture applies to this extent.

Responding appropriately when an issue raises questions about integrity or rule of law

8.64
We noted several incidents in the course of our inquiry where the response of NZDF headquarters on a matter of integrity or legality was slow or unsatisfactory. We note three here.

8.65
First, the Military Adviser^C raised questions about the appropriateness of some of Officer 4's financial and other activities in September 2006 with the Chief of Defence Force^C. We were told that the then Vice Chief of Defence Force reviewed the letter sent by the Military Adviser^C and determined that no action was necessary. So far as we know, this assessment was not communicated to the Military Adviser^C. It was not until August 2007, after the UN raised questions about the accommodation assistance Officer 4 was receiving, that a Military Policemen was sent to New York to investigate those issues. In our view, the issues raised by the Military Adviser^C were such that NZDF should have immediately taken steps to investigate questions about possible financial impropriety.

8.66
Secondly, NZDF was slow to revoke the Defence Force Order once NZDF identified that the seconded officers had received inappropriate accommodation assistance under it. The Military Policeman had identified in advice to the Vice Chief of Defence Force in September 2007 that the four officers had acted in accordance with the Defence Force Order, and that this Order was inconsistent with the UN's requirements. In February 2008, NZDF legal staff had advised Personnel branch staff that the Defence Force Order needed to be revoked. NZDF did not revoke the inconsistent Defence Force Order until June 2008 and kept paying accommodation assistance to Officer 3 until that time. NZDF knowingly continued a financial arrangement that was inconsistent with the UN's requirements, and based on a false declaration, for four months.

8.67
Thirdly, NZDF did not begin its own inquiry into how this situation had come about until July 2008, some nine months after NZDF knew that there was a long-standing problem.

8.68
These slow responses suggest that NZDF headquarters did not see the accommodation assistance problem and the breach of the UN's requirements as a significant issue that required any immediate response. In our view, a matter that involves false declarations and breaches of UN regulations should have been recognised as raising questions about integrity and legality. Anything that raises such questions should attract a swift response from the organisation, both to stop the inappropriate arrangement as soon as possible and to investigate how the impropriety came about.

8.69
Anything less than a swift and clear response risks sending an implicit message to staff that such conduct is not particularly concerning. We note that some of the staff we spoke with expressed concern about what they should be reading into the apparent lack of response by NZDF on matters of legality.

8.70
The pattern of events and reactions caused us to question whether there was always sufficient recognition within NZDF of the importance of matters of integrity and legality, and whether NZDF might unintentionally be conveying a message to its staff that such matters were not necessarily significant.

8.71
We also note that, in our interviews, we were repeatedly told of the importance that is placed within NZDF headquarters on finding solutions, pragmatism, and making things happen. This, at times, came very close to comments to the effect that the ends justify the means. We saw at least one example of where this mindset was applied even when the some of the hurdles were legal ones. Although we understand the importance of pragmatism and a practical focus on solving problems, we do not accept that it is ever appropriate for a public sector organisation to ignore legal or other formal rules or to turn a blind eye to dishonesty.

8.72
Our concern about the unspoken message that staff may be receiving on 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. We have interviewed each of them on oath. They all told us that they believed they were being ordered or were expected to do this.

8.73
We 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.

The combined effect on culture

8.74
On the issue that we investigated, these three cultural influences came together to create a very unfortunate combination of behaviours. The strong emphasis on hierarchy and command and control enabled the people who knew of the problem to believe that they could not and should not challenge what they understood had been decided by their superiors: it was not their responsibility. The silo culture enabled them to regard it as someone else's problem. The general desire for practical solutions to problems enabled people to see the end result as a pragmatic compromise. Nobody appeared to recognise as serious the problems of integrity and legality that were attached to this compromise.

8.75
In our view, this illustrates that NZDF needs to pay careful attention to the message it is sending its staff on values, and the importance of recognising a full and balanced set of values. Particular effort is needed to help people to recognise when seemingly small practical issues may raise more fundamental questions about integrity, and to emphasise that they can and should raise such questions when they identify them.

8.76
We make the point by discussing whistleblowing. NZDF is subject to the Protected Disclosures Act 2000. That Act requires organisations to maintain internal procedures that enable employees to raise concerns about serious wrongdoing within the organisation, and to regularly publicise information about the procedures widely throughout the organisation. Employees who raise a concern using the proper processes are protected from disciplinary consequences. The Act explicitly includes NZDF personnel within the definition of employees.

8.77
The Act is a formal legal recognition that there has to be a limit to the normal operation of hierarchical structures, even in NZDF, to ensure that questions of wrongdoing are identified and addressed. All organisations have a duty to ensure that their staff know about their right to raise concerns without fear of sanction. The law does this to countermand the otherwise natural tendency for people to find it difficult to question what is being done by their superiors. It tries to create a cultural shift.

8.78
The protections of the Act apply only to raising matters of serious wrongdoing, although in a public sector organisation this explicitly includes "an unlawful, corrupt, or irregular use of funds or resources". In any public sector organisation, we expect the general principles of the Act to form part of the organisation's basic culture, as a practical manifestation of the organisation's commitment to core public sector values of integrity, honesty, and commitment to the rule of law. In broad terms, we expect any public sector employee to be aware that they can and should raise well-founded concerns, particularly about legality or the use of public funds, without fear of retribution. All public sector organisations have a duty to promote this awareness and the appropriate way to raise such concerns.

8.79
NZDF advised us that there is a Defence Force Order on the Protected Disclosures Act, and that it has taken steps in the past and takes ongoing measures to advise all members of NZDF of the existence of the Act. NZDF also advised us that a member of the Armed Forces can make a complaint that they have been wronged in any matter under section 49 of the Defence Act. NZDF has established a process for dealing with such complaints, and this is set out in a Defence Force Order. At a formal level, therefore, NZDF has mechanisms that meet this need.

8.80
However, during our interviews, nobody referred to the possibility of using protected disclosure mechanisms to raise concerns about the appropriateness of the policy on accommodation assistance or what was being done under it. Nor did anybody invoke these principles as a reasonable and appropriate limit on the need to follow orders without question. We saw no evidence that the people involved recognised that the Protected Disclosures Act mechanisms were available to them, or that the issues here raised that type of concern. Nor did any of the four officers raise with us the possibility of making a complaint under section 49 of the Defence Act.

8.81
These individuals believed that they could not question the appropriateness of administrative and funding decisions that they knew to be wrong, despite the fact that the formal mechanisms existed and that this issue could properly have been raised through them. There may be a written policy in place on whistleblowing, but the fact that it was not considered here raises a question about its practical effectiveness.

8.82
In our view, NZDF cannot assume that all of their personnel have a strong practical understanding of the full range of values that should govern their behaviour, as part of a military and public sector organisation. Given the inevitable strength of the hierarchical command culture in NZDF, we suggest that this organisation will always need to put additional explicit effort into ensuring that people understand the limits of the command discipline, and the need to balance it with a strong individual and organisational commitment to the general public sector values of operating within the law, scrupulous honesty, integrity, transparency, and accountability. These general values are vital if public respect for, and trust in, the institutions of the state are to be maintained.

Steps NZDF has been taking

8.83
We acknowledge that NZDF has made or is considering a number of changes that may address some of these concerns.

8.84
For the problem of people in headquarters working in silos, the organisational structure in NZDF headquarters has been changed to create more interaction and collaborative behaviour. We have not attempted to assess whether the silo mentality that prevailed earlier is still a problem. However, given how deep-seated it appears to have been, we recommend that NZDF take explicit steps on an ongoing basis to promote and value collaborative behaviour within NZDF headquarters.

8.85
NZDF has advised us that it has carried out a complete review of the military justice system and is currently considering how to address the issue of delays in the investigation of alleged offences.

8.86
It is also working to develop a mechanism so that concerns about administrative decisions can be rapidly elevated to a level where they can be swiftly resolved. One option being considered is providing a telephone help line for members of the armed forces who have concerns about the propriety of their conditions of service or about the actions of other members of the NZDF. They can report their concerns to an officer who has the power to conduct an initial investigation and then report the matter to the appropriate person or office.

8.87
NZDF has also advised us that it is considering how to strengthen the role played by the Directorate of Legal Services in legal compliance, risk mitigation, and formulation of policy. In particular, it is considering a mechanism that requires branches of NZDF headquarters to respond in a timely manner to legal advice on any matter that identifies the existence of a legal risk to the NZDF.

Our recommendations

8.88
We regard these various steps that NZDF is taking as useful. However, we doubt that on their own they will be enough to address the more subtle underlying problems with organisational culture that we have identified.

8.89
Our overall recommendation is therefore that NZDF headquarters actively promote a full and balanced set of values for its personnel 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. NZDF must then manifestly live by this full set of values. In particular, all NZDF staff need to see that questions of integrity and legality are taken seriously and that transgressions attract a swift response.

8.90
At a more detailed level, we recommend that NZDF:

continue its efforts to promote and value collaborative behaviour and a whole-of-organisation mindset among the staff working in NZDF headquarters, both through structure and reporting lines and through the leadership approach;
take steps to ensure that all personnel, wherever they work, understand that they can and should raise concerns about policy, financial, and administrative matters that they believe may raise questions of integrity or legality;
review the way in which command and control disciplines apply and are communicated in the context of working in NZDF headquarters and other non-operational roles – for example, when working on matters such as organisational development, policy, administration, and financial management; and
review the steps it takes to communicate its policies and procedures under the Protected Disclosures Act 2000, to ensure that all personnel are aware of their ability to raise concerns through appropriate channels without fear of disciplinary action or other retribution, and are aware of the types of issues that they can and should raise through these channels.

How the seconded officers were treated

8.91
As we have explained earlier, the rationale for NZDF paying seconded officers accommodation assistance was the mistaken belief that they would be significantly worse off financially without it, when compared to NZDF officers posted to New York. If this mistake had not been made, it is unlikely that NZDF would have paid the seconded officers the accommodation assistance and the seconded officers would not have ended up in this position. In our view, this mistake was entirely preventable.

8.92
All of the seconded officers told us that they believed that they were not benefiting financially from being paid the NZDF accommodation assistance. As we discussed earlier, we also found no evidence that anyone in NZDF realised that this was the case until May 2010.

8.93
We have already explained that a key driver for NZDF's approach seems to have been the desire to look after the seconded officers and, in particular, to ensure parity between their conditions of service and entitlement, and those of other staff. We are aware that the question of how to provide appropriate support to staff seconded to the UN in New York, particularly for housing, has been a general problem for a number of countries. There have been several public examples in recent years of countries that have tried to find different ways of managing the practical problem.

8.94
Despite NZDF's initial concern for the welfare of these officers, the seconded officers have been adversely affected by these events. Some saw themselves as having been placed in an invidious position, and then punished for doing what they had thought was required of them. The investigative processes of the last few years, including this inquiry, have also taken a personal toll on the NZDF personnel involved. Six NZDF personnel involved in these events have received censures. Most of these six spoke about their dismay at being censured and their concern about how it will affect their future employment prospects. Although their names have been protected throughout the investigations, they are identifiable within their professional community.

8.95
In our view, NZDF's mismanagement of this issue from start to finish has led to this personal cost for its people. In this regard, NZDF achieved the opposite of what it set out to do.

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