Part 23: Review of work of the Office of the Auditor-General and other accountability agencies

Inquiry into the Mangawhai community wastewater scheme.

23.1
In this Part,4 we consider the response of the five agencies that were asked to investigate concerns about KDC's performance in relation to the wastewater scheme. The five agencies were:

  • the OAG;
  • the Office of the Ombudsman;
  • the Department;
  • the New Zealand Police; and
  • the Serious Fraud Office.

23.2
This part of the inquiry was carried out by the Deputy Controller and Auditor-General, Phillippa Smith. Although she has been in the OAG since August 2005, she had no significant involvement in matters relating to KDC before this inquiry started in March 2012. She reviewed files of correspondence and other documents, and spoke to relevant officials, to understand how the agencies responded to concerns raised about the scheme since 2002. Her observations and comments are set out below.

Complaints to the accountability agencies and how they were handled

23.3
I focus mainly on the OAG, the Office of the Ombudsman, and the Department because they received most of the requests for an inquiry or other intervention into the scheme. I refer to those requests as "complaints" and to the persons making them as "correspondents". I comment briefly on the involvement of the New Zealand Police and the Serious Fraud Office in paragraphs 23.162-23.165.

October 2002

23.4
Between October 2002 and March 2005, the OAG received five complaints about the Council and the scheme. I am not aware that the Office of the Ombudsman or the Department received any relevant correspondence in this period.

23.5
The first complaint about the scheme, in October 2002, came from the Mangawhai Ratepayers and Residents Association (MRRA). The MRRA was concerned about the scheme's affordability and an alleged lack of proper consultation. It also asked whether the proposed funding mechanism complied with the Council's policy on borrowing. The OAG asked KDC and the appointed auditor for information to respond to the complaint.

23.6
However, the Local Government Act 2002 was enacted in December 2002, which meant that the scheme could not proceed as originally proposed (see Part 7). KDC told the OAG that it was reconsidering its options and that it would consult ratepayers as required by the new Act. Therefore, the OAG decided not to take any further action with the complaint. It let the correspondent know and closed the complaint.

June 2003

23.7
In June 2003, the OAG received a telephone call from another representative of the MRRA, concerned about whether KDC was properly considering other options for the scheme. He said that the scheme would impose a severe financial burden on the local residents and that members of the public were being excluded from Council discussions on the issue.

23.8
Later that month, the OAG received an email from one of the Kaipara District Councillors, arguing that, given the new requirements of the Local Government Act 2002, the Council should be required to start the whole process again. He asked the OAG to insist that the Council independently assess the whole project from a technical, legal, and financial perspective. He also said that ratepayers were actively considering a rates strike and/or asking for commissioners to be appointed.

23.9
The OAG asked KDC for information to enable it to assess the complaints. KDC responded that the consultation process had not yet begun. As explained in Parts 7 and 8, the Council had made decisions about its revised approach in January 2003 and was releasing a Statement of Proposal with which to consult the community in July 2003.

23.10
The OAG replied to the MRRA and the councillor in August 2003. It told them that, from its review of the information KDC had provided, it had no evidence that KDC was acting inappropriately or failing to meet its legal obligations. The reply said that the OAG's understanding was that, because of concerns raised by ratepayers, KDC had agreed to re-consult. Accordingly, the OAG did not intend to intervene.

23.11
Subsequently, an OAG staff member met the Chief Executive to talk about the scheme. The Chief Executive's advice to the OAG was that there was general agreement in the community that the scheme should go ahead, but there was concern about the cost.

May 2004

23.12
In May 2004, the OAG received a letter from lawyers acting for one or more ratepayers concerned about the level of the proposed increase in water rates related to "the Mangawhai water supply". The letter asked whether the increase was legal. I was unable to find that letter in the OAG's files, so I cannot check the precise concern. However, as explained in Part 8, in 2004, KDC was still discussing potential rates and charges in general terms. At the time of this complaint, the proposal was for a one-off "uniform general charge" and pan charges.

23.13
The OAG replied that it understood that KDC was considering the proposed increase as part of its 2004-14 LTCCP. The OAG advised the ratepayers concerned to seek further information from KDC and to participate in the consultation process. The OAG noted that a large increase in rates was not necessarily an indication of illegality.

March 2005

23.14
In March 2005, the OAG received an email from a former councillor (who had also written in 2003 – see paragraph 23.8). He said that KDC had entered into a contract with an organisation that was bankrupt, that the organisation might have been bankrupt at the time of the contract, and that an estimated $2 million had been wasted. He asked the Auditor-General to investigate. It appears that this was a reference to the financial difficulties faced by KDC's preferred proponent for the scheme, Simon Engineering, and its parent company, HWE. As explained in paragraphs 9.20 to 9.25, in February 2005, the Council resolved to stop negotiating with Simon Engineering because its parent company had been placed in voluntary administration.

23.15
A note attached to this email suggests that the correspondent followed up his request by telephone in August 2005 or later. I found no evidence that the OAG replied. However, I note that, by this stage, the Council had resolved to contract with EarthTech.

23.16
The OAG has no record of further correspondence from Kaipara ratepayers for the next five years.

March 2010: Complaint about the wastewater targeted rate

23.17
In March 2010, the OAG received a complaint from Correspondent A (a ratepayer). By this stage, the wastewater scheme had been built and was operating. The complaint was about the legality of a particular targeted rate (the wastewater targeted rate) that KDC had set for the scheme – specifically, the use of "unit of demand" as the basis for charging the rate. Correspondent A attached a copy of a submission he had made to KDC about the wastewater targeted rate. Correspondent A wrote again in May 2010 after identifying a different problem with the wastewater targeted rate – specifically, the factor used to assess liability.

23.18
The OAG acknowledged Correspondent A's first request with a standard response, telling him it was carrying out "preliminary inquiries", after which it would let him know how it proposed to deal with the information he had provided.

23.19
The OAG then contacted KDC to seek information about Correspondent A's complaint. KDC's Chief Executive said that KDC was already aware of Correspondent A's concerns and was seeking legal advice about the issues he raised. The Chief Executive undertook to keep the OAG informed.

23.20
In early May 2010, having not heard back from the Chief Executive, the OAG contacted him again. He said he was still waiting for legal advice but expected to receive it in time for the Council's May meeting. The Chief Executive received the legal advice, which concerned Correspondent A's first issue, later in May. The Council considered the advice at its meeting on 26 May 2010, but it made no decision on the issues at that meeting.

23.21
Correspondent A wrote to the OAG for a third time on 1 June 2010 after he had obtained a copy of the Chief Executive's report and disagreed with the legal advice it contained. He suggested that the Chief Executive had not actually received any legal advice and that the Chief Executive and other KDC staff had drafted the proposed rating resolution. He alleged that KDC was intentionally flouting the Local Government (Rating) Act 2002. He also alleged that what it was doing was potentially criminal and might need to involve the Serious Fraud Office. Correspondent A later addressed his arguments about the substance of the legal advice directly to the law firm concerned.

23.22
On 3 June and again on 25 June 2010, the OAG asked the Chief Executive for a copy of the legal advice and details of the decisions and actions that KDC was taking in response to the advice.

23.23
On 25 June, KDC's Chief Executive confirmed that KDC had received legal advice that recommended changes to the definition of "unit of demand", which the Council would consider at a workshop later that day. He undertook to let the OAG know after the workshop what actions the Council would take. The Chief Executive said that KDC's legal advisers had seen Correspondent A's correspondence and that Correspondent A's allegations were unfounded.

Responses by the Department of Internal Affairs, the Minister of Local Government, and the Office of the Ombudsman

23.24
At this point, the OAG had not responded to Correspondent A other than acknowledging his first complaint in March. In his second communication to the OAG in May, Correspondent A said that, because he had not heard from the OAG since he wrote in March, he had escalated his concerns to the Office of the Ombudsman. He copied his letter to the Prime Minister, the Minister and the Associate Minister of Local Government, the Secretary for Local Government, and the member of Parliament for Northland.

23.25
An official from the Department contacted the OAG in response to Correspondent A's letter. The OAG told the Department that it was making "preliminary inquiries" to determine whether there was reason to establish a formal inquiry.

23.26
The Department then wrote to Correspondent A saying that the OAG was still investigating his complaint and that it was the Department's standard practice to remain apart from a case while it is under consideration by the Auditor-General or the Ombudsman. The Department encouraged him to continue to raise his concerns with KDC – in particular, in the lead-up to the forthcoming local body elections.

23.27
In a separate letter to Correspondent A, the Minister acknowledged the serious nature of Correspondent A's concerns. The Minister explained that local authorities were accountable to ratepayers and citizens for their specific actions and decisions, including rating decisions, rather than to the Minister. He suggested that, if Correspondent A had concerns about the Chief Executive, Correspondent A should talk to Council members and that he should continue to raise his concerns about the rates within the community in the lead-up to the local body elections.

23.28
An official from the Minister's office also contacted the Office of the Ombudsman in response to Correspondent A's concerns and told it that the OAG was investigating the rating issue.

23.29
The Assistant Ombudsman wrote to Correspondent A on 2 June 2010 asking him to clarify which matters he wanted the Ombudsmen to investigate and to provide evidence of the steps he had taken to resolve his concerns with KDC. With regard to Correspondent A's concern about the validity of the wastewater targeted rate, the Assistant Ombudsman said that the Office of the Ombudsman had been informed that Correspondent A had made the same submission to the OAG and that the OAG had agreed to look into the issues he had raised.

23.30
The Assistant Ombudsman told Correspondent A that it was not the practice of the Office of the Ombudsman to intervene when a complaint was being pursued by another agency. This was to avoid a situation where different agencies were conducting concurrent investigations into the same set of issues. The Office of the Ombudsman sought clarification from Correspondent A about a separate complaint also involving KDC and later made enquiries of the Council in an attempt to resolve the matter. Correspondent A acknowledged the need to have one authority investigate, but he was concerned about the time the OAG was taking.

23.31
The Office of the Ombudsman then contacted the OAG on 11 June 2010 to discuss Correspondent A's concerns and to tell the OAG that it was also dealing with two other complaints about the scheme.

23.32
The first of those other two complaints, received on 27 November 2009, was from Correspondent B on behalf of the MRRA, which had concerns about the application of the wastewater targeted rate to properties that were not connected to the scheme by the date from which the rate applied. The Office of the Ombudsman spent some time looking into this matter, including making enquiries at KDC. This prompted KDC to write to Correspondent B clarifying its approach to rates adjustments.

23.33
Correspondent B was not satisfied with the adjustments KDC proposed to make to the rates and contacted the Office of the Ombudsman again. The Chief Ombudsman advised Correspondent B to address any concerns about the adjustments to KDC in the first instance. Correspondent B could make a complaint to the Office of the Ombudsman if she was dissatisfied with KDC's response.

23.34
In response to further correspondence from Correspondent B concerning KDC's rating policy, as reflected in the wastewater funding impact statement, the Chief Ombudsman provided comments on these concerns and invited Correspondent B to respond.

23.35
The second of the other two complaints was from Correspondent C, who had written to the Office of the Ombudsman in November 2009. He was also concerned about the wastewater targeted rate and also raised wider concerns about the scheme and KDC's management of it. These wider concerns included:

  • KDC's communication with the public – in particular, about the start-up date for the scheme;
  • whether decisions had been made with properly delegated authority;
  • whether the Chief Executive was keeping the Council properly informed;
  • additional work required on the scheme, how it was being funded, and whether KDC was properly recovering costs from the contractors involved; and
  • the financial model that KDC was using to support the project.

23.36
In February 2010, the Office of the Ombudsman had declined to investigate several of Correspondent C's wider concerns about the scheme. It did so because Correspondent C did not appear to have raised those matters with KDC or because there was insufficient information to establish grounds for an investigation. However, the Office of the Ombudsman was still looking at the rates issues.

23.37
After the Office of the Ombudsman had discussed the cases with the OAG, the Chief Ombudsman replied to Correspondents B and C on 14 June 2010 telling them that she had become aware that the Auditor-General was making enquiries of KDC about the rates issues before deciding whether to conduct a formal inquiry. Therefore, in accordance with her Office's long-established practice of not investigating a matter while another agency was looking into it, she did not propose to proceed with a separate investigation of their complaints.

23.38
The Chief Ombudsman invited both parties to send their correspondence to the OAG, so that the OAG had a record of their concerns. The correspondents were also invited to make a submission to the Office of the Ombudsman if they had concerns about this approach. On 9 July 2010, the Office of the Ombudsman forwarded Correspondent B's papers to the OAG, at her request. Correspondent C wrote to both the OAG and the Office of the Ombudsman expressing concerns, as detailed in the following paragraphs.

June and July 2010: Correspondents' concerns about the management of their complaints

23.39
In an email to the OAG on 21 June 2010, Correspondent C acknowledged that there were similarities between his concerns and those raised by Correspondents A and B. However, he said that he wanted assurance that the OAG had the authority to investigate the full range of issues he had raised. He also asked whether there was a conflict of interest for the Auditor-General in investigating matters that potentially overlapped with the audit of the Council. The OAG acknowledged receipt of the letter and said that it would let him know its position once it had had the opportunity to consider the information he had provided.

23.40
On 2 July 2010, Correspondent C wrote again to the Office of the Ombudsman and to the OAG about KDC's performance and noted the limited progress the OAG had made.

23.41
Correspondent C said that ongoing actions by KDC reinforced his previous allegations of misleading and inaccurate information being put to councillors. He also referred to attempts to "retrospectively re-write the framework of the funding and operation of the EcoCare project". He said that there was increasing evidence that the costs of the scheme had risen to such an extent that further development in Mangawhai was threatened and that the cost of remaining there would become prohibitive for retirees and other people on low incomes.

23.42
In his email to the Office of the Ombudsman, Correspondent C asked the Chief Ombudsman to reconsider her decision not to investigate while the OAG was considering the matter.

23.43
The OAG also received a further email on 29 June 2010 from Correspondent A, who was concerned that the OAG had not yet completed its preliminary enquiries. He said that the matter was urgent. He repeated his concerns about the Council's use of the concept of "unit of demand" to assess rates and with the suggestion that amending the definition of "unit of demand" would fix the problems he had identified. He said that this was "a total farce and flies in the face of all the statutory provisions". He described it as "a deliberate ploy by council to obtain money by deception because they know that they are breaching the provisions of the Rating Act and [Local Government Act 2002]".

23.44
Correspondent A telephoned three days later on 2 July 2010 and spoke to an OAG staff member about his concerns. According to his file note of this conversation, the staff member told Correspondent A that KDC had the information Correspondent A had provided and was taking legal advice on it. It was for KDC to decide how to respond to that advice, and the solution was therefore in KDC's hands. The file note records that Correspondent A was not prepared to accept this view of the matter. The file note also records that the OAG decided not to respond to him further at that stage.

23.45
However, the OAG did reply to Correspondent C on 6 July 2010. It copied its response to Correspondent A and the Office of the Ombudsman. The OAG said that it was not the Auditor-General's role to determine the legality of the Council's actions about rates. The OAG understood that Correspondent C was pursuing his concerns directly with KDC and encouraged him to do that, given that responsibility for rating matters rested primarily with the Council. The OAG said that it was still considering whether to conduct an inquiry.

23.46
The OAG's letter to Correspondent C prompted responses from both Correspondents C and A. Correspondent C asked in an email whose responsibility it was to determine the legality of the rates. Correspondent C said, "Unfortunately the perception I am getting is that there is in fact no watchdog/complaints mechanisms over the actions of Council … Everyone seems to refer me to someone else, and it goes around in circles …". It appears that the OAG did not reply to this email.

23.47
However, the Assistant Ombudsman advised Correspondent C that the Chief Ombudsman's decision not to investigate while the OAG was looking into the matter did not preclude Correspondent C from approaching the Office of the Ombudsman again after the OAG had concluded its enquiries. At that point, the Office of the Ombudsman would be prepared to consider any ongoing issues, provided they were outside the scope of the OAG's enquiries. Correspondent C was also informed that, although the OAG might not yet be in a position to finalise its decision about whether to conduct an inquiry because it was waiting for information from KDC, this did not provide grounds for the Chief Ombudsman to intervene and embark on a separate investigation.

23.48
Correspondent A asked why the OAG had not told him from the outset that it could not examine the validity of a Council's rates. He also attached a copy of the resolution that the Council was going to be asked to consider about the definition of "unit of demand" (the subject of his first complaint) at the forthcoming Council meeting. He said that the councillors were totally dominated by the Chief Executive and had been relying on the Auditor-General "to save them from all this nonsense".

23.49
The OAG replied to Correspondent A on 22 July 2010, noting that it had explained to him its approach to inquiries when he had contacted the OAG by telephone, that any question of legality was for a court to determine, and that the Council had obtained legal advice and was entitled to rely on it.

23.50
The OAG's reply said that it had asked KDC to provide information about its process, including its legal advice. The reply also said that, once the OAG had received the information, it would consider the matter further. It said:

For the sake of clarity, this review will not be to second guess either the policy decisions behind the rates or give a legal ruling. The OAG will be reviewing the process for administrative reasonableness, to assure ourselves that the Council has taken sensible steps in relation to the concerns that have been raised.

23.51
The OAG sent a copy of this letter to KDC's Chief Executive with a note saying, "We look forward to hearing from you as discussed."

23.52
On 26 July 2010, KDC's Chief Executive sent the OAG the relevant business papers from the July Council meeting, including a copy of the legal advice that the Council had received in May and copies of business papers from the Council's July meeting.

23.53
At its July meeting, the Council resolved to amend the definition of "unit of demand", as recommended by its legal advisers. It also resolved to make corresponding changes to its funding impact statement during the next review of its LTP.

August 2010: Correspondent A complains to the Auditor-General

23.54
Correspondent A then wrote to the Auditor-General on 23 August 2010 to complain about the way the OAG had dealt with his concerns.

23.55
He acknowledged that the Auditor-General could not make a ruling on legal matters but pointed out that she did have the power to hold an inquiry and to issue an opinion as a result of that inquiry. He queried the OAG's practice of not acting until it got a response from the Chief Executive and of accepting legal advice at face value. He again questioned the legal advice given to KDC, whether the legal advisers had been asked to consider all of the matters he had raised, and KDC's proposed method for remedying defects in the wastewater targeted rate.

23.56
He went on to say:

The KDC is close to being insolvent. There have been huge cost overruns on the Mangawhai scheme and it seems that the unit of demand fiasco is a last-ditch attempt to raise more money to keep the Council afloat and pay the huge sums it is paying out to advisers and consultants. No one is aware of what is really going on. The Chief Executive keeps everything from the councillors and they are not even aware of legal proceedings taken against the council and large pay-outs that are made.

23.57
The Auditor-General asked for a briefing on the matter. This briefing was provided by an OAG staff member who had not previously been involved in dealing with the complaints. He reviewed the file, which included the correspondence with all three correspondents, and concluded that:

  • The complaints were fairly complex and not always well articulated.
  • It had taken the OAG some time to work through them, and KDC had been slow to respond.
  • The correspondents had become frustrated with the OAG and did not have a good understanding of the Auditor-General's role and powers.
  • Correspondent A's concerns about aspects of the wastewater targeted rate had some substance. However, only a court could make a finding on whether any failures on the Council's part affected the validity of the rate. A court might overlook any failures because the Council's intention was clear and its approach reasonable despite the shortcomings in the process.
  • Correspondents B's and C's concerns about the Council not giving refunds for part of the year when the wastewater service was not available had less substance. The concerns seemed to be largely the result of poor communication from KDC.
  • Correspondent C had several other concerns that the Office of the Ombudsman had told him to raise with KDC.

23.58
The OAG then decided to write to all three correspondents to tell them that it did not intend to conduct an inquiry. Instead, it would recommend that KDC initiate an independent "first principles legal review" of its rating policies, practices, and documents (the first principles review) to get assurance about statutory compliance and to address inconsistent and confusing terminology.

23.59
On 27 August 2010, the OAG consulted KDC's Chief Executive about the proposal that KDC commission an independent first principles review of its approach to the wastewater rate for 2010/11 against the requirements of the Local Government (Rating) Act 2002 and the Local Government Act 2002. This would enable any irregularity in setting the rate to be corrected during the current rating year. It would also enable any improvements that were required to be incorporated in the funding impact statement in the 2011/12 Annual Plan and rates resolution to be made.

23.60
The Chief Executive said that he had already asked KDC's legal advisers for a "further legal review" of the rating for the scheme in response to Correspondent A's letter to the legal advisers raising concerns about their legal advice. The Chief Executive said that the legal review was likely to be complex and might take two to three months to finalise. He said that he would keep the OAG informed of the results of the review. It appears that the Chief Executive regarded the "legal review" as meeting the OAG's proposal for a first principles review of the rate, while the OAG expected there to be a separate review.

23.61
The OAG's letters declining a request for an inquiry went to the three correspondents on 27 August (Correspondent A) and 6 September 2010 (Correspondents B and C), six months after the OAG had received Correspondent A's first complaint. A copy of the letter sent to Correspondent C was sent to the Office of the Ombudsman, but not to the Minister or the Department.

23.62
The OAG said that it agreed that there were issues with the terminology that had been used for the wastewater targeted rate. It also said that there was confusion about KDC's approach to charging for connection to the scheme. However, the OAG said that the overall intention was clear, KDC's approach was not unreasonable, and an appeals mechanism was in place for disputes about the meaning of "unit of demand".

23.63
Correspondent A wrote again to the Auditor-General on 30 August 2010 expressing frustration at the OAG's decision. In particular, he challenged the OAG's statement that KDC had acted reasonably, asking whether it was enough for KDC to have acted reasonably if it had not acted lawfully. The Assistant Auditor-General, Legal responded by explaining in more detail the OAG's inquiries function and the OAG's interest, as auditor, in legal matters.

23.64
From this time until late in 2011, the OAG considered that it had dealt with the requests for an inquiry and that KDC was addressing the rates issues.

September to December 2010

23.65
After receiving the OAG's advice that it would not carry out an inquiry, all three Correspondents wrote again to the Chief Ombudsman asking her to re-open the investigation into their concerns. In some cases, the correspondents also wrote to the Minister, the Department, the OAG, the Prime Minister, and their local members of Parliament about their concerns. A summary of the three agencies' activities during the rest of 2010 follows.

Office of the Ombudsman

23.66
The Chief Ombudsman declined the correspondents' requests on the basis that she would not duplicate the enquiries of another Officer of Parliament, had no mandate to review the Auditor-General's decisions, and would not pre-empt the findings of the first principles review.

23.67
She also pointed out that it was unlikely that any investigation by the Office of the Ombudsman could achieve an outcome substantially different from the Auditor-General's enquiries. This was because, like the Auditor-General, the Chief Ombudsman could not provide a ruling on the legality of KDC's approach to the rates. The Chief Ombudsman referred to the potential for the first principles review to scrutinise the issues that were in dispute and to consider a remedy should this be necessary.

23.68
The correspondents were invited to make submissions to the Chief Ombudsman in response to these points. The correspondents voiced dissatisfaction with the approach taken by the Office of the Ombudsman and later contacted the Office of the Ombudsman again with concerns about the first principles review. The Office of the Ombudsman referred them to the OAG on the understanding that the OAG was monitoring the first principles review.

23.69
In November 2010, after considering submissions from the correspondents, the Chief Ombudsman confirmed her decision not to proceed with an investigation.

Department of Internal Affairs

23.70
The Minister continued to receive correspondence about the rates and the scheme. For example, Correspondent C complained to the Minister about:

  • the legality of decisions made;
  • the technical competence, financial management, and governance exercised by the Council;
  • various legal claims that he said had been lodged against KDC;
  • rumours about KDC making claims against the main engineering consultants;
  • problems with the current District Plan review, including "arbitrary" decisions by KDC staff about submissions on the District Plan;
  • secrecy within KDC; and
  • the failure of the Mayor and councillors to do anything about the situation.

23.71
Correspondent C said there was evidence that the scheme was "in a financial mess" and that, overall, KDC was "approaching financial meltdown". In particular, he referred to the debt for the scheme, which he said appeared to have increased from $27 million as at 30 June 2009 to at least $80 million.

23.72
The Minister told Correspondent C that Correspondent C had taken the appropriate course of action by referring his concerns to the OAG and the Ombudsman. The Minister said that he understood that the OAG was currently reviewing Correspondent C's complaint to assess which particular aspects were within the OAG's mandate. The Minister also said that the Office of the Ombudsman was waiting until after the OAG had completed its investigation before deciding on its course of action. The Minister said that he had also asked his officials to inquire into the matters Correspondent C had raised. The Minister forwarded a copy of this correspondence to the Auditor-General and asked to be informed about the outcome of the OAG's investigation. The OAG replied to the Minister on 24 September 2010 to inform him that it had decided not to carry out an inquiry.

23.73
Department officials also contacted the OAG asking for background information on KDC so that they could brief the Minister. In relation to the wastewater targeted rate, the Department told the OAG on 29 September that "it appears highly possible that these rates have been set unlawfully" and asked for more information on the first principles review.

23.74
The OAG told the Department that it had asked KDC to provide a copy of the terms of reference for the first principles review. The OAG said that its general expectations were that the review would involve:

  • assessing the [targeted] rate against the requirements of the Rating Act;
  • working out which factors and matters the Council was relying on;
  • considering the concern that had been raised about whether the factor being relied on needs to exist before the start of the rate year; and
  • defining "separately used or inhabited property" in the Funding Impact Statement.

23.75
The OAG would also see how the new Council picked up the matter after the forthcoming local body elections. The OAG was also considering how the matter might affect the finalisation of KDC's annual report for 30 June 2010.

23.76
For the most part, the email correspondence between the OAG and the Department makes it clear that, from the OAG's perspective, KDC was responsible for the review. The OAG's concern was simply to know that the review took place. However, in one of the emails, the OAG also said that it had indicated to the complainants that it would be "monitoring" the review.

23.77
The Minister wrote again to the Auditor-General on 27 October 2010 to say that he understood that the first principles review had been completed. He said that he had requested a copy of the review from KDC. He wanted to know whether the report addressed the OAG's concerns. The Auditor-General replied to the Minister explaining that, once KDC had commissioned the legal review of the rate, the OAG had closed its file on the complaint. She explained that her appointed auditor would monitor progress with the review as part of ongoing audit work, but the OAG would not otherwise have any formal involvement.

Office of the Auditor-General

23.78
The OAG's primary concern during this period was the audit opinion on KDC's annual financial statements, due by the end of October. On 14 October 2010, KDC's Chief Executive sent the OAG a copy of a draft legal opinion provided by its legal advisers. This opinion concluded that:

  • The particular targeted rate was invalid because it was not clearly identified in the funding impact statement.
  • The basis on which KDC had differentiated the rate did not accord with the Local Government (Rating) Act 2002.
  • It would be possible to remedy the defects by resetting or replacing the rate.

23.79
KDC's Annual Report for 2009/10 disclosed information about the problems with the rate. Because KDC, as the responsible entity, acknowledged the defects and was addressing them, the OAG determined that the audit report need not refer to the matter.

23.80
The primary concern of correspondents in the later part of 2010 appears to have been to find out the terms of reference for, and results of, the first principles review. As noted in paragraph 23.60, it appears that KDC regarded the legal advice set out in the draft legal opinion as the first principles review.

23.81
Correspondent A emailed the appointed auditor asking for the information about what he referred to as the "first principles audit". Correspondents B and C had again been in contact with the Office of the Ombudsman with the same request. The Office of the Ombudsman advised the correspondents that it was open to them to seek information about the review from KDC through a request under the Local Government Official Information and Meetings Act 1987. It also advised that the Ombudsman could review any decisions made by KDC in response to such requests. It suggested that, if the correspondents had any concerns about the terms of reference for the first principles review that they were unable to address with KDC, they should contact the OAG because the OAG expected KDC to advise it of the terms of reference.

23.82
In late November, Correspondent B (who had not previously corresponded directly with the OAG) emailed the OAG about the scope of the first principles review and whether it would be truly independent. Correspondent B alleged that KDC was withholding information, excluding the public from relevant discussions, and unilaterally changing the terms it had previously agreed with ratepayers about the review of the rates. The OAG replied that it intended to monitor the outcome of the review, but it had no direct role in specifying how the review would be carried out. The OAG advised Correspondent B to refer questions about the review to KDC.

23.83
The OAG told Correspondent B that, although it had recommended the review, it was up to KDC to decide the approach to take, to determine how the review would be done, and to decide who would be involved. The OAG said that, although it would monitor the outcome of the review generally, it had no direct role in specifying how the work got done, who was involved, and any decisions that might be made once it was completed. The OAG advised Correspondent B to raise any questions about the review directly with KDC.

23.84
The OAG also wrote to KDC's Chief Executive to let him know it was still receiving correspondence about the wastewater targeted rate. It asked him to provide an update on the current status of the review generally, including:

  • the current status of any legal advice KDC had received (and the contents of any final advice);
  • any consideration of this advice, and decisions taken as a result, by the Council; and
  • planned future steps.

23.85
The OAG told the Chief Executive that, after reviewing this information, it would decide whether any further intervention by the OAG was required.

December 2010: Kaipara District Council decides to replace the wastewater targeted rate

23.86
On 21 December, KDC's Chief Executive wrote to the OAG enclosing copies of a report he had provided to the Council's November meeting about Correspondent A's complaint about the rate. He included a copy of the legal advice that KDC had received, the recommendations adopted by the Council as a result, and copies of the letters KDC had sent to Correspondents A and B. These letters explained KDC's position and the steps it was intending to take to remedy the problem with the rates.

23.87
The Council had resolved to accept that the "one-off" differential targeted rate had been incorrectly differentiated (because it had differentiated on the basis of a date). The Council resolved to use the provisions of section 120 of the Local Government Act 2002 to remedy the problem by setting the rate based on location (the original area to be serviced by the scheme).

23.88
The letters to Correspondents A and B also noted the disputes resolution process that KDC had put in place to address disputes about the meaning of "unit of demand". The letter also noted that a full briefing on the project (from inception to implementation) would be provided to the elected Council members, most of whom were new. The Chief Executive advised that, as part of that process, elected members would be asked whether they required a further first-principles review of the project.

23.89
The Chief Executive sent copies of his letter to Correspondents A and B to the Office of the Ombudsman, the Minister, and the Secretary for Local Government.

January to December 2011

23.90
During 2011, several changes took place at KDC. In the local body elections in October 2010, five new councillors had been elected to the Council (there were eight councillors in total). A new General Manager, Policy & Governance was appointed in the middle of 2011. The Chief Executive announced his resignation, with effect from 31 October 2011, and a new Chief Executive began work in mid-November.

23.91
From the OAG's point of view, the issues about KDC's rates for the wastewater scheme had been closed. However, it was alert to issues that might be relevant for the audit.

23.92
Between January and July 2011, the OAG received no direct correspondence from ratepayers. However, the OAG received copies of correspondence between KDC and some of the correspondents, which showed that KDC was meeting with ratepayers and was considering their request for a further review of the rates.

23.93
Correspondence also continued between the OAG and the Department and between the Auditor-General and the Minister on matters about KDC.

23.94
In January 2011, Correspondent B wrote again to the Chief Ombudsman. She was concerned that the issues she had raised would not be part of the proposed review. She said that more problems were emerging and that the community was becoming increasingly concerned. There had been no investigation by the OAG. She urged the Chief Ombudsman to investigate.

23.95
The Chief Ombudsman declined this request. She said that it was apparent that the Council had yet to make a decision on Correspondent B's request for a further review and that, whatever decision the Council reached, it would not be reviewable by the Office of the Ombudsman because its jurisdiction did not extend to decisions made by a full Council.

PJ & Associates report

23.96
In February 2011, the Council instructed PJ & Associates of Tauranga to carry out an independent review of the Council's financial health and sustainability. It received that report in July. The report raised concerns about inadequate budgeting and financial reporting, leading to unplanned debt and a lack of cash reserves.

23.97
One of the new councillors then wrote to the OAG. He was concerned about how KDC was being run and its "very high levels of debt". He enclosed a copy of the PJ & Associates report. He also complained that questions on key issues were being "shutdown" or "censored". He asked for advice about what he should expect in relation to timeliness and the content of the financial statements that were put before the Council.

23.98
The OAG told the councillor that it had referred the PJ & Associates report to the appointed auditor for KDC, who would consider the issues it raised in the course of providing an audit opinion on the 2010/11 financial statements. The OAG recommended that the councillor continue to raise his concerns with the Mayor and Chief Executive.

23.99
In August 2011, the Auditor-General visited KDC as part of a routine visiting programme. The OAG staff member who was to accompany her on the visit was delayed by bad weather and, as a consequence, the Auditor-General had no briefing on current issues concerning KDC before the meeting. The Auditor-General met the Mayor and the Chief Executive. The Auditor-General's file note of the meeting records that there was brief mention of the wastewater scheme and the rates issues.

September 2011: The Minister of Local Government meets with Kaipara District Council and puts it "on watch"

23.100
The Minister also received letters about the PJ & Associates report and concerns about other matters, including the Council's decision-making processes and procedures, and internal disputes between elected members. The Minister was asked to the use his powers to intervene under the Local Government Act 2002. The correspondents were advised of the limits on the Minister's powers. They were told that the Minister was intending to meet the Mayor. In the meantime, it was the Minister's view that KDC should have the opportunity to resolve its problems on its own.

23.101
At the request of the Mayor, the Minister met the Mayor and the Chief Executive on 8 September 2011 to discuss KDC's financial situation. The Mayor and the Chief Executive advised the Minister of the steps that KDC was taking or had taken to address concerns raised by the PJ & Associates report – such as the appointment of debt advisers and suitably qualified senior staff, including the new General Manager, Policy & Governance.

23.102
The Department advised the Minister that there did not appear to be enough evidence to meet the legislative threshold for appointing a person to manage KDC. The Department put KDC "on watch" and identified areas where progress needed to be made by April 2012. KDC was required to provide regular updates to the Minister.

October 2011: Ratepayers' petition

23.103
In early October 2011, Correspondent B wrote to the Chief Ombudsman saying that there had been no independent legal review of the rates and that nothing had been resolved. On 22 October 2011, the Chief Ombudsman replied referring to recent developments, including a decision by the Council to obtain an independent review of the wastewater scheme and associated rating issues. The Chief Ombudsman referred to unconfirmed minutes of the Council meeting held on 28 September 2011 and the decisions the Council had taken. The Chief Ombudsman suggested that the Council was taking action to address Correspondent B's concerns and that there would be public consultation.

23.104
From late October 2011, the OAG began to receive letters in a standard form from members of the MRRA asking for an independent legal review of the rates to deal with their current invalidity, a review of past rating process to enable refunds and interest to be paid, and a forensic audit of all costs associated with the scheme.

23.105
The MRRA said that nothing had come of the independent first principles review and that KDC had unilaterally changed the process and terms of reference for the review, which the MRRA had agreed with KDC. The MRRA also referred to two financial reviews commissioned by KDC, which the MRRA said confirmed negligence and incompetence at KDC and raised concerns about the use of its Endowment Fund and Reserves Fund. It said that a rates revolt seemed likely. It also said that the MRRA felt badly let down by the Ombudsman, the Auditor-General, and the Minister of Local Government.

23.106
The OAG also began to receive emails from a number of other individuals who had not written before. For the most part, they expressed the same concerns about the legality of the rates that previous correspondents had raised. However, claims were also made that KDC had contravened bank covenants and was engaged in "illicit borrowing". One correspondent also alleged that the Auditor-General was shirking her responsibility to investigate KDC because of Audit New Zealand's involvement as the Auditor-General's audit service provider.

23.107
KDC's General Manager, Policy & Governance told the OAG that the Council had decided to commission a further first principles review of the wastewater targeted rate. The review would not be as broad as ratepayers would like, but there was scope for the Mayor or Deputy Mayor to extend the terms of reference if there was good reason. At the start of November, the General Manager, Policy & Governance sent the OAG a copy of her report and the terms of reference for the review.

23.108
The OAG then replied to the correspondents who had petitioned the OAG. The OAG explained the limits of its responsibilities as auditor, which did not include in-depth reviews of specific projects. The OAG referred to recent changes in management at KDC and said that it was actively working with KDC to help it to improve its processes. The OAG said that the Council had recently commissioned another review of its rating practices by a different legal adviser and that, although the review might not be as wide-ranging as some residents might wish, KDC was taking appropriate steps to resolve the issues. The OAG maintained its position that a formal inquiry was not necessary.

23.109
The new chief executive took up his position in mid-November and began a process of "due diligence" to familiarise himself with KDC. Shortly after his appointment, on 24 November 2011, he and the General Manager, Policy & Governance met OAG representatives in Wellington to discuss concerns they had, particularly with governance, financial management, and the wastewater scheme. The OAG encouraged them to continue this work and provided support and guidance on an ongoing basis during the following months.

23.110
In December 2011, the OAG also initiated a quality assurance review of Audit New Zealand's audit files to establish what work had been carried out about the scheme and whether the auditor had raised any concerns about it. The quality assurance review covered the audits of the 2008/09 and 2009/10 Annual Reports and the 2009-19 LTP. The review was completed in October 2012. However, it was overtaken by the independent review described in Part 22.

February to March 2012

23.111
In February 2012, KDC received a legal opinion from different legal advisers about the rates from 2008/09 to 2011/12. The scope of the legal opinion was wider than the previous two opinions and covered the rates and rate-setting processes generally, rather than focusing solely on the wastewater targeted rate.

23.112
The opinion pointed to numerous irregularities with KDC's rate-setting processes and suggested that validating legislation might be necessary.

23.113
Councillors considered the new legal advice, and other papers about the scheme, at the Council meeting on 15 February 2012. The Council resolved that the Chief Executive should ask the Auditor-General to investigate its decision-making, financial, and contract management processes, particularly in relation to the Mangawhai community wastewater project. The Council's view was that the emerging extent of the problems meant that it would not be able to fully resolve the issues with the Mangawhai community until there was a full and independent review of what had happened.

23.114
As set out in Part 1, the Auditor-General agreed to the Council's request in late February 2012. Terms of reference were released in March 2012, after consultation with the Council, community representatives (including the correspondents), the Department, and the Minister.

My comments

23.115
My comments focus on the OAG and the Office of the Ombudsman and, to a lesser extent, the Department. I make brief comment about the Serious Fraud Office and the New Zealand Police in paragraphs 23.162-165.

23.116
I have reviewed the extensive correspondence among the correspondents, the three agencies, and KDC during 2010 and 2011, and the decisions by the OAG and the Office of the Ombudsman not to carry out a formal inquiry at that time.

23.117
My assessment of the performance of the agencies takes account of the information available to them at the time. Of course, time has shown that several of the allegations made by the correspondents were correct.

23.118
In paragraphs 23.119-161, I comment on:

  • how well the three agencies responded to issues about KDC and the scheme raised by the correspondents;
  • how well the three agencies communicated with each other about the issues raised; and
  • the adequacy of the agencies' responses to the correspondents.

How well did the agencies respond to issues raised by the correspondents?

Office of the Auditor-General – 2002 to 2005

23.119
I consider that the OAG's response to the five complaints received from 2002 to 2005 was adequate.

23.120
In each instance, the OAG checked with KDC to determine whether the information provided was accurate and whether KDC was taking appropriate steps to address the issues the correspondents identified. In each instance, KDC's response appeared to be satisfactory.

23.121
At the time, the wastewater scheme was still at the proposal stage and being consulted on. I consider that it is reasonable that the OAG expected the complainants to take up the issues with KDC as part of a formal consultation process.

Office of the Auditor-General – 2010: Complaints from Correspondents A, B, and C

23.122
There were no further complaints to the OAG until early 2010, by which time the wastewater scheme was completed and operating. Correspondent A first wrote to the OAG in March 2010 and to the Minister and the Department in May 2010. Correspondents B and C wrote to the Office of the Ombudsman in 2009. The three correspondents were concerned about a targeted rate for the scheme, although Correspondent C raised a range of wider concerns about the Council and the wastewater scheme.

23.123
The OAG promptly sought information from KDC about Correspondent A's issues about the wastewater targeted rate. Information that the OAG elicited from KDC during the next few months suggested that KDC was taking appropriate action. KDC obtained legal advice that identified some issues with the targeted rate and considered that advice. It then sought further legal advice on a wider range of issues about the rate, which appeared to satisfy the "first principles review" that the OAG proposed.

23.124
Both the Office of the Ombudsman and the Minister declined to pursue the issues raised by the correspondents while the OAG was considering them, although they continued to receive correspondence from the correspondents.

Office of the Auditor-General's decision not to inquire

23.125
Late in August 2010, the OAG decided not to carry out a formal inquiry because KDC appeared to be dealing with the issues about the rate. I consider that, given the information available to the OAG at the time, the decision not to inquire was reasonable, although it is now clear that the correspondents were right about many issues.

23.126
The OAG's decision was based on an assessment of risk – the risk that there were issues with the wastewater targeted rate and the risk that KDC (as the entity responsible) would not address them. A request to the Auditor-General to inquire into a matter must be assessed on that basis – whether there is an issue to address and whether the entity itself (or another agency) is better placed to resolve it. Such a request must also be weighed against competing work demands.

23.127
The information available to the OAG suggested that KDC was aware of the problem with the rate, was taking legal advice, and intended to correct defects.

23.128
However, the OAG's decision was based on inadequate information. When making a preliminary assessment of an issue, the OAG would usually have an independent source of information about the affected entity from the appointed auditor. However, as described in the independent review in Appendix 6, there were deficiencies in the documentation for the audits of the 2009-19 LTP and 2008/09 Annual Report, both generally in relation to the wastewater scheme (see, for example, paragraphs 169.10 and 224) and specifically in relation to the targeted rate (see, for example, paragraph 294).

23.129
Consequently, the appointed auditor in 2010, who had just taken over the audit, was not alert to possible problems with either the wastewater scheme or the rate mentioned in some of the correspondents' complaints. As a result, the OAG lacked full information from the appointed auditor when deciding whether to inquire.

23.130
I also consider that it was reasonable that the OAG did not review the legal questions about the rate in depth. KDC had external legal advisers and was seeking their advice.

23.131
However, in its letters to the correspondents about its decision not to inquire, the OAG did not acknowledge that it also thought that there were some problems with the wastewater targeted rate. Instead, it said that, although there were issues with "terminology", the Council's overall intention was clear and its approach not unreasonable. The advice that it was enough for the Council's intention to be clear, even if the rate did not meet the requirements of the legislation, was not correct. I note that this is not advice that the OAG would now give.

23.132
The OAG's decision not to inquire into the rate issues left the wider concerns that Correspondent C had raised with the Ombudsman unaddressed. It seems that the OAG regarded those matters as dealt with, because the Ombudsman had suggested that Correspondent C take them up with KDC. Like the Office of the Ombudsman, the OAG will usually decline to investigate complaints that the complainant has not first tried to resolve with the public entity concerned.

23.133
The OAG began to suspect that there might be more issues about KDC and the scheme than the wastewater targeted rate only when KDC itself provided it with evidence of wider problems. That evidence came in the form of the PJ & Associates report forwarded by a new councillor; the legal opinion from the second legal adviser, which suggested that the rating issues were broader than the wastewater targeted rate; and information from KDC's new management.

23.134
With the benefit of hindsight, the Auditor-General now considers that it would have been appropriate to reconsider the situation more fully in late 2011, in light of the renewed correspondence from ratepayers and the additional information emerging from KDC. If the OAG had done so, this inquiry might have begun a few months earlier.

Ombudsman's decision not to investigate

23.135
The Office of the Ombudsman received complaints from the correspondents from 2009. It declined to investigate the rate issues when it learned that the OAG had also received complaints about the matter and was carrying out "preliminary inquiries". It wanted to avoid duplicating the OAG's work. The Office of the Ombudsman continued to decline the correspondents' repeated requests that it investigate for the same reason and then because KDC had commissioned the first principles review of the rate.

23.136
It is not clear to me whether the Office of the Ombudsman knew that the steps the OAG was taking did not constitute a formal, comprehensive inquiry. However, it told the correspondents that any complaints that the OAG had not adequately addressed could then be investigated by an Ombudsman.

23.137
The Office of the Ombudsman also declined to investigate the wider issues raised by Correspondent C, either because they did not appear to have been raised with KDC or because there was insufficient information to establish grounds for an investigation.

23.138
The Office of the Ombudsman, like the OAG, will usually decline to investigate complaints that the complainant has not first tried to resolve with the public entity concerned. I consider that the decision was reasonable in the circumstances.

How well did the agencies communicate with each other?

23.139
I consider that, despite considerable contact on issues concerning KDC, there were shortcomings in communication among the three agencies.

23.140
Each agency focused on its own functions and the limits of that role. The Department and the Minister were concerned to establish whether the statutory threshold for intervention had been reached. The Office of the Ombudsman looked for issues affecting individuals that it could address. The OAG's primary concern was matters that might affect the audit of the Council's financial statements.

23.141
Viewed as a whole, the body of complaints contains allegations and, in some instances, information that could have indicated that the problems with the scheme were wider than the wastewater targeted rate. However, each agency addressed each complaint as it came. At no point did the three agencies pool their information or jointly consider what an appropriate response might be.

23.142
Towards the end of 2011, the Minister and the Department did raise questions about the wider local government context, in promoting legislation to give the Minister a greater range of interventions where a local authority appears to be failing (legislation that has now been passed).

23.143
In addition, inadequate communication among the three agencies will have contributed to the correspondents' dissatisfaction with them. For example:

  • The OAG told both the Office of the Ombudsman and the Department that it was carrying out "preliminary inquiries" but did not ensure that each understood that this meant gathering information from KDC and the appointed auditor.
  • The OAG neglected to tell the Minister and the Department that it had decided not to carry out an inquiry, with the consequence that the Minister later wrote to Correspondent C telling him that the OAG was still carrying out an investigation.
  • When the OAG said that it was "monitoring" the first principles review, the Office of the Ombudsman understood monitoring to mean "active oversight". In fact, the OAG appears to have meant something less than that. Consequently, the Office of the Ombudsman referred Correspondent C to the OAG for information about the review on the assumption that the OAG would have close oversight of it.

Were the agencies' responses to the correspondents adequate?

Office of the Auditor-General's handling of the correspondents' complaints

23.144
I consider that there were shortcomings in the OAG's communications with the correspondents. The tenor of much of the correspondence is mounting frustration on the part of the correspondents and, on the OAG's part, a focus on what it would not do, rather than what it could do (and was doing). It is also possible to discern a desire on the part of the OAG to avoid initiating a formal inquiry.

23.145
The OAG's first response to Correspondent A said that it was carrying out "preliminary inquiries" – the OAG's standard initial response at the time. However, the OAG did not explain that preliminary inquiries meant talking to the two most likely sources of information, KDC and the appointed auditor, to establish whether the issues raised by the correspondents might have substance and whether the OAG needed to be involved or whether the issue was likely to resolve itself.

23.146
The OAG then did not reply formally to Correspondent A for four months, although it had spoken to Correspondent A by telephone in the interim. (The telephone calls were initiated by Correspondent A.) When it did reply, the OAG said that it could not determine the legality of the rate. Correspondent A asked, not unreasonably, why the OAG could not have told him that at the outset.

23.147
The OAG's letters to the correspondents informing them that it would not carry out an inquiry did not tell them that the OAG also considered that there were problems with the targeted rate.

23.148
The OAG did not address Correspondent C's wider concerns, other than to encourage him to pursue them directly with KDC.

Comment

23.149
The Public Audit Act 2001 gives the Auditor-General the power to carry out an inquiry into a public entity's use of its resources. In the context of that role, the OAG has for many years invited complaints about public entities from taxpayers and ratepayers. The information currently on the OAG's website makes clear the limitations of the inquiries function. It says that the Auditor-General's office is not a "general complaints agency" and that it is "not an avenue for individual complaints or concerns about how a public entity has handled a particular matter".

23.150
The OAG's performance measures for inquiries focus on quality and timeliness. Timeliness is measured by the time taken to report findings to the "relevant parties", who include the complainant.

23.151
The clear implication is that, within the limitations described, the OAG will consider all requests for an inquiry that it receives from the public and will report back to the complainant both on its decision whether to inquire and, if it does inquire, on the findings of the inquiry.

23.152
As an Auditor-General's inquiry is concerned primarily with the accountability of the public entity, it is possible that complainants, such as Correspondents A, B, and C, will have expectations of the Auditor-General that will not be met.

The Office of the Ombudsman's handling of the correspondents' complaints

23.153
It is apparent that the Office of the Ombudsman carried out a considerable amount of work on the complaints received, many of which were lengthy and involved a complex mix of legal and technical issues, as well as miscellaneous allegations of wrong-doing at KDC that were not always clearly explained or substantiated.

23.154
The Office of the Ombudsman declined to investigate when it learned that the OAG had also received complaints about KDC and was carrying out "preliminary inquiries". However, the Office of the Ombudsman left open the possibility that the correspondents could again ask for an Ombudsman investigation when the OAG had completed its work.

23.155
As noted in paragraph 23.129, it is not clear how well the Office of the Ombudsman understood the limited extent of what the OAG was actually doing. Although the OAG had informed the Office of the Ombudsman in September 2010 that it had decided not to inquire, the Office of the Ombudsman several times referred the correspondents back to the OAG (who then referred them to KDC), on the understanding that the OAG was monitoring the first principles review.

Department of Internal Affairs

23.156
The Department's function relevant to this inquiry is to advise and support the Minister (see paragraph 21.12). I conclude that, given the limits of the Minister's statutory role at the time, the Department discharged this role appropriately about the complaints that the Minister and the Department received about the Council. The responses to the correspondents were sent promptly.

Resources for inquiries: The Office of the Auditor-General and the Office of the Ombudsman

23.157
The correspondents' complaints were made at a time when both the OAG and the Office of the Ombudsman were finding it difficult to resource inquiries and investigations.

Office of the Auditor-General

23.158
The OAG spends only 1% or 2% of its resource on inquiries (see paragraphs 21.29-21.32). In 2010, at the time of the correspondents' complaints, the OAG was handling multiple inquiries. It completed and published the results of nine major or significant inquiries in 2010. Consequently, the OAG's limited resource for inquiries was stretched. As noted in paragraph 21.30, the OAG does not have a dedicated inquiries team.

23.159
The complaints about the Council focused on the wastewater targeted rate. It is possible, therefore, that the OAG did not consider that an issue that presented as a technical, legal question about a single targeted rate was important enough to warrant deeper investigation.

Office of the Ombudsman

23.160
The Office of the Ombudsman operates with limited resources. The annual reports for the relevant period show an increasing number of complaints received but little increase in the resource available to attend to the complaints. In her report for 2009/10, the Chief Ombudsman acknowledges the significant pressure on her investigative staff, compounded by the loss of experienced investigating staff and the increasing complexity of the matters referred to her.

23.161
In this context, the Office of the Ombudsman's usual approach is to avoid premature commitment of its limited resources to a matter when it knows that alternative remedies have not been fully explored.

Serious Fraud Office/New Zealand Police

23.162
I have a brief comment on the role played by the Serious Fraud Office and the New Zealand Police.

23.163
The Serious Fraud Office received five complaints about the Council, between September 2011 and June 2012, alleging corruption and fraud. After examining the evidence provided, the Serious Fraud Office determined that the evidence did not suggest that a financial crime had occurred. It referred each of the complaints to the Office of the Ombudsman and the OAG.

23.164
The New Zealand Police received one complaint in April 2012. The Police decided in September 2012 that the matters raised did not warrant a criminal investigation.

23.165
I note that the much more detailed examination of events during this inquiry has uncovered no evidence of criminal offending.

4: This Part has been written by Phillippa Smith, Deputy Controller and Auditor-General.

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