Part 1: Introduction

Inquiry into Alpine Energy Limited's decision to install solar equipment at a senior executive's house.

In August 2018, we received information that raised concerns about Alpine Energy Limited (Alpine Energy) from 2013-2018.

Alpine Energy is a “public energy company” under the Energy Companies Act 1992. It is subject to audit by the Auditor-General under the Public Audit Act 2001. We also expect it to follow the good practice principles that apply to public organisations, including those set out in good practice guides that we publish.

The information we received included allegations that, from 2013-2018, Alpine Energy was not following good practice when carrying out its procurement activities. The allegations were that:

  • Alpine Energy had no procurement policy from 2013-2018, or, if a policy did exist, it was not consistent with the principles of good practice;
  • some significant contracts were not negotiated on a contestable basis;
  • Alpine Energy’s resources, including staff time, might have been used to procure goods or services for employees’ personal benefit; and
  • a photovoltaic (solar) installation was fitted to the house of a senior executive during the period, at Alpine Energy’s expense, without any clearly documented business case or rationale.

The nature of the allegations raised questions for us about proper procurement practice, financial prudence, and probity.

We were able to deal with the first three allegations relatively easily. With the fourth allegation, installing solar equipment on the home of a senior executive (the employee), Alpine Energy confirmed that it did pay for the installation at the house of the employee. It was done as part of a trial of solar energy. When the employee left Alpine Energy, the solar equipment was sold to them. We discuss our findings on these allegations in more detail in Part 3.

Our initial view was that these arrangements were unusual for a public organisation and warranted further investigation. Our main concern was that they involved “sensitive expenditure”. Sensitive expenditure is the term we use to describe any expenditure by a public organisation that could be seen to give a private benefit to an individual employee, in addition to the business benefit gained by the public organisation.

We refer to this type of expenditure as sensitive expenditure because there is heightened public sensitivity about it. The sensitivity is not always about the amount of money involved. Although sensitive expenditure can sometimes involve relatively small amounts of money, it is more about the perception that an individual:

  • might have benefitted personally from public money being spent without there being a legitimate business reason for that expenditure; or
  • might have benefitted disproportionately from the expenditure at the
    public’s expense.

Failing to properly manage and account for sensitive expenditure can quickly erode public trust and confidence in both the public organisation and the public sector.

Areas where sensitive expenditure is commonly incurred are travel, accommodation, and hospitality. Other examples of sensitive expenditure are where an individual is permitted to use a public organisation’s assets (such as a phone or laptop) or suppliers for personal use or where a public organisation disposes of surplus assets (especially if the disposal is by way of a sale to employees or other individuals related to the organisation).

In our 2007 good practice guide Controlling sensitive expenditure: Guidelines for public entities, we say sensitive expenditure decisions should:

  • have a justifiable business purpose;
  • preserve impartiality – that is, be made in such a way that they are not seen to favour a particular individual or individuals;
  • be made with integrity;
  • be moderate and conservative, having regard to the circumstances;
  • be made transparently; and
  • be appropriate in all respects.

We expect all public organisations to be familiar with these principles and to have suitable policies and procedures for identifying and managing sensitive expenditure. We also expect those in senior management or governance roles to set an appropriate tone from the top.

In this case, installing the solar equipment on the employee’s house appeared to have conferred a personal benefit on the employee, while the benefit to Alpine Energy was unclear. As a result, we decided to carry out an inquiry under section 18 of the Public Audit Act.

Scope of the inquiry

Our inquiry focused on the decision-making, monitoring, and management processes relating to the installation of the solar equipment on the employee’s house.

In carrying out the inquiry, we:

  • wrote to Alpine Energy asking questions about its decision to pay for and install solar equipment at the home of the employee;
  • obtained and considered documentation about Alpine Energy’s decision to pay for and install solar equipment at the home of the employee;
  • interviewed Alpine Energy’s Chief Executive and the employee; and
  • visited the employee’s house.

Particular issues we wanted to understand were:

  • why Alpine Energy entered into the arrangement with the employee;
  • whether the arrangement was connected in any way with the employee’s recruitment and employment;
  • what the arrangement between Alpine Energy and the employee was;
  • what benefit Alpine Energy got out of the arrangement;
  • what benefit the employee got out of the arrangement;
  • whether Alpine Energy got a fair price for the solar equipment it sold to the employee; and
  • overall, whether Alpine Energy had properly managed the risks from the sensitive expenditure.

Structure of this report

In Part 2, we describe the background information on the solar installation.

In Part 3, we discuss our findings about the solar installation and other matters.