Decision to fund Kahukura Rehabilitation Programme from the Proceeds of Crime Fund

2 September 2021: We have replied to Hon Judith Collins about her concerns about the application by the Ministry of Health for funding from the Proceeds of Crime Fund for the Kahukura Rehabilitation Programme.

Hon Judith Collins
Leader of the Opposition
Private Bag 18041
Parliament Buildings
Wellington 6160

Tēnā koe Ms Collins


Thank you for your letter of 19 July 2021.

You have raised concerns about the application by the Ministry of Health for funding from the Proceeds of Crime Fund (the Fund) for the Kahukura Rehabilitation Programme (Kahukura). Kahukura is being delivered by H2R Research and Consulting Limited (H2R).

You have asked me to investigate the Proceeds of Crime panel members’ decision to fund Kahukura, with an emphasis on the appropriateness of this decision. Specifically, you have asked me to investigate:

  • whether it is appropriate to give money from the Fund to H2R, an organisation co-directed by a lifetime member of the Mongrel Mob, and if this undermines the Fund’s credibility;
  • whether this is an appropriate use of the Fund given the allegation that participants are required to work at the home of the Hawke’s Bay Mongrel Mob leader; and
  • whether the decision was ethical and appropriate given H2R has encouraged gang members to vote for the Labour Party.

The focus of our work

As you will be aware, I have a range of functions that help Parliament and the public hold public organisations to account for their use of public money. Those include annual audits of public organisations, monitoring expenditure against parliamentary appropriations, and looking more closely at how public resources have been used and the effectiveness of spending by public organisations through performance audits and inquiries.

Our work can include examining whether a public organisation has followed an appropriate or agreed process in making a particular decision and whether it has adequate controls in place to ensure it can account for the money it spends and deliver value for money. However, it is not our role to express a view about the merits of a particular decision or the policy sitting behind that decision, or to inquire into private organisations or the conduct of private individuals.1

What we have done

In considering the issues you have raised, we have:

  • reviewed the Fund’s terms of reference and public documents that set out the way decisions are made to resource initiatives under the Fund; and
  • met with the Ministry of Health to understand how it intends to manage the contract for the delivery of Kahukura and considered documents from the Ministry about the proposal for the funding, and the arrangements for the funding.

The Proceeds of Crime Fund

The Fund was set up in 2009 and funding comes from assets forfeited under the Criminal Proceeds (Recovery) Act 2009. The purpose of the Fund is explained on the Ministry of Justice website as being to address organised crime harm and drug-related harm, test innovative solutions to complex issues relating to crime-related harm and enable agencies to build an evidence-based case of what works in addressing crime-related harm. 

To be provided funding from the Fund, initiatives must align with at least one of the four criteria set by Cabinet:

  • expansion of alcohol and other drug treatment services;
  • initiatives to fight organised criminal groups dealing in methamphetamine and other drugs;
  • initiatives to address mental health issues within the criminal justice system; and
  • initiatives that address crime-related harm to communities and improve community wellbeing.

Applicants for funding can only be made by a “service department”, as defined by Te Kawa Mataaho Public Service Commission and as listed on the Ministry of Justice website.2 Non-governmental organisations, such as H2R, are not a service department and require an eligible agency to endorse an application. The relevant service department(s) is then responsible for ensuring the initiative is delivered and for reporting back to the Ministry of Justice (the current Secretariat for the Fund) on the delivery of the initiative.

Applications are evaluated by panel of senior representatives from the Ministry of Justice, Ara Poutama Aotearoa (Department of Corrections), Te Puni Kōkiri, Ministry of Health, Ministry of Education, New Zealand Police, The Treasury, Oranga Tamariki, and the Chief Science Adviser.

The terms of reference for the Fund are publicly available. These set out the process for applications to be considered, including managing conflicts of interest. The panel is required to consider:

  • whether the initiative meets the purpose and criteria of the Fund;
  • the requirement that at least one third of the funds for allocation are to be prioritised for fighting organised criminal groups dealing in methamphetamine and other drugs;
  • how well the initiative is designed and planned;
  • the likelihood the organisation can deliver the initiative successfully;
  • whether the proposal is likely to deliver the proposed outcomes and benefits; and
  • the amount of funding available in any round.

The panel makes recommendations to the Prime Minister, Minister of Finance, and Minister of Justice. These Ministers make the final decision on applications.

The process leading to the decision to fund Kahukura

From the information we have reviewed, the funding decision was made in line with the process set out in the terms of reference for the Fund.

The application was made by the Ministry of Health as the required eligible agency. The application included a detailed proposal by H2R for a marae-based rehabilitation initiative to reduce methamphetamine dependency, facilitate and support trauma recovery, and enhance positive whanau and identity development in these communities. The application was in the template required for applications to the Fund. Information was provided about how Kahukura met the criteria for the Fund, including evidence and names of agencies supporting Kahukura.

The application was considered by the panel and a recommendation was made by the panel to the Ministers, who decided to fund Kahukura. That decision was made on 6 March 2021.

We have not seen any evidence to indicate that political views previously expressed by H2R’s co-director had any influence on the Ministry of Health’s application for funding for Kahukura, the panel’s recommendation to fund Kahukura, or the Ministers’ decision to fund Kahukura.

An agreement between the Ministry and H2R was entered into on 7 July 2021, to cover a period from 1 July 2021 to 31 December 2024. The first payment by the Ministry under the agreement was made at that time. The next payment by the Ministry will be made in October 2021, upon completion of the first course under the programme. 

Ensuring delivery of Kahukura and value for money

We expect that the Ministry of Health, like any public organisation, will have proper controls in place for this and any other initiative involving payment of public funds. These controls are important to ensure that what has been agreed to is delivered to the appropriate quality standards. The supplier’s performance needs to be assessed and managed to ensure value for money.

It appears in this case that there are appropriate controls for monitoring and ensuring delivery of the programme. We have reviewed the Ministry of Health’s contract with H2R to deliver Kahukura. The contract includes controls to provide assurance that Kahukura is delivered as contracted. Key terms of the contract include:

  • scheduled payments over the period of the contract;
  • a joint governance group overseeing delivery;
  • regular reporting from H2R to the Ministry which will encompass, at a minimum, achievements, risks, issues, and budgeted versus actual expenditure;
  • an ability for an independent audit; and
  • a review of the contract at key milestones.

The Ministry of Health will also be required to provide six-monthly reports to the Ministry of Justice about the delivery of the programme.

As above, it is outside the mandate of my role as Auditor-General to look the merits of the decision to fund this programme. On the aspects I am able to consider, it appears that the funding decision was made in line with the process set out for the Fund, and that there are controls in place to monitor delivery of what has been agreed. On this basis, I do not intend to carry out further inquiry work on this matter.

Thank you again for writing to us. Because of the level of public interest in this matter, we will publish this letter on our website.

Nāku noa, nā

Signature - JR

John Ryan
Controller and Auditor-General

1: Under the Public Audit Act 2001, if there is an applicable government policy, my ability to carry out an inquiry or a performance audit is limited, respectively, to the extent to which the public entity is using its resources or activities are being carried out effectively and efficiently in a manner consistent with that policy.