Part 2: Closing the charter schools and preparing to open the new state schools

Inquiry into management fees paid by South Auckland Middle School and Middle School West Auckland in 2018.

2.1
In this Part, we describe:

2.2
Appendix 2 sets out a timeline of key events. Although chronologically the new designated character state schools were established before the charter schools were formally disestablished, for clarity we discuss the termination process and payments first.

Disestablishment of the charter schools

2.3
A formal process was followed for the disestablishment of South Auckland Middle School and Middle School West Auckland as charter schools.

2.4
In November 2018, termination agreements were drawn up between the Ministry and Villa Education Trust (as the sponsor of the charter schools that were to be disestablished). According to those agreements, the termination date for the charter schools was 7 December 2018.

2.5
The termination agreements set out in detail the activities that had to be completed as part of the closure process, and allocated responsibility for these. Examples of the termination activities included:

  • arranging to sublease relevant assets (such as photocopiers) to the new schools;
  • selling other assets to the new schools;
  • transferring staff and student records to the Establishment Board's or the Ministry's systems (as directed); and
  • updating all relevant internal documents/policies as needed.

2.6
Villa Education Trust, as the sponsor of the charter schools, was responsible for carrying out most of the tasks. However, Villa Education Trust and the Ministry needed to work together on some activities, such as transferring the lease of property from Villa Education Trust to the Ministry.

2.7
The termination agreements also set out the dates the specified activities had to happen by. In most instances, the activities were expected to have been completed by 25 January 2019, although there were some exceptions where it was not practical for that date to be met.

Termination payments from the Ministry of Education

2.8
The termination agreements confirmed details of the payments that the Ministry would make to Villa Education Trust (as sponsor of the charter schools being disestablished). These payments were intended to cover the costs of the activities that needed to be done for the schools to be closed.

2.9
The termination agreements record that the termination payments would be $119,372 for Middle School West Auckland and $81,292 for South Auckland Middle School. The agreements also record a $20,000 contribution to be paid to each school (to go towards meeting the costs associated with agreeing the arrangements set out in the Termination Agreement) and forgiveness of a $50,249 debt Middle School West Auckland owed to the Ministry.6

2.10
The termination agreements required Villa Education Trust (as sponsor) to manage conflicts of interest in relation to both the termination of the charter schools and the establishment of the new designated character state schools. Villa Education Trust was required to:

a) actively identify and effectively manage all actual, potential or perceived conflicts of interest that may exist or arise in relation to anything connected with the termination of the Existing Agreement and/or the establishment of, or preparation for the opening and operating of, the [new designated character schools]; and
b) upon request by the Ministry, demonstrate that all material conflicts of interest have been (or will be promptly) identified and effectively managed to ensure independence, fairness, and impartiality, especially when a Related Person is involved with that process.7

Establishment of the designated character state schools

The approval and appointment process

2.11
A formal process was also followed for the establishment of the new designated character state schools. This process started in May 2018, when Villa Education Trust submitted applications for both schools.

2.12
The applications were detailed and contained information about all aspects of the schools' operations. This included (but was not limited to):

  • provision of property;
  • governance and management of the schools;
  • physical and emotional safety plans and procedures; and
  • financial management plans and budgets.

2.13
In the applications, Villa Education Trust requested that existing Villa Education Trust members be appointed to the Board of the new state schools.

2.14
The Minister of Education initially deferred his decision on the applications and asked the Ministry to appoint an independent evaluator to obtain further information about whether the schools' curriculum met the requirements for a designated character state school. After considering the report from the independent curriculum evaluator, the Minister of Education approved the establishment of both schools as designated character state schools on 28 August 2018.

2.15
On the same day, the Minister appointed the existing trustees of Villa Education Trust as trustees of the Establishment Board, as had been requested in the applications. The Minister noted the importance of keeping the two roles separate in his letters appointing the trustees:

I am aware that you are currently a member of Villa Education Trust that provides governance to the two charter schools, South Auckland Middle School and Middle School West Auckland. It is important that the roles, functions, and responsibilities of [Villa Education Trust] and the [Establishment Board] remain separate. The governance facilitator will be able to support you with this.

2.16
We understand the Ministry appointed the governance facilitator referred to in the appointment letters on 10 September 2018, as a link between the Ministry and the Establishment Board. The governance facilitator's role was described to us as being to:

… assist [the Establishment Board] with understanding duties, becoming operational as a state school, refining the vision for the schools if required, developing policies and procedures and adapting things, and supporting the [Establishment Board] with personnel and employment and preparing the schools for opening.

Establishment funding and payments to Villa Education Trust

2.17
Collectively, the schools received establishment funding of $1.74 million. This was paid in multiple instalments in September 2018.

2.18
We understand that, although the funding amounts were split to reflect different types of spending (for example, furniture and equipment, and learning and development), this split was nominal only and the new schools could use the funds on establishment activities as needed.

2.19
The Establishment Board held its first meeting on 6 September 2018. The minutes of that meeting include a record of the motions that were passed. The first of these motions sets out that:

Middle School West Auckland and South Auckland Middle School [Establishment Board of Trustees] will contract administration and management of the schools to Villa Education Trust to undertake all aspects of this. This includes opening of bank accounts and obtaining IRD numbers and set up the new account management file. The fee for this service is to be determined when a scope of work is established.

2.20
On 10 September 2018, the Establishment Board received the first tranche of establishment funding for the two new state schools from the Ministry. This was $420,503 for Middle School West Auckland and $363,791 for South Auckland Middle School.

2.21
The next day, on 11 September 2018, the Establishment Board received two invoices from Villa Education Trust, one for $250,000 for Middle School West Auckland and one for $200,000 for South Auckland Middle School. Both invoices contained the description "management fee" for 2018 "set up" and were paid in full ($450,000) on the same day.

6: The Ministry also paid the Establishment Board $298,452 to reimburse to Villa Education Trust. This represented 75% of manager and staff salaries until 31 December 2018.

7: Related person was defined as a "company, entity or other organisation (including a trust) or person with a close association with the Sponsor or a person who controls or makes decisions for the Sponsor (whether that association is through ownership, control or other influence)".