Auditor-General's decision on requests for further inquiry into the Hawke's Bay District Health Board

17 April 2008

Additional work in the annual audit

The Auditor-General has decided to carry out additional work in the coming year’s annual audit on the management of contracting activity and conflicts of interest in the Hawke's Bay District Health Board (the DHB). That work will enable the Auditor-General to provide assurance to Parliament and the public on whether the improvements in policies and practice identified as necessary in previous audit reports, and in the report of the review panel established by the Director-General of Health, are being made.

The work will be in addition to already planned activities to consider procurement practices in the DHB sector as a whole in the next annual audit.

Promoting guidance on good practice for DHBs

We will also work with the Ministry of Health as it prepares additional guidance material for the DHB sector in this area. We will continue to promote the guidance and expectations already set out in our good practice guide on conflicts of interest, and the performance audit completed in 2007 on the management of conflicts of interest in the three Auckland region DHBs.

No further inquiry into past events

The Auditor-General has decided not to carry out any further inquiry into past contracting activities and conflicts of interest issues at the DHB. These matters have already been sufficiently examined through other processes, which have identified deficiencies in the policies and practices that operated at the governance and management levels of the organisation. Steps have been or are being taken to address those deficiencies. Any further inquiry into past activities would be an unwarranted and significant distraction of energy and resources from the DHB’s primary task of providing health care services to the people of Hawke's Bay.

The results of our additional work will be reported to the DHB and to Parliament as part of the normal reporting on the results of annual audit activity.

Contact for enquiries
Nicola White
Assistant Auditor-General, Legal
Telephone: (04) 917 1500

Background information

In 2007 the Auditor-General received requests to inquire into the management of contracting activity and conflicts of interest in the Hawke's Bay District Health Board. He decided not to carry out an inquiry at that time, because the Director-General of Health had already announced the establishment of an independent review panel to inquire into the same issues. However, we carried out some additional work on procurement and conflict of interest policies and practices in the context of the annual audit. The results of that work were reported to the DHB, the Minister of Health, and the Health Committee of the House of Representatives.

On 27 February 2008, the Minister of Health dismissed the Board and replaced it with a Commissioner and Deputy Commissioner. The review panel report was released on 17 March 2008. Since then, we have received further formal requests for us to carry out an inquiry.

Before making a decision, we have talked with many of the interested parties, to ensure that we understand their perspective on the issues now confronting the DHB, the review panel’s work, and any outstanding issues.

Reasons put to us for an inquiry

The main concerns put to us were that:

the Ministry’s review process lacked credibility and was flawed because it did not look at the management side of the process, and because of undue influence by one party on the review’s findings;
some of the contracts and conflict of interest allegations that had been publicly discussed or debated needed further inquiry to establish the facts;
the process for appointing Mr Hausmann to the Board needed to be examined, particularly to determine whether conflict of interest issues were adequately considered; and
the treatment of the ‘whistleblower’ needed further investigation.

Other reasons suggested for why we might do more work in this area were that:

the sector would benefit from further definitive guidance from the Auditor-General on expectations in relation to conflicts and procurement;
it would provide a useful opportunity for us to comment on board appointment processes generally, and the systems needed to deal with conflicts in that process; and
the involvement of individuals with close relationships to Ministers added a complicated and unusual dimension, that would be difficult for anyone other than the Auditor-General to examine.

Reasons put to us against further inquiry

Others thought that further inquiry was not warranted.

The review panel’s work traversed the issues thoroughly enough, and looking at further contracts in greater detail would simply provide more evidence for the same points - namely that the Board did not have proper systems, policies, or procedures in place to manage conflicts.
Our work last year on procurement and conflict policies and practice was thorough enough to expose the problems and point to the path forward.
The key contract was stopped once the problems were identified by the DHB’s audit committee in 2006.
The Board has now been removed creating a changed governance environment.
None of the scrutiny processes so far has found evidence to suggest possible fraudulent or corrupt activity, as opposed to further examples of poorly managed conflicts.
There is a strong risk that not only would further backwards looking investigation add little value, but that it would be positively harmful for the organisation at a time when its focus needs to be on rebuilding morale and purpose.
The treatment of the whistleblower has been the subject of two employment settlements, and there are further remedies available under employment law if needed.
The papers on the appointment process have been publicly released many times in the last two years, and show that attention was given to managing conflict of interest issues.
The Minister has already directed the Ministry to take action on the recommendations from the inquiry report and Audit New Zealand’s work from last year. An exercise is now beginning in which all DHBs are being asked to assess their performance against the standards set in these various reports. The Ministry will then work with the sector to develop much clearer and stronger guidance and expectations. We have been asked if we would help with that work.
In the last 18 months we have already set out our expectations and provided clear guidance on conflicts of interest and DHB issues in particular.
It would be more productive for us to check progress with improving systems, for example through the audit processes that take place throughout the year.

Our decision on further work

In our view, the main issue that might have warranted further inquiry work was that of management actions in relation to these contracts. The review panel did not look at that issue in detail. We note however that the successive reviews, by the DHB's audit committee, by our staff during the annual audit, and by the review panel, produced no suggestion that there was evidence of fraud in this area. The conclusions each time point to poor systems. We have confidence in the ability of the Commissioner to address any remaining issues with management systems and practices.

We also give significant weight to the view that the organisation as a whole has a strong need to focus on the future and on rebuilding its capacity. Any further inquiry into past events would inevitably distract energy and resources from that task.

We have concluded that further attention from our Office is appropriate, but that it should focus on providing assurance that improvements are being made. We will not carry out any further inquiry into past events at the DHB. We will, however:

carry out additional work in the context of the annual audit to check on progress with improving systems, policies and procedures, in order to provide a greater measure of ongoing assurance over the contracting activities of the Hawke's Bay DHB;
continue with an already scheduled programme of work to consider procurement practices in the DHB sector as a whole as part of the next annual audit;
work with the Ministry of Health as it prepares guidance material for the DHB sector; and
continue to promote the guidance and expectations we have already set out in our good practice guide on conflicts of interest and the performance audit completed in 2007 on the management of conflicts of interest in the three Auckland region DHBs.