Auditor-General will not inquire into Hamilton City Council

In July 2012, the Auditor-General received a request to investigate a range of concerns about governance and financial management at the Hamilton City Council. 

In particular, the request referred to issues identified by Audit New Zealand in its October 2011 report on the Council’s management of the V8 Supercar event, and by two other recent reports commissioned by the Council. These reports were by Horwath HTL into the Claudelands Event Centre project and by Deloitte into financial management at the Council.

The request asked that we use our powers under the Public Audit Act 2001 to carry out a general inquiry to examine the wider issues identified by the three reports. We were also asked to consider:

• whether the Council’s decision not to try to recover the V8 losses from the former Chief Executive involved a financial conflict of interest on the part of some of the councillors; and
• whether to try to recover some of the Council’s losses from the individual councillors, under the Local Government Act 2002.

The request also asked that a Crown agent or review authority be appointed to act in place of councillors to make decisions about recovering the V8 losses and to review, report, and monitor matters arising out of the various reports and on the results of any inquiry we might carry out.

Our decision on the request for a general inquiry

Having considered the request and supporting material provided, we have concluded that a further general inquiry would add little value. The concerns identified in the request are already well known to councillors, management, and the public of Hamilton generally, and the Council is taking appropriate steps to respond to those concerns.  In our view, the Council needs a reasonable period of time to implement and embed the necessary changes.

Our decision on the conflicts of interest matter

In November 2011, the Council considered whether to pursue a claim against the former Chief Executive in connection with the findings of the Audit New Zealand V8 report. The Council’s legal advisers assessed the steps involved in bringing legal proceedings, the potential costs of litigation, and the likelihood of success.  Based on that advice, the Council decided by a majority not to pursue a claim.

The complaint to us suggested that some of the councillors had a financial conflict of interest when they took part in this decision. The suggestion was that if the Council brought legal proceedings against the former Chief Executive, he might make counter-allegations against councillors who had been involved in earlier decisions. If the Court accepted those counter-allegations, councillors might have to share responsibility for the Council’s losses. 

The Local Authorities (Members’ Interests) Act 1968 prohibits elected members of local authorities from participating in decisions when they have a financial interest in the matter under discussion. The Auditor-General administers the Act and can initiate legal proceedings when this rule is breached.

We have considered whether some councillors might have breached the Act by participating in the decision not to pursue a claim against the former Chief Executive.  In our view, they did not.

For a financial interest to arise under the Act there must be, at the time of the relevant decision, a reasonable expectation of gain or loss of money for the member(s) concerned.  In our view, this was not the case when the Council voted not to pursue a claim against the former Chief Executive.  The possibility that, as a result, the councillors might be sued and found liable for loss was both too uncertain and too remote to constitute a financial interest under the Act.

Our decision on recovering losses from councillors

Under section 46 of the Local Government Act, if a local authority has suffered a loss as a result of certain types of unlawful or negligent actions, that loss may be recoverable from councillors.

Councillors have a defence under section 46 if the actions that caused the loss occurred without their knowledge, or if they acted in good faith and relied on information or advice given by employees of the authority or other professional advisers.

The Audit New Zealand report into the Council’s decision-making processes in relation to the V8 event was critical of some aspects of the councillors’ involvement in the decisions made by the Council.  However, the report identified a number of shortcomings in the accuracy and adequacy of information provided to councillors, and established that, in some instances, actions were taken without their knowledge or authority.

Given these findings it would not, in our view, be appropriate to seek recovery of the Council’s losses from individual councillors.