Incentive payments made by Te Puni Kōkiri to Whānau Ora commissioning agencies

15 April 2019

Michelle Hippolite
Toihautū/Chief Executive
Te Puni Kōkiri
PO Box 3943
WELLINGTON 6140

Tēnā koe Michelle

Incentive payments made by Te Puni Kōkiri to Whānau Ora commissioning agencies

During the Māori Affairs Committee’s Annual Review of Te Puni Kōkiri (the Ministry) in December, members of the select committee asked about an “incentive payment” that had been distributed to the shareholders of a Whānau Ora commissioning agency. Recognising the potential public interest in this matter, we decided to review the arrangements.

We have since met with your officials responsible for the administration of Whānau Ora and have reviewed information we received, including the funding framework and agreements with Whānau Ora commissioning agencies.

This letter sets out our views on the matter, including some observations about the current incentive payment arrangements. Because other agencies in the public sector administer similar funding arrangements (including incentive payments), and the level of public interest in this matter, we have decided to publish this letter on our website.

Background

Te Puni Kōkiri commissions Whānau Ora outcomes through three non-Government agencies (called commissioning agencies): Te Pou Matakana, Te Pūtahitanga o Te Waipounamu, and Pasifika Futures. The commissioning agencies are not audited by my Office. Te Pou Matakana Limited and Pasifika Futures Limited are registered charities. Te Pūtahitanga o Te Waipounamu is registered with Companies Office.

The purpose of Whānau Ora is to achieve improved wellbeing for whānau using a whānau-centred, aspirational, and self-determining approach. The commissioning model was developed as a means to achieve the objectives of Whānau Ora, and is intended to encourage innovation.

The commissioning model gives the commissioning agencies a high degree of decision-making autonomy. Expected performance targets, payment amounts, and payment schedules are confirmed as part of negotiated Annual Investment Plans (AIPs), within a context of overarching Outcome Agreements, which cover a three-year term (renewed in 2017 and ending 30 June 2020). Following the AIP planning process, Te Puni Kōkiri and the commissioning agencies agree additional “incentivised” targets. The incentivised targets act as a form of “payment by results” that commissioning agencies may pursue. If these incentivised targets are met, the commissioning agency is entitled to receive additional payments from Te Puni Kōkiri (some more detail about the payments made in recent years is contained in the Appendix to this letter).

Te Pou Matakana is one of the commissioning agencies that has received incentive payments from Te Puni Kōkiri. The incentive payments received by Te Pou Matakana in 2015/16 and 2016/17 ($634,000 and $988,000 respectively) were paid out in each of the following years as dividends to Te Pou Matakana’s three shareholders, all of which are registered charities. Te Puni Kōkiri does not have any further information about how Te Pou Matakana’s shareholders have used these payments.

What we did

We are interested in incentive payments because the funds being distributed by Te Puni Kōkiri are public funds, authorised by Parliament under an appropriation – Vote Māori Development: Commissioning Whānau Ora Outcomes. As the appropriation administrator, Te Puni Kōkiri is accountable to Parliament for the effective and efficient use of those funds.

We reviewed the largest incentive payments made to one commissioning agency – Te Pou Matakana, the commissioning agency for the North Island, but the funding arrangements are broadly similar for incentive payments to each of the commissioning agencies. Over the last three financial years, incentive payments made to Te Pou Matakana represent about 60% of all incentive payments paid out by Te Puni Kōkiri. Following assessment by Te Puni Kōkiri, Te Pou Matakana received 98% of incentive payments that were available to the agency during that time. Over the same period, other commissioning agencies received 29% and 69% of their respective potential incentive payments.

We have not found any evidence that indicates the Ministry has incurred expenditure that is unlawful. In other words, we have not identified anything that suggests payments have been made in excess or outside the scope of Parliamentary appropriations or other legislative authority, or that the Ministry has otherwise acted with financial impropriety. In addition, we are satisfied that Te Puni Kōkiri has appropriate processes and practices in place to ensure that the agreed outputs have been achieved, or delivered, before the incentive payments are made.

We have some observations about the current arrangements for incentive payments. Incentive payments, and other payment-by-results type arrangements, can deliver value for money, if the additional value of the increased service delivery is equal to or greater than the amount paid out as an incentive. In general, the use of incentives in contracts is intended to encourage service providers to perform at a higher level than they might do otherwise. We understand that the objective is to encourage innovation and improve the delivery of Whānau Ora outcomes.

In order to encourage and stimulate increased performance, the incentivised targets should be suitably challenging but not so challenging that they are unobtainable. It is also important that the targets are agreed at an appropriate time in the performance period. In our view, it is important for Te Puni Kōkiri to regularly review the incentive payment scheme, including the targets that are set (in particular to make sure that they are suitably challenging) and the timing of the target-setting process. This will help provide assurance that the additional value being sought from incentive payments is being realised.

Our annual plan includes carrying out a performance audit that will follow up our previous audit of Whānau Ora. We will also include further consideration of contract management systems and practices with commissioning agencies as part of our annual audit of Te Puni Kōkiri. We are also considering how we might examine payment-by-results schemes in public organisations as part of our wider work on public sector procurement.

We thank you and your staff at Te Puni Kōkiri for the information and assistance provided to us.

Nāku noa, nā

John Ryan
Controller and Auditor-General

Appendix – Further information on incentive payments made by Te Puni Kōkiri

Te Puni Kōkiri has confirmed that it has made incentive payments to commissioning agents in recent years. These payments are summarised in the table below: