Media release: Inquiry into management fees paid by two Auckland schools published

3 December 2021: A report today from the Auditor-General sends a reminder that every public organisation must be able to show how and when it has spent public money, to enable the public to have confidence in how their money is spent.

It also sends a message that public organisations are expected to recognise, and appropriately manage, any conflicts of interest.

The inquiry looked into $450,000 in management fees that the Combined Establishment Board of South Auckland Middle School and Middle School West Auckland paid to Villa Education Trust in 2018. These fees were for administration and management services required for the former charter schools to open as designated character state schools.

The schools’ Appointed Auditor noted that the trustees of the Board were also the trustees of the Villa Education Trust.

“We found the members of the Establishment Board failed to recognise that a conflict of interest arose when they effectively decided to pay money to themselves,” says Auditor-General John Ryan. “This meant the Board took no steps to manage the conflict.

“The trustees were, effectively, wearing two hats,” Mr Ryan adds. “The shared membership was a potential conflict of interest that became an actual conflict when the Establishment Board considered engaging Villa Education Trust.”

“In a situation like this, we expect a public organisation to recognise the conflict and put a process in place to manage it.”

Mr Ryan also found that, while the Board had valid reasons to engage Villa Education Trust for the work, the Board did not follow good procurement practice:

  • There was no formal agreement between the Board and the Trust, and no scope of work before the $450,000 was invoiced and approved for payment.
  • There was no evidence to show how the Board determined what services it was paying for, assessed the appropriateness of the fees, or actively managed the services that were delivered.
  • There is no documentary record of who approved the expenditure as being valid or authorised the invoices for payment, and whether they had the appropriate authority to do so.

From the time of the 2018 audit and throughout the inquiry, there also appears to have been a lack of appreciation by the Establishment Board of the position it was in when it became a state school, or of the expectation when spending public money to properly account for that money.

“The Establishment Board, like any public organisation, is accountable to the public and Parliament for how it has spent the public money entrusted to it,” says Mr Ryan.

“The Board has been unable to provide us with sufficient assurance about the circumstances in which the fee was determined and paid, and about what exactly has been provided in exchange. I expect more from a public organisation spending public money.

“The circumstances of this payment create a perception of a lack of integrity. Acting with integrity, and being seen to act with integrity, are fundamental to maintaining the public’s trust and confidence in public organisations and in the public sector as a whole.”

When carrying out the 2018 audit, the schools’ Appointed Auditor had been unable to obtain sufficient, appropriate evidence to determine how much of the payment was valid expenditure.

“Information about how the fees were determined, agreed, paid, and managed, and what was received for the payment, should have been available to our auditor when asked for in the first instance. That information is part of orthodox procurement and contract management and should be properly documented.

“If that information was prepared and made available, it might not have been necessary for us to carry out all the work involved in this case to find out the circumstances of a payment like this.”

Mr Ryan encourages public organisations to read his Office’s good practice guide on managing conflicts of interest. This provides guidance on identifying and managing conflicts of interest, so the public can have confidence that people making decisions and spending public money are doing so in the public interest.