Concerns over the financial management of the America's Cup are so serious that the Crown made a thinly-veiled threat to withhold the next tranche of taxpayer funding, according to a confidential letter.
Auckland Council and the Ministry of Business, Innovation and Employment say a financial dashboard that was presented in May - showing public spend - is "materially different" from that presented earlier in the year.
"In particular, the total actual event investment spend for previous months is materially different from what has been reported by ACE [America's Cup Events Ltd] as at 31 January 2020 and as at 29 February 2020 and all other event investment dashboards," says the letter from the CEOs of Auckland Council and MBIE to Team NZ and ACE.
The council and the Government have poured $250m into hosting the 36th America's Cup - and the council is planning to spend a further $20m to support the regatta and other events next year.
The council's share of the $250m is $113m.
The Government is spending $136.5m, including a host fee of $40m.
Team NZ boss Grant Dalton said today that no public money had been misused.
On top of this, the council has been spending about $100m to spruce up the waterfront in time for the Cup and other events in 2021.
The council and MBIE delivered an escalation notice - the confidential letter - on June 22, saying their concerns over health and safety of the on-water plan, reporting of the public funding spend, a breach of warranty and a breach of commitment were "individually and cumulatively material adverse events" in relation to the management of the America's Cup challenger and final series, to be held in Auckland next year.
The council and MBIE were also concerned there has been no event cancellation insurance taken out. "As such... MBIE is not obliged to pay the next payment instalment."
In addition, documentation in relation to a funding milestone for June 30 was "not satisfactory".
The parties met on Monday this week, but the outcome of that meeting has not been revealed.
Team NZ's new boat Te Kahu testing in the Rangitoto Channel. Photo / Supplied
Team NZ boss Grant Dalton said today no public money had been misused.
Dalton told Newstalk ZB's Mike Hosking that he had seen the MBIE-council letter - the allegations were treated seriously, and he looked "forward to knocking them off one by one... a lot of them have already [been] knocked off".
Dalton said today that the organisation had been defrauded by scammers, with money being paid into a Hungarian bank account. He denied there had been any $3 million loan to Team NZ.
The confidential June 22 letter written by MBIE and the Auckland Council - and obtained by the Herald - reveals allegations around the handling of public money; the operation of the Cup itself and worries about public safety; and it lifts the lid on officials' concerns that the event organisers, America's Cup Events (ACE) and Team NZ, are in breach of obligations.
"There are some pretty good, inflammatory and sensational words in there, like fraud and Hungarian bank accounts - your eye just goes straight to those. Let's talk about that one.
"One of the informants was in charge of the accounts of the event. Some time ago I approved an invoice for a large contractor in Europe... and, no, I did not check the noughts and the ones on the bank account. It was the correct invoice as per the contract and the money was sent to Hungary.
"Is that fraud? Yes, it is insomuch we were basically defrauded. Is it fraud in the sense it's portrayed in the paper this morning? Absolutely not. More importantly, instantly we rang MBIE, told them what had happened, told them it wasn't government money because it wasn't, and we got straight into the fraud police... and we've recovered some of the money.
"There was fraud insomuch that we were defrauded to an incorrect bank account. We haven't got all of the money back, we have got some of the money back."
The letter also raises operational and safety concerns around the Cup, including police and harbourmaster concerns around the use of on-water marshals.
It says a suggestion by ACE to renegotiate the on-water crowd management plan to provide for "fewer marshal boats is not acceptable and if this is undertaken, the Harbourmaster might not issue the relevant permits for the Events".
"The delivery of a safe and successful event requires proper management of all on-water aspects and a revised plan with fewer marshal boats and stake boats would mean that there is a serious risk to the health and safety of members of the public."
Dalton told Newstalk ZB's Mike Hosking today that these issues were "possibly the most important thing".
He got involved in the on-water issues a couple of months ago. "It didn't feel right. What I found was 45 chase boats - 45. Some of which would be anchored, a lot which would be moving around in the crowd, manned by well-meaning volunteers with clipboards and fluoro-jackets. I think that's a hazard in itself.
"We suggested back that it should be significantly less volunteer chase-boat numbers... that it should be boosted by people in authority - police - on the water. We saw that as a better combination.
"Do we have a dispute on that? We absolutely do. This is not our first rodeo. I watched the restart of the Volvo Race here a couple of years ago. It was an absolute shambles. That was a health and safety issue. We treat health and safety very, very importantly."
