By KEVIN TAYLOR
As a cash crisis swirled around Tainui last February, a stormy meeting of the tribal parliament, Te Kauhanganui, took place at Hopuhopu, near Ngaruawahia.
The man whom many in the tribe blame for its financial problems, principal negotiator Sir Robert Mahuta, rose to speak.
He described the six components of Tainui's business - from bulk lands and fisheries to the Maori Development Corporation.
"The way that we had originally set it up, even my dog could have managed the company," he told a doubting Te Kauhanganui.
"I should have put my dog up as chief executive. He would not have made these mistakes."
The mistakes have proven costly for a tribe that blazed the trail other iwi have followed in settling their grievances with the Crown.
The Herald asked Alan Robb, senior accountancy lecturer at Canterbury University, to analyse Tainui's publicly available annual reports from 1997 to 1999, and the 2000 annual accounts.
He found that the iwi's glossy reports inadequately reported a burgeoning financial mess.
Not only has one-quarter of Tainui's raupatu (land confiscation) settlement been lost through bad investment decisions, tribal members have received poor-quality financial reporting.
The annual reports covered the Tainui Maori Trust Board until its dissolution in April 1999, the Waikato Raupatu Lands Trust, and Tainui Group Holdings and subsidiaries.
Mr Robb says key pieces of financial information were missing - a statement of accounting policies, notes to the accounts and statements of cash flow.
A statement of accounting policies is fundamental, he says, and the notes provide valuable detail affecting calculation of profit - or loss. The omission of a statement of cash flows is equally significant.
"The cash flow generated from operations is as important a measure of performance as the amount of profit. Any organisation which reports profits but which does not generate at least a similar amount of operating cash flow is heading for trouble."
Mr Robb's calculations show that Tainui was generating considerably less cash from operations than the profit it reported in 1997 and 1998.
The operating cash flow in 1997 was $8.5 million, but it fell to just $1.6 million a year later - even though net profit was listed at $11.1 million and $14.7 million respectively.
The cash gap grew from $2.6 million to $13 million in those two years - which should have been a warning of the need for tighter financial controls and monitoring of performance.
Michael Stiassny, a financial adviser called on to Tainui's strategy committee in December 1999, told the February Te Kauhanganui meeting that financial information was ill prepared, not timely and incorrect.
Analysis of investments Tainui made was ill advised and naive. Assets were poorly managed, none had performed to budget, overheads were out of control and there was an inappropriate remuneration and bonus regime.
Mr Robb says: "Put bluntly, too much was paid for projects which failed to produce the expected and necessary cash flows."
The net operating loss for the 12 months to March last year was more than $40.3 million - the bottom-line loss $42.7 million.
Almost half the operating loss arose from a writedown of investments and fixed assets. Mr Robb says the balance, an operating deficit of $18.4 million, means that Tainui's future is bleak unless big changes are made to its financial controls.
It is understood that notes to the accounts and statements of accounting policies and cash flows were available to tribal beneficiaries.
But the Herald has been told they could be read only at Tainui's offices, often under direct supervision, and that no copies could be made. Few beneficiaries would have even been aware they could see full accounts.
Yet these accounts were supposed to be the tribe's definitive financial statements, and Mr Robb questions why only abridged statements were produced in the annual reports.
Those reports reveal that Tainui's overarching corporate body, Tainui Group Holdings, was not audited in 1999, only reviewed.
"I have never ever seen this done before."
Mr Robb says a review provided only a moderate level of assurance - because it mainly involved inquiries of executives and about procedures. Auditors KPMG refused to comment.
Kingi Porima, chairman of Tainui's executive, Te Kaumaarua, referred the Herald to Sir Robert for answers on why Tainui Group Holdings was not audited, but Sir Robert did not reply to written questions.
Mr Robb says the latest figures show an extremely poor position for Tainui, and one that will probably not improve in the short term. Hard decisions will be needed about the value of assets.
Mr Porima agrees with Mr Robb's assessment. He says full disclosure of accounts, not just abridged accounts, is a vital accountability mechanism.
Tainui's problems have included:
The high-risk investment division MDC Investment Holdings. It went into liquidation in August owing about $690,000 to the ASB and about $20 million to parent Tainui Group Holdings.
The Auckland Warriors, which were owned by MDC and which became one of sport's most-tortured sagas. In the latter half of 2000, Sir Robert battled unsuccessfully to stop Te Kaumaarua selling the team for $400,000.
Yet it is only one facet of his battle with the Te Kaumaarua faction led by Mr Porima which sacked him from his directorships in mid-2000.
The continuing shadow of debt to foreign bank HSBC. Last month, a crisis was averted when Tainui paid about $5 million of a $14.3 million debt, but the balance is due by May 31.
HSBC holds security on $22 million of Tainui property for an $A11 million loan made to Australian developers for three property investments, two of which have not even started.
The tribe may have to defend a $24 million claim to honour a contract to buy five Hamilton buildings.
Former Tainui chief executive Craig John Beecroft and close friend Blair Ainsworth Kirk were charged with fraud over the tribe's bid to buy the buildings in 1998.
The Crown alleged that Mr Kirk bought the buildings for $11.8 million and tried to sell them to Tainui for $24 million. The transaction never proceeded, and a jury last month acquitted the men.
Hamilton's Riverside Casino, in which Tainui Developments has a 15 per cent interest, will go ahead this month. But Tainui Developments will have to provide $2.1 million - which it reportedly does not have.
Mr Porima says the new regime is paying debts as quickly as possible. The BNZ has been repaid $24 million. Tight financial controls have been imposed and no spending is allowed unless signed by chief financial officer Michael Crawford. New business ventures are on hold while the finances are sorted out.
Mr Porima says Tainui is also in the market for a hard-nosed chief executive.
He says it is clear that all the executive members must work together to get through the mess. Mr Porima's problem is that Sir Robert's half of the executive bitterly opposes him.
Evidence of the control Sir Robert exerted before his fall from Tainui's directorships last year came at the trial of Mr Kirk and Mr Beecroft.
Thomas Moke was former secretary and executive officer of the Tainui Maori Trust Board and a former Tainui Group Holdings director.
He gave evidence that Sir Robert's former right-hand-man, Tainui special projects manager Jeff Green, operated right across the organisation and often cut across formal processes on Sir Robert's instructions.
Mr Moke estimated that $70 million of transactions were pushed through by Sir Robert between 1995 and 1999 without proper processes being followed.
Yet Sir Robert continues to blame others for the dismal state of Tainui's coffers. He told Te Kauhanganui in February that the directors of the Waikato Raupatu Lands Trust had allowed Tainui's managers too much leeway in the past few years.
When the money tree dried up, the managers tried to sell the tree, Sir Robert says.
Tainui is virtually back where it started in 1995. Maybe Sir Robert was right - his dog would have done a better job.
Glossy reports hid Tainui troubles
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