Buried treasures: The price of the Huata affair

Today, in our series on reports released in the dead zone around Christmas: the clampdown on taxpayer funding. By FRAN O'SULLIVAN


The Government has launched a crackdown on taxpayer funding of private contracts in the wake of the Donna Awatere Huata affair.

The Treasury updated its guidelines just before Christmas for lending to non-Government organisations (NGOs).

But opposition politicians say the poor lending practices and monitoring exposed by the affair cry out for mandatory conditions to be imposed - not simply guidelines.

State Services Minister Trevor Mallard yesterday signalled he expected the Audit Office to run the ruler over "a sample" of non-Government organisation contracts to ensure the practices exposed in the Huata-related loans were stamped out.

"I'm assuming they will look at a sample," he said. "This is a big assumption because you can't direct them."

Fur flew when the damning Auditor-General's report into nearly $2 million lending of state funds to organisations associated with the former Act MP was released last October.

Much of the public focus was on the MP and her husband, Wi Huata, who had allegedly resorted to bullying officials on the other side of the negotiating table to get cash for their organisations.

But the report also revealed significant lapses by three Government entities - the Ministry of Education, Te Puni Kokiri and the Community Employment Group - which had collectively funded most of the nearly $2 million.

Contract management had been poor. Grants had been made without sufficient documentary evidence that the contracted work had occurred. On a number of occasions, Government departments were dishing out funds for similar work.

The Auditor-General commented that double-funding was a risk: "Particular care was needed in the public sector where taxpayer or ratepayer funds are involved."

It is probably fair to say the Treasury guidelines - which had already been undergoing a review - would have sunk without trace had it not been for his report.

Key changes in the new guidelines are:

* Greater emphasis in reducing unnecessary compliance costs.

* Better monitoring of contracts, including documented assessments of risk.

* Better documentation by Government agencies of their funding and contracting decisions, especially where an agency has departed from its own policies or procedures.

* Broader discussion of aligning payments with expected results - although the guidelines acknowledge that this is not always desirable or possible.

* Ensuring the Government does not pay twice for the same service.

* Encouraging good employer practices and ethical standards among the NGOs the agencies fund.

The Auditor-General has indicated he will conduct a more comprehensive review of contracting arrangements between NGOs and Government agencies this year. But Mr Mallard also wants spot audits by frontline staff to take place.

State chief executives have also been given a tough message.

"Certainly there has been a discussion around contracting with chief executives as one of their regular meetings," said Mr Mallard. "And frankly they understand their exposure - they're not stupid.

"They've seen the problems that occurred and want to get it right.

"But the point that CEOs made to me, is they want to be careful that when they have got a $50,000 programme, they don't want to be spending $20,000 on monitoring it."

National leader Don Brash believes the response does not go far enough. He wants the guidelines to be made mandatory.

"We support the reduction of unnecessary compliance costs. But there does need to be appropriate monitoring of contracts to ensure that outcomes are delivered."

Government departments must know whether other Government agencies were contributing funding, resources or support to particular organisations or projects before they made funding decisions.

"You could have a situation where Te Puni Kokiri and the Community Employment Group are both funding the same projects - this should be declared," Dr Brash said. "There needs to be some form of accountability that makes all Government funding transparent to the taxpayer."

The Treasury guidelines indicate that departments have particular leeway to ensure services are delivered in a "culturally appropriate manner" where Maori or Pacific Islanders are involved.

Delivery of services within kaupapa Maori frameworks often requires Maori providers to adopt holistic service provision, requiring dealing with Maori in terms of their totality.

They state that Government agencies should put themselves in a position to understand and respond to such needs.

But Dr Brash questions why there is any differentiation between Maori and Pakeha institutions.

Government ministers stress some differentiation may be necessary until some Maori trusts and organisations learn to lift their game.

Associate Maori Affairs Minister John Tamihere reveals he had got cracking on devising new mechanisms to strengthen accountability by Maori Trusts six months ahead of the Auditor-General's report.

His decision to reassign $2.5 million on building capability has been criticised by National.

But he sees it as a priority - not just for Maori "but a lot of Kiwi organisations".

"There's been extraordinary growth in the cash flow of a lot of these trusts. But the financial reports might say what the spending is on but do not give sufficient information to judge effectiveness."

It was "no mystery" that Maori lacked skills and were are coming off a very low skill base.

There was also a risk of a convergence between governance and management, "a dangerous practice from Brierley Investments all the way through ... "

Why the report was late

The Treasury concedes its updated guidelines on lending public money "probably did kind of get lost in the Christmas rush - a wee bit".

The guidelines were "ready to publish" in October - in line with a Treasury commitment to Cabinet ministers to do so before the end of last year. They were not published until Monday, December 22, three days before Christmas.

Treasury spokesman Justin Brownlie says the postponement was so the review could incorporate the findings from the Auditor-General's Office into the Pipi Foundation.

"By the time that was incorporated it meant that, sadly, we were into the mid-December period," says Mr Brownlie.

"We decided to get the information out rather than waiting any longer."

He concedes the resultant media coverage "was less than it may have been" if the release had been held over until late this month.

"It did get sent out through NZPA, and the Herald did run a very small story, and teletext and some of the other electronic media did pick it up."

The Treasury is writing to all Government departments and umbrella NGO organisations to make sure they know about the tighter measures.

"It is unfortunate," says Mr Brownlie. "We had to toss up between waiting or getting it out.

"The letters will be sent out at the end of January for exactly the same reason - we don't want them to get lost in the mail."