KEY POINTS:
The heads of New Zealand's aid and development agency are confident none of its $400 million in public money has been misused - even though they can't prove it.
NZAid, which acts semi-autonomously from the Ministry of Foreign Affairs and Trade, has been heavily criticised in an audit report as having inadequate record keeping, contract management processes and the lack of conflict of interest procedures.
Ministry secretary Simon Murdoch and ministry officials were grilled before the foreign affairs and trade select committee yesterday about the report, which cannot be made public until the committee reports to Parliament.
National MP John Hayes said the Audit Office had criticised NZAid as having systemic problems that amounted to "management failure".
The "poor" rating given to NZAid is the second possible lowest ranking - above "not adequate" - and is rarely given to any government agency.
He said it was unacceptable that NZAid had not sorted out these problems for years, yet had been entrusted with a 20 per cent increase in funding this year amounting to an extra $70 million - with no evidence that NZAid is spending it properly.
Mr Murdoch and NZAid executive director Peter Adams both assured MPs that the aid programme was not being misused or wasted, but there was a poor paper trail to prove this.
Dr Adams said New Zealand's aid programme was widely recognised as doing good work and being well spent, but said the report was a "wake-up call".
He said the problems had arisen because NZAid had been on a rapid growth path since it was set up five years ago and its "back office functions" had not kept up with that growth.
A remedial work programme had been put in place including hiring an auditor, staff training and an electronic contract management system.
Mr Murdoch gave an assurance that the programme would address all the issues and would be completed in two years.
When asked whose head would roll over the issue, Mr Murdoch replied: "Well mine I guess."
The Audit Office turned up the problems as part of a special project alongside its annual review process. It looked at six aid projects in Vanuatu and Papua New Guinea and found contracting and grant funding control was poor.
No contracting failure was identified but the deficiencies were so bad that such a failure was likely in the future.
Foreign Minister Winston Peters said Mr Murdoch and others would be held to account if the problems were not put right.
Mr Peters said he was concerned at the report, but he had some sympathy for the conditions aid officials worked under.
"When you are out there in Malaita in the Solomon Islands, you don't get a tender going too fast," Mr Peters said.
"The process you expect in downtown Queen St is the not same as in downtown Malaita."
Mr Peters said he was satisfied that there had been no misuse of public money.
"The audit office went through the accounting and the records and they make that point particularly, that there was no corrupt action, there was no inappropriate advance to any person."
The total NZAid programme budget for 2007-08 is $400.6 million.
The amount spent on Pacific Island country programmes will be $205.6 million. Global programmes, which include Asia, Latin America, Africa and emergency relief, have an allocated amount of $92.8 million.
The remaining $102.2 million is spent on New Zealand voluntary agencies and international agencies such as the United Nations.
Helping out
* The total NZAid programme budget for 2007-08 is $400.6 million.
* The amount spent on Pacific Island country programmes will be $205.6 million.
