Where it all went wrong for Carich

A great success story has ended in ruin. ALAN PERROTT, MATHEW DEARNALEY and TIM WATKIN trace the downfall of the computer trainers Carich.

One month ago today, Caron Taurima stood before about 350 business leaders in Auckland's Hyatt Hotel ballroom and accepted Ernst & Young's Entrepreneur of the Year award.

Green lights played on the wall at the black-tie dinner as the 36-year-old Mormon humbly accepted the award and spoke of the many challenges on her road to success.

The judge, and last year's winner, Bill Gallagher, applauded Taurima's entrepreneurial spirit that had seen her start her computer training company with a $75,000 mortgage on her father's home.

"She sees an opportunity and gets into it," Gallagher said.

Yesterday, Taurima's life was in tatters - her business in receivership, her divorce due next week.

Ten days ago, at 3.25pm on October 29, Carich went into receivership, the company with a turnover of $33 million a year brought to its knees by its inability to pay its 233 staff the $430,000 it owed them, arguments with the Government over funding and debts of more than $5 million.

Typed messages stuck on the doors of Carich's Auckland office read: "There will be no classes today. We apologise for any inconvenience."

One month tomorrow, on December 9, Jonathan Coster will fly to Australia in an attempt to rebuild his dream of working in the computer design industry.

"I'm off to Melbourne, where they've got a government that's interested in developing the multimedia industry. They've got great courses."

In February he started a national certificate in multimedia with Carich, taking a student loan for his $6893 fees and course costs. He wanted to get into developing computer games, and administrators told him the 3D modelling skills he would need would be a large part of the course.

He never completed the course. "It was hopeless," he says. "I got disillusioned very early on. It's disgusting the way they ran that place."

The head of department was a recent Carich graduate, promised "industry wizards" coming to take classes never appeared, and as staff left students went for several days without tutors. Students were left with the same hardware problems "for weeks" and some days couldn't even get on the internet.

Frequent complaints led nowhere, so he hired a lawyer to help get his money back.

"The week they were meant to reply to his letter was the week they went under," he says.

Now he's one of 3700 students left in the lurch.

"It was a complete waste of time and money," says one ex-student who didn't want to be named. "The only things I got out of it was a headache and a student loan."

Taurima was just 20 years old and pregnant when she started Carich with her now-estranged husband Richard (the school's name being a blend of theirs) in 1988.

"We needed to survive more than anything at the time," she told the Woman's Weekly in August.

"We'd just moved back down to Christchurch from Wellington.

" I'd helped set up a computer training centre when we were in Wellington, so I applied to a lot of training centres in Christchurch for a job."

Rejected at every turn, she thought, 'Right, I'll do it myself'. Never in my wildest dreams did I think we would do as well as we have," she said.

As well as being written about in women's magazines, Taurima had made millions and twice been named Maori Businesswoman of the Year (1995 and 1999). With Richard, whom she credited for much of her success, she had four children.

Carich, Taurima told the Weekly, was looking to expand into South Africa, China and Australia. (Last month she took her first steps into South Africa, training 32 teachers in Soweto to teach her controversial Computer Gym programme to 400 students.)

As she shared the secret of her success - "persistence" - the softly spoken Taurima felt confident she had shaken off Government doubts about her company, battled through an aborted deal with the Wananga O Aotearoa, and found a way around policies that sought to restrict the growth of private tertiary enterprises (PTEs), such as Carich.

In fact, she was only a few weeks away from being declared insolvent by a PricewaterhouseCoopers report and a few months from being put into receivership.

At the heart of Carich's downfall is the Labour Government's restructuring of the tertiary education sector. In the 1990s, National deregulated the sector.

Government money went with students to whichever institution they chose, rather than directly to state polytechnics and universities, opening those institutions to competition.

Tertiary Education Minister Steve Maharey, a former university lecturer, was a vocal critic of the reforms in opposition and promised change as minister.

In July 2001 he introduced a moratorium on funding, denying new PTEs access to Government money, including loans and allowances, until this year.

It effectively stopped new PTEs opening and signalled changes ahead.

Existing PTEs would play a "complementary role" to the 36 public institutions instead of competing with them, he said.

Then, in last year's Budget, the Government sought to prune the growth of PTEs by ring-fencing funding at $146 million and requiring the number of students this year to be capped at 2001 levels.

Maharey said PTEs were growing too fast, costing too much and the Government wanted more control of the sector so students could be trained to meet the demands of the knowledge economy.

"There has been too much unhealthy competition for students, too much duplication of courses, and the Government wants to ensure best value for money."

With what now appears to be 20/20 foresight, angry private educators predicted businesses would be forced to close.

"There was an awful lot of grief about it," said Sandra McKersey, president of the New Zealand Association of Private Education Providers. "It really is astonishing that the Government can legislate to stop normal business growth. It's kind of a hammer approach to limit growth which was much greater than they anticipated."

Hammer or not, it was at just that time that Carich took off, thanks in the main to Taurima's Computer Gym concept, by which students would cruise the e-learning highway at their own pace.

They would log on to computers for two-hour sessions in any of five cities, making learning more accessible to those with children or other responsibilities.

At least that was the dream, but officials recoiled at the ambitious scope of plans to recruit up to 10,000 students - mainly from lower socio-economic backgrounds and ethnic groups - with a lure of free computers.

Controversy was erupting that same month over a Taranaki-based "second-chance" educator, the Practical Education Training Centre, which gave away computers in return for $5600 in tuition fees covered by student loans. Many of that organisation's takers were students on paper only, who sold their $2300 computers without attending any classes.

Taurima assured the nervous bureaucrats her computers would go only to people who graduated with two certificates and she would buy them with non-taxpayer money, such as fees from foreign students. Courses would be free to local students, but paid for with standard Government education subsidies of up to $5400 a head.

Carich's enrolment numbers leapt from 587 in 2001 to 4987 by August last year - a dizzy 376 per cent increase - and Carich reaped $20 million in taxpayer subsidies.

With the Government's commitment to reign in PTEs, its growth could hardly have come at a worse time, but Taurima pushed on regardless and the first 24-week course began in mid-2002 with 2772 students.

Despite initial concern among officials about completion levels, Taurima says 64 per cent saw it through, a better result than from most private trainers.

A more modest 45 per cent - or 1256 - gained both computing and business administration certificates at levels three and four of the national qualifications framework, and there were grizzles from students about marking delays and computer availability.

As well as boosting numbers, the Computer Gym achieved what officials acknowledged was a considerable shift to mature, Maori and Pacific Island trainees.

Taurima stands by the result as a solid contribution to the Government's strategy of making tertiary education more accessible to disadvantaged groups by "staircasing" them into employment or higher studies such as at polytechnics.

But Carich's growth flew in the face of Government policies designed to restrict PTEs. As announced in the Budget, she was going to have to pull back student numbers to 2001 levels. That meant a drop to 587 students and the loss of millions.

Taurima's response was a controversial deal with the Maori-owned mega-polytechnic Te Wananga o Aotearoa - which had no Government-imposed cap at that point - to enrol its students on Carich courses in return for about 20 per cent of its subsidies.

Carich would similarly gain a cut from a Computer Gym course within the wananga itself.

Officials were unhappy with the ruse, but did not stop 2200 students being routed through the wananga to start a 36-week course at Carich in September last year.

Although it looked like a slippery entrepreneurial sleight of hand, Taurima insists it was consistent with a professed Government strategy of hooking up private trainers with polytechnics.

The reality was that polytechnics were mostly reluctant to have anything to do with the private sector "but when I found somebody who would do it with me, they [the officials] got stumped", she says.

But NZQA remained concerned about enrolment details, achievement and pass rates in the Computer Gym course and warned she could lose accreditation if she didn't fix the problems.

Taurima reacted by hiring more tutors and organising with wananga chief executive Rongo Wetere another 2500-strong class to start on March 17. But in the intervening months, NZQA and the Ministry of Education raised its concerns with Maharey and Wetere.

They were concerned that large numbers were being drawn into a programme "which agencies have good reason to believe will produce qualification and course completion rates considerably below both the Government and [the wananga] TWOA's expectations", NZQA acting chief executive Karen Van Rooyen wrote in a report to ministers.

On February 27, the wananga was instructed to "cease and desist" enrolling students in the course and on March 14 - three days before the 2500 students were due to begin and Carich was to receive $1.5 million - Wetere told Taurima the students and money wouldn't be arriving.

Without the wananga students, Carich suddenly faced a monthly shortfall of $1.2 million against infrastructure maintenance costs of $850,000. These included monthly rent of $350,000 for the company's 11 campuses, of which $100,000 was for a lavish "super-site" fitted out in central Auckland for the high-end of the international student market.

Despite doubling international student numbers to 900, the Sars outbreak undermined plans to shore up the business with English language student fees.

Needing to cut costs, Taurima sacked more than half her 479 staff. But even with only 233 remaining, the payroll still exceeded $8.5 million.

Taurima blames the Government for undermining the wananga deal and says she has a high-powered legal opinion that the Government may have interfered in her contract, giving Carich or its receivers ground for a lawsuit.

But Wetere categorically denies being leaned on. He says he came to his own conclusions about poor initial results from the Carich-run course and negotiated an extension for the sake of students enrolled through his organisation.

He had a right to review the contract before sending a second batch to the company.

Worse was to come for Carich. Just a fortnight after Wetere's withdrawal it found discrepancies in last year's student numbers suggesting the Tertiary Education Commission had overpaid it $3.27 million. Its $20 million in subsidies was only $17 million.

"So we put up our hand and said we owed the Government, and made an arrangement where TEC would hold all my payments," Taurima says.

Ann Clark, general manager of TEC, wonders now whether that arrangement was too lenient. Taurima had originally agreed to pay the debt back within seven days, but then pleaded for more time. Clark agreed to reduce payments until October 31.

By the end of September, Carich's debt was down to about $1.4 million.

But then, Taurima says, a new financial controller at the company found that 573 students had been overlooked in its recount, meaning the overpayment was, in fact, only $600,000.

She and receivers KPMG say this means too much Government money was withheld and Carich is now owed a refund of $1.3 million.

Officials are highly suspicious about the timing of this revelation, just when Carich found itself with debts of about $5 million, and the tertiary commission says it's still waiting for an audit report before deciding whether to pay the receivers.

Taurima says at that stage she could have either sold the business for $20 million or waited for the money, but needed a crucial letter of support from the Government to assure two potential equity partners which, she says, were willing to inject $3 million into Carich.

Clark says she "never saw documentary evidence in relation to equity partners".

But both deals fell through after a newspaper report quoted the tertiary commission claiming Carich owed it money, Taurima says.

"It is quite sad - the Government acts for state-owned providers, giving $3 million here or $5 million there to polytechnics in trouble. All I wanted was a letter to secure our own funding."

She kept pleading for the letter, eventually gaining an audience on October 21 with Maharey and presenting him with an action plan to stay afloat with Government support.

But in the meantime, PricewaterhouseCoopers had been called in to analyse Carich's financial position "as a consequence of ongoing concerns the directors and TEC have over the company's ongoing operations".

It found Carich was insolvent, was deferring debts and was under pressure from its bank.

Turima fought back, commissioning a report from KPMG, which was submitted to Maharey. Although the rival KPMG report verifies Carich's claim that it could have regained its viability with support from the commission, Clark says it was too dependent on joint ventures with other educators which her agency was unable to sign off. Which left her with the PWC report.

"I was unable to give a letter of support at a time when I had an independent report questioning the financial viability of Carich. It said it was insolvent."

Taurima says TEC could have saved her, but just didn't want to.

"In Ann Clark's mind, she's thinking this company's going down the gurgler - she's as inflexible as a steel pole."

Far from it, says Clark. "I bent over backwards for Carich. But the issue for me is that I am a custodian of taxpayers' money and they were in breach of the terms of the funding agreement."

And so, last week, Carich and Taurima ran out of time. Those who worked with Taurima say she was a never-say-die battler and "a true entrepreneur", but her day-to-day management skills never matched her vision.

For her part, Taurima remains furious with the Government for its lack of support.

"I started with nothing, so I basically know what it's like to have money or not. I'm disappointed we can't carry on but maybe there's something better out there for me. I've had offers from people to go into business with me over the last couple of days."


TIMELINE

1988: Carich is set up by Caron and Richard Taurima with one Maori access course and five students.

1991: Carich receives NZQA accreditation and begins offering nationally recognised unit standards.

2001: Caron Taurima develops Computer Gym , a glide-time class which allowed students with irregular time demands, such as young mothers, to study when they are able.

March 2001: The government is asked to support the Computer Gym course. Each successful student is to be provided with a free computer, to be paid for by funds earned from foreign fee-paying students.

July 2002: The government imposes a cap on fulltime student numbers at PTEs, backdated to 2001 levels. Carich's Computer Gym enrolments from January 2003 must drop from its 2002 peak of 3600 back to 587.

September 2002: To avoid the cap, Carich accepts 2200 students who are officially enrolled at Te Wananga, which is excluded from the cap. A further 1475 students are taking the Computer Gym at Te Wananga sites.

December 23, 2002: NZQA warns Carich that concerns over the Computer Gym enrolment details, achievement and pass rates could lead to loss of the PTE's accreditation.

January 2003: Caron Taurima meets with Te Wananga chief executive Rongo Wetere, seeking another 2500-strong class to begin on March 17.

February 4, 2003: Tertiary education minister Steve Maharey is advised of NZQA and ministry concerns over Computer Gym course.

February 27, 2003: During a meeting between Te Wananga and officers from the ministry of education, TEC and NZQA, the polytech is instructed to stop enrolling students with the Computer Gym.

March 10, 2003: NZQA issues a compliance order ordering Carich to cease enrolling students in its computing and business administration courses.

March 14, 2003: Wetere tells Taurima the next intake of 2000 students will not be arriving. Carich begins laying off 246 staff and dismantling the infrastructure set up to handle the anticipated students.

Late March, 2003: Carich tells TEC they had overstated their student enrolments (SDR) for December 2002 and owe the government $3.2 million in pre-paid funding. Repayments are deducted from regular monthly TEC payments to Carich.

July 2003: Carich begin training Computer Gym students from Tai Poutini Polytech.

August 2003: Carich begins training 900 Computer Gym students from Te Whare Wananga.

September 29, 2003: Carich enter into two memoranda of understanding with Unitech, outlining terms under which Carich would deliver Computer Gym courses for about 700 students.

October 2003: Carich begins training 32 teachers in Soweto, South Africa, to teach 400 Computer Gym students in a pilot course starting in December. Negiotiations continue for a further course to be launched in China.

October 3, 2003: Taurima meets two TEC officials. She has claimed they accepted her revised student numbers, offered to provide up to $1 million and agreed either party would inform the other of any discussions with a third party. Carich was asked to provide extensive detail of their financial position.

October 8, 2003: Caron Taurima is named as Ernst & Young Entrepreneur of the Year.

October 10, 2003: At 5pm, Carich is informed no payment will be forthcoming from TEC. October 13, 2003: Carich's past debt to TEC goes public and their Hamilton staff begin packing up gear in anticipation of closure. Taurima claims nine computers and two projectors are stolen from some offices. She also claims to have co-written a media statement with TEC officers and that at noon, TEC general manager Ann Clark says the statement is being checked by lawyers. Taurima claims Clark called her at 5pm to say the statement will not be released.

October 15, 2003: PricewaterhouseCoopers release a review of Carich's financial position during August and conclude the company is insolvent. The review is then repeated, including Carich's revised student numbers and September accounts, but again concludes the company is insolvent.

October 19, 2003: A letter from Te Wananga to Carich outlines the company taking on students for a level 2 computing course within three weeks. Taurima anticipated about 1500 full-time students.

October 21, 2003: Taurima presents associate education minister Steve Maharey with possible options to save her company and asks for a letter of support saying Carich will be working alongside the government for four days to find a solution. She tries to have PWH financial report replaced by an independent report from KPMG. Following negative publicity a previous $20 million offer to buy Carich is withdrawn and two potential equity partners back out.

October 23, 2003: Carich produces an audit that the December SDR omitted 573 unrecorded students which would mean they are now owed $1.3 million from TEC.

October 24, 2003: KPMG report delivered as requested by Ann Clark, TEC general manager, but she is on leave. The report states Carich could be saved if TEC provides its support. At 7pm Taurima gets a letter from acting TEC general manager saying the report would be studied over Labour Weekend and asking for a full report on student numbers by October 28.

October 27, 2003 (Labour Day): Taurima tells TEC she is unable to get new report written and provides other options.

October 28, 2003: Taurima calls Clark again requesting a letter of support to avoid going into receivership the next day. Meets with KPMG that evening and agrees to go into receivership on Wednesday as the company can not cover their wage bill of $344,000. KPMG call Clark to say Carich will close tomorrow and asks if plans are in place to assist students. Taurima claimed Clark told her that she(Clark) had been working on such a plan for two weeks.

October 29, 2003: Carich goes into receivership at 3.25pm. Taurima claimed no TEC staff were at any of their sites to assist students.