Last week the Auditor General, Lyn Provost, tabled a report into a 20-month review of the Kaipara District Council’s (KDC) mismanagement of the Mangawhai community wastewater scheme. For an auditor, the language in the report is unusually forthright and clear. The only muddling comes when the Auditor General justifies the short comings of her own department, the government Audit Office.
Ms Provost summarises her findings as follows:
“I summarise it as a woeful saga. Overall, the inquiry found that:
· KDC failed to attend to its fundamental legal and accountability obligations.
· KDC effectively lost control of a major infrastructure project.
· Some of the work done on behalf of the Auditor-General has fallen short of the standards I expect.”
Here are some of key points from the report:
· “The story is one of poor governance, poor decision-making, and inadequate management of both the organisation and the project.”
· “KDC decided that it wanted to explore a public private partnership (PPP) approach, to keep the debt ‘off the balance sheet’ and to put as much risk as possible on to the private sector provider. In my view, this decision took KDC out of its depth…it did not fully understand the complexity of what it was doing.”
· “The decision-making processes were also poor throughout the entire 16 years of the wastewater project. KDC relied too heavily on its professional advisers and had a practice of receiving briefings and effectively making decisions in informal workshops. The governance and management arrangements put in place specifically for the project were also inadequate.”
Kaipara’s demise was brought about by a combination of incompetent management, compliant councillors (as a majority), and the failure of the Audit Office to highlight the lack of process and the lack of accounting recordkeeping at the time.
In my view this demonstrates negligence by all three pillars holding up the KDC edifice, and is a salutary lesson for all organisations, but local government in particular.
The Auditor General quite rightly states, “members of a governing body [need] to have the courage to keep asking questions until they understand what they are deciding, and the benefits of formal processes and records to support decision-making”.
Unfortunately the reality when sitting around a council table is quite different. Few councillors have the courage to challenge council staff and ask the questions that should be asked to bring staff to account, and few councillors have the know-how to understand the complexity of their Council’s financial arrangements. Within most councils there is a culture of compliance that requires a councillor to toe the line. Those who dare to question staff are vilified by their fellow councillors. That happened when I was on the Whangarei District Council and still happens today. As a result, the questioning of staff decisions that is fundamental to a councillor’s job is largely non-existent.
The Auditor General also makes it clear that the complexities of a public private partnership was beyond the skill level of staff. They tried to be too smart and too fancy. Unfortunately the mayor and councillors of the day lacked the skill to see that and put an end to the process before it began. In 2005 a similar private public partnership was proposed by WDC staff to build a multi-story car park at Forum North, involving a Melbourne based merchant bank. Neither staff nor councillors fully understood what they were potentially getting themselves in for, but fortunately the proposal was rejected by the councillors of the day (albeit by a narrow margin) and ratepayers were saved from a multi-million blunder. Unfortunately the smooth talking merchant banking types feed on the soft underbelly of local government, knowing full well that councillors and staff have monuments to build and little comprehension of financial complexities and contractual fine-print.
The Auditor General’s report is less clear about the failings of her own office. The problem the Auditor General has is one of gross negligence. Why didn’t the Audit Office pick up the lack of reporting and the lack of decision making process at the time? Those failings did not just occur in one year but over multiple years. It is simply not good enough for the Auditor General to now offer an apology to ratepayers and expect that to be the end of the matter. In the private sector, the receivers, acting on behalf of shareholders, would more than likely sue the auditors for recovery of a substantial portion of the loss, and full recovery of the auditing fees that were charged.
I don’t see why it should be any different for the KDC, except the auditor is essentially central government, the receivers are the government appointed commissioners, and the shareholders are ratepayers.