Thursday, December 08, 2005

Money trail shows audit holes

There is an important principle in investigative journalism called "follow the money".

You would think somebody called the Auditor General would have a similar mandate, but his report on Te Wananga o Aotearoa seems driven by a desire to follow the paperwork - and the requirements of political masters, which is unfortunate for the independence of the office.

To recap. The report was made public Monday. The wananga's rounder and chief executive, Rongo Wetere, said it showed no misappropriation, no fraud and no nepotism.

No one disputed that assessment, but made a meal of findings of poor decision making practices for significant expenditure, inadequate management of conflicts of interest, and "unacceptable" practices in senior management expenses concerning international travel and credit card expenses.

What it failed to do was give the numbers documenting the Wananga's growth, nor did it spell out the circumstances which led to the financial problems which allowed former education minister Trevor Mallard to impose direct control on the wananga through a number of interventions between February and July.

Media coverage before and after the release fixated on how much members of the Wetere whanau may have made from the wananga, including a "let's pull some numbers out of the air" exercise from the Herald's Jon Stokes which claimed companies owned by Rongo Wetere's daughter Susan Cullen "earned" $74.2 million from the wananga between 2000 and 2005.

According to a range of authorities, "earnings" means net income, once all expenses are deducted. What Stokes reported was an estimate of "revenue".

Stokes said "Cullen estimates her personal fortune at around $30 million, which includes three Waikato farms, two rental properties and a commercial property." Note the reported speech, rather than a direct quote.

What is Susan Cullen worth? I don't know. Jon Stokes doesn't know. The Waikato Times did a search of valuation rolls back in February, which is why her property holdings are on record, but how much equity she has in them is unknown.

The Auditor General's report has a different set of figures for Cullen, totaling about $39 million. Most of this comes from running the courses her companies developed. It sounds a lot, but per student it is somewhere between $2000 and $3000. Out of that Cullen had to cover staffing, course materials, postage, communications and so on for a year long course. Compare that to the cost per student of a conventional polytechnic course, and the value of Cullen's innovation becomes clear.

There were two direct payments for courses: $7.022 million in 2001 for Mahi Ora, which was designed to get long term Maori unemployed ready to enter the workforce, and $1.7 million for Lifeworks, a further development of Mahi Ora designed more specifically for Pakeha students.

Again, that is a gross figure. Take out tax and whatever it cost Cullen to develop them and you can work out what it cost. I'm not saying she was left out of pocket, but I am saying there is not enough data to say exactly how much she earned.

So what did Te Wananga o Aotearoa get out of the deal financially? According to Cullen, it bought Mahi Ora for a lower price than she could have got elsewhere (she had a long term and successful business running courses for The Open Polytechic). Gross revenue to the wananga from Mahi Ora has been about $120 million. It the Auditor General had published an analysis of the wananga's accounts over the period, he might have had to mention that.

The $1.7 million paid Cullen's company Awarua to develop Lifeworks was returned tenfold in revenue over its first three years, through fees from licensing it to The Open Polytechnic.

Kiwi Ora, a programme for new migrants, has brought in $7 million in revenue since 2002.

While Cullen's companies grossed $74 million since 2000, the wananga's side of the deal brought it revenues of $174 million.

The profits allowed it to build up in excess of $100 million in property assets, which were required to keep pace with a student population expanding by the size of Waikato University every year. This is at a time when the Crown's contribution to capital development was $40 million (far short of what it should have been, it the recommendations of the Waitangi Tribunal's Wananga Capital Establishment Report had been followed to the letter).

The Auditor General seems to posit a world where Cullen, because she was Wetere's daughter, should not have been involved at all in the wananga's activities. The truth is, if developing successful courses was so easy, everyone would be doing it. The programmes and systems developed by Cullen, along with her brothers Kingi and William Wetere, where what allowed the wananga to grow at a phenomenal rate in four years, along the way increasing the participation of Maori in tertiary education by 200 percent.

While we are on the subject of the brothers, the Auditor General got hot and bothered over the wananaga doing business with the procurement company they ran, Oma Investments. While he can point to a "conflict of interest", his data does not show profiteering.

Rather, it shows that in 2004 Oma was paid $8.4 million to buy and distribute resources for the wananga, and a further $416,000 to handle procurement for MO1, the subsidiary handling Mahi Ora. Oma was able to buy supplies at a lower price than the wananga, and rebated $3.2 million back to the wananga.

Then there is the ridiculous noise about Rongo Wetere's brother Ara getting a bunch of gardening and landscaping contracts at the various wananga sites, totaling $1.8 million over three years. The Auditor General was told Ara's company Aranui was chosen because of its availability, speed and quality of work.

"Given the high value of the work undertaken by Aranui (2003) Ltd, we expected evidence of a competitive tender, or evidence that TWAO sought a series of quotes before selecting a provider," the Auditor General huffs. "We do not accept that it was impossible to find other willing contractors for this work."

Get real. These are a whole bunch of landscaping contracts scattered across the Waikato and beyond - putting in some plants, knocking up a fence, tarsealing a carpark. When the police want the lawn at their substation mowed, they ring a guy they know, they don't ask every contractor in town to submit a tender. Given the economic boom in the provinces during the period, especially the strength in dairy incomes and investment, the idea there were tradespeople sitting by the phone waiting for a call from the wananga is real Wellington thinking.

Which is where this comes down to. Rongo Wetere is not guilty of Wellington thinking. That is why he got into trouble. And that is why he was able to build an education institution which succeeded where Wellington-thinking ministries, polytechnics and universities have failed in addressing long term structural problems with the New Zealand workforce.

Declaration of interest


Blogger Hamish said...

Adam, I haven't been a reader for long, but I must say, this is a first-rate blog. It's a pity it's just a small speck in a gaping void at the moment.

Keep up the excellent work.

5:23 PM  

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