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Thursday
Feb212013

The Deloitte Report 

Here is the unabridged Report. Here is the abridged Report

I will be addressing aspects of this Report over the next day or two. At the outset, it must be said that it was pretty much of a damp squid to many who were expecting names to be named, and even criminal charges. This was never going to happen, and in the main, I believe that the Report achieves the central aim of identifying how and when misfeasance took place that led to the extraordinary cost blow-out over the last two years. It is less clear in regard to the history of the project which will likely remain opaque due to the lack of written records, and ad hoc decision making over a long period.

The first thing that must be said about this Report relates to the pathetic attempt by Deloitte’s to prevent its disclosure. Council’s new Legal Counsel – Paul Davies, put Cr Hoadley in the picture when she clearly demurred on releasing the unabridged version of the Report by pointing out that no disclaimer, or limitation by Deloittes could overrule the law of the land – i.e. the Official Information Act, and as such was quite ineffective. It was Paul’s view that there was nothing in the Report that constituted an adequate reason for with-holding, and that it must therefore be disclosed in full. To do otherwise was to invite an urgent and embarrassing appeal to the Ombudsman by media. Paul expressed surprise at Deloitte's naivety in this regard. But the motion to release included agreement to Deloitte's condition regarding indemnity - fair enough!

Despite this clear advice, Cr Hoadley chose first to vote against release, and then withdrew and abstained. It appeared that her legal instincts were offended by such disclosure, but Cr Connors had an even more novel response – she wanted it held until 6pm to allow members to read it before the media - that was at least laughed out of order, and Mayor Leach got his way, albeit with the usual tetchy exchange with Cr Hoadley.

At this stage, I would like to dispose of the content of the Press Release that accompanied the release of the Report. It is here under "Key Findings" How on earth the spin doctors employed by TCDC could have arrived at this tissue of lies is completely beyond me - it mis-represents the contents and findings of the Report in every possible way, is designed to follow the line promulgated by Mayor Leach since day one, and it is beyond a joke.

By way of example - the first five of six points relate to what allegedly  occurred during the term of the previous Council mainly concerning the absence of a business case relating the WW site (Note - a business case had been prepared for the Moewai site by Optus at a cost of some $583,000, and many councillors were gun-shy of throwing another half mil. at the project for this purpose, even though it was a different site). In any case, though its absence may have contributed to the over-run two years later, it is a somewhat cute to lay the whole blame on its absence.

The actual Report certainly highlighted the the decision taken by Council on 30 June 2010 to "proceed with the development of the multi-sports complex on the 10Ha WWL site and that it did not require a further business case developed before making this decision". This was clearly done on the basis of 'rough estimates' totally $6m. And in the face of advice from the Chief Executive that it "should ask for a further business case to be developed".

It fails to acknowledge that $585k had already been spent on the Optus Moewai Road Business Case - hardly insignificant, and that caused Council at the time to take the short cut, but as explained above it was hardly the primary cause. And thereafter, accordingly, the report confines itself to the abysmal failure of Council budgeting, recording and accounting systems to maintain control, and provide adequate information on which Council could exercise adequate governance, let alone staff maintain any semblance of management control.

The 'Key Findings" were that these failures (all over the life of the present Council, but surely dating from long before) included:

a) Decisions in relation to significant capital projects and approved budgets for the projects.... have not been documented in appropriate detail, ..... (nor) include specific detail as to the actual deliverables and did not specify the scope of the projects. This led to "scope creep", and lack of accountability.

b) Reporting of project financial position was generally on an informal and mostly verbal basis. Actual financial tracking and budget monitoring for the MBSC was not being performed on a monthly basis and did not include actual committed expenditure or contingency balances. The implications include almost total loss of cost control, and accountability.

c) The current level, of reporting of capital expenditure at the Council is at a very high level - confined in fact to the Groups - Strong Communities, Planning for the future, Safeguarding the Environment and Community Leadership. (Note - the areas of major capital expenditure are hidden away in these groups for some obscure historical reason that predates rational accounting systems. But why was it tolerated for so long?)  It was noted that "the actual reporting to Council did not show variances to budget of project status. (It was my experience that any inquisitiveness by councillors in regard to the progress of projects was regarded as 'interference' - Steve Ruru's defence of management prerogatives was pronounced - something that appears to have improved under David Hammond). The Report goes on to note under this heading that the capital project reports sighted did not show any evidence of review by a person independent of the preparation process. (A fundamental control!)

d) A review of expenditure to date within the Track 24 system for MBSC (and the Whitianga Waste-water Disposal Project prior) identified a large number of expense items that had been entered in and approved by the Project Manager. Again it is fundamental that such expenditure be approved at a higher level due to the heightened risk of fraud.

e) Deloitte's identified that Track 24 does not automatically interface/reconcile with the Council General Ledger. This is so fundamentally wrong in concept that it leaves one almost speechless - Deloittes language is much milder, but you can read between the lines that they were amazed at this. Capital works in progress accounts are currently directly interfaced with the accounts payable sub-ledger. Fat lot of use that is in maintaining control.

f) Deloittes noted that the MBSC Project Manager was using a 'stand-alone' spread sheet system - not the Track 24 to manage costs on his projects. This reduces Council's ability to monitor, control and hold management responsible for overall progress, and is of course prone to huge inaccuracy. It may well have been out of utter frustration with the Council's "in-house' Track 24, but that does not excuse his immediate reporter for not having jumped on this practice long ago.

g) The capitalising of the $583k spent on the Optus Moewai Business Case was incorrect in terms of NZ IAS 16. It should have expensed, and again this is fundamental accounting principle that we should not have had to await Deloittes to identify. It is also interesting to note their comment that depreciation expenses may also be misstated due to over-statement of costs being capitalised.

General Comment (mine):

All this is pretty self-explanatory, and the recommendations that accompany each reflect basic accounting processes that one would have imagined were part and parcel of a properly managed organisation of this size, but which for some reason have managed to sail along under the radar through successive management structures.

I cannot imagine that current senior staff, quite apart from those who were directly responsible at Whitianga are able to escape censure in relation to the absence of these basis controls. That the Track 24 system is unable to reconcile with the General Ledger is a matter of extreme concern - particularly in the light of the amount that has been spent on this system.

So that's it - that's the Report

Other Matters:

Mayor Leach's loud complaint that he was not made aware of the content of a separate Report for the Audit Committee prepared by Deloitte's in 2009 until early 2012 needs examination. This was an internal audit project that reported shortcoming's in the reporting of capital works budgets and expenditure, and the lack of reporting on a 'whole of project' basis. Management advice at the time was that Track 24 did not support the recommended process changes.

Action plans were developed to address these problems and progress reported to the Audit Committee from March 2010 onwards. Deloitte's simply state that "a strategic decision was required as to the appropriate software platform to move Council forward in this area", but that this decision was not made until 2012. Are they implying that staff brought forward a recommendation in that regard to the Audit Committee any earlier, and that it was not acted on?

If so, where is the evidence? If not, then Mayor Leach should back off his constant harping on about  inaction on the part of the previous Council. If anything, his Audit Committee has been even more culpable, and the proof of thaty lies in the minutes of their first two meetings. In any case, if staff don't bring matters to the attention of the Committee, how on earth is it expected to achieve these remarkable improvements in process - such an expectation is frankly ludicrous, and Leach know's it.

As for his accusations of "not having been briefed by anyone from the previous Council", he should perhaps ask himself just when did he ever ask anyone for advice or a briefing after the election. I heard him actuallly reject any such contact at an early Council meeeting. His repeated expressions of contempt for the previous council(s), and his outrageous accusations during the campaign hardly prepared the ground for any such 'cosying up'. In any case, since when was there any obligation on out-going members to 'brief' incoming - what nonsense? It is a just a pity that there was a complete clean-out of any with any knowledge of what was going on. All he was left with was Cr Bartley - 'nuf said!

 

 

 

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Reader Comments (3)

The report is very disappointing – its finding are very limited in scope.

For example $585,000 of rate-payers money was completely wasted when the Mercury Bay Community Board, under the leadership of Murray Mclean, was delegated responsibility to develop the business case for the sports-complex. They decided to change the location from Waterways to Moewai in the mistaken belief that this would force the Lux / Whitianga Waterways Deed to be withdrawn so that cash would be provided by them instead of land. This was pointless because the Deed was a legally binding contract and no business with any common sense would give away that advantage. Consequently the Community Board spent $585,000 to provide the Council with a completely useless business case to develop a sports-complex at Moewai.

Yet Deloitte was not concerned that the Mercury Bay Communitry Board had thrown this money away – their only concern was that the $585,000 had been capitalised instead of expensed in the Councils accounts! Hello - isn’t that slightly missing the point?!!!!!!

However to be fair, that could have resulted from a limited the terms of reference set for Deloittes by the Councils Audit committee. But however it happened, it is a glaring omission. And that omission was important as by the time the matter came to the Council the budget for a business case specifying facilities was spent and gone with no useful result - and delays the Board had created had caused a section the Mercury Bay community to demand decisive action from the Council. i am sure they would not have appreciated further expense and delay while awaiting for a further business case!

But this is only one omission in the report. There are several others of equal or greater significance, such as the method of introduction through the Council of the Lux / Whitianga Waterways Deed, which fact alone provided the context for the political shemozzle described above.

Also, an implication of the Deloittes report is that the current cost overruns on the amenities building can to some degree be related back to the previous Council. This is not born out by the facts. A close analysis shows that those cost over-runs emanate from the time when “The project team were presented with a preliminary design of the amenities building ion 18 August 2001” – a time almost 1 year after the election of the current Council!

But enough said.

Dal Minogue.

February 22, 2013 | Unregistered CommenterDal Minogue

with all due respect about a 'business case', I have spoken to an ex councillor who said what they felt was said by Ruru -[paraphrased] 'if you want to know more about costs you will need another business case' and as Council had already spent over 500,000k on an Opus sportsfield report and basically the needs were the same, whether it was Moewai Rd or WW site so there was little point in throwing good money after bad. And further to that they pointed out that it was wildly touted in the press at the time of signing, what a fantatsic deal it was - sorting out the previous 2004 Councils problems on the reserves contributions,plus a saving of over $1m and don't forget they said - a fixed price contract for 5 playing fields and 8 hardcourts -contract price of $3.85m -plus some contingences for parking and a modest changing rooms. Under Leachs watch that has turned into a 86 m long changing room for 200 people [at the same time!!] and an overrun of $2m - and acording to Leach on CFM - all on a charge up rate - oh dear as ratepayers here in the Bay we are all going to have to pay for this Councils mistakes. Maybe this Council shed too many staff too soon-----

February 24, 2013 | Unregistered CommenterPipi

I don't disagree. There are many aspects to the matter. By the way the date in the last para of my comment should have been 18 August 2011, not 2001!
Dal.

February 25, 2013 | Unregistered CommenterDal Minogue

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