The Auditor-General has slammed the members of a school board who paid $450,000 to themselves - and have been unable to say what it was spent on, who authorised it or how the fee was determined.
An inquiry was launched after it was discovered that the Combined Establishment Board of South Auckland Middle School and Middle School West Auckland paid the management fees to the Villa Education Trust in 2018.
However, the school's appointed auditor noted that the trustees of the board were also the trustees of the Trust and "effectively decided to pay money to themselves", Auditor-General John Ryan said.
"We found the members of the Establishment Board failed to recognise that a conflict of interest arose when they effectively decided to pay money to themselves.
"This meant the Board took no steps to manage the conflict," he said.
Alwyn Poole founded South Auckland Middle School and Middle School West Auckland and organised all students at both schools in "villas" of 60 children, each with a class of about 15 students in each of the year levels 7 to 10.
The partnership schools were bulk-funded, enabling Poole and his wife Karen, the Villa Education Trust's chief executive, to hire more teachers by spending less on property and administration.
However, Ryan found the $450k monies were for administration and management services required for the former charter schools to open as designated character state schools.
"The trustees were, effectively, wearing two hats," Ryan said.
"The shared membership was a potential conflict of interest that became an actual conflict when the Establishment Board considered engaging Villa Education Trust.
"In a situation like this, we expect a public organisation to recognise the conflict and put a process in place to manage it."
The Establishment Board, like any public organisation, was accountable to the public and Parliament for how it has spent the public money entrusted to it, he said.
However, since then the board has still been unable to provide the auditor general "with sufficient assurance about the circumstances in which the fee was determined and paid, and about what exactly has been provided in exchange".
"I expect more from a public organisation spending public money.
"The circumstances of this payment create a perception of a lack of integrity. Acting with integrity, and being seen to act with integrity, are fundamental to maintaining the public's trust and confidence in public organisations and in the public sector as a whole."
From the time of the 2018 audit and throughout the inquiry, there also appears to have been a lack of appreciation by the Establishment Board of the position it was in when it became a state school, or of the expectation when spending public money to properly account for that money.
When carrying out the 2018 audit, the schools' appointed auditor had been unable to obtain sufficient, appropriate evidence to determine how much of the payment was valid expenditure.
"Information about how the fees were determined, agreed, paid, and managed, and what was received for the payment, should have been available to our auditor when asked for in the first instance.
"That information is part of orthodox procurement and contract management and should be properly documented.
"If that information was prepared and made available, it might not have been necessary for us to carry out all the work involved in this case to find out the circumstances of a payment like this."
Ryan encouraged public organisations to read his office's good practice guide on managing conflicts of interest.
"This provides guidance on identifying and managing conflicts of interest, so the public can have confidence that people making decisions and spending public money are doing so in the public interest."
Ryan also found that, while the Board had valid reasons to engage Villa Education Trust for the work, the board did not follow good procurement practice:
- There was no formal agreement between the board and the Trust, and no scope of work before the $450,000 was invoiced and approved for payment,
- There was no evidence to show how the board determined what services it was paying for, assessed the appropriateness of the fees, or actively managed the services that were delivered,
- There is no documentary record of who approved the expenditure as being valid or authorised the invoices for payment, and whether they had the appropriate authority to do so.