An external financial health check raises more questions about a Conservation Department project in the Mackenzie Basin. David Williams reports

It has already been described as a “complete disaster”.

Now, a second external review into the Department of Conservation’s project in the Mackenzie Basin questions financial controls. At least three project staffers have since left.

The department’s procurement processes weren’t followed, consultancy firm Deloitte found – there was a “lack of underlying contract documentation”. Some invoices were undated. Some were stamped unpaid or overdue.

DoC’s director of business assurance, Graeme Ayres, says it is normal for such reviews is to “conduct due diligence” for potential fraud. “I can confirm there is no evidence to support any allegations of fraud in relation to this project.”

The Deloitte review reinforces the view the project lacked oversight – and it shows what a hill the department (DoC) has to climb to turn it around.

But it’s so important for the environment that it is.

The Basin, with its tangled maze of naturally rare, glacially-derived, dryland ecosystems, is internationally recognised as outstanding. But the Mackenzie’s at a tipping point as land-use intensification has destroyed and fragmented ecological and landscape values, relatively quickly.

In 2018’s Budget, DoC was given an extra $181.6 million over four years, including $2.6 million “to fund better protection of the unique landscapes and biodiversity of the Mackenzie Basin”.

The DoC project’s indicative business case says the region, known for its extreme climate, has distinctive biodiversity not represented to the same extent elsewhere in the country.

However, the project was beset with delays, included a postponed ministerial announcement, and the original project manager, Jeremy Severinsen, was replaced. (The deputy director-general who oversaw the project, Kay Booth, subsequently left the department.)

The centrepiece of the project was a proposed drylands area – areas of protection for landscapes that have been visibly greened by intensive farming, and hulking pivot irrigators.

To that end, two years ago, Eugenie Sage, the Green MP who was then Minister of Conservation and Land Information, announced 11,800 hectares of the Mackenzie Basin, called Tū Te Rakiwhānoa, had been protected.

While some concessions were won, the announcement contained a fair amount of spin, and it masked an unhappy exchange between Sage and DoC director-general Lou Sanson a year earlier.

The real bombshell came from a highly critical external quality assurance report, which said the project – described as a “complete disaster” – abandoned its business case, lacked oversight, and achieved little.

Afterwards, the project shifted from the department’s partnerships group to operations.

Deloitte brought in

One of the recommendations of the Tregaskis Brown quality assurance report was for a spending review. The project was paused a year ago while Deloitte did its analysis.

Its report, completed last September and released to Newsroom under the Official Information Act (OIA), scrutinised the project’s external spending of $467,000, with a particular focus on five suppliers.

In the case of two of 18 invoices, Deloitte was unable to confirm the correct delegated financial authority – the right “tier” manager approving payments, depending on the amount.

The five suppliers selected for review were Environment Canterbury (paid $111,920), Lucas Associates ($74,852), Māui Studios Aotearoa ($38,650), Te Runanga O Waihao ($18,245), and Tekapo Helicopters ($2375).

The report, signed by Deloitte partner Lorinda Kelly, found inadequacies in procurement and contract documentation, delegated financial approvals, and management of ongoing instructions and variations.

“The department has been able to provide a range of documents that make reference to arrangements entered into with the sample suppliers. These documents include meeting minutes, file notes, and, on one occasion, a cost memorandum. Aside from the cost memorandum, none of the documents provide sufficient detail of the costs and funding agreements being agreed to and incurred.”

Two invoices from Environment Canterbury, the regional council, relate to a one-third split of a programme alignment manager’s cost – shared between ECan, DoC, and Land Information New Zealand.

Several documents refer to an agreement to share costs for the role, based at ECan, for a minimum of two years. But there was no written agreement about the salary, whether it would include overhead costs, and how they would be calculated, and the timing of payments.

In total, ECan invoiced DoC $215,066 between December 2018 and June 2021, including $93,377 of overhead costs.

Deloitte asked why the second invoice, for six months, was higher than the first, spanning seven months. It turns out the manager had taken parental leave and a contractor had been engaged.

ECan did not provide a breakdown of overhead costs – or why costs had increased as a percentage of salaries. But it did say overheads excluded building rent. (Extra charges in the most recent invoice for “Rūnanga honoraria” and “miscellaneous costs” were not examined.)

If overhead costs are accepted to be accurate and appropriate, invoices were $8208 higher than actual costs, the Deloitte report said.

ECan’s director of strategy and planning, Katherine Trought, says: “The Department of Conservation has shared the findings of the Deloitte review with us and we’ve been working with the Department to address the matters raised in the report.”

There’s now a formal agreement between DoC and ECan detailing the contribution to the programme manager role, DoC’s deputy director-general of operations, Mike Slater, confirms.

Māui Studios Aotearoa produced a promotional video clip for the Tū Te Rakiwhānoa project. Screenshot: YouTube

DoC couldn’t provide Deloitte with procurement information related to Lucas Associates and Tekapo Helicopters.

The consulting firm’s main beef with advice from Lucas Associates was there was no documentation setting the scope, agreed costs, or outputs.

The department’s business accountant advised the Christchurch firm was used as required, and instructions were given verbally or by email. Invoices were addressed to four different people, three of whom had since left the department.

Deloitte questioned the “as required” nature of the work. It said while individual invoices were below the $20,000 threshold for a lower manager’s approval, the cumulative spend was about $75,000, which, taken as a whole, requires consideration of other suppliers.

Documentation didn’t state why hourly rates varied from $55 an hour to $100 an hour, or if the rates were agreed by DoC.

Lucas Associates director Di Lucas, a prominent landscape architect, had no comment, except to say: “How ridiculous to not recognise that people with different skills and experience are charged at different rates.”

Rūnanga costs were invoiced by ECan initially and then Te Rūnanga o Waihao. While the department agreed to fund rūnanga involvement, the report said meeting minutes didn’t detail what specific costs would be met or remuneration rates.

Te Rūnanga o Waihao chairperson Graeme Lane said rūnanga were not in a position to share any considered views on the project. (A member of the rūnanga’s executive is Sara Severinsen, the wife of the original project manager and a former project employee. Since leaving DoC, the couple have established environmental consultancy Mana Motuhake Ltd.)

A tangible output of the Mackenzie project was a promotional video clip. As of yesterday, it had 650 views on the department’s YouTube channel.

The clip was produced by Christchurch creative agency Māui Studios Aotearoa. The original cost proposal was $19,900 (plus GST) – just under a $20,000 payment-approval threshold. However, DoC provided no signed contract, or evidence other quotes were sought.

Deloitte said the production of a short publicity film “is publicity-related expenditure”, not consultancy work, the payment code used by DoC. If the work was coded correctly, it would have triggered sign-off from a higher-up manager for two of Māui Studios’ five invoices. Also, spending over $20,000 requires more procurement documentation and consideration of other suppliers.

“We appreciate that invoice descriptions and the level of detail provided will vary from supplier to supplier, but the person who is ultimately responsible for the approval of the invoice should have an understanding of why the consultant was being engaged,” the report says.

Māui Studios director Madison Henry-Ryan says DoC’s project managers asked for additional outcomes and production dates, as the project was split over two years. The initial proposal was submitted in 2019, and then there was a change in leadership.

“We didn’t hear back. A year later the new project manager wanted to finish this work, with the addition of new direction and scope of film production required to complete the project, which was approved from their end to continue.”

“Deloitte has not reviewed whether an actual or perceived conflict exists in this instance.” – Deloitte report

Conflicts of interest have dogged the Mackenzie project.

The Tregaskis Brown report said the project’s conflicts of interest went unidentified and undeclared. One of its recommendations was to “relieve compromised roles and resolve outstanding conflicts of interests”, which would help mitigate the risk to the project “and regional resources’ professional safety, and departmental risk”. One person, at least had been “relieved of all related responsibilities”.

The last section of Deloitte’s report is headed: “Disclosure of possible interests”.

During its work, it identified an “employee interest” that “may” meet the department’s disclosure criteria.

“This interest was disclosed and was between two department employees who worked on the project. A letter surrounding steps to manage this disclosure of interest was sent to the departmental employee, from the releveant deputy director-general.”

The employee recalls accepting the plan, and signing the letter and returning it. However, the department only had an unsigned version.

“We note that Deloitte has not reviewed whether an actual or perceived conflict exists in this instance, nor have we reviewed the management of the conflict of interest once it was declared. The observations made are to assist the department with assessing the next steps required (if any).”

DoC deputy director-general Slater says controls have been put in place to ensure the project is now following procurement processes. The project has been reset, a “project management framework” applied, and appropriate internal governance established.

Recommendations from the Tregaskis Brown report have been implemented “or, in the case of improving relationships with stakeholders, are ongoing”, he says.

But 18 months after the Tū Te Rakiwhānoa announcement, a memorandum of understanding is yet to be signed with the NZ Defence Force over the management of 15,000 hectares of the Tekapo military training area.

“We are undertaking general pest and weed control, and wilding pine control and mulching to encourage drylands recovery, across the TTRD (Tū Te Rakiwhānoa Drylands) land,” Slater adds. “We are also undertaking rabbit control in the Tasman Riverbed and fencing at Ohau Downs.”

The work is funded from existing operations budgets, he assures – not from the money allocated in the 2018 Budget.

At last, nature is starting to benefit from a four-year-old, ministerial commitment to the Mackenzie. However, it seems the department’s enthusiasm for the project’s original aims has waned.

The indicative business case, signed by then director-general Sanson in April 2019, said the “optimal plan” for the Mackenzie was for “full protection of land for conservation purposes”, including Crown protection – “acquisition” – of 155,254 hectares, where appropriate.

“It is estimated that this would require an annual cost of $10-15 million per year for 10 years.”

That approach was “currently unfeasible due to a lack of funding”. However, the final output of the project’s four-year funding was meant to be a detailed business case “to establish the full dryland heritage area, with options based on funding availability”.

Newsroom asked DoC if that was still the case.

Slater, the deputy director-general, replied: “We are not planning to produce a detailed business case this financial year. Ecological surveying is planned for the current TTRD land, and this will be used to guide its ongoing management.”

David Williams is Newsroom's environment editor, South Island correspondent and investigative writer.

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