98 2 t1 Ac rm at io n Te Pataka Ohanga Limited In fo Charities Services Investigation Report R el ea se d un de rt he O ffi ci al Ben Potaka - Investigator 19 August 2014 Te Pataka Ohanga Limited CC20442 15 October 2013 8 January 2014 19 August 2014 Ben Potaka 98 2 Investigation Registration Number Date Opened Date Assigned to Current Investigator Date Completed Investigator t1 A. Executive Summary rm at io n Ac Te Pataka Ohanga Limited (“TPO”) came to the attention of Charities Services by way of an article presented on ‘Native Affairs’ – an investigative news show on Māori Television. The article alleged misspending on the credit cards of two individuals at TPO. The indi iduals were Dame Iritana Tāwhiwhirangi who is a director of TPO and Lynda Tāwhiwhirangi who was the General Manager of TPO and Dame Iritana’s daughter-in-law. In fo As a result of the article, Charities Services started an investigation to ensure that TPO continued to qualify for registration under the Charities Act 2005 (“the Act”). Charities Services became aware of a review being conducted by the Min stry of Education into the parent body of TPO, Te Kōhanga Reo National Trust (“the Trust Board”). Both the Trust Board and TPO operated to support the kōhanga reo movement. Charities Services conducted the investigation into TPO in the first instance while the Ministry of Education completed their review. rt he O ffi ci al Charities Services approached TPO and issued them with a section 51 notice under the Act to request information and documents. Charities Services worked with TPO, KPMG and Chen Palmer to collate the required information. After reviewing the information, Charities Services noted that there were a large number of concerns in relation to spending on credit cards, financial controls, management, governance and issues relating to charitable purpose. TPO did not have a specific set of policies and procedures to deal with spending and day to day activities. Instead it was assumed that TPO would revert back to those set in place by the Trust Board. This however was not followed and a number of issues arose. un de A concurrent investigation was being conducted by the Serious Fraud Office (“SFO”) who looked into any criminal wrongdoing in the raised allegations. The SFO concluded that while there were issues with the credit card use and with general governance, there was no criminal wrongdoing and the investigation was closed. se d Outcome R el ea After working with Charities Services to provide the information requested, TPO became aware of the gaps in their framework and made assurances to improve. This included the removal of Lynda Tāwhiwhirangi, the recruitment of a new General Manager, the stopping of all credit cards, a commitment to develop a set of policies for TPO and the provision of extensive training to staff and directors. TPO were officially warned for their conduct and they responded by ensuring the remedial actions were continuing and that whānau assistance loans had ceased operation. Charities Services can be satisfied that the deficiencies that occurred have been addressed and that TPO will be in a stronger place moving forward. TPO will be placed on a monitoring list to ensure that the assurances given to Charities Services continue to remain. 1 B. Background The Kōhanga Reo Movement t1 98 2 The kōhanga reo movement was established during the 1980s as a means of reinforcing Māori language in the younger generation. The kōhanga reo movement, which immersed Māori pre-schoolers in the Māori language, began in 1982, when the first kōhanga reo opened in Lower Hutt. Ac Te Kōhanga Reo National Trust rm at io n The Trust Board was founded in 1982 to act as a guardian of the kōhanga reo movement and was established as a Charitable Trust on 4 January 1984. The objective of the Trust Board is to pass on and develop Māori language and culture to children while supporting the families involved. In addition, The Trust Board provides a range of financial, advisory, training and administrative support to kōhanga reo across the country fo The Trust Board was registered with Charities Services on 11 October 2007. al In The Trust Board is largely funded by the Crown with the latest (2012) accounts showing the breakdown in funding as such: $3,207,000 $5,921,000 $ 10,000 $9,137,000 O ffi ci Ministry of Education Tertiary Education Commission Te Puni Kōkiri se d un de rt he The Board of Trustees are elected for life. The current trustees are: • Manuera Tohu • Tina Ratana • Toni Waho • Dr Te Wharehuia Milroy • Dame Iritana Tāwhiwhirangi • Te Aho angi Timoti S Kāretu • Kingi Tuheitia • Druis Barrett R el ea Te Pataka Ohanga Limited TPO is a wholly owned subsidiary of the Trust Board. TPO was incorporated in 1997 to act as the business and development arm of the Trust Board and to raise funds to be applied to aspects of kōhanga reo that were not crown funded. TPO was established to deal with the windfall in funds as a result of the ‘property putea’ programme that was initially run by the Trust Board. The property putea programme would grant funds to individual kōhanga by way of a loan to help them purchase and/or upgrade 2 their premises. The interest on these loans would flow back to the Trust Board. Upon incorporation of TPO around $5 million was transferred to TPO as a result of the property putea programme.1 t1 Ac n Property, vehicle, contents and public liability insurance IT Purchases Private Health initiative (the mokopuna oranga pumau) Whānau loans Internet charges Fuel card payments rm at io • • • • • • 98 2 TPO negotiates cost effective pricing for products and services supplied to kōhanga reo around the country through collective purchasing. Such services include: TPO was registered with Charities Services on 10 January 2008. In Dame Iritana Tāwhiwhirangi Druiscilla Barrett Wharehuia Milroy al • • • fo TPO is governed by a board of directors. The current directors listed on the company and charity register are: ffi ci Relationship between TPO and the Trust Board he O There is a direct relationship between the Trust Board and TPO. TPO is a wholly owned subsidiary of the Trust Board and all three directors are trustees on the Trust Board. un de rt Given this close relationship, the financial management and employment policies that are in place for the Trust Board a e also in place for TPO2. It appears that some confusion existed between staff at TPO as to whether they were bound by the policies and procedures of the Trust Board. se d C. Allegation R el ea On 14 October 2013 an investigative news show “Native Affairs” aired on Māori Television. On the show several allegations were made in regards to personal spending on credit cards by members of TPO. Native Affairs highlighted two individuals who were alleged to have misspent on their credit cards, namely, Dame Iritana Tāwhiwhirangi and Lynda Tāwhiwhirangi (Dame Iritana’s daughter-in-law). The show also raised concerns about koha being given without receipts and issues surrounding personal loans to staff. 1 2 TPO Response to section 51 request of 17 February 2014. TPO Response to section 51 request of 17 February 2014. 3 98 2 As a result of the Native Affairs show, Charities Services started a proactive investigation into the allegations raised. Charities Services were made aware that the Ministry of Education were conducting a review into the Trust Board. After a meeting with members of the Ministry it was agreed that Charities Services would look at TPO while the Ministry finalised their review. t1 D. Investigation Purpose Ac Based on the information noted above as well as the financials and documentation on file, there were a number of concerns and issues which needed to be investigated: rm at io n 1. Financial Management – The apparent lack of policies in regards to credit card expenditure is a concern. fo 2. Conflicts of Interest – There appears to be a number of conflicts of interest at TPO with Dame Tāwhiwhirangi and Lynda Tāwhiwhirangi approving and signing off each other’s expenses despite a personal relationship. al In 3. Governance – as a result of the lack of financial management, there also seems to be a lack of governance occurring from the Board of Directors. Approvals for spending and a lack of policies highlight potential for ongoing concern. ffi ci 4. Charitable Purpose – As a result of this investigation, a charitable purpose review will need to be conducted. This review will be conducted alongside the investigation. he O 5. Private Pecuniary Profit –. Koha and the provision of whānau loans may also amount to a private pecuniary profit and will be looked at in the charitable purpose review. Determine the spending on the credit cards in relation to the allegations stated above Determine the extent of the financial mismanagement within TPO in respect to the allegations stated above. Determine what checks and balances are in place to prevent financial mismanagement of the types stated above. Determine what role the Trust has in regulating TPO and what checks and balances it puts in place to ensure that TPO acts in accordance with its objectives. se d • • un Objectives de rt Based on the information above, there was prima facie evidence of serious wrongdoing in relation to financial management, lack of governance and private pecuniary profit. • R el ea • 4 E. Investigation Timeline 2013 al un de 27 November rt he O ffi 21 November ci 12 November In fo rm at io 4 November n Ac 16 October – Investigation opened after Māori Television report on potential misspending at TPO – Meeting held with Ministry of Education. The Ministry were currently conducting an audit of the financial controls at the Trust Board. This audit was to be conducted by Ernst and Young (“EY”) During the meeting it was agreed that the Ministry would continue the review of the Trust board while Charities Services begin a review of TPO. – Notice under section 51 of the Act is sent to TPO. Included in the notice is questions relating to: • Administration Expenses • Personnel Expenses • Related Party transactions • Directors Fees • TPO loans • Credit Cards TPO are given until 3 December 2013 to respond to the notice – Financial Manager of TPO, Frances Edmonds requests an extension to the response of the s51 notice. Charities Services allow for an extension until 13 January 2014 – Initial meeting held with members of TPO. Representatives of TPO include Patrick Knowles (Finance Manager), Frances Edmonds (Accountant), Ben Haerewera (Acting General Manager) Angus Hartley (Acting Chief Executive Officer) and Dame Iritana Tāwhiwhirangi (Director). The response to the s51 notice is discussed and TPO state that accounting firm KPMG have been hired to conduct an interim audit of the financials of the TPO and may be best placed to provide some of the information requested in the notice. – Meeting held with members of TPO and KPMG. KPMG highlighted what information they would provide. KPMG stated that they will seek to assist in areas of financial controls, data, expenditure and other financial related questions while TPO would provide information surrounding the charitable purpose. – Meeting with Chris Budge and Andrew Ralston of KPMG. Discussion surrounded format of information and whether most of it could be provided via electronic means. Charities Services confirmed that in the first instance this would be acceptable. – An extension to the 13 January 2014 response date is requested by TPO, extension is granted until 14 February 2014. t1 13 October 98 2 Below is a timeline of the actions taken in the course of the investigation: se d 4 December ea 17 December 16 January R el 2014 30 January – Meeting held with members of TPO and KPMG to discuss the response to the s51 notice. Progress was presented and it was stated that the February 14 deadline would be achievable. – Meeting with Chris Budge of KPMG. Charities Services are informed that KPMG will no long be providing the response and that TPO have hired law firm Chen Palmer to handle all responses. 5 7 April – Meeting with Katrina Van Houtte, a senior associate at Chen Palmer. Ms Van Houtte provided the response to the s51 notice (“the response”) in hard copy. Teleconference with Mai Chen of Chen Palmer is held simultaneously to elaborate on the information contained in the response. – Meeting with staff of Serious Fraud Office (“SFO”) who are also conducting an investigation into TPO. SFO investigation is in preliminary stage. - Meeting held with members of TPO, during meeting a section 54 warning notice is provided to TPO in response to investigation conducted by Charities Services. - SFO investigation completed. The SFO's investigation did not disclose any criminal offending and the SFO will not be taking any further action. - Meeting held with members of TPO in regards to the warning notice. TPO provide documents to show the remedial actions have continued to be implemented Ac t1 4 June 98 2 17 February 14 July rm at io n 10 June Section 51 Notice In fo The questions raised in the section 51 notice sent to TPO on November 4 2013 are outlined below: al Financial Statements for 2008, 2009, 2010, 2011 & 2012 ffi ci Please provide further information to the following questions for the years 2008, 2009, 2010, 2011 and 2012: O Note 6 - Administration Expenses rt he 1. In note number 6 of the financial statements, there is a category listed as “other” under Administration Expenses. Please explain the nature of these “other” expenses Please include a detailed breakdown of these “other” expenses and any relevant documentation. un de 2. Note number 6 of the financial statements for each year states that there is an expense for Director’s fees. Please provide a breakdown of the fees each Director received in per year. Please include any relevant documentation. Please provide a detailed breakdown of to whom and for what amount Koha was paid. Please include any relevant documentation. se d 3 R el ea Note 7 – Personnel Expenses 4. Please provide a detailed breakdown of “Personnel expenses” for each year. Please include any relevant documentation. Note 20 – Related Parties The financial statements appear to show that TPO makes loans to trustees and management of the parent, and directors and management of TPO. 6 5. Please explain the nature of such loans and how this advances the charitable purposes of TPO. 98 2 6. Please explain for what purposes each loan to directors and trustees were made, the amount of each loan and the terms of such loan. t1 7. Please provide a breakdown of the outstanding loan balances for 2012. Please include what the purpose of the loan was for, the amount of each loan and the terms of each loan. Ac The financial statements show that the directors and management of TPO receive compensation in addition to salaries. rm at io n 8. Please provide a breakdown of “short-term benefits” that were paid to directors and management of TPO. This should include to whom the benefits were given, the nature of each benefit and value of such benefit. Please include any relevant documentation. fo 9. Does TPO have policies in place in regards to the payment of short-term benefits to directors and management of TPO? Please include any relevant documentation. In Directors’ Fees al 10. Please explain the rise in directors’ fees from $57, 757 in 2009 to $93,428 in 2011. ffi ci TPO Loans he O 11. Please provide details on all types of loans that TPO makes to individuals or any other organisation. P ease explain the purpose of such type of loan and how this furthers the charitable purposes of TPO. rt 12. Does TPO make personal loans to staff? If so, who approves the loans to staff and for what purpose(s) are these loans made? de Credit Cards un 13. How many credit cards does TPO have? Please include any relevant documentation. R el ea se d 14. Please provide the bank statements for each TPO credit card for the period 1 January 2011 – 1 November 2013. 15. Please provide any corresponding receipts for purchases made on TPO credit cards for the above time period and documentation stating the purpose of each expense. 16. Does TPO allow credit cards to be used for personal expenditure? 17. Please provide any policies that are in place in regards to TPO credit-card use. 7 Other 98 2 18. Please describe the nature of the relationship between TPO and Te Kohanga Reo National Trust Board (Trust Board); including what funding is received by TPO from the Trust Board. t1 19. Please explain the current and future charitable purposes and activities of TPO. Ac 20. Please outline how the charitable purposes and activities of TPO are reflected in the financial statements. 21. How many petrol cards are in use by staff and directors of TPO? rm at io n 22. What policies are in place in regards to the use of TPO petrol cards? 23. Any other information which will assist Charities Services in this current review. fo F. Analysis al In In line with the response and with other information received by Charities Services the following analysis has been conducted. ffi ci Credit Cards O TPO had three credit cards issued to staff members in the period 2008 – 2012. These were issued to: rt he Dame Iritana Tāwhiwhirangi (2008 – 2012) Andrew Hema (2008-2009) Lynda Tāwhiwhirangi (2010 – 2012) de • • • un In the review, Charities Services looked at transactions between the periods 1 January 2011 – 1 November 2013 and therefore the credit card use of Dame Iritana Tāwhiwhirangi and Lynda Tāwhiwhirangi. R el ea se d TPO stated that the policies used to govern expenditure were those established by the Trust Board In the response, TPO state that Lynda Tāwhiwhirangi was under the false impression that Trust Board’s credit card usage policy did not apply to TPO. In the Finance Manual issued for the Trust Board in 2009 there is a strict policy in place for credit card use. At Clause 1.3 it states: The following must not be charged to Credit Cards issued by the Trust • any personal expenses • drawing down of cash advances (unless approved by the CEO – for koha) 8 • • • entertainment of partner or spouse on their own purchases relating to travel (airfares, rental cars etc) purchases for assets 98 2 ….. t1 A Trustee is to review and approve all credit card payments. Explanations and reimbursements may be requested. Ac Analysis of the following Credit Cards was conducted: n Dame Iritana Tāwhiwhirangi fo ci al In 4,823.33 2,867.21 4,900.00 4,794.50 821.95 1,018.80 278.70 249.00 64.10 275.00 20,092.59 O ffi Amount $ $ $ $ $ $ $ $ $ $ $ rt he Reason Food Stationary Cash Withdrawals Accommodation Petrol Electronics Lighting Bag Taxi Car Repairs Total rm at io During the period 28/07/11 – 12/09/13 the following transactions occurred on Dame Iritana Tāwhiwhirangi’s credit card. On the statements provided to Charities Services a reason is written against each transaction. un de The “cash withdrawal” amount relates to Koha payments made in the process of attending various hui or meetings around New Zealand. No receipts were issued for the koha payments. It is apparent that there was some personal expenditure on the credit card. ea se d All Statements for the above purchases were approved and signed. However in the response, it states that Dame Iritana believed that she did not need independent approval of her credit card expenditure. R el Lynda Tāwhiwhirangi During the period 16/03/11 – 20/09/13 the following transactions occurred on Lynda Tāwhiwhirangi’s credit card. On the statements provided to Charities Services a reason is written against each transaction. 9 rt de un se d ea el R t1 Ac n rm at io fo In ci al 432.95 3,381.70 313.64 467.35 287.80 176.26 193.11 852.66 4,313.40 799.00 5,512.01 1,609.52 215.00 3,433.86 1,859.55 903.95 1,394.90 172.96 135.00 108.00 431 45 40.67 45.00 2,068.96 1,552.29 661.80 11,336.20 314.00 99.95 191.87 1,847.03 238.40 563.90 80.68 600.00 820.00 770.97 48,225.79 ffi $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ he AA Membership Accommodation Accommodation (Koha) Bags Births Deaths Marriages BOC Limited Bunnings Car Repairs Cash Withdrawals Dress Electronics Flights (Koha) Flowers Food Gifts Herbal Drink Product House of Travel Hunting Shop Interislander Jewellery Koha Ministry of Justice MBIE Office Furniture Office Supplies Parking Petrol Phone Repair Shoes Sporting Goods Stationery Taxi Tolls Warehouse Website Wedding Dress Xmas Food Total 98 2 Amount O Reason Again the issue of cash withdrawals occurs as a way of providing Koha as does the purchase of travel and accommodation as koha. There appear to be a number of concerns 10 appearing on this statement, notably the purchase of dresses and bags which are not in line with the purposes of the TPO or the Trust Board. The purchase of “Electronics”. For the purposes of this investigation Charities Services has grouped a large number of transactions as “Electronics”. On the statements the reasons are given as USB, Phone Chargers and other various electronic items. Most of the purchases were made at Noel Leeming in Porirua. While these purchases may be legitimate expenses, the large volume of transactions and the fact that they are purchased via company credit card raises a concern. The purchase of Petrol is another concern. Charities Services understands that work involves a high volume amount of travel, however several transactions appear suspicious. Large volumes of Petrol were purchased in the same or subsequent days from petrol stations in similar locations. As TPO had fuel cards – these should have been used for more transparency and control. The purchase of Gifts on the credit card. The reasons were mostly for staff farewell and staff Christmas gifts. rm at io In • fo • n Ac t1 • 98 2 Other concerns are highlighted by: al Like Dame Iritana, all statements have been signed and approved. O ffi ci In the response and during the meeting with Ms Van Houtte on 17 February 2014, it was stated that credit cards are no longer in use at TPO. New Policies have been drafted which prohibit the use of credit cards with the new clause stating: Credit cards 7.8.1 Credit Cards are not permitted. 7.9. Purchasing Goods or Services (Other than Assets/Capital Items) de rt he 7.8 All goods and services expenditure incurred by TPO must be approved by the General Manager before the item is purchased. The General Manager is responsible to check that there is sufficient budget to cover the cost of the purchase. se d un 7.9.1 R el ea There is also a new and extensive travel policy in place for staff members. Travel reimbursements are now claimed at an “actual and reasonable expenditure incurred” (clause 7.51.1). There is also a meal rate guide for staff which has a maximum for claiming meal costs: • $10 – Breakfast • $10 – Lunch • $30 – Dinner 11 Vehicle use is now also more extensively monitored with Fuel Cards in place and the requirement for a log book to detail all travel (both personal and work related). n Ac t1 98 2 It is clear that the use of credit cards prior to October 2013 lacked control or management. Credit cards were used to purchase everything including personal items. It has been stated and shown that personal items purchased were repaid. The use of the credit card by Lynda Tāwhiwhirangi was the basis for her removal as General Manager and subsequently termination of her employment. The concerns surrounding credit card use was handed to the SFO who assessed whether there is any criminal wrongdoing in these purchases. SFO completed their initial assessment and decided that while some expenditure on a TPO c edit card related to personal items, the SFO is satisfied on the information available that the card was used in error and that repayments were made. fo rm at io Charities Services is satisfied that further misspending on credit cards will not continue at TPO. There are new policies in place that prevent the use of credit cards and the individual who caused a large number of the concerns around the spending has been removed. TPO have been reminded that the new policies will need to be implemented and reinforced to staff and should credit cards be reintroduced at any stage. In Koha ffi ci al The provision of koha was provided for in the finance manual for the Trust Board. Clause 2.4 outlines the giving of koha: O CEO or GM approval is required prior to making a payment of koha. Email is OK. de rt he Adequate details must be kept to support the payment of koha including • The particulars of the hui, event or occasion • The reason for Te Kōhanga reo representative attending • The type of payment (cash, cheque, supplies) • Where the supplies came from (tax receipt or invoice) se d un From the response it appears that the above was not adhered to at all times and there is a distinct lack of recording. There is also concern that the credit cards were used to withdraw cash to pay for koha, including an incident in November 2012 which $1,000 was withdrawn but was not used. In the response it is stated that this money should have been banked immediately but was only reimbursed in October 2013. R el ea There is also a concern about koha paid to Directors. In 2010 Wharehuia Milroy and Druis Barrett both received $5,000 as a koha payment for duties as Directors. The approval was given by Dame Iritana Tāwhiwhirangi in her capacity as chairwoman. TPO acknowledge that this should not have been coded as koha and have stated that they will make a voluntary disclosure to the Inland Revenue Department (“IRD”) about any miscoded expenses listed as koha. Charities Services will liaise with IRD to ensure this disclosure has been made 12 TPO have since drafted a new policy surrounding koha and at clause 7.10 of the new TPO policies the approval of the Chairperson is required for every payment of koha. The new policy also adapts the Trust’s Boards requirement for adequate details around payment. t1 98 2 Koha was looked at in a charitable purpose review. In that review it was decided that it can be acceptable for TPO to pay for koha to take to meetings that advance a charitable purpose e.g. regional hui, meetings with other Maori groups etc. However, these must be ancillary in size and nature to TPO’s presence at the meeting. n Ac Outside of this, the provision of koha is merely the provision of private benefits. It is not acceptable for ‘koha’ to be given for persons to attend sporting events overseas or to pay koha for an “increased workload”. rm at io Director’s Fees fo In the response it is stated that the rise in Directors fees was an acknowledgement of the increased workload that the director’s took on during the 30 year anniversary of kōhanga reo movement. al In The rise in the fees came in the way of bonuses handed out each year. Each year from 2010 the Directors were granted a $5,000 bonus. At times this bonus was approved the Chairperson, while other times it was approved by the General Manager of TPO. O ffi ci Under clause 6.5 of TPO’s constitution, only the shareholder (in this case – the Trust Board) can determine the remuneration of Directors and therefore this approval should have gone through the Trust Board. he TPO acknowledge this error and have stated that it will be included in the training to ensure that the Director’s and the Trust Board are aware of the requirements. de rt Another issue is the provision of a “Director’s Fee” to the Māori King – Te Arikinui Kingi Tuheitea. Since 2009 there has been a payment made to the Māori King. Payments are shown below: se d un 2009 - $21,813 2010 - $29,850 2011 - $29,850 2012 - $29,850 R el ea The payment is provided to the Māori King as a figurehead in the kōhanga reo movement. TPO have acknowledged that this should not have been paid as a “director’s fee” as he is not a Director. As above, Charities Services will be in contact with IRD around potential tax implications of these payments. 13 Governance and Financial Management t1 98 2 The above issues and concerns highlighted above show that there were serious deficiencies in the checks and controls at TPO. The interchangeable spending approval from Dame Iritana Tāwhiwhirangi and Lynda Tāwhiwhirangi also created a conflict of interest as Lynda was Dame Iritana’s daughter-in-law. rm at io n Ac It was stated in the response that the policies of the Trust Board applied to TPO but the General Manager was under a “misapprehension” that they did not. Even if the General Manager believed that the policies of the Trust Board did not apply to TPO, there should have been oversight by the Board who could have realised the General Manager’s mistake. This becomes even more apparent considering that all the Directors of TPO were Trustees of the Trust Board. It appears that no questions were asked and there were no controls in place to even raise such questions. Appointment of an independent director – Tata Parata who will provide an independent oversight. ci al • In fo In the response the TPO directors acknowledge that certain processes and controls within TPO needed improvement. As a result of this, TPO is putting in place new policies which deal with the operational and financial controls. TPO have also taken remedial steps including: O un • he • rt • All TPO directors will undergo training on corporate governance and compliance with laws, TPO constitution and TPO policies; TPO has implemented a training programme to ensure that all staff are aware of the TPO policies and the importance of ensuring compliance with those policies; There will be specific training for directors and staff on recognising and dealing with conflicts of interest; TPO will be recruiting a new General Manager de • ffi The following assurances have also been provided to Charities Services by TPO: se d TPO has been updating Charities Services, through Chen Palmer, of its progress in implementing the above policies. Since the response, further steps include: R el ea • • • • Development of the new policies, including a consolidated approach with the Trust Board which will see a consistent set of policies between both organisations. Members of the Trust Board and TPO are working with KPMG to revise and develop these policies. TPO will engage an independent and external consultant to restructure and strengthen its governance and management frameworks. Development of a conflict of interest policy and TPO interests register. Several training sessions have been held with TPO directors and senior staff members concerning: o Conflicts of interest; 14 98 2 • o TPO constitution; o Director’s duties. Development of a compliance program under the Anti-Money Laundering and Counter-Financing of Terrorism Act 2009. Ac t1 It is clear that TPO has made a concerted effort to improve the governance and financial management that existed at TPO. Charities Services has an obligation to educate and assist charities in relation to matters of good governance and management. Through Chen Palmer, TPO have shown that a robust framework and development of policies is occurring. Chen Palmer provided the training manual which is in use and Charities Services are satisfied that it will provide the TPO directors with a sound understanding of their obligations. rm at io n Charities Services will need to ensure that the assurances made by TPO cont nue and the policies are implemented. Whānau Assistance Loans al In fo Whānau assistance loans are given to the “wider kōhanga community” with the view that they will assist whānau to get ahead which in turns supports the kōhanga reo movement. Loans have been provided to whānau for a number of things ranging from purchasing a motor vehicle, financial hardship and personal travel. Loans are also provided to TPO Management, TPO Directors and Trust Board Representatives. O ffi ci The loans are offered at below market interest rates (ranging from 6 – 8%) and are unsecured up to $10,000. The largest loan on file is $160,000 which was given to a Trustee of the Trust Board with an interest rate of 6% repayable over 10 years. Such loans may amount to a private pecuniary profit by members of TPO and the Trust Board. rt he There is a noted lack of documentation surrounding the provision of certain loans with documentation not on file for several large loans. de TPO has stated that certain loans are provided for “a range of purposes” including: Business loans Debt consolidation Financial support of others General living (financial hardship, including rates, insurance and unexpected household bills) House maintenance Household goods, such as white ware Medical and dental expenses Property purchases and improvements Relocation costs (including rent/bond) Travel – event Travel – personal Vehicle purchases Vehicle maintenance” R el ea se d un 1. 2. 3 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 15 t1 98 2 The charitable purpose of these loans was analysed. Where these loans are provided to individuals who are not in poverty they are a private benefit. As there are no apparent criteria for who can access the loans they do not appear charitable. Further, even if persons accessing the loans are in charitable need, there is indication that in many cases the loans are being provided in a way that is outside of the relief of poverty. The key in relief of poverty purposes is that any assistance/money must be given in a way that actually relieves a need attributable to a person’s poverty. n Ac TPO has an independent purpose to provide the loans. The provision of these loans is not ancillary to a charitable purpose. The criteria of the loans will need to be adjusted in a way that advances charitable purpose or the scheme must be stopped entirely. rm at io The Trust Board As mentioned above, the Trust Board was subject to a review by the Ministry of Education – a review that was conducted by Ernst and Young (“EY report”). The EY report looked at the financial controls in place at the Trust Board. Its findings showed: fo rt • he O ffi ci • In • A koha payment of $50,000 was made to a related party in 2012 (Trust Board member) but did not disclose it in their Annual Report; Other instances of small koha payments being made without using the proper approval process; There were adequate controls in place in regards to credit card use, however: Credit Card returns were not being reviewed; There was a lack of supporting documentation with these returns; There was no evidence of approvals from the Chief Executive in regards to cash withdrawals on credit cards as per the finance manual. There should be a separation of duties involving payroll master data and accounts payable. al • un de Apart from the above the EY report showed that internal financial controls were effective and comparable to organisations of a similar size. R el ea se d Members of the Trust Board have been attending the training from Chen Palmer and also strengthening the policies that are already in place. A separate investigation into the Trust Board has been opened to look at similar issues. 16 G. Actions Taken Ac t1 Inappropriate credit card use Governance and financial management Directors fees Koha Whānau assistance loans n • • • • • 98 2 In accordance with the above analysis, a warning notice was issued under section 54 of the Act on 4 June 2014. The warning notice raised concerns that Charities Services had with TPO in regards to: fo rm at io The notice acknowledged that TPO had taken extensive remedial action to address the concerns. TPO were required to take further action over and above the remedial action taken, this included drafting and implementing clear criteria for issuing whānau assistance loans, ensuring that funds can only be directed towards charitable purposes. TPO were given until 21 July 2014 to adopt the requirements. ci al In On 3 July 2014 a letter was received from Dame Iritana Tāwhiwhirangi which addressed the concerns raised in the warning notice. The letter confirmed that remedial actions continued to be adopted, a new General Manager had been hired and also a statement that the whānau assistance loans would cease to be offered by TPO. de rt H. Conclusion he O ffi On 14 July 2014 members of Charities Services met with Chris Miller who was the newly appointed General Manager. Mr Miller further iterated what was contained in the letter and provided minutes of TPO’s board meetings which confirmed that the whānau assistance loan scheme would be ceasing. un The allegations made highlighted concerns occurring within TPO at staff, management and board level. The potential misspending on credit cards has shown that there are a number of other issues present within the organisation. R el ea se d While there appeared to be a number of controls and policies in place that stemmed from the Trust Board, in practice these were not followed by staff at TPO. The General Manager operated on the assumption that the procedures were not in place and for a period of time there were no checks or controls. The directors did not intervene and a culture appeared to develop which led TPO into the situation which it found itself when contacted by Charities Services. While there were serious concerns and evidence of mismanagement, Charities Services can state that a large amount of work has been done by TPO to address the concerns and put in place a set of policies and procedures to ensure that it will not happen again. The appointment of a new independent director and a new General Manager is a positive move. 17 The Directors are being trained on areas of good governance and will be in a better place to ensure that the new management is effective going forward. Ac t1 98 2 The ongoing training after the new policies are implemented will be crucial to ensure that TPO do not revert back to the culture that developed prior to the investigation. TPO have been warned for their conduct and have demonstrated a commitment to improve all aspects of management and governance in response to this. Charities Services can be satisfied that the actions taken by TPO are sufficient going forward. n I. Recommendations rm at io 1. Close the investigation. 2. Place TPO on the monitoring list for review in 6 months to ensure that they have implemented all the changes and continue to operate effectively. R el ea se d un de rt he O ffi ci al In fo 3. Ensure other agencies concerned are made aware of Charities Services findings. Charities Services have a continuing relationship with the Ministry of Education regarding the Trust Board – monthly meetings will continue. Charities Services will also be in contact with IRD around tax implications and disclosures made by TPO. 18