The Auditor General, John Ryan

The  Auditor-General has reported that a $290 million fund to assist tourism businesses hit by Covid in 2020 proceeded with scant regard for conventional Government processes, and the Ministers involved in doling out the money didn’t bother to keep proper records.

Three tourism businesses were allocated funding before the system had even been set up.

In a sample of 126 successful applicants, 27 per cent got more funding than they had requested.

And  Ministers decided to drop the approval criteria for Maori businesses altogether.

The Auditor-General, John Ryan, tabled his report yesterday. It follows other reports from his office which have found fault with the Government’s Covid response.

Most have focused on the Ministry of Health, most notably a report which found that there were conflicts of interest and unnecessary delays in approving the use of saliva testing for Covid.

But the office also found that the Ministry of Social Development did not manage the cost nor monitor the quality of private rental housing it contracted for social housing and that it could not demonstrate it was getting value for money.

However, the report on the Strategic Tourism Assets Protection Programme (STAPP) is the most comprehensive and revealing the office has produced on the interaction between Ministers, officials and the private sector over the Covid response.

At the heart of the programme in 2020 were five Ministers; the Minister of Tourism, Kelvin Davis; the Minister of Finance, Grant Robertson; the Minister of Maori Development, Nanaia Mahuta; the Minister of Conservation, Eugenie Sage and the Under Secretary to the Minister for Regional Economic Development, Fletcher Tabuteau.

They formed the Tourism Recovery Ministers Group, which was responsible for making decisions under STAPP, including setting the eligibility criteria.

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STAPP was established in May 2020. Its purpose was to provide funding for strategically significant tourism assets

Fast delivery of funding to the tourism sector was the main imperative.

At the outset, about $290 million of the original $400 million Tourism Recovery Fund was committed to the tourism sector through STAPP.

By May 28, the Ministers had agreed on broad funding criteria but had not publicised those criteria nor opened applications.

Even so, the same day, the Ministers awarded Whale Watch Kaikoura $1.5 million.

“We have not seen any evidence to identify what criteria the Tourism Recovery Ministers used when making this decision,” the Auditor General’s report said.

“We also did not see any advice from Ministry officials.”

Two other grants and loans were made before applications opened on June 4; $10.2 million to AJ Hackett Bungy and $4 million to Discover Waitomo.

The report said the Whale Watch application was a letter, but it did not include any financial information.

AJ Hackett and Discover Waitomo both included profit and loss statements.

However, the report said it was it is not clear to us how the reasonableness of the three funding requests was analysed or assessed.

This was a problem across the whole programme. Record keeping by the Ministers was minimal.

“Reasons to support some key decisions are not well documented,” the report said.

“This has led to concerns about the actions taken.

“Without those records, those who have made the decisions are not able to adequately explain why funding was provided.

“This is not acceptable practice, regardless of the circumstances.”

There were also questions about the relationship between officials and Ministers.

As the programme was being developed, the Ministry of Tourism proposed three options.

It preferred that STAPP fund about 30 tourism assets that were nationally and internationally well-known and identified as benefitting the local economy.

As alternatives, it was proposed that STAPP could fund up to 100 tourism assets and include some assets that were less well known or it could fund up to 1000 assets. Ministry officials said this could create debate about which tourism businesses should qualify for STAPP funding. It would also require a lot of administrative work.

Usually, a big-ticket Government programme like this would be subject to a Treasury analysis.

This was not the case with STAPP.

Instead, Treasury officials briefed the Minister of Finance before the Tourism Recovery Ministers’ Group meeting on May 28 without having seen the Ministry’s proposals. (A paper on them was delivered to Treasury the next day).

The report said that documents from the Treasury officials stated that the Minister of Tourism asked his Ministry officials to provide advice without consulting the Treasury.

“Treasury officials were concerned that it was unclear whether STAPP aimed to support key tourism businesses or key tourism assets,” the report said.

“They wanted clarification about whether the aim was to provide substantial support to a few tourism businesses or assets or smaller amounts of support to many more tourism businesses or assets.

“The Treasury’s view was that STAPP would support a smaller number of tourism businesses.

“As part of our work, we asked for documentation showing which of the three options for STAPP the Tourism Recovery Ministers had agreed to.

“However, the Ministry could not locate this documentation.”

The best the Auditor General could find was a set of talking points for Kelvin Davis used to address Cabinet when he said that he expected STAPP would support about 50 tourism businesses.

“This suggested that Cabinet had decided to support Option A (the Ministry’s preferred option),” the report said.

By July 2020, officials had begun to question whether the scheme in the way it was set up was needed at all.

“By the time the Tourism Recovery Ministers made decisions about STAPP in July 2020, the Government had removed most of the significant restrictions on domestic movement,” the report said.

“Although the international borders remained closed, domestic tourism in some parts of New Zealand had rebounded faster than expected.

“In the interim, other forms of government support had been implemented.

“Because of this changed environment, Ministry and Treasury officials recommended, on July 16 2020, ceasing STAPP and considering alternative forms of support.

“The Tourism Recovery Ministers did not accept this advice and asked Ministry officials to present alternative solutions.

“However, it is not clear from the meeting minutes why the Tourism Recovery Ministers chose the option that they did.

“One Minister told us that the situation was “very fluid” and they were trying to work out what the most effective intervention would be.”

Throughout the whole STAPP process, there were issues with Maori tourism.

At one point, the Ministry of Tourism reported that only 5.5 per cent of Maori businesses received more funding than they sought, while 30.5 per cent of non-Maori businesses got more funding.

The assessment process of who should get funding was both complex and simple at the same time.

The Ministry of Tourism assessed how significant the tourism business was to its region based on visitor numbers. 

“One consequence of this was that zoos, museums, and art galleries became strategic assets,” the report said.

“The Ministry told us it had not anticipated this.

“However, the Ministry followed the criteria it had designed to maintain consistency.”

That first assessment was then shopped around the Department of Conservation, Te Puni Kokiri, the Ministry of Culture and heritage and the Maori Tourism organisation.

Deloitte did a basic financial assessment of the applications.

“Tourism Recovery Ministers agreed to fund all tourism businesses that scored more than 15 points out of 30 and all eligible Māori tourism businesses – 127 tourism businesses in total.

“It is not clear why the Tourism Recovery Ministers regarded 15 out of 30 as a score to warrant funding.

“This was not part of any advice provided by Ministry officials (officials used a score of 22 out of 30) or recommended as an approach to selecting businesses to fund.”

Commenting on this, the Auditor General, John Ryan, said: “Ministers have broad discretion to make decisions.

“They can seek further advice from other parties and rely on their own knowledge of particular regions and tourism businesses when making decisions.

“However, all decisions to spend public money come with an obligation to ensure that the decision-making is consistent and transparent.

“We saw limited evidence explaining the reasons for the decisions.

“Without those records, those who have made the decisions are not able to adequately explain why funding was provided.

“In my view, this is not acceptable practice, regardless of the circumstances.

“To ensure that the public can be confident in the integrity  of the decisions made, the reasons for this should be clearly explained and well documented.”

He also said there was little documentation to explain why Ministers had rejected officials’ advice.

“Trust and confidence in government depends on transparency and accountability when spending public money.

“This trust and confidence can be undermined where the criteria are not clear and when some applicants are treated or are perceived to be treated differently than most applicants or where there is limited documentation supporting decisions made by Ministers.

“We saw aspects of each of these factors.”

This is a most damning report of how the Ardern Government has interacted with (or really ignored)  officials since it came into office in 2017.

The question must now be whether this is now administered what amounted to a tourism slush fund, were there other areas of Government activity where it has been exhibiting the same behaviour.