Regional Economic Development Minister Shane Jones has come out swinging against a report from the Auditor-General raising a series of questions about the Provincial Growth Fund.
The Auditor-General, John Ryan, has completed an audit of the Fund which has reported back with a list of questions about the way the Fund has been operating.
He has highlighted the fact that officials have managed to delay a substantial investigation of the Fund until next year.
And he has accused the Regional Economic Development Ministers including Jones of essentially operating a “fund within a fund” to meet New Zealand First’s 2017 election manifesto commitments.
Cabinet had asked officials to evaluate the Fund in 2020.
Ryan’s report says the evaluation was expected to focus on the operation of the Fund to date, and assess the early impacts of projects, where these are available.
“A draft evaluation plan was being finalised by the Provincial Development Unit as we prepared this report,” his report said.
“The scope of the plan covers evaluation of only the investments administered by the Provincial Development Unit. “
Ryan said this meant the Provincial Development Unit’s current draft plan would therefore not result in an evaluation of the Fund as a whole.
“We understand that Ministers have been advised that an evaluation of the Fund, originally timed for 2020, will be delayed because of Covid-19 until mid-2021,” he said.
“In my view, evaluation is critical, given the Fund’s ambition, size, and profile.
“The public is entitled to know how well the Fund has met its objectives and what benefits have been achieved for the public money spent.”
But Jones told POLITIK that the Auditor General’s panellists needed to bear in mind that only $700 million of the $3 billion of the whole Fund had actually gone out of the Crown coffers.
“If anything, the fact that only 25 odd per cent has actually disappeared from the Crown shows that the process remains sluggish and remains risk-averse,” he said.
“Any notion of the evaluation can only take place as the projects unfold,” he said.
“This fascination that Wellington has of evaluating things on paper has only a limited utility.
“Once our Government decided that it was going to create the Provincial Growth Fund and it was going to address provincial infrastructure deficits such as the Whanganui breakwater and wharf, the Opotiki harbour and the Sugar Loaf aquaculture wharf; you can’t evaluate them until such time as they are completed and then the private sector floods in with its own capital.”
The Auditor-General recognised that the whole concept of the Fund was different.
“Setting up the Fund needed a different approach than most funding programmes,” he said.
“The Fund was implemented at speed and encouraged innovation.
“It had broad and ambitious objectives, a three-year time frame, and a substantial amount of money to invest.”
Each one of those factors would be enough to make the Auditor General nervous but all three together clearly made him very nervous.
At its core, the role of the Auditor-General is to ensure that Parliament has properly approved the spending of taxpayers’ money and then that the money is spent as Parliament intended.
This has not always been easy to follow with the Provincial Growth Fund.
“Appropriation management was not as robust as we expected at the start,” the report said.
“In early 2018/19, the Ministry of Business, Innovation and Employment incurred one instance of unappropriated expenditure.
“Although it is not unreasonable to expect changes to appropriations as the Fund progresses, we consider that there should have been better systems and processes from the beginning to prevent unauthorised expenditure.
“ Parliamentary scrutiny has been made more difficult by significant increases in appropriations made during the year after Parliament has approved the resources needed for the Fund as part of the Government’s budget; and the lack of consolidated reporting of the various elements of the Fund.”
Jones, however, doesn’t accept this.
“I’ve been a bit disappointed by this finicky approach, that somehow we need to achieve a level of divine perfection at a time when trying to redress historical infrastructural deficits while we’ve got all these know-alls who tell us, don’t do anything until you are possessed of a little divine clarity,” he said.
“That’s not how business and that’s not how politics, the way I practice it, works.”
Critics have argued that politics-the-way-Jones-practices-it has included shovelling a large slice of the Fund into Northland where he is trying to win the seat off its National incumbent.
Nearly 20 per cent of the Fund committed so far, $556.9 million, has been allocated to Northland.
But Jones said that was what NZ First had always promised.
“This is very positive for an area that has been economically parched,” he said.
“And this shows that when we won the election through the MMP process, we have delivered on our Manifesto commitments.”
But just how the Manifesto commitments were actually implemented appeared to the Auditor General to be opaque.
“Soon after the Fund was established, $30 million was approved by Cabinet and set aside for ‘manifesto commitments to the regions’,” he said.
“ After the first year, Cabinet approved adding another $40 million to this allocation for “emerging priorities”.
“By May 2020, seven projects totalling more than $45 million had been approved from this part of the Fund.
“We were interested in the processes used to apply for and approve access to this funding. It was not always clear from the documentation why certain projects were considered for funding from this part of the Fund.”
Ryan said that for these funding applications, the Provincial Development Unit provided the Regional Economic Development Ministers with information about the proposed projects.
“However, it was difficult to find evidence of how projects had fully met the normal criteria for the Fund,” he said.
“And, unlike other areas of the Fund, the Provincial Development Unit did not provide the Regional Economic Development Ministers with a recommendation fora decision.
“Ultimately, the Regional Economic Development Ministers made decisions on these projects in accordance with the delegated authority given by Cabinet.
“However, given the different way, these projects were considered, ‘manifesto commitments to the regions’ were in effect operating as a ‘fund within a fund’.
“In my view, in the interests of the transparency of the overall process, it is important for the public and Parliament to have better visibility of how all the parts of the Fund operate.”
There were also questions about conflicts of interest.
“Concerns were raised with us in one instance about whether a declared Ministerial conflict of interest in a Fund decision was managed appropriately,” the report said.
“We concluded that, overall, we did not consider that the Minister’s involvement raised any significant concerns about the decision made.
“However, we also said that it might have been better for the Minister not to have expressed a view on the particular project at the meeting where funding was decided for it.
“If he was going to express a view, it would have been better for minutes of that meeting to have been kept.”
None of this will surprise many people in Parliament on in the bureaucracy.
The points made by the Auditor General; that the Fund had a huge amount of money to spend very quickly has meant that it has been difficult for officials to apply their usual safeguards and processes to the grants.
But as Mao Tse Tung once said: “You can’t make an omelette without breaking eggs.”