V8 Supercars Report - How Good Ideas Go Bad

Published nzherald.co.nz Thursday 17 November 2011

The alarming report of Audit NZ into events surrounding Hamilton City Council's sponsorship of the V8 Supercars Event is a sad illustration of what can happen when enthusiasm for an event is allowed to supersede good governance.

The report suggests that the principles that relate to the need for authority to act, clear delegations, accurate reporting and good decision-making were all ignored or forgotten in the rush to secure and retain the event in Hamilton.  The actions of officers and to some degree members are shown in the report to lack that accountability and transparency that is the touch stone of good governance in the public sector. 

Not only that, but the report notes that the Council failed to make or consider the business case for the event before committing to it, and so failed a prime criteria of both business and the public sector for identifying and committing to a project.

It is generally thought that the public sector, local government in particular, does not act as quickly as the private sector when it comes to decision-making and action.  There are good reasons for this, both in terms of public policy and the law.  Local authorities are, for example, bound by the decision-making and financial accountability provisions in the Local Government Act 2002 and elsewhere, while members have to account for their actions to their constituents.  When spending public money and committing community resources a degree of caution is both expected and necessary. 

From time to time business opportunities arise that must either be grasped quickly or lost forever.  It is in such circumstances that good governance occasionally goes out the window.  We suspect that the opportunity for Hamilton to host the internationally recognised V8 Supercars was just such an occasion.  Nevertheless there was scope for the Council to have secured the event without overriding good practice and principles, and without the need for later doubts and recriminations that led the Council to seek the Audit NZ investigation and report.

The report was sought following concerns "about whether the processes that had been followed and the information that had been made available to Council with respect to the V8 race event had been appropriate".  The answer is a resounding, no.  Audit NZ is damning of the actions of officers and critical of members lack of inquiry into the detail of Council's engagement with the event promoter.

Addressed in  the report are multiple breaches of good practice and the law, poor business practices, and the unfortunate outcomes..  Just some of these include:

• Spending approx. $37 million on the 2008, 2009 and 2010 events in return for revenue of only $1.525 million
• Spending $18 million on the event before entering into a contract with the promoter
• Paying out early and advance host city fees to assist the cash flow problems of the promoter, which following the promoter's insolvency left the Council $837,500 out of pocket
• Officers paying out $3.025 million to clear debts of the original promoter in breach of Council imposed principles in relation to its agreement to the transfer of the promoter contract to another party
• Consistent under-reporting of costs, including adopting a practice of reporting "net" costs so that as actual costs increased, the revenue forecasts were similarly increased to maintain the "net" cost at a relatively static level.

There is plenty more in the report to concern ratepayers, including officers acting without delegated authority, and poor oversight of the project by elected members.

The fallout from the report is likely to continue for some time.  At its meeting on 27 October the Council resolved to exclude the public from its consideration of the report, but Audit NZ has made the report public.  Former Mayor, and then Chief Executive throughout much of the period covered by the report, Michel Redman, resigned from his job as chief executive of council-controlled organisation, Auckland Tourism, Events and Economic Development the day after the report was issued.  He has been publicly defiant about the accuracy of the report, and has called on Deputy Chief Executive Blair Bowcott to resign also, along with elected members from the period involved who remain on the current Council.  The present Chief Executive, Barry Harris, who took office after the events in question, is taking legal advice before reporting further to the Council on 9 November.

The report contains 26 separate recommendations for improvements to the Council processes including consultation, reporting, delegations, business case development, project identification and management, and the roles of both officers and members.  It effectively reminds us that the corporate veneer our public sector organisations have acquired must not detract from the requirement that actions be accountable and properly founded.  Whereas a private sector company may be able to circumscribe formalities to some extent, the actions of local government remain subject to statute and the approval of elected members, who are themselves accountable to the public through the election process.

For more information, please contact:

Linda O'Reilly
Partner
t: +64 9 979 2167
e: Linda O'Reilly

Last updated: November 2011

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