An Auckland Montessori preschool has been fined $254,000 and ordered to pay reparations to parents who were overcharged by false and misleading invoices.
Judge June Jelas found in the Waitakere District Court today that Kowhai Montessori Preschool Ltd overcharged parents by $221,632 between October 2013 and October 2014 by misrepresenting Government subsidy rates on its invoices.
A preschool is still operating at the site of the offending, 16 Sudeley St in Orakei, but the business has changed hands and is now trading as Orakei Montessori Preschool.
The prosecution was brought by the Commerce Commission under the Fair Trading Act in a case which the judge said had no legal precedent to guide her in sentencing.
The company pleaded guilty to making false and misleading representations as to the price of its services and as to the existence of the parents' right to the full Government subsidies.
Judge Jelas found that the company committed "a significant breach of trust" by knowingly misrepresenting the subsidies it was receiving for its pupils, and that it took no steps to correct its errors after a parent discovered them.
"Rather, that parent was reprimanded and chastised for her actions," the judge said.
That parent, Jodi Libbey, told the Court in a victim impact statement that her relationship with the centre manager and Kowhai Montessori director Rebecca Brindle deteriorated to the point that she had to withdraw her son Ashton.
"It was very upsetting for Ashton to have to move from the only childcare centre he had been in, where he had numerous friends, to go to another centre where he knew no one," she said.
"There was nothing we could say that would help him to understand why he had to move.
"The whole period from when I sent the initial email [querying the subsidy rates] 22 September 2014 until November 2014, when we withdrew Ashton, was a very stressful time for me, as being the Erin Brockovich or whistleblower of the situation was not easy.
"Nor was it well received by fellow parents or the teachers at Kowhai Montessori, as they felt that I was threatening the centre itself. I was very stressed each time I dropped Ashton off and picked him up."
The company signed an agreed statement of facts stating that between May 2013 and July 2014 it claimed on its invoices that it received a Government subsidy of $4.70 an hour for each child, and charged parents a top-up of $7 an hour to make up to a full hourly rate of $11.70.
In fact, the Ministry of Education was paying the company $10.32 an hour for the first 20 hours a week for each child aged 3 to 5 under its "20 hours Early Childhood Education (ECE)" policy, and $5.73 for every extra hour up to 30 hours.
The subsidies increased to $11.33 and $6.64 in February 2014, when the centre became entitled to a higher funding rate because 80 per cent of its teachers had become qualified.
They increased again to $11.43 and $6.70 from July 2014 due to Budget changes.
Meanwhile the company wrote to parents in May 2014 saying the parental top-up would rise to $9 an hour from July to bring its total fees to $13.70 an hour, stating that the "20 hours ECE contribution" was still $4.70 an hour.
Libbey emailed Brindle in September asking for details of the subsidy rates. Brindle did not respond to the email, but announced two weeks later that the parental contribution would be cut back to $8 an hour from January 2015 because of an increase in the subsidy which was now said to be rising to $5.70 an hour.
Judge Jelas found that the company's letters to parents and its invoices were misleading and false by stating incorrect subsidy rates for the first 20 hours and failing to disclose that the company also received a subsidy for the next 10 hours a week for each child.
"The false statements had the effect of undermining the purpose of the ECE subsidy, which was introduced to make ECE more affordable and to encourage increased access to ECE," she said.
She ordered the company to pay a fine of $254,099.10 and to make reparation totalling $11,400.90 to four families who provided invoices showing how much they had been overcharged.
This included only $500 for Libbey because a Disputes Tribunal had already ordered the company to pay her $5311.85. That order was made on August 9 last year but the company has not yet paid her anything.
Brindle has now signed a personal court enforceable undertaking to pay any part of the fine that Kowhai fails to pay.
Ministry of Education deputy secretary Katrina Casey said a parent complained about fees at Kowhai Montessori in October 2014.
"We followed up with a site visit that same month and agreed the actions required - amending some policies and procedures and parent information, and then communicating with parents about the changes," she said.
"We worked with the service to improve its governance and financial management until its sale to new owners in December 2015."
She said the ministry would remind all early learning services that they needed to provide accurate information to parents on how fees were calculated.