The country's top public sector agencies have been slammed by the Auditor-General for botching a project to cut costs by sharing key back office functions.
Under the Central Agencies Shared Services (Cass) project, the Department of the Prime Minister and Cabinet, the State Services Commission, and Treasury are sharing human resources, financial, information management, and information technology support services.
The project launched two years ago was also intended as a model for other departments.
But in a new report, Auditor-General Lyn Provost said it was "not yet clear whether Cass provides a useful model for the public sector to follow".
She said "best practice" had not been followed when Cass was set up "and fundamental aspects of the change were not done well".
The three agencies did not plan effectively for the project and they did not determine how it would operate or support their strategic objectives.
The "big picture" was not clear, "and the move to one support agency was not well planned".
Ms Provost said there were also "weaknesses in governance and management" as Cass was set up.
"Overall, consultation was poor and fewer experienced staff transferred than anticipated, resulting in a loss of skills and knowledge of how DPMC and SSC worked." "Most significantly" the three agencies did not effectively collect "baseline data to inform" against which to measure the performance of the new body and "the time and resources needed to bring systems together and to get Cass up and running smoothly were underestimated".
Ms Provost said morale had been low within the new agency and it had required more temporary staff than predicted.
"As an operating model, this cannot be sustained. Although we heard that the work burden is lessening, a significant risk to the sustainability of Cass remains." Treasury Secretary Gabriel Makhlouf accepted responsibility for the project's problems but told Radio NZ he wouldn't apologise to taxpayers.
"I certainly apologise to my staff who feel they had to go through quite a tough time for the setting-up phase."
Labour's state services spokeswoman Maryan Street said it was "hard to imagine how much worse" the project could have been run.
"Far from showing leadership to other public sector agencies on how to achieve gains in shared service delivery, Cass has shown other departments exactly how not to do things."
She said State Services Minister Jonathan Coleman should take responsibility but had instead "hung Treasury out to dry".
"Why wasn't he watching this more closely? Millions of dollars have been spent on this debacle when it was meant to demonstrate how millions could be saved."