Also among the findings is that Callaghan:
- Failed to either adequately consider or document its approach to a “more intensive” due diligence approach.
- Failed in its natural justice obligations to Manaaki in the way it handled the investigation’s findings. Its process was “neither fair nor transparent”.
- It did not tell applicants to the Request for Proposal (RFP) process in question that it intended to engage a PI because it was concerned about the “optics” of doing so. The auditor general found it should have.
- Shared the findings of two due diligence reports into Manaaki with two other government agencies without adequately considering their sensitivity. It was, in the auditor general’s view, “neither fair nor reasonable” to share the due diligence reports “without appropriate reason or process, or without giving Manaaki an adequate opportunity to have its response noted”. The reports were only shared with New Zealand Trade and Enterprise because a board member of both NZTE and Callaghan asked that they be shared.
- It gave inconsistent and ultimately inadequate justifications for sharing the information, including claiming it had the right to when it did not.
- Repeating to other agencies that allegations of fraud had been made against WAI/Manaaki when the auditor general “could not find evidence that an interviewee made this specific allegation”.
- Commissioning a review of its processes by accounting firm EY that explicitly failed to include a consideration of whether or not there was a conflict of interest and then using the report to claim it had been given a “best practice” finding on its processes.
- Having a system for sharing board papers that did not include security settings that would allow the distribution of documents, some of which were leaked in this case, to be tracked.
Board aware
The report also makes clear that from May 2022 onwards, the Callaghan board and its chair, former Labour minister Pete Hodgson, were informed of the process, which had begun attracting media attention.
The auditor general initiated its investigation after complaints from Manaaki and after seeing a string of media reports on the issues unfolding, including the leak of the PI’s findings to media from an anonymised email address.
The private investigator, who is not named in the report but who BusinessDesk has previously identified as Auckland PI John Borland, was recommended by Crone to her procurement team to look into allegations against Manaaki on the recommendation of San Francisco-based NZ entrepreneur Robett Hollis.
A complaint by Manaaki against Borland to the Private Security Personnel Licensing Authority on the same issue was dismissed in August without publishing reasons.
However, the auditor general flays Callaghan for handling the emerging evidence that Borland had previously investigated WAI/Manaaki during a dispute between the organisation and a client.
The auditor general also questioned why Callaghan directed Borland to interview Hollis – referred to as Mr B in the report – after he made a number of social media posts disparaging Manaaki.
“The basis for this (instructing Borland to interview Hollis) was not clear to us,” the auditor general said, “because Mr B had not worked for or with Manaaki”.
Hollis styled himself as crusading for startup founders who could not defend themselves.
Perception of bias
The auditor general also found that Callaghan staff, who engaged Borland after a recommendation from Crone, “were not aware of” earlier emails between Crone about Borland, and which Crone told the auditor general she did not act on at the time.
“However, the existence of this correspondence has contributed to the perception of bias in the process,” the auditor general concluded. “The chief executive (Crone) should have formally disclosed her connection with Mr B (Hollis) and her previous correspondence with him once Mr B became relevant to the procurement.
“This would have allowed the procurement team to consider whether this posed any risks to the procurement’s integrity,” which the auditor general concluded was compromised by this and other failings.
“Despite being made aware of the contractor’s earlier work on several occasions and being told about the related fraud allegation, Callaghan Innovation later commissioned the contractor (Borland) to do a second round of due diligence on Manaaki,” the auditor general said.
“Callaghan Innovation did not document any of its considerations about the contractor’s earlier work, the risk of bias arising from that work, or any mitigation strategies.
“The second due diligence report included an allegation of attempted misappropriation of government funds similar to the contractor’s previous fraud allegation.
Yet the auditor general “could not find evidence that an interviewee made this specific allegation”.
Well-intentioned but unfair process
Crone left Callaghan in July last year after five-and-a-half years at the helm of the Government’s innovation agency and has subsequently threatened legal action against Manaaki for comments it made about the due diligence process and her role in it.
The auditor general said the desire to protect founders was “well-intentioned” and a more intensive due diligence was “reasonable”.
The Manaaki saga blew up in the context of a wider concern about the mental health and wellbeing of startup founders and entrepreneurs following the death of startup founder Jake Millar.
“However, it was important that that the process treated all those involved in the procurement fairly and transparently. Callaghan Innovation’s process was neither fair nor transparent”.
