MBIE head office in Wellington. Photo / Mark Mitchell
A major leak of internal financial information from the Ministry of Business, Innovation and Employment has revealed the super-Ministry's increasing reliance on recruitment firms — and sparked a hunt for the whistleblower.
The data — leaked from internal MBIE financial reports by an anonymous source claiming to be concerned about "waste" — covers more than $250 million in payments to more than 2000 individual contractors, and $54m in payments to consulting firms, over the past four years.
Analysis of the data shows spending on contractors, as a percentage of MBIE's salary bill, has increased every year over the period — from 20.4 per cent in 2014, to 30.2 per cent in the financial year ended June 2017.
The number of highly paid contractors — those earning more than $200,000 a year — more than quadrupled in the period, from 23 to 94.
In a written statement, MBIE's chief financial officer Stewart McRobie disputed suggestions the Ministry was increasingly reliant on external contractors, or under-reporting its spending on such people.
McRobie said the leaked spreadsheet was a "dump of raw data" and it had "since been found to include amounts capitalised into projects and other discrepancies".
McRobie said the variance between MBIE's 2017 Annual Report, which said the Ministry had spent $56.1m on contractors and consultants, and the spreadsheet's $93.8m tally for such spending, was explained by accounting treatments.
He said approximately $14m of this spending had been capitalised in the 2017 annual report, and $24.5m was recorded as "IT costs and technical support".
McRobie said contractors and consultants were employed to meet short-term or peak demand, and "where specialist skills or independent external advice are needed".
"The short-term nature of some of the work programmes necessitated contractors and in some cases full-time staff are hard to find and recruitment is a lengthy process." McRobie disputed suggestions that the Ministry's contracting bill had skyrocketed, but conceded the most recent financial year had seen an increase "in response to increased volumes of services provided, new or expanded work programmes and new functions carried out by MBIE".
A spokesperson later expanded on this, saying these projects included housing policy advice, taking over Canterbury Earthquake Recovery Authority functions and the new Space Agency and Computer Emergency Response Team.
A spokesperson for MBIE warned the Weekend Herald against making any of the data public: "It is important you do not publish commercially sensitive or personal information." The Weekend Herald has made the leaked data public on our Insights webpage in the interests of transparency, although detail that could identify any individuals will be withheld pending further investigation.
Public Service Association national secretary Glenn Barclay said while he was not privy to the leaked spreadsheet, its findings did not come as a surprise and would probably be reflected in other government departments.
"There's no doubt there's an excessive use of contractors, and while I don't have the data, we think in the last wee while the use of contractors has been widespread," he said.
Barclay said one reason for the increase was the policy of the last National Government to put a cap on staffing levels, for what it classified as the "core public service".
"The reporting on the public service cap was an illusion; we know now that agencies were getting around it by using contractors."
Barclay called for the cap to be lifted and for long-serving contractors — the leak shows many high earning contractors have been working full-time at the Ministry for years on end — to be replaced with cheaper permanent staff.
Opposition MP and Act Party leader David Seymour agreed that the cap underlay the increase, but drew different conclusions.
"It goes back to this belief that you need to run a government like a business: they put in place these middle-management style controls such as limiting the number of paid staff — that's led to this explosion," he said.
"They don't look at the big picture and ask: 'Do we even need to be doing this in the first place?"'
Analysis of contractor data shows the bulk of MBIE positions are filled by a handful of recruitment companies, with four firms — Manpower Services, Beyond Services, Randstad and JacksonStone — supplying two-thirds of the total by value.
Manpower, the largest supplier by some margin, placed staff who were paid $58m over the four-year period.
Exactly how these payments were split between the contractors' take-home pay and margins for recruiting firms would be subject to some variance. Jonathan Rice, of boutique HR firm Rice Consulting, said the Government had centralised and standardised recruitment in 2012 by using all-of-government panels to chase better value.
"That pretty much rationalised a lot of this. Beforehand, there was a lot of independent relationships between hiring managers and recruitment firms and you had to be in on that to compete," Rice said.
Recruitment firms operate by charging a percentage of the payment to contractors, and Rice said the use of all-of-government panels "squeezed" those rates. "Typically that would be in the region of 8-12 per cent," he said.
Rice said it was possible the profit margins on MBIE's swelling contractor sector could be even tighter through the use of payroll-only services, whereby recruiting firms' role was essentially limited to paying contractors who were otherwise managed in-house.
The leak and subsequent analysis of it by the Weekend Herald has sparked a flurry of activity within Government, with both the Minister of Economic Development, David Parker, and State Services Commissioner Peter Hughes seeking briefings from the Ministry, and the Ministry launching a hunt for the whistleblower.
Parker, who is in Argentina at a World Trade Organisation meeting, said he was "concerned" by the number of high-earning contractors identified by the Weekend Herald and would seek answers on his return to Wellington next week.
"I expect senior leaders in all government agencies to be prudent with the spending of taxpayers' money and are open, transparent and accountable through the reporting of expenditure," Hughes said in a statement.
In a statement, MBIE's McRobie decried the leak and claimed it disclosed "personally and commercially sensitive information about current and former contractors" and was being treated as a "serious issue".
"We have launched an investigation into how this information came to be disclosed and this will be completed as swiftly as possible," he said.
McRobie directed other staff contemplating leaking material to instead make use of the protected disclosure regime or MBIE's anonymous 24-hour "integrity line".
But parties as disparate as the PSA and Seymour welcomed the whistleblowing.
The PSA's Barclay said while they had not been approached by the leaker, they would offer support as current protections for whistleblowers were "pretty hopeless and need to be overhauled".
"We certainly support people being able to speak out about wrongdoing where they see it happening," Barclay said.
Seymour said of the whistleblower: "I think they've done the right thing. If there really was nothing to hide, no one will really mind. But if it's true a major government department has been wasting money, that's very serious."