Agency pays whistleblower to keep quiet

A portion of the agreement the whistleblower was asked to sign.

A former civil servant was gagged by Housing New Zealand Corporation bosses after alleging serious accounting problems involving millions of taxpayer dollars.

Housing Minister Chris Carter has called for urgent explanations from the agency after being told of a Herald on Sunday investigation into the handling of the allegations.

He has called a board meeting tomorrow and issued a reprimand over the involvement of corporation chief executive Helen Fulcher and senior executive Gerard Coles in gagging a whistleblower.

On Friday evening, Housing NZ Corporation admitted to the Herald on Sunday it was a mistake to ban a public servant from taking the allegations to government ministers.

Board chairman Pat Snedden also confirmed the corporation would call in external auditors to review its books - although Mr Carter has signalled wider inquiries.

The whistleblower, who held an executive position at HNZC, has told the Herald on Sunday that:

* accounting of taxpayer money was being "manipulated" so programmes "come out on budget"

* a senior manager in Housing NZ is aware of the accounting "manipulation" and is "encouraging it"

* management reports supplied to Mr Carter are "untrue"

* there is deliberate lack of scrutiny over invoices being sent to one particular division of the corporation

* overspending of $2.1 million of taxpayer money was hidden and reintroduced in a later period when additional funds were available to balance the books, with accounts falsified to appear on time and on budget.

The whistleblower will not be named - but said he would be identified if called before a parliamentary select committee to give evidence.

"I believe the public have a right to know," he said.

The allegations are among the most serious against a government agency since Labour came to power in 1999.

A spokesman for Mr Carter said the minister wanted an assurance from the agency's board that the Government could have confidence in its financial reporting.

"The Minister is calling the board in on Monday for a full report on these allegations and how they've been dealing with them.

"He does not believe it is appropriate for the confidentiality agreement that the allegations refer to, to prevent members of the public raising concerns with MPs or Ministers," he said.

"He does not believe it's appropriate and will be communicating as much to Housing NZ Corporation."

The spokesman said Mr Carter was not ruling out further action and would take advice from agencies responsible for monitoring Housing NZ, including the Department of Building and Housing.

Mr Snedden said the agency had taken "significant action" to investigate the allegations. So far, they related to technical and accounting processes rather than matters of deeper concern.
"We have found nothing untoward. The matters would appear to relate to issues of technicality and accounting process routinely dealt with through our own audit and assurance programme."

Mr Snedden said he was now calling in external auditors Ernst & Young to carry out the investigation because the allegations had become public. "Their report will be available to the minister on completion," he said.

He said the contract that banned the whistleblower from "his unfettered right to raise any matter with an MP or minister" went too far. "This was a mistake on our part." He said the contract was signed to protect the privacy of staff named in the allegations.

The action by Mr Carter comes after eight months of fighting by the whistleblower, who made his allegations known to NewstalkZB radio three weeks ago, to have his concerns properly investigated.

In a letter dated November 23 last year, the corporation promised the civil servant - a former contractor - his most serious allegations would be investigated by external auditors. It also states that other less serious allegations would be investigated internally.

Then Mr Coles, with Ms Fulcher's approval, had the whistleblower sign an agreement that banned him from speaking to "any Minister, [or] MP".

It stated that the former civil servant would receive his $3000 final pay only if he signed the agreement. If he refused, that money would have been withheld.

The agreement also watered the level of inquiry down to be carried out to the "satisfaction of HNZC's external auditors".

The whistleblower came forward after emails from the agency last month caused concern that the entire investigation was being carried out internally.

The whistleblower left the corporation in August last year after raising his concerns with management.

He became involved in an argument with one manager and was banned from the Manukau national office after refusing to apologise.

The Herald on Sunday has copies of letters sent to the man from Mr Coles, confirming the allegations were made by the whistleblower last year.

Housing NZ accounting documents obtained by the Herald on Sunday were studied by John Leonard, a forensic accountant for Gerry Rea Associates who spent seven years with the Serious Fraud Office.

He said information in the spreadsheets raised concerns that should be studied by an independent body.

"There are several things that, for me, need to be investigated or at least explained. I believe the allegations are such that it is worthy of a high-level independent review, perhaps at ministerial level or Audit New Zealand.

"At the lowest level of interpretation, the data would suggest that accounting information is being fudged, perhaps to keep within budget constraints that are placed on Housing New Zealand Corporation," he said.

Act leader Rodney Hide has viewed Mr Coles' letters and called for a full inquiry into the allegations.

"These are very serious allegations of financial mismanagement and the fudging of the books," he said.

"The sums aren't trivial and what's alleged is deliberate mis-stating of the corporation's financial position."

Mr Hide also condemned the agency's handling of the whistleblower's complaints.

"It's truly shocking that Housing New Zealand would then attempt a cover-up of what is alleged by a gagging order that prevents the whistleblower from even seeing his MP. That alone is cause for an inquiry."

National Party finance spokesman John Key, a former executive at investment banking giant Merrill Lynch, said that although he hadn't seen the details of the allegations, they appeared to warrant further investigation.

"I'm concerned that a government agency is making employees sign gagging contracts that include monetary payments, especially when it's the employee's own money in the first place," he said.

"We don't want this example to set a precedent for other cases where whistleblowers are paid off."

Mr Key sits on the finance and expenditure committee and said he would urge the committee to launch an inquiry.


HOUSING NEW ZEALAND

The Facts

* Chief executive is Helen Fulcher.
* Highest-paid employee earns between $320,001 and $330,000 a year.
* 940 employees.
* Property assets of $11.3 billion, as at June 30, 2005.
* Surplus in 2005 of $14 million.
* Took $308 million in rent from its 190,000 tenants last year and $373 million from the Crown.
* Owns or manages 66,000 properties.
* More than 11,000 people are on the waiting list for accommodation at any given point.

The Woes

* March 2006: Families with after-tax incomes of up to $95,000 - well above the national average - are living in state housing. March 2006.
* March 2006: Tenant Ross Bradburn wins court battle against HNZ over errors in calculating his rent, leading to suggestions others could be entitled to rent reviews.
* October 2005: The agency's annual report shows an increasing proportion of houses are in an unacceptable condition.
* May 2005: The Herald on Sunday reveals tenants in a million-dollar Orakei state house are paying $75 a week in rent. The house is one of 10 HNZ properties in Auckland worth more than $800,000.
* December 2004: National reveals that more than 3000 state houses with three or more bedrooms have only a sole tenant.

- HERALD ON SUNDAY