Taxpayers could be hit for part of Kaipara's $80m debt blowout

Auditor General of New Zealand Lyn Provost. Photo / John Stone

Taxpayers look likely to foot at least part of the bill for an $80 million debt blowout which brought down a small Northland council.

Commissioners for the Kaipara District Council have reached an agreement with the Office of the Auditor-General to "stop the clock" on potential claims against the failure of Government auditors to sound the alarm over the council's disastrous $63 million Mangawhai sewerage scheme.

The agreement means the commissioners can argue for compensation over mistakes made by the auditors, including a 2009 report which mis-stated the council's financial position.

But a crucial council decision in November 2007 to sign the contract which doubled the size of the scheme falls just outside the six-year statute of limitations, making it more difficult to take legal action against anyone involved.

Last week the High Court ruled that the council acted illegally, both in starting the scheme in 2005 and increasing its cost by about $22 million the following year without telling ratepayers.

Justice Paul Heath said the council's debts to banks which lent the money must be repaid and the court had no power to overturn a law passed in November last year which validated the council's incorrectly set rates.

But he urged the commissioners to consider alternatives to steep rate increases to pay down the debt, including renegotiating the loans and taking legal action against those responsible.

Justice Heath referred to Auditor-General Lyn Provost's report on the Mangawhai scheme last November, in which she apologised unreservedly for the auditing failures, and to the Local Government select committee's report, which urged accountability for any parties found to be at fault.

Northland MP Mike Sabin - who has campaigned for the Office of the Auditor-General to pay the increased cost of the scheme instead of ratepayers - said the Auditor-General's long delay in investigating the problem had pushed key events out of legal reach.

He said Mangawhai property owners had alerted the Auditor-General to the problem in 2009 yet it took three years to start an inquiry in late 2012. The inquiry, which was supposed to take six months, dragged on for 20 months and the final report was made public on December 3, days after the expiry of the statute of limitations for the council's November 2007 decision.

Mr Sabin said there could have been legitimate reasons for the delay but "you don't have to be a rocket scientist to realise that there's some injustice there".

The chairman of the commissioners, John Robertson, said the statute of limitations had made the case more complicated but the council was taking steps to ensure no further events went out of time.

"We have a standstill agreement in place currently with the Auditor-General.

"That means that the clock has stopped ticking ... as we go about our investigations."

Mr Robertson said he could not discuss details of the council's case.

But the Auditor-General's report included an independent report by Auditing and Assurance Standards Board chairman Neil Cherry, which found the work of the auditor used by Audit New Zealand was substandard between 2006 and 2009.

It particularly criticised the 2009 audit for failing to notice the council's additional borrowing to cover the cost blowout.

Rates strike

• Some Kaipara ratepayers have been refusing to pay rates since 2011 in protest at the council's illegal decision to build the Mangawhai sewerage scheme without their consent.

• Chairman of commissioners John Robertson said the strike involved about 2000 properties with about $6 million of unpaid rates. He said all ratepayers with outstanding debts should pay by the end of June to avoid further penalties.

• The Mangawhai Ratepayers and Residents Association has urged all its members to continue to withhold their rates until the High Court judgment is finalised, following negotiation between the residents' and the council's lawyers.