The Office of the Auditor-General has found there is no need for a formal inquiry or forensic audit of the controversial Mudtopia festival.

Mudtopia was held in December 2017 and operated at a loss of more than $570,000, and in August this year the Rotorua District Residents and Ratepayers group asked the Office of the Auditor-General to investigate the event.

A letter from the office to the Rotorua Lakes Council chief executive was released today.

In it, local government group sector manager Kristin Aitken wrote the office would not carry out a formal inquiry.

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"The expenses incurred by the council from the Mudtopia event are already in the public arena for scrutiny. The public has the ability to question the council about individual expenses and hold the council accountable for those.''

Aitken's response addresses decision making, central Government funding, governance of Mudtopia, finances and councillor Trevor Maxwell's alleged conflict of interest.

She wrote it appeared the council was more involved with running the event than originally intended and intended to cap its overall financial exposure.

"When we contacted the council about this matter, council staff confirmed that no formal resolution was passed that authorised the additional financial exposure.

Mudtopia was held in December last year. Photo / File
Mudtopia was held in December last year. Photo / File

"While we accept that the operations and monitoring committee agreed in August 2017 to continue supporting the event, even with an increased financial risk profile ... there should have been another council resolution expressly permitting the council to accept the additional financial exposure."

The residents group alleged Maxwell was conflicted because his children owned two companies which worked on the event but the Office of the Auditor-General found he did not have financial interests.

Aitken wrote that public entities needed full and proper records of their work to show what decisions were made, how they were made and on the basis they were made.

Rotorua Lakes Council chief executive Geoff Williams said the council appreciated the amount of work the Office of the Auditor-General had done to look into the handling of Mudtopia.

"It has been a thorough process and the organisation has responded to all requests for information regarding this matter.

Rotorua Lakes Council chief executive Geoff Williams. Photo / File
Rotorua Lakes Council chief executive Geoff Williams. Photo / File

"I have remained confident in the staff's management of both the event itself and related procurement and transactions."

Williams said the council acknowledged the office's views around having "clear, recorded council decisions for the increased financial risk and endorsement of the event advisory panel" and would take that on board.

But he said there was full disclosure of information about the event.

"Also important to note is the fact that the [operations and monitoring committee] is a "committee of the whole', made up of the mayor and all councillors as well as Te Tatau o Te Arawa and rural and lakes community board members," Williams said.

"The event has been well scrutinised from every aspect and we now look forward to continuing our focus on the ongoing work and community outcomes the organisation has been tasked to deliver."

In August, the Rotorua Residents and Ratepayers Groups outlined 19 concerns and eight questions in its request for an inquiry and said there had been "significant financial concerns and governance flaws" in the delivery of the festival.

The event faced scrutiny over the Potential for tonnes of South Korean mud to be imported for the festival, to Claims about 10,000 free tickets were given away.

Rotorua Lakes Council spent a total of $1,681,814 delivering the event in December. The event operated at a loss of $570,387 and incurred a further $170,000 of capital expenses.

The council has since decided to no longer financially support the festival.

Rotorua mayor Steve Chadwick said she did not doubt matters relating to the festival were dealt with appropriately.

"The Office of the Auditor-General has undertaken a rigorous process and given it has determined there is no need for an inquiry or financial audit, I sincerely hope this is the end of it."

Rotorua mayor Steve Chadwick. Photo / File
Rotorua mayor Steve Chadwick. Photo / File

Chadwick said council time and resources had been "needlessly" taken up with dealing with the challenge.

She said it was the second time the Office of the Auditor-General had concluded there was no need for an inquiry into allegations made after failed mayoral candidate Reynold Macpherson, who is the ratepayers group secretary, requested the Auditor-General clarify whether the council was right to pay for Williams' legal fees in relation to Macpherson's court challenge against the 2016 local body elections.

Chadwick said that in her opinion, "once again council time and resources have needlessly been taken up dealing with a challenge from a disgruntled Mr Macpherson''.

She said authorities had again concluded there was nothing to inquire into.

Councillor Peter Bentley has previously called for a more in-depth, independent review into the cost of Mudtopia.

Rotorua Lakes councillor Peter Bentley hopes Mudtopia can be put to bed. Photo / File
Rotorua Lakes councillor Peter Bentley hopes Mudtopia can be put to bed. Photo / File

He told the Rotorua Daily Post today the Auditor-General's findings were a surprise.

"That's an awful lot of public money being poured down the toilet. It's not a field our council should be getting involved in. Our job is to provide infrastructure not entertainment."

Bentley said he hoped the issue could be put to bed and the council had learned its lesson.

"It caused an awful lot of bad feelings towards councillors and individuals that wasn't necessary and could have been avoided."

Rotorua District Residents and Ratepayers group chairwoman Glenys Searancke and Macpherson today issued a joint statement in response.

It said the group was disappointed but accepted the office had decided not to conduct an inquiry on the basis of assurances provided by the council.

The statement said the group had not had the opportunity to examine those assurances.

"In our view the original decision to hold a mud festival has yet to be justified by the release of an allegedly comprehensive business plan."

The statement said expenditure limits were decided in an ad-hoc manner and the decision to proceed with the event was ill advised in the light of a national scandal and poor tickets sales.

"Some conclusions appear to contradict reality. It was concluded the public has the ability to question the council about individual expenses and hold the council accountable for those when it was the council's refusal to answer such questions by councillors and the public that triggered the request for an inquiry."

While it was accepted that risk profiles had been capped, it was also concluded that decisions to extend risk were not formally resolved by the council, and indeed, that governance arrangements were "ambiguously worded", the statement said.

The story so far
December 9, 2015: Rotorua Lakes Council's strategy policy and finance committee considers business case on a proposed mud festival. Approves a $500,000 underwrite.
December 17, 2015: Recommendations adopted by the full council.
August 2017: Concerns raised publicly about whether purchasing South Korean cosmetic mud to use at the event presented a biosecurity risk.
August 7, 2017: Decision made to proceed with Mudtopia without importing cosmetic mud.
December 1-3 2017: Event held, operating at a loss of $570,387. Incurred a further $170,000 of capital expenses bringing total cost to council to $740,387.
May 2018: Rotorua Lakes Council meets and agrees not to own or run Mudtopia in the future, or provide direct financial assistance to the event.
August 2018: Office of the Auditor-General receives a request to inquire into the council's financial management, accountability, and governance of the Mudtopia event.
December 2018: Office of the Auditor-General releases decision. Chooses not to carry out a formal inquiry or forensic audit.

- Additional reporting Samantha Olley