Battle for secret QLDC emails escalates

Editorial/Analysis

The Queenstown Lakes District Council is still refusing to release emails that may explain how the council, for five years, failed to follow their own financial rules – rules that allowed the council to dish out “jobs for mates” without the appropriate process being followed.

The latest batch of emails was released to Crux after intervention by the Office of the Ombudsman. It took nine months of pressure by the Ombudsman for the council to release further information, but most of the key emails are still missing. You can read the council’s “partial release of information” letter here that shows what we requested and what was refused.

Crux understands that the Ombudsman will now launch a further investigation that will hopefully produce the missing emails.

However, here are the further pieces of the jigsaw puzzle that QLDC was “persuaded” by the Ombudsman to provide to Crux.

CEO Theelen could not find, and may not have read, the main documents.

QLDC CEO Mike Theelen (left) and Mayor Jim Boult. Is it possible that Mr Theelen had not read QLDC's Procurement Policy and Guidelines until an internal investigation (into himslef) was launched in 2021?

One of the most remarkable emails is linked to a situation on February 2, 2021. This is one year after Crux published our first ZQN7 story and four years after Crux started our investigation into QLDC’s spend on external consultants, many of them former council managers.

Mr Theelen is dashing out of his office to the airport – he needs to be away by 2.00 pm. At 1.24 pm he asks his executive assistant to urgently find a copy of the QLDC’s Procurement Policy and Rules.

Now it would be reasonable to think Mr Theelen would have had these two vital documents (only 3 pages and 6 pages respectively) in a well-worn folder in a prominent position on his desk – or at the very least have the two documents on his laptop. Clearly, he did not realise that the documents had been on the council’s website since 2016.

Mr Theelen refused to respond to Crux questions on this issue, but QLDC comms/PR people say that “asking for copies does not indicate he’s never seen them before.”

Boult learns from Theelen that “This failure is wider than ZQN7.”

After one year of Crux coverage of the ZQN7 scandal throughout 2020, elected councillors start to ask questions of senior managers. Niki Gladding had been asking questions six months earlier, but with little if any effect. She was stonewalled.

Mayor Jim Boult - told Crux that "jobs for mates" claims were unsubstantiated and did not warrant an external investigation.

On January 21, 2021, Crux asked Mayor Boult directly if there would be an external investigation into ZQN7 as it would be “more appropriate and convincing from a ratepayer perspective.”

Boult replied that Crux “has made a number of unsubstantiated claims in this matter. That does not warrant any external input.” Boult then ordered CEO Mike Theelen to effectively investigate himself.

As it turned out, all the Crux claims (and many more) were substantiated later that year by the Office of the Auditor General, so on what basis did the mayor believe in January 2021 that Crux was wrong, and an external enquiry was not justified?

Theelen then asks the council’s Covid recovery manager with no direct accounting/audit experience, Steve Batstone, to carry out an internal investigation into ZQN7 and whether QLDC failed to follow their own “jobs for mates” rules.

Keep in mind that Mr Theelen had been telling Crux for a year, up to this point, that QLDC had complied with the “jobs for mates” rules and even took Crux to the Media Council over our ZQN7 reporting in mid 2020.

The hastily compiled internal Steve Batstone report barely scratched the surface of the core issue of QLDC financial compliance, but just two days after Mike Theelen was dashing to the airport with his newly provided copies of the Procurement Policy and Guidelines, he was forced to make a difficult communication to the mayor.

“Hi Jim. It is with some intense disappointment that I have to advise that the Council’s adherence to, and implementation of its Procurement Policy, and Procurement Guidelines has not been at all adequate in respect of the smaller (Under $50,000) contracts, though as Steve’s report notes there does not appear to have been any deliberate attempt to mislead or avoid the policy and guidelines.”

Source: QLDC Email: Mike Theelen to Jim Boult 6.05 pm Thursday, February 4^th.

It’s important to note here that Mr Theelen still believes that the problem is limited to smaller (under $50,000) contracts.  Anyone who had actually read the 2016 procurement documents would realise that the under $50,000 “open licence to spend” does not exist and that procurement practices are required from zero dollars.

Steve Batstone wrote the internal QLDC report on ZQN7 - but left the council a short time later.

A further important point is that, even though it seems council staff wrongly believed there was a $50,000 limit, below which they could more or less do what they liked, one practice that was very specifically forbidden was the splitting of larger contracts into $50,000 sub-sections. ZQN7 was split into 12 smaller contracts that were supposed to all be under $50,000 – but in the end almost all of them went over this mythical limit – by a total of $204,000.

Just twenty minutes after breaking the bad news to Mayor Boult on the evening of February 4^th, Theelen then tells the council’s in-house lawyer and the entire QLDC Executive Leadership Team that:

“The (Batstone) report demonstrates that the organisation has been dilatory in its application of the Procurement Policy and the Procurement Guidelines, and often not in compliance in the way it awards contracts of a value of under $50,000.00. This failure is wider than ZQN7.

This report has yet to be considered by Council.

Accordingly I am instructing General Managers to ensure that all contracts to be awarded by Council need to explicitly follow the Policy and the guidelines and I ask that you urgently refresh your own awareness and understanding of these. You are also responsible for those contracts approved by your managers.”

Source Mike Theelen to all Chief Executive Direct Reports – copied to in-house legal and procurement management.  6.26 pm Thursday February 4^th, 2021.

There then follows a round of extremely pointed emails that give further firm instructions to all managers that they now need to comply with the councils financial policies and confirm that they have read and understood Theelen’s email.

Only weeks earlier QLDC had been repeating their previous claims that the council had followed the correct procurement processes and gained the proper apporvals.

This email exchange is from December 8, 2020.

Crux: "Ratepayers money has been spent without proper processes or approvals in hiring two former QLDC managers (via ZQN7) - personally known to Mr Lind and one of whom being a very close family connection of Mayor Jim Boult."
QLDC: "We dispute your assertion regarding the lack of proper process. Neither former employee was hired individually; instead, a company they were involved in was contracted to provide services. The correct processes and approvals were followed. The connection with Mayor Boult is irrelevant as he had no role in this procurement process."

Jack Barlow - QLDC Communications. 4.09 pm, December 8th, 2020.

Later in 2021 there’s an email from the council’s HR department saying that they have managed to book a procurement training course for up to 20 council staff.

QLDC's Procurement Manager Geoff Mayman- we know that he did at least read the Procurement Policy and Guidelines.

But things then get worse, much worse, when council staff realise for the first time that not only does the under $50,000 “do as you like” clause not exist, but the “procurement rules from zero dollars” have the power to bring the entire council to a standstill.

Council managers then inform Boult and Theelen that over 300 transactions a month are non-compliant with the 2016 Procurement Rules including ACC and IRD payments. An Extraordinary Council Meeting has to be called in order to change the rules and allow the council to continue its day-to-day operations.

Reviewing this sequence of events, it would be tempting to adopt the view that nobody at QLDC had actually read and understood their own rules. Of course, that would be no excuse but in any event it does not stack up. In 2018 QLDC hired their first even Procurement Manager, Geoff Mayman, and we know he read the rules because of two key events:

• He told Crux in a November 2020 interview that the QLDC Procurement Rules were “ambiguous.”
• Emails released to Crux show that Mr Mayman advises staff that “in a perfect world” they would have to follow the procurement rules but then suggests a “business as usual” approach.

Widespread abuse was “not deliberate.”

The first ever story published by Crux in May 2018 highlighted QLDC attempts to hide the spending on external consultants and contractors for public view. QLDC wanted to invoice Crux for 16 hours of staff time that they said it would take to start the process.

Slowly, over the years, Crux managed to use official information legislation to pull back the layers of secrecy surrounding the council’s use of ratepayer money on external consultants, many of whom were former council managers and staff.

QLDC told Crux it was “too difficult” to identify former staff on their long lists of suppliers – so Crux was forced to look at a randomly selected supplier and see if there were links back to council staff. We selected ZQN7 and discovered two former council staff being paid $600,000 to work part time in reviewing council by laws while carrying out other, highly paid, council work elsewhere in NZ.

We then uncovered a former council building services manager, who was paid $780,000 over three years to become a consultant, even though a procurement process followed around 18 months after he left the council and started on a consultancy contract.

However, in the face of repeated formal questions from Crux, CEO Mike Theelen told Crux during 2020 that QLDC was complying with their Procurement Policy and Guidelines.  We now know that those statements cannot have been true.

As soon as the Batstone Report, and then the Office of the Auditor General, made it clear that virtually every QLDC rule in the book had been broken the QLDC justification has been that none of this was “deliberate.”

Specifically, the Office of the Auditor General told QLDC that a full investigation would not be required as the council “had started” to fix their procurement systems. Triumphantly the QLDC put out a media release that was published verbatim by other local media saying the Auditor General would not be investigating QLDC over its breach of its own procurement rules.

In fact, the Auditor General had already completed a fairly extensive inquiry into QLDC noting specifically:

• No records kept of $50,000 “subdivision” of big contracts.
• A failure to follow or understand the 2016 Policy and Guidelines
• Failure to deal with the “total value” of consultant contracts
• Failure to monitor cost overruns of consultant contracts
• Failure to look at cost saving by doing work inhouse

There were virtually no aspects of the council’s own rules that had been complied with.

Crux has asked both the Office of the Auditor General and the Office of Ombudsman to reopen their investigations into QLDC’s breach of their own financial rules.  Crux believes the breaches were either deliberate or the result of an organisational culture where “business as usual” is not following the rules.   

As journalists, this experience means we cannot trust any information given to us from QLDC as being true. Therefore, it is clear there must be fundamental changes made before both the community and media can re-establish this vital element of trust with our local council.