Auditor-general coughs up more than $5 million for Kaipara audit mistakes

The Auditor-General is paying the Kaipara District Council more than $5.3 million to settle a dispute over auditing of the council’s controversial $63 million sewerage scheme.

Instead of going to court, the council and auditor-general’s office agreed to the settlement without admitting liability after mediation with retired High Court judge Rodney Hansen.

Two years ago the council decided to take legal action against Audit New Zealand for audit failings during the sewerage project, which ballooned out by $28 million between 2006 and 2009. The council borrowed money to extend the scheme and raised rates without telling ratepayers.

A debacle ensued, the council spiralled into debt and was sacked and replaced with commissioners, who decided to sue and argued negligence on the part of the Auditor-General’s Office.

A 2013 Auditor-General’s report established the council failed to perform its responsibilities to the community adequately but the council claimed the Office failed to identify these failings in a timely manner and take appropriate steps to bring them to the council’s attention.

The council claimed some of the poor decisions made by the council at the time could have been averted if the Auditor-General's Office had performed its responsibilities appropriately. 

The Auditor-General offered an unreserved apology to the Kaipara District community for failings in some audit work but disputed the council’s claim for damages.

In particular, the Auditor-General claimed it was the council that had the responsibility to comply with its statutory obligations, and its failure to do so is not attributable to the auditor-general’s office. 

However, Mr Hansen says the final settlement is reasonable and both parties will bear their own costs in the litigation. 

The payment is being funded by the Auditor-General’s insurers.

John Robertson, chairman of commissioners for the Kaipara Council, said the commissioners were pleased to have got to a settlement stage.

“There were a lot of custodians of Kaipara who didn’t perform the way they should have. We went through all that and looked at who we could bring to account.”

One legal action remains against the former chief executive of the council, Jack McKerchar, who left the role in 2012. Mr Robertson said the action is being conducted through the Employment Authority.

He declined to comment on the remedies being sought from Mr McKerchar but said there was a financial element.

“When he ceased to be chief executive he was paid out a sum of money – about $240,000.”

Mr Robertson said the commissioners would remain in place until the local body elections in October.

“The council’s in good shape financially and we’re about to appoint a chief executive,” he said.

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