Callaghan suspends grant to Trends Publishing, calls in SFO

UPDATE / Dec 18. Trends Publishing says the suspension of its R&D grant from Crown agency Callaghan Innovation, and the Serious Fraud Office being notified, caught it on the hop.

"Yesterday mid-afternoon was the first time Callaghan has contacted or met the company since an audit was initiated," publisher and chairman David Johnson says.

"That meeting was the first opportunity Trends has had to see the auditor’s draft format of the report."

Callaghan’s procedures allow for Trends to respond to points in the draft report before it is finalised, Mr Johnson says.

The company will be addressing Callaghan’s concerns through that process and demonstrating that it believes it has met the qualification criteria that Callaghan has set out for its grant.

He won't comment on any specifics in the meantime.

------------

Dec 17: Callaghan Innovation has suspended a research and development (R&D) Growth Grant awarded to Trends Publishing International following an audit of its funding claims, the Crown agency said in a statement.

The matter has been referred to the Serious Faud Office.

Trends received approval for a three-year Growth Grant on 31 March 2014 following a detailed eligibility assessment process. The company had received $332,966.60 before the grant was put on hold.

NBR highlighted the grant to Trends when it was first awarded in May, questioning what type of R&D or export-orientated project could be pursued by a publisher of glossy advertorial magazines.

Callaghan would not provide details of Trends application.

Trends chairman and publisher David Johnson did not return NBR's message at the time of its original article, and his office refused to provide his cellphone number.

But five days ago, as NBR focussed on the latest round of Callaghan grants — sparking fresh social media comment on NBR's earlier article on Trends —  he sent the statement:

To clarify for you, the funding is not – as you suggest – going to Trends Publishing for glossy advertorial magazines. Callaghan is providing limited support to Trends Digital for research and development of a technology platform that is at the leading edge of social interaction and eCommerce. This platform has the potential to transform the way groups connect, communicate and collaborate – for businesses, organisations and communities. It has application potential in overseas markets as well as New Zealand. Callaghan strenuously reviewed the application for funding and determined that it was warranted for this technology project. For reasons of commercial sensitivity, we’re obviously unable to elaborate on the project, but would happily provide you with more information when it is ready to enter the public arena. 

Whatever the platform is exactly, something about it — or the process followed — hasn't washed with Callaghan.

Sarah Holden, Callaghan’s general manager external relations,says concerns were raised by Callaghan staff about the legitimacy of some of Trend’s claims against the approved funding following regular meetings over the grant.

That led to an independent audit by one of the big four accounting firms. While there have been other audits carried out on grants, this one was the first time the agency had suspended one as a result.

Ms Holden says the company will be given until the New Year to respond to notification of the alleged breaches. Its feedback will be considered and a decision made soon after that on whether to terminate the grant.

All Growth Grant recipients are regularly monitored by Callaghan. Concerns about the legitimacy of some of Trends’ claims against the approved R&D funding led to an internal investigation, followed by an independent audit, the agency said in a statement this afternoon.

Growth Grants are a non-discretionary R&D incentive programme which provides 20 per cent public co-funding for qualifying firms’ eligible R&D expenditure. To qualify for up to $5 million a year, a businesses must:

• Have spent at least $300,000 on eligible R&D in each of the last two years
• Have spent at least 1.5 per cent of their revenue on R&D occurring in NZ over the last two years
• Be domiciled in New Zealand and maintain or increase their spending on R&D over the course of the funding.
• Have met financial and due diligence requirements
• Have provided a sufficiently detailed R&D plan, including an estimate of R&D expenditures over the next three years.

There are clawback provisions should a change occur that reduces the benefit to New Zealand, the agency says.

Breaches to the terms of Growth Grant funding agreements can incur remedial action including contract termination and the requirement to repay funds paid plus interest.

Suspension of a grant allows a company time to respond to notification of breaches before a decision is made on terminating the grant.

So far Callaghan has handed out growth grants worth an estimated $309 million to 125 companies since they were introduced last year from a total available pot of $393 million.

Trends has been active for more than 20 years and is majority owned by David Johnson, a former EY Entrepreneur of the Year who has also been an international judge in the annual competition. Johnson didn’t respond to calls to the company’s Auckland head office.

The firm’s website says it has 60 publications in the home interest and commercial design area that are published in NZ, Australia, US, south east Asia, the Gulf, China and India. Last year the company launched a digital platform connecting homeowners, professionals and suppliers and in October this year it launched a MyTrends project on digital lead generation.

ckeall@nbr.co.nz

Follow @ChrisKeall