15 Oct 2020

Auditor-General asks Auckland University about $5m house purchase for vice chancellor

From Checkpoint, 5:07 pm on 15 October 2020

New Zealand's highest watchdog is demanding a 'please explain' over the University of Auckland's purchase of a $5 million house in one of the city's poshest suburbs for its vice chancellor to live in.

The university bought the plush four-bedroom house, complete with swimming pool and spa, in the inner city suburb of Parnell. It has been renting it to its new head, Vice Chancellor Dawn Freshwater, who began in the role in March.

Checkpoint has been investigating how that rental arrangement works, and has discovered the Auditor-General's office has sought details about the house with a view to establishing whether or not the purchase benefited an individual staff member.

Now Auckland University has revealed it could sell the controversial multi-million dollar mansion, as its forecast loss in 2023 is $7.5m.

The 1920s weatherboard property on a leafy Parnell street is at the centre of the scrutiny.

"I think there's a difference between buying a house for Vice Chancellor and buying $5 million mansions," NZ Union of Student Associations president Isabella Lenihan-Ikin told Checkpoint

The house has four bedrooms, three bathrooms and a floor area of 338 square metres.

An internal University of Auckland (UoA) memo described the "superior" residence: "Our highest ranked property; this is a lovely home in Parnell on the quiet side road with views down to the bay, lovely houses around and some sea views.

"The house has lovely modern living areas downstairs with easy flow to external spaces which are secure and beautifully presented. The home has a great atmosphere which hits you as you walk in. Outdoor living areas include a pool, spa, gardens and a flat lawn area which are manicured, private and secure."

The property in one of Auckland's most affluent suburbs was top choice for Freshwater and the UoA, based on location, general features, aesthetic feeling, and it being a solid long-term investment, the memo said. 

It was also the most expensive on the shortlist of three, whittled down from more than 20. Most were ruled out because they were in neighbouring Remuera - not Freshwater's preferred location of Parnell.

Also specified was easy access to Auckland's eastern bays, less than three kilometres to the university, a large master bedroom including ensuite and walk-in wardrobe, and space to entertain up to 25 people. 

The purchase price was $5,062,500. 

A number the university tried to bury behind a confidentiality agreement. 

A property like this would cost between $2500 and $3000 a week in rent, Lenihan-Ikin estimated.

Freshwater is paying the university only $1100 a week, according to a lease agreement released to Checkpoint under the Official Information Act.

"This is absolutely disgusting," Lenihan-Ikin told Checkpoint.

"Students would live in houses where they pay $1100 in total for a house, that would probably be for about four to five people. They'd be paying between $200 to $300 a week, and that would not be within the proximity that the vice chancellor is living.

"They would have to catch buses, often multiple buses to get to university.

"And they'll be living in a situation that is definitely not comfortable or luxurious. They'll be living in cold rooms and will be just able to scrape by."  

The arrangement between UoA and the Vice Chancellor has caught the attention of the Auditor-General, New Zealand's top watchdog.

"We're interested in this transaction because it relates to the university's use of resources," a letter to UoA from the Auditor-General's office said. 

"In particular, on the basis of the information that has been reported so far, there may be a sensitive expenditure element to this arrangement. Sensitive expenditure is the term that we use to describe any spending by a public organisation that could be seen as giving some private benefit to an individual staff member that's additional to the business benefit to the organisation of the spending."

The Auditor-General has asked for copies of the sale and purchase agreement, rental valuations and various internal emails. 

It has also requested additional details about how prospective properties were shortlisted, and UoA's capital expenditure policy. 

A rental valuation assessed the gross rental value of the house at $2000 a week. Deductions were made for a basement room that might be used by university guests, and other areas of the house deemed not exclusively for personal use. 

The deductions brought the assessed rental price to $1040. 

The assessment also said if the house is furnished, add $200 a week onto the rent. The tenancy agreement showed the house came with an array of chattels, putting the assessment at $1240.

That is about $100 more than what the VC is paying.

University vice chancellors are paid $400,000 - $800,000 a year. UoA's last vice chancellor was paid approximately $700,000.

Documents released to Checkpoint show the university intended to charge Freshwater market rent, with a discount for holding university functions at the $5m property.

A November 2019 email from the university's chief financial officer said: "A market-based approach seems the best unless there is a portion of the house which is required for hosting functions, etc."

UoA's tax and compliance manager responded, saying the past vice chancellor's rent was lower than market rates because the university house he lived in was used for entertaining distinguished guests.

The chief financial officer replied: "IRD take an active interest as well due to it potentially being seen as part of remuneration." 

The Auditor-General has requested the university provide details of proposed entertainment and past functions hosted by previous vice chancellors. 

Under the heading, 'Proposed hospitality with Professor Freshwater for 2020-2021', the university listed eight donor dinners. The details of who and how many people are invited or blanked out. 

There were also six proposed stakeholder dinners. Despite the university's requirement that the chosen property must have space to entertain up to 25 guests, most of the proposed functions list four or fewer guests. 

NZUSA president Isabella Lenihan-Ikin said it does not warrant such a discount in rent. 

"There are probably many venues at the university that are able to hold such meetings."

In the wake of the Covid-19 epidemic, the university said in a statement: "The vice chancellor has recommended to the chancellor and the council they consider selling the university residence.

"The vice chancellor believes it is beneficial for the capital value of this university property to be returned so it can help reduce the university's debt.

"In addition the university has not been able to use the property as a venue for fundraising events as intended, due to the pandemic."

The NZ Union of Students Associations said selling the property is the only option, and the vice chancellor can afford to find her own rental.

"It just seems utterly extraordinary. It's completely unacceptable for the university to be providing such luxury for the vice chancellor."

University of Auckland Vice Chancellor Dawn Freshwater was not available for an interview on Checkpoint.