26 Nov 2019

Hepatitis Foundation had 'excessive' spending, mismanagement - unpublished report

8:13 am on 26 November 2019

The Hepatitis Foundation clocked up more than $128,000 in travel expenses for its board chair in just over two years, was putting on "lavish" dinners and racking up thousands of dollars on credit cards with no record of what the money was being spent on.

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An investigation more than a year ago by government-run regulator Charities Services found excessive expenses and gross mismanagement may have occurred, though the foundation told RNZ there was no evidence of any wrongdoing.

Charities Services senior investigator Paul Budd recommended for the report be published on the website of the regulator, which falls under the remit of the Department of Internal Affairs, but it chose not to.

Charities Services general manager Natasha Weight said that was because a report was only published after a charity failed to remedy the matters of concern.

"In this case, the foundation remedied the issues identified by the investigation so publication did not proceed," she said.

The foundation, set up in 1984, carries out major screening, vaccination, and research programmes in New Zealand, the Pacific, and Vietnam.

In the six years leading up to the two-year investigation commencing in 2016 - after a complaint from a member of the public - the foundation had received about $10 million from the government to provide care to people with Hepatitis B or C.

The report questioned spending on travel expenses including to destinations like France, Boston, Vienna, Washington, San Francisco, Luxembourg, and Tokyo.

Board chair Chris Cunningham flew business class and Mr Budd, who was appointed by Charities Services, found there was no formal process for approving travel and foundation trustees would simply book their own trips.

The report found Mr Cunningham had "sought and received a level of personal benefit" on the basis overseas travel consistently allowed for him to arrive prior to a conference and stay longer afterwards with no specific reasons for the extended stays provided.

The foundation also contributed extensively to, or reimbursed, expenses during the extended trips.

The amount of money spent on his travel for the period October 2013 to February 2016 came to a total of $128,436.65.

The report said it was difficult to quantify how much Mr Cunningham personally benefited from the trips compared to the value of his attendance, though it was also noted there was little record of post-conference reports presented by the chair.

"While benefit from the use of charitable funds and resources may have been accrued, there was not sufficient evidence to find this was unreasonable or was not for advancing the charitable purposes of the Foundation," it said.

'Lavish' dinners at top Auckland restaurants

The report also identified serious concerns over "lavish foundation expenditure on annual dinners for staff'', namely, The French Cafe in 2014 and the Sugar Club in 2015.

The Trustees accepted travelling and staying in Auckland for annual dinners "and paying for expensive restaurants was inappropriate" and "not a good look".

Mr Budd said the expenditure was "unreasonable" and exceeded what would be normal for a similar charity.

Foundation trustees were also asked about a $24,000 reception at Government House in Wellington in 2014 which included flights and accommodation for a number of staff.

"Although information on the exact cost for this event was requested from the Foundation, the Foundation failed to provide adequate evidence to satisfy Charities Services of the actual cost for this dinner," the report said.

"The Foundation has claimed that this dinner cost $837.10 - however due to the number of people that attended this event - Charities Services considers that the actual amount spent would be well in excess.

"A second payment was also used during the same evening for a payment of approximately $4000.25. The Foundation failed to provide further breakdown on these credit card uses."

The report noted: "well in excess of $9000 additionally was spent on the evening, $5000 for dinner and $4000 on unknown expenses that there is no record for".

"We consider wrongdoing has occurred in relation to these incidents - specifically, the $4000 unaccounted for cost constitutes an unlawful use of the charitable funds.

"The activity of spending considerable charitable funds on entertainment is aggravated by the trustees not only condoning such behaviour and using Foundation credit cards for such spending but also being recipients of the benefits of this activity. This is conduct that may constitute unlawful use of funds and impact the public's trust and confidence in the charitable sector and the effective use of charitable resources."

It went on to say there was conduct indicating gross mismanagement and "extravagant expenditure" with no consideration given to other options by trustees, which showed a lack of awareness of their fiduciary duties.

Mr Budd ruled out any serious wrongdoing in regards to international travel - but said serious wrongdoing may have occurred in the case of excessive expenses and that there may have been gross mismanagement by the foundation.

The investigation report recommended the foundation be issued with a warning notice outlining their failures around management that led to serious wrongdoing and that Charities Services publish a summary of the findings of the report on its website.

When the Charities Services advisory group met to consider the recommendations however, it "felt due to the co-operation of the Foundation with the investigation and the steps already taken by the entity to remedy the issues outlined, the most appropriate course of action was to issue the foundation with a 'letter of expectation' from the regulator".

The decision was made not to publish a summary of the findings of the report on the regulator's website.

Ministry of Health concerns

Another area of concern raised in the report was the setting up of the Alexander Property Trust (APT Trust) - the complainant alleged surplus funds from the Ministry of Health were being transferred from the foundation to the APT Trust so it appeared hidden when the foundation applied for new ministry grants.

Because there were no claw back clauses on ministry contracts in respect of excess funds, the foundation was able to transfer the surplus funds to the trust.

While the report found there was no wrongdoing, the ministry was "concerned and disappointed by the findings", ministry deputy director-general Deborah Woodley said.

"In particular, the Ministry noted with concern the findings that there may have been serious wrongdoing in terms of expenses and use of resources and the view of [Charities Services] that some expenditure was unreasonable.''

"As a result of the allegations and Commission investigation, the Ministry conducted its own financial audit of the Foundation,'' Ms Woodley said.

It identified $380,000 in funding that was surplus after services were provided and the ministry agreed with the foundation that additional services subsequently be provided, which have since been delivered.

"The Foundation's current sole contract requires any surplus funding from its current $1.5m annual contract to be returned to the Ministry," she said.

"The Ministry will conduct a follow-up audit next year to provide assurance that these new policies and processes have prevented similar issues occurring.''

Business Class was foundation's policy

In an interview with Mr Cunningham during the Charities Services investigation, he said some conferences were attended by 9000 people, which pushed up the cost of hotels.

He said travel on business class was the foundation's travel policy, as was the policy for lone travellers to stay at the conference venue due to long days at meetings.

Asked about $128,000 spent on his travel expenses, Mr Cunningham said no Ministry of Health money or public money was spent on his travel and he confirmed the foundation was carrying out a review and improving all its processes and policies.

In a statement to RNZ the foundation said "the Department of Internal Affairs has acknowledged the valuable work of the Hepatitis Foundation of New Zealand following the completion of a two-year investigation.

"The investigation, which was concluded in 2018 following a complaint from a member of the public about Hepatitis Foundation expenditure, notes the organisation is operating and providing services in accordance with its charitable objectives. The investigation found no evidence of wrongdoing. The Hepatitis Foundation remains a registered charity and no further action needs to be taken.''

Hepatitis Foundation chief executive Susan Hay said this positive outcome was expected.

"We co-operated fully and transparently throughout the review process. We continue to focus on providing charitable services to New Zealanders living with viral hepatitis and raising awareness of the risk factors."

Ms Weight said Charities Services was satisfied the foundation had "strengthened its governance by introducing a range of new practices and policies" and that the foundation had "remedied the concerns at the heart of the complaint".

"In this case, recommending a de-registration was not considered appropriate because the Foundation was now meeting its obligations,'' she said.