GUEST BLOG: Ian Powell – Is Health New Zealand becoming an Audit Office frequent flyer?

The Office of the Auditor-General, which includes the Audit Office, is a critical statutory body charged with giving Parliament and the public an independent view of how public organisations (government ministries and agencies) are operating. It is sometimes called the public’s watchdog.

On 23 January NZ Herald business editor Jenee Tibshraeny reported that Auditor-General John Ryan was advising the Government to change the law to require these organisations to better report on what their spending achieves:

Auditor-General John Ryan calls for law change to compel government departments to improve performance reporting – NZ Herald

Ryan is concerned about the difficulties of tracking what comes of various government policies or programmes. He calls for this concern to be investigated by Parliament’s finance and expenditure committee.

John Ryan leads the public’s watchdog

In Ryan’s words:

Often we get Budget announcements at the time the Budget is announced, but that’s the last we hear of them. They then get distributed into multiple agencies, into multiple appropriations within those agencies, and unless it’s required to bring them back together [which it isn’t at the moment], then you can never see them again.

The Auditor-General has had a longstanding role in the public health system. From 2001 to 2022 district health boards (DHBs) had their financial management audited annually. Subsequently, from July 2022, Health New Zealand came under its scheduled coverage.

But, as Ryan points out above, outside scheduled required auditing it is difficult. Sometimes it requires a whistleblower.

A whistleblower that shouldn’t have been necessary but was

Following reaching a mediated financial settlement, “ousted” and scapegoated Health New Zealand chief financial officer Rosalie Hughes lodged a complaint over Commissioner Lester Levy’s annual accounts submitted to the Auditor-General.

This was well covered by Newsroom’s Jonathan Milne (15 October):

Auditor-General hears concerns about health commissioner’s accounts – Newsroom

Rosalie Hughes’ whistleblowing exposes a dubious practice

Among other things, Milne reported that the complaint raised concern that the $130 million for redundancies had been included in the 2023-24 accounts currently being audited. However, that funding was for employees Health New Zealand planned to make redundant in the 2024-25 financial year.

While sometimes it can be a challenging matter over how to determine costs should be apportioned when they accrue over more than one financial year, there was no such uncertainty in this case.

The cynic might say the intention was to make the financial performance look worse in the financial year prior to Levy becoming Commissioner in order to make the following year look better! I’ll leave that for the reader to judge.

Regardless, Hughes’ complaint was validated. The Auditor-General ruled against the Commissioner as reported, again in Newsroom, and again by Jonathan Milne (4 December):

Past history – 1

This was not the first time that Lester Levy has got into difficulty with the Audit-Office. The first involved Health Benefits Ltd (HBL) which was established in 2010 by then Health Minister Tony Ryall. He appointed Lester Levy to be its deputy chair.

Lester Levy: past history with auditors

HBL was tasked with finding $700 million in administrative savings for reinvestment in health. However, by mid-2014 it had only managed to make direct savings of $71 million.

There was no science in the $700 million figure. It was admitted to me at the time that the figure was literally “plucked out of the air”.

In October 2015 the Auditor-General released a report saying that HBL had tried to run an ambitious and complex programme but its communication with DHBs was inadequate, and its own board lacked timely and accurate information. HBL had no overall project management.

The outcome of this damming report was that the agency was quickly closed down in 2016 by Ryall’s successor Jonathan Coleman. In the intervening period Levy resigned his HBL position.

Of course, the Auditor-General’s conclusion related to the whole of HBL, not just one person. Nevertheless Levy was second in command; some believed that through his connections he had more influence than the Chair.

Further, at times he was also hands-on. This included trying to persuade DHBs, with varying degrees of success and failure (several DHBs assessed it to be less cost effective than existing arrangements), to enter into a controversy-ridden national catering contract with Compass.

While still profitable for Compass this meant that the claimed ‘savings’ of the national contract were not able to be achieved.

Past history – 2

The second occasion did directly involve Levy, this time as the appointed crown monitor for the Canterbury DHB on behalf of the Minister of Health.

He was a key player in a concerted drive to smear the financial management of its senior leadership team, particularly focussing on its chief executive David Meates.

Highly respected chief executive David Meates and his leadership team smeared

Concerned that the audited report for the 2019-20 financial year might be inconsistent with this smear, Levy tried to persuade the auditors to sustain it, or at least not contradict it.

It led to the belief that his imperative was to ensure that the past year was worse than what it was so he could be seen to fix it.

However, the endeavour failed. The auditors stood their ground in the face of a concerted attack. In fact, it backfired.

The final report showed a very good financial management rating, including the top DHB and high among other public agencies. Ironically the Ministry of Health whose leadership worked with Levy, got a poor rating.

Is Health New Zealand an Auditor-Office ‘frequent flyer’?

This above-mentioned history, including the successful Rosalie Hughes complaint, has surely raised red flags with the Auditor-General. Presumably unrelated to this, it has initiated an investigation to Health New Zealand’s approach to planned (non-acute) care.

This is a good initiative. But there is a wider issue. Health New Zealand is the statutory body responsible for the provision of healthcare services to New Zealanders, both in communities and hospitals.

Serious questions are being raised about the consequences and integrity of HNZ’s current ‘slash and burn’ campaign and the leadership that is driving it. This is precisely why the Auditor-General’s ‘public watchdog’ role is so important.

The areas to be investigated are considerable. Slashing health IT infrastructure is an obvious starter.

To its credit, the Public Service Association has referred this appalling decision to the Privacy Commissioner. It has also challenged the legality of its redundancies’ process through employment law.

Both these actions by the PSA are commendable. But the Auditor-General provides a different lens to consider the matter.

Health NZ a frequent flyer?

So is Health New Zealand an Audit Office frequent flyer? If it isn’t it sure feels like it. In fact, the question feels rhetorical.

But, even if HNZ isn’t a frequent flyer, it likely to become one. Given the circumstances, in the interests of patient and health workforce safety, that would be a good thing.

Ian Powell was Executive Director of the Association of Salaried Medical Specialists, the professional union representing senior doctors and dentists in New Zealand, for over 30 years, until December 2019. He is now a health systems, labour market, and political commentator living in the small river estuary community of Otaihanga (the place by the tide). First published at Otaihanga Second Opinion