Secret report left him a pariah

The report that forced former Auditor-General Martin Matthews to resign can finally be revealed by Stuff.

MPs intended it to be kept secret, but today Stuff can disclose its full contents after discovering Parliament never formally suppressed it. 

The draft report, which Matthews’ alleges is “riddled” with errors, was used by a committee of MPs to force Matthews’ resignation in August 2017, an act described by former Prime Minister Sir Geoffrey Palmer as an “unprecedented” constitutional breach. 

As a result of the report, Matthews said he has been labelled “toxic” or “radioactive,” which has meant he has been unable to find another full-time position. 

Matthews is now petitioning Parliament to reopen his case. 

Matthews’ time as chief executive of the Ministry of Transport coincided with a $726,000 fraud carried out by senior staffer Joanne Harrison. 

Matthews had himself asked for the report in May 2017, when the media frenzy surrounding Harrison’s fraud overshadowed his appointment as Auditor-General.

The resulting report from senior civil servant Sir Maarten Wevers concluded that Matthews was “not suitable” for his role as Auditor-General. The report was so damning the Officers of Parliament Committee asked for Matthews’ resignation in return for suppressing it, preserving Matthews’ reputation.

Matthews released the report to Stuff, along with his rebuttal. 

Stuff also has a copy of Matthews’ response to the report, which claims the Wevers report was “riddled with errors of fact or judgements that are inexplicable”. He described it as “unsafe and cannot be relied upon”. Matthews now alleges that because the report was used to dismiss him, he was denied natural justice.

Wevers made an official response to the committee about Matthews’ criticism of his report, which Stuff has not seen.

Wevers declined to comment when approached by Stuff.

What's in the Weavers report?

The report, and Matthews’ response to it present vastly different versions of what happened leading up to Matthews’ resignation.

Wevers paints a picture of Matthews as a chief executive whose “arrangements” for “dealing with audit and risk were substandard” and who, when he became aware of the fraud, responded in a way that was “not as rapid or as inclusive” as Wevers expected. 

Wevers raised issues of Matthews’ integrity, saying he failed to acknowledge “sufficiently” the issues around the fraud when he was applying to become Auditor-General and that he failed to formally advise his successor at the Ministry of Transport, Peter Mersi. 

Matthews’ response shot back at both criticisms.

He said certain details of the fraud were kept within a small circle of people, not because he was attempting to cover the fraud up, but because he could not be sure Harrison didn’t have accomplices within the organisation and he also had obligations as an employer not to level accusations at an employee without first establishing some level of guilt. 

Matthews also had to tread carefully around the fact that Harrison’s previous fraud conviction was suppressed, meaning this key detail was known to very few people. In fact, that suppression was only lifted this year, thanks to an appeal by Stuff Circuit

This defence did not wash with Wevers who was told by the State Services Commission (SSC) that Matthews would have been allowed to discuss the fraud with his senior staff “in appropriate terms”. 

But Matthews argued spreading knowledge of the investigation risked tipping off Harrison and potential accomplices. This argument appears to have some merit as Harrison discovered within days that she was under investigation and it later emerged she had two accomplices: a staff member and a cleaner.

Matthews later told Stuff that it was frustrating to stay silent on aspects of the fraud because of Harrison’s name suppression and his obligations to her as an employer.

“It was frustrating to know that there was something here that was really critical to how people were judging me. But, I had to respect the law and, you know, act in a proper manner,” Matthews said. 

I feel like I've acted with integrity. I’ve played the game play by the rules,

Martin Matthews

He expected other people to do that too, but in his view “they haven’t”.

Finding the fraud

Things began to unravel for Harrison on April 11, 2016, when  Matthews was tipped off that a member of his staff had, under another name, committed a fraud at Tower Corporation.

The next day, he met with the SSC to seek advice on what to do next. On April 13, the SSC advised him to treat the issue as an employment matter. 

On April 18, he asked Audit New Zealand, part of the Auditor-General’s office, to look at Harrison’s invoices. 

On April 22, Audit NZ delivered an interim finding, noting it did not have evidence of fraud, but recommending that Matthews investigate further. This was enough to prompt an employment inquiry conducted by Peter Churchman and a forensic audit, carried out by Deloitte on the recommendation of the Serious Fraud Office. 

While Wevers found a “lack of urgency” in the way Matthews uncovered the fraud, Matthews argues that this version of events shows that he acted with speed. Other agencies were happy with Matthews’s work. The then State Services Commissioner held it up as a model, noting it may lead to “insights to share with other agencies at an appropriate time”. 

Matthews was even told by a Parliamentary committee that the director of the Serious Fraud Office had described his conduct in uncovering the fraud as “exemplary” and said his actions helped them eventually track down Harrison and bring her to trial. 

Wevers was scathing of Matthews’ “substandard” arrangements for detecting fraud, and Matthews’ failure to uncover the fraud when concerns were first raised about Harrison.

Harrison’s noncompliance with rules for paying invoices disturbed some Ministry of Transport staff, who blew the whistle. Matthews investigated, accepted Harrison’s apologies for the noncompliance, and asked her to commit to learning the correct way to invoice.

This episode sparked a review of the way whistleblowers were treated during the Harrison fraud. It was alleged the whistleblowers were both ignored and deliberately made redundant. The review, by Sandi Beatie QC, found both allegations to be false, although she did find Harrison successfully managed to force the whistleblowers to leave the ministry faster than they otherwise would have done.

A sophisticated fraud?

There is still some dispute amongst the multiple reviews over whether the fraud was simple or sophisticated, and therefore whether Matthews should have been able to immediately detect it. The Wevers review said Matthews had substandard fraud protections in place at the ministry, which Harrison was able to exploit. 

But other reviewers said the fraud was sophisticated. 

Churchman’s employment inquiry called the fraud “sophisticated”. It took a team of forensic accountants from Deloitte to uncover the full extent of Harrison’s fraud. Their report found $758,000 of misappropriated funds. 

While the Wevers report touches on Harrison’s previous conviction, details about that fraud were suppressed at the time, which meant Wevers was not able to look into it in detail. Matthews believes the fact she defrauded a firm like Tower shows just how sophisticated Harrison was capable of being. 

This opinion was backed-up by a 2018 decision from the Parole Board, which said Harrison’s crimes “involved sophisticated, manipulative and very serious fraudulent actions over an extended period”.

Who he told

Wevers accused Matthews of both failing to disclose the fraud “sufficiently” in his initial application for the role of Auditor-General and his official briefing to his ministry successor, Mersi. 

Wevers took issue with the fact the fraud was not mentioned in Matthews’ official briefing to Mersi, which advised him on what to expect during his first weeks on the job, alleging this left Mersi “unprepared to deal with very difficult public revelations relating to his new Ministry in his first days in office”. 

Wevers said Matthews only informed Mersi “informally in person”.

Matthews’ explanation for this is that he briefed both the MPs who appointed him Auditor-General and Mersi.

He said that he did not include the fraud in his initial application because it was still under investigation by the Serious Fraud Office and a formal decision to lay charges had not yet been made. He decided not to include this confidential information in the application, but with the MPs during his interview to ensure confidentiality. 

When it became clear the story would soon break in the media, Matthews sent a supplementary letter to the recruiter, noting the fraud and saying that he would discuss it further during his interview, which he did in his formal interview on September 22. 

Matthews gave the same explanation for why he failed to include the fraud in his official briefing to Mersi. The briefings were circulated round a wide number of people so Matthews felt it would be inappropriate to include details of a confidential investigation.

The day after the Deloitte forensic report uncovered the full extent of the fraud, Matthews briefed Mersi in person, giving him a copy of the report. This was six weeks before Mersi started in the role. Matthews alleges this refutes Wevers’ claim that Mersi was “unprepared”, as he had both the detailed Deloitte report, and several weeks warning.

The suppression that never happened

The Wevers report was so damning that MPs on the Officers of Parliament Committee offered to suppress it in exchange for Matthews’ resignation.

Since 2017 it’s been assumed that Wevers' report to the committee is secret, protected by Parliamentary privilege, which keeps select committee proceedings confidential, or by a formal suppression by Parliament itself. Breaking either of those suppressions would risk contempt of Parliament, a serious offence. 

But the Wevers report was never suppressed and was in fact hiding in plain sight.

Suppressing it  would have required a motion in Parliament passed by a majority of MPs.

But Matthews’ resignation suspended the inquiry, according to the minutes of the committee. Wevers' report was never the subject of a secrecy motion meaning that it, and other documents relating to the inquiry, were free for everyone to see.

Public service pariah

Matthews is now petitioning Parliament to reopen his case. 

He believes the fact the report’s accusations and findings were not put to him to clarify points of fact means it is flawed. 

In most ordinary employment disputes,  not putting the allegations and the investigator’s findings to an employee would be enough for an appeal to be lodged with a higher court, but the Auditor-General is one of only three jobs appointed by the Officers of Parliament Committee, meaning only Parliament has the power to reopen his case. 

Matthews said the report had made him a pariah in the state sector. Even though its contents have not been published, the damning tone is well known.

He said potential employers had asked him not to apply and he has been unable to find full-time work.

I’ve been asked not to apply because they are concerned about what the political or media reaction would be to an association with me.

Martin Matthews