Wellington Water financial controls ‘insufficient, informal, unreliable’

Monday, 3 March 2025

A second damning report — leaked to The Post — reveals systematic weaknesses in Wellington Water’s financial systems, exposing the utility to “significant risk” of fraud.

It also points to a culture that prioritised consultants and contractors over ratepayers.

And it found councils’ budgets were shared with approved contractors, increasing the chance it would not get the best price.

The beleaguered council-controlled water services provider commissioned Deloitte to investigate after internal whistleblowers came forward with concerns.

Police are investigating after an alleged theft by a staff member, but this was identified separately to the Deloitte report.

The Post understands this incident involved “many tens of thousands of dollars”, but police are yet to lay charges.

On Monday, Wellington Water released the summary of a blistering review, which laid bare how Wellington ratepayers were stung for repairing and maintaining water pipes — paying as much as three times what other councils were charged.

While an accompanying media release disclosed the alleged theft, the Deloitte report was not released.

The Post has obtained a copy of a six-page summary. While it found no direct evidence of fraud, employees interviewed highlighted “systematic and widespread weaknesses” in the “design, operation, control, and assurance, over processes that are fundamental to the operation of Wellington Water”.

“This exposes Wellington Water to significant risk,” the summary said.

It also identified an absence of reliable controls, which significantly reduced the ability to detect and prevent fraud.

Under fire was the utility’s use of contractor and consultant panels. These were established by Wellington Water between 2016 and 2019, to divvy out jobs between nine companies over 4-6 years.

The consultant panel was established in 2016 for the design and management of projects with pre-qualified providers.

A capital works (capex) panel was established in 2019 for physical works.

And a “maintenance alliance” also embedded a Fulton Hogan team within Wellington Water in 2018.

The terms of the panels were extended in July 2022 to June 2026.

The report’s finding on these panels is damning. Deloitte observed “a lack of oversight and/or involvement by Wellington Water in the management of the panels to support and promote competitive tension, quality, and to ensure value for money is being delivered by panel members and the Alliance”.

There was insufficient oversight or independent assurance over the panel members performance and financial processes.

The entity prized “transparency, and delivery, over competitive tension and achieving value for money,” the report found.

“Deloitte noted that interviewees disclosed that the arrangements appeared to prioritise Wellington Water's consultants and contractors over ratepayers, which has contributed to a culture that may indicate that the use of panels was the only option for procurement of services, irrespective of cost, quality or timeliness.”

Project managers contracted through consultant panels created “an inherent conflict of interest in relation to issues such as performance and value for money where the project manager was required to hold their employer (the consultant) accountable to Wellington Water.”

There was a lack of clarity between the role of outsourced project managers and internal Wellington Water staff.

Deloitte also found the panel and alliance model was designed to prioritise trust, partnership, and delivery, but there were no controls to assess if that was worth the cost.

“The sharing of councils’ budgets for projects with panel members to support transparency provides panel members with significant insight to funds available for work they are costing which increased the risk that Wellington Water would not be provided with the best price,” the summary revealed.

Panel members allocated the work themselves and Deloitte found this was “based primarily on equal distribution regardless of whether a particular contractor or consultant was the right fit for the job.

Panel members “were not incentivised to deliver competitive responses or deliver to a consistently high quality”.

The use of the panels “created a closed loop of assumptions which were not regularly market tested, noting that panel costs had escalated significantly since establishment”.

Financial controls were “insufficient, informal and unreliable” and couldn’t provide confidence in the legitimacy and accuracy of claims and payments being made under broad annual purchase orders.

Invoices were automatically paid prior to any approval or consideration by Wellington Water staff and there were occasions where invoices rejected by approvers were still being paid by the utility’s accounts payable team.

“The manual processes further increase d the risk of error and/or inaccuracy,” the summary said.

There was no contract management system to manage or oversee large projects and programmes. This increased the difficulty for Wellington Water to scrutinise the accuracy and reliability of claims.

The summary also said: “Separately, Deloitte noted interviewees expressed concerns that the appointment of sub- contractors by panel appointed contractors was resulting in both sets of overhead costs being charged to Wellington Water. However, Deloitte did not review any evidence which substantiated these claims.”

Deloitte made several recommendations to improve Wellington Water's processes. This included reviewing the consultant panel, considering whether conflicts can be appropriately managed or whether an alternative model is required.

Fulton Hogan referred all comment to Wellington Water. Wellington Water board chairperson Nick Leggett earlier apologised for the “lack of oversight, assurance and financial controls and processes”.