Report of investigation into allegations against former CERA employees
State Services Commissioner Peter Hughes has today published the report of the investigation into allegations made against former staff members of the Canterbury Earthquake Recovery Authority (CERA).
The investigation was carried out by former Solicitor-General Michael Heron QC under the provisions of the State Sector Act.
"New Zealanders need to have confidence that Public Servants work to the highest standards of integrity in everything they do," said Mr Hughes.
"It is completely unacceptable for any Public Servant to try to use their official position for personal gain," Mr Hughes said. "Any conduct of that nature is a serious breach of the standards expected of Public Servants in New Zealand and will be treated very seriously."
"Public Servants need to exercise a high standard of judgement around the management of conflicts of interest," he said.
"Those who hold senior leadership and governance positions in public organisations need to demonstrate the highest possible standards of judgement and model that to the employees in their agency."
"I expect senior leaders to put the interests of their organisation and maintaining the trust and confidence of New Zealanders before their own personal interests," Mr Hughes said.
Mr Heron's investigation focused on three former CERA employees: Mr Gerard Gallagher, Mr Simon Nikoloff, and Mr Murray Cleverley. The investigation looked into whether these men had any conflicts of interest while employed by CERA or any subsequent State services employment.
Following the disestablishment of CERA in 2015, Mr Gallagher and Mr Nikoloff moved into roles with the Crown Company Otakaro Ltd. Both individuals were stood down from their roles when the investigation commenced. Mr Cleverley was the Chair of the South Canterbury and Canterbury District Health Boards, although he stepped aside from his duties while the investigation was underway.
Mr Heron looked into these individuals' actions during the period to which the allegations relate, and in the public roles they have held since, as well as the management of conflicts by these individuals and the public agencies concerned. Mr Heron's investigations focused on the activities of all three men in association with the company called Property and Investment Management Ltd. (PIML) and, in the case of Mr Cleverley only, the Canterbury DHB and property at 32 Oxford Terrace.
Actions of Mr Gallagher and Mr Nikoloff while employed by CERA
Mr Heron's investigation found serious and sustained breaches of the applicable standards for which an employment process would follow if Mr Gallagher and Mr Nikoloff were still employed by CERA.
Mr Gallagher and Mr Nikoloff were found to have been using a private company (PIML) to attempt to participate in a business deal for personal gain, relating to the same property (273 Manchester St) and with the same parties they were engaging with in their public capacity as CERA employees. They did not disclose their personal interest to parties involved in the potential transaction or to their employer.
This created a clear conflict of interest which they were aware of and should have disclosed to CERA, however they did not do so.
"I consider their actions to be serious misconduct that is unacceptable in the New Zealand Public Service," Mr Hughes said.
"If these two individuals were still employed by CERA I believe there would be strong grounds for terminating their employment," he said.
"I am unable to direct State sector employers when making employment decisions, however based on what I have seen in Mr Heron's report, if it were up to me I would not employ these individuals," Mr Hughes said.
"I also decided to refer the results of the investigation to the Serious Fraud Office to consider whether any of the activity is of a potentially criminal nature that requires further investigation," said Mr Hughes.
Actions of Mr Gallagher and Mr Nikoloff while employed by Otakaro
The actions and activities of Mr Gallagher and Mr Nikoloff while employed by Otakaro Ltd have been investigated by the Chief Executive of Otakaro as their employer.
"As the employer it is appropriate for Otakaro to carry out this investigation, and I can't become involved in a State sector employment process," Mr Hughes said.
"The employment status of these individuals is a matter for the Otakaro Chief Executive as the employer," he said.
"I understand the Otakaro Chief Executive will be making a statement this afternoon," he said.
"As State Services Commissioner I have responsibility for integrity and conduct of the State Services as a whole," Mr Hughes said.
The Chief Executive's investigation has identified that Mr Gallagher and Mr Nikoloff appear to have behaved in a similar way while employed by Otakaro.
"In particular I understand that Mr Gallagher and Mr Nikoloff set up and ran a company and engaged in separate business activity while employed there," Mr Hughes said.
"These activities give me real cause for concern," he said.
"I have therefore also referred this matter to the Serious Fraud Office to consider whether any of this conduct is criminal and warrants prosecution."
Actions of Mr Cleverley - CERA
Mr Heron has found Mr Cleverley is in a different position to Mr Gallagher and Mr Nikoloff with regards to his activities while employed by CERA. He was a shareholder in PIML but there is no evidence he was involved in the company's operations. Mr Cleverley is adamant that he was unaware the company was operating. Mr Heron has accepted that position.
Mr Cleverley did not declare his shareholding in the company to CERA because of his belief it was not operating. He has acknowledged that with hindsight it would have been prudent to declare it. In my view, his failure to do so was a significant error of judgement.
Mr Heron has found that Mr Cleverley, as a senior and experienced executive manager and Board member, should have shown more care and better judgement. He should have declared his shareholding and paid closer attention to what was taking place. Mr Heron considered that that CERA was entitled to more care and better judgement from him. Mr Cleverley has accepted those criticisms.
Actions of Mr Cleverley - Canterbury DHB
Mr Heron's investigation also looked into the management of a conflict of interest with Mr Cleverley being the Director of Silverfin Capital Ltd which leased property to the Canterbury DHB.
Steps were taken within the DHB to identify and respond to the conflict of interest. There remained a potential issue of perception around Mr Cleverley's involvement on both sides of this deal. The Ministry of Health and SSC recommended at the time that Mr Cleverley step down from Silverfin as this would have removed the basis for complaint, but this was not accepted by Mr Cleverley.
"In my view it would have been prudent to step down from Silverfin to avoid any issues of perception, however as a District Health Board Chair, this decision rests with Mr Cleverley," Mr Hughes said.
"Mr Cleverley chose to take a less cautious approach, as he was entitled to do, but this left himself and the DHB open to questions about whether his conflict of interest was managed effectively, and in so-doing risked undermining trust and confidence in the Canterbury DHB," said Mr Hughes.
Mr Cleverley's response
Mr Cleverley has today resigned from his positions as Chair of the Canterbury and South Canterbury District Health Boards. He has done so out of a concern to ensure the public maintain trust and confidence in the District Health Boards.
"In doing this he has put the interests of both organisations first," said Mr Hughes. "I respect both his decision and his motivation for making it."
"Mr Cleverley has given years of service to the people of Canterbury and South Canterbury in both roles," Mr Hughes said. "I thank him most sincerely for his public service and the difference he has made."
Mr Heron's investigation report and supporting evidence is available on the SSC website https://www.ssc.govt.nz/final-report-investigation-allegations-against-former-cera-employees
Background and further information
The investigation has cost around $140,000 in total to this point. SSC staff time is not included and has not been quantified.
Guidance on the management of conflicts of interest in public entities is published by the Office of the Auditor-General http://www.oag.govt.nz/2007/conflicts-public-entities
Conflict of Interest Guidelines for District Health Boards is available on the Ministry of Health website http://www.health.govt.nz/publication/conflict-interest-guidelines-district-health-boards
Prior to release of this report, the Commissioner received a statement from Mr Nikoloff and Mr Gallagher seeking to correct information that is contained in the report, or in the alternative seeking that their statement be published alongside the report. Having reviewed that statement, the Commissioner’s opinion is that it contains material that was presented to Mr Heron as submissions and has been appropriately addressed by Mr Heron during the process, and that no amendments the report itself are therefore appropriate. However, in accordance with SSC’s commitments to open and transparent government and in compliance with the Privacy Act 1993, the statement received has been included alongside the report and supporting material and can be read with it.