Three accounts used to justify $3m fee

AUCKLAND: An employee of Emirates Team New Zealand created three different accounts to justify why a taxpayerbacked company should pay the syndicate a $3 million design fee for the yachts used in next year’s America’s Cup regatta before the board of the company accepted the fee.

The Ministry of Business, Innovation and Employment (MBIE) revealed more details of its audit of America’s Cup Event (Ace), a company headed by Grant Dalton and backed by $40 million of taxpayer funding.

Ace was set up to deliver the 36th running of the regatta and operates from the same building as ETNZ.

Under the host agreement with the Government and Auckland Council, none of the money provided by taxpayers is meant to be used by ETNZ, the defender of the cup.

Beattie Varley was brought in to examine whether ETNZ was complying with the terms of the host agreement.

Earlier, when a short summary was released in August, ETNZ claimed the report was total vindication, despite a summary of the report saying the lack of record keeping warranted criticism at both a management and governance level.

It also revealed ETNZ and Ace were at odds on the nature of the $3 million design fee for the unique foiling yachts and were headed for arbitration.

New parts of the Beattie Varley report detail how ETNZ had several attempts to justify the $3 million fee to the board of Ace.

Beattie Varley’s report does make it clear that ‘‘it is by no means inevitable that a backdated invoice is dishonest’’.

This was done through the creation of three different schedules detailing when different staff were working on the foil cant system, which is at the core of the design of the boats to be used in the upcoming regatta.

All of the accounts were created more than 12 months after Ace had settled on the $3 million figure, Beattie Varley stated.

The document suppresses which employee was involved in the creation of the different schedules. ‘‘The current [employee of ETNZ] had three attempts at creating the schedule before his third was accepted by the Ace board,’’ Beattie Varley’s report states.

‘‘Each version was created well after Ace had settled on the $3 million amount. Each version had significant differences in composition.

‘‘Even [a different staff member] who had decided on the $3 million recharge over a year earlier, had to ask who had been included in the schedule when it was being discussed at the December 2019 board meeting.’’

The report suggests that Ace initially provided the final version of the report to Beattie Varley.

‘‘As we now know, the breakdown schedule initially provided to us . . . was a convenient selection of staff and associated amounts needed to reach a total of $3 million,’’ Beattie Varley said.

In the end, Beattie Varley’s report appears to sidestep questions about the appropriateness of the documentation, but because it argues that, legally, ETNZ might well have been entitled to charge for staff time over a longer period than it had attempted to.

However the $3 million fee was determined, the report makes it clear that MBIE and ETNZ are sharply at odds about whether it should be covered by Ace.

ETNZ says the creation of the concept of a ‘‘radical new yacht . . . is a legitimate cost for delivery of the events’’.

But MBIE says the design fee ‘‘was not contemplated as being within the management and delivery of the Event’’ when it signed the host venue agreement.

The $3 million payment was not communicated to MBIE ‘‘and was not accurately referenced in the event investment dashboards’’.

While Beattie Varley does not express an opinion about whether the fee should be covered as an event expense, the report said it had not seen any documentation about cost of the design or that the parties had ever discussed it.

‘‘If, as Ace submits, the yacht and the class rule were at the crux of the events, then one might expect Ace and ETNZ to have engaged the hosts in that issue.’’