Scambusting in Pukekohe - by Tristam Price

How can a person be an employee and a contractor to their employer at the same time? Such a conflict of interests was probably weighing on the mind of Pukekohe High School Principal Richard Barnett during 2019, the year after he was appointed to replace Mr McKinnon who had retired after 22 years as Principal.

But eventually that was dealt with, and we know this because Leon Robinson, Member of the Employment Relations Authority, dismissed a personal grievance claim by former IT manager Stanley Good on 1 October 2021.

Robinson’s determination came after a three day investigation meeting in June 2021 and clearly sets out the untenable position of the employee’s involvement in, and substantial benefit from, a conflict of interests over a period of 21 years.

[28] Of considerable concern too, was the absence of any paperwork regarding the arrangement. Principal Barnett tells the Authority that he and his PA and Business Manager have carried out a thorough record search including reviewing all Board Minutes from the early 1990s through to 2019, all Board Committee Minutes including Finance Committee Minutes from early 1990s to 2019, all Computer Committee Minutes from early 1990s to 2019, all written reports received from the Board including Principal’s reports from Mr McKinnon, reports from Mr Mathias and reports from Mr Good, all correspondence to and from the Board up to 2019 from Mr Good and relating to IT work.

[29] Principal Barnett confirms the School has not located any agreement between the Board and Mr Good or the Board and the corporate entities controlled by Mr Good…

[72] It is the Authority’s view that Mr Good had lost his way. He had given 35 years of service to the School… He was loyal, he was dedicated. But in that one fleeting exchange, he positioned himself not as his employer’s faithful advocate. What he did instead, was to make known to the School he was advocating the position for another entity. He was pursuing the interests of that other entity and the School’s interests were secondary. Mr Good was the controller of that other entity…

Because Good’s claim was unsuccessful, he was liable to pay some of the School’s legal costs. Scale costs for a three day Investigation Meeting would normally be $11,500, but Robinson generously reduced that to $4,500 because Good provided evidence of his precarious financial state.

Disassembling a Conflict of Interests

At this point we should mention that Mr Mathias was the Associate Principal and Mr Good’s line manager who approved Good’s company’s invoices for payment. We’ll return to this shortly.

The problem with this double dipping arrangement is that the employee/contractor had a perverse incentive to do fewer tasks than he was paid to do as a salary earner, and shift the remaining tasks to his company. Most colleagues wouldn’t have noticed because presumably all of the work was getting done. But for over 20 years the School was paying 20-50% more for an IT management function than it should have. No wonder Principal Barnett balked! Not only that, but if he’d allowed this arrangement to continue and an audit of the School’s finances picked it up, he would have had some explaining to do to the Ministry of Education, as Robinson alludes to:

[27] Principal Barnett … considered the arrangement significantly breached Ministry of Education (Ministry) and Office of the Auditor-General (OAG) guidelines on Procurement.

But McKinnon and Mathias were similarly exposed, right?

Not McKinnon. He retired in 2019 and did not give evidence at the June 2021 Investigation

Meeting.

But Mathias did; in fact he was one of several witnesses. Robinson’s 1 October 2021 determination refers several times to Mathias as the Associate Principal and/or Good’s line manager, but to the extent that it is relevant, Mathias’s employment with the school had already ended on 26 January 2021, by way of a confidential settlement under Section 149. It should not surprise anyone that 20-plus years of rubber stamping such a “highly irregular” business relationship for a subordinate who eventually got dismissed for his part in it, was going to adversely affect Mathias’ relationship with the school, Barnett and the Board of Trustees (BoT).

As to whether McKinnon and/or Mathias received kickbacks, or secret commissions from Good’s company for said rubber stamping, we will never know. If so, that would be a corrupt enterprise involved in procurement fraud. But that’s outside the ERA’s ability to deal with as we explain shortly.

Proceedings between School and former Assistant Principal

Five months before Robinson’s determination, a second set of proceedings commenced in the ERA (on 27 April 2021), and we have just received confirmation from the Registry that Member Rachel Larmer’s determination dated 18 May 2023 was not challenged to the Employment Court within the 28 day deadline.

[3] The Board claimed Mr Mathias had engaged in serious, deliberate and sustained breaches of good faith that had caused significant loss to the Board. It claimed Mr Mathias had been “grossly negligent”, “recklessness” and “deceptive in his dealings” with the Board and that his deception had resulted in breaches of his employment agreement and good faith obligations, causing significant loss to the Board.

[8] Mr Mathias lodged a counterclaim against the Board when he filed his Statement in Reply to the Board’s claims on 17 May 2021.

[10] Mr Mathias identified the following breaches of the settlement agreement: (a) The lodging of the Statement of Problem breached the confidentiality obligations; (b) The content of the Statement of Problem disparaged him…

However, nearly a year after bringing the proceedings against Mathias:

[7] The Board withdrew all of its claims against Mr Mathias on 10 March 2022, with no issue as to costs.

Mathias’ counter-claim continued and last month Larmer’s determination found that the School did breach the Record of Settlement dated 26 January 2021, and ordered it to pay a $4,500 penalty ($3,000 to Mathias and $1,500 to a Crown account) for disparaging him.

The first line of a Herald article says “the [ERA] has issued a scathing judgement against [the School]…”, which appears to partly refer to Paragraph 83:

[83] The Board’s breaches were deliberate. The Board has an experienced employment lawyer on it and it was represented by an advocate at the material time. It ought to reasonably have known under the settlement agreement that it could not subsequently pursue litigation against Mr Mathias relating to his employment (and the ending of it) but it decided to lodge proceedings against him anyway.

The lessons

Should the School be regretful, as Larmer’s determination suggests? We think not. A clear conflict interests persisted for more than 20 years and the School paid around $1.3 million over that period, representing losses probably well into six figures. We believe Rani Amaranathan, the employment lawyer who served on the BoT would almost certainly have known that Section 149 settlement agreements can be used to cover up serious wrongdoing including procurement fraud, and the BoT of Pukekohe High School was right to withdraw its claim against Mathias when it did.

But had the School not brought these proceedings, an opportunity to publicly deter others in positions of trust from considering engaging in illegal or unethical conduct, would have been lost. We believe Principal Barnett and Ms Amaranathan decided to take a stand and probably achieved the best they could have under the difficult circumstances.