Financial challenges facing Health NZ have come under intense scrutiny following a high-profile disagreement with Auditor-General John Ryan. The dispute is centred on accounting practices for redundancy payments and holiday pay remediation.
The Core Dispute
The contention began when Health NZ sought to include $212 million in anticipated redundancy payments for the 2024/25 financial year in its accounts for 2023/24. Additionally, provisions for resolving historical breaches under the Holidays Act were set at $1.951 billion, which the Auditor-General deemed excessive. These accounting practices would have minimised the reported deficit for 2024/25 while inflating the deficit for the previous year, effectively shifting liabilities off the books for the commissioner’s first full fiscal year.
Auditor-General John Ryan challenged these provisions, resulting in a reclassification of the redundancy payments and a reduction of the holiday pay provision by $126 million to $1.825 billion. While Ryan acknowledged the updated provisions as reasonable, he noted that “significant uncertainty” remained regarding their accuracy.
Financial Implications and Adjustments
The Auditor-General’s intervention altered Health NZ’s financial outlook significantly. The deficit for 2023/24 was reduced from nearly $1 billion to $722 million, while the 2024/25 projected deficit is forecasted at $1.1 billion. These revisions delayed the release of the agency’s financial statements by two weeks.
Health NZ Deputy Commissioner Roger Jarrold defended the original provisions, stating they aimed to ensure adequate funds for staff payments. He acknowledged the cost and time constraints in conducting detailed research into holiday pay remediation but noted that reducing the provision could risk underfunding obligations.
“We are monitoring cash flows daily,” Jarrold said, “and it is possible that if we meet our budgets, including the savings targets, further equity support may not be needed.”
Political Controversy and Accusations
The dispute escalated during a heated Parliamentary committee session, where Labour health spokesperson Dr Ayesha Verrall accused Health Commissioner Professor Lester Levy of “cooking the books.” Verrall alleged that Levy employed “creative accounting” to exaggerate past deficits and justify workforce cuts.
Levy denied the allegations, calling them “totally untrue” and demanding an apology. “There is no reason for us to want to cook the books,” Levy stated. “The books are not good. There is serious financial underperformance.”
Dr Shane Reti, the Health Minister, dismissed concerns over the financial adjustments, describing them as standard accounting disagreements. “Both sides put their arguments to the table, and at the end of the day, Health New Zealand agreed to bring those expenses into this current financial year rather than into the previous financial year,” Reti said.
Systemic Challenges and Leadership Turmoil
The financial issues reflect broader challenges in Health NZ’s restructuring efforts. Since the agency’s creation in July 2022, it has faced mounting deficits, exceeding $130 million per month by mid-2024. Six senior executives, including former Chief Financial Officer Rosalie Hughes, have resigned or been laid off amid ongoing restructuring, who reportedly raised concerns about the accounting practices with the Auditor-General.
In its annual report, Health NZ acknowledged the severe fiscal strain, with liabilities exceeding assets by $4.4 billion. The agency obtained a “letter of comfort” from the Crown, guaranteeing financial support if needed.
Impact on Healthcare Services
The financial turmoil coincided with a nationwide strike by 36,000 nurses, midwives, and healthcare assistants, protesting poor pay offers and stressed working conditions. Health sector analyst Ian Powell criticised the focus on cost-cutting over service quality, warning that health professionals are being pushed to the brink.
“It […] demonstrates the priority given to meeting a politically-driven arbitrary and unrealistic budget. This priority trumps the health of the public and their health professionals.” Powell stated.
Levy defended the restructuring, emphasising the need to “right-size” the organisation by reducing management roles while maintaining frontline services. “There are no cuts,” he said, rejecting claims that service delivery would suffer.
Broader Lessons for Public Sector Management
The Health NZ-Auditor-General dispute underscores the complexities of managing a national health agency under financial and political pressures.
Former Te Whatu Ora Chair Rob Campbell suggested that the agency’s fiscal targets were unrealistic from the outset. “The truth is that the original budget was never adequate, and will not meet operational costs over the next two years, let alone both asset management and new capital costs,” Campbell said.
The controversy also raises questions about transparency and accountability in public sector management. Ryan’s intervention highlighted the potential need for rigorous oversight, particularly in large, complex organisations like Health NZ.