The West Coast Development Trust is so dysfunctional and divided that it can not be trusted to do its job in delivering economic benefits to the region, the auditor-general said today.
The trust was set up to administer $92 million of $120 million funding package given to the West Coast in compensation after it banned the logging of native forests.
The auditor-general's report released today paints a picture of trustees infighting with allegations of corruption being thrown around and counter-allegations of leaking confidential information.
The auditor-general said the situation was so serious that trustees should sort it out immediately or just stand down.
"Unlike other public entities with elected board, there is no other ready mechanism for resolving this level of dysfunction," the report said.
"Until we see evidence that the group of trustees is able to take effective collective responsibility for the governance of the trust, we are unable to provide assurance that the trust is able to deliver fully on its purpose of generating sustainable employment opportunities and economic benefits for the people of the West Coast."
The report said while some conflicts of interest could have been handled better, the trust had generally handled conflicts of interest well.
There had also been instances of "poor judgment", but these had to be set against seven years of effective management and then rapid deterioration since 2006.
"We also investigated a number of other issues raised with us but found no basis for the allegations."
Trustees had to agree on the role of the trust, how it should operate, how information was treated and "many other issues" which had created an "atmosphere of suspicion and distrust".
Trust chairman Brian Roche, who was appointed to the board by the Government earlier this year, said the report was accepted in its entirety by the trustees.
"The principal finding of the report highlights that the trust is dysfunctional at a governance level. There is an atmosphere of suspicion and distrust, which manifests itself in hostility and accusations," Mr Roche said.
"These attitudes and behaviours are detrimental to the trust in both the eyes of the community and those in whose interests it is supposed to operate."
Mr Roche said the conclusions of the report were serious and could not be ignored.
"Every effort will need to be made by all those involved to put the history behind them and move on. In my view trustees have one last chance to prove... that they can work together in the best interests of this region.
"In the opinion of the auditor-general if they are unable to do that then they should consider stepping down."
