Why the Otago District Health Board Chair and CEO should be sacked
January 29th, 2009 at 11:27 am by David FarrarI’ve been meaning to blog about this for some time, and it is topical today as the Herald reports the ODHB Chair is refusing to resign and faces the sack.
The $17 million fraud perpetrated by the former CIO, Michael Swann, is in my opinion a failure of good governance, and that is squarely the role of the Board, with the Chair holding prime accountability. I also include the CEO as they are the Board’s chief advisor, and should have ensured better systems were in place.
Swann is the crook, and of course primarily to blame. Getting away with some fraud for a small period of time is near impossible to stop when a senior official is corrupt.
But the size and duration of the offending removes the excuses from the Board. There were a number of things the Board and/or the CEO could have done to stop the fraud or make it much more difficult to have had it continue.
And this is regardless of the obvious warning signs about a senior official who had around 20 cars and a handful of yachts that should have rung warning bells.
I’m actually a company director myself for a company with around $10 million turnover. Now no company is perfect and fraud proof, but we do have a strong focus on governance and good process. I suspect the ODHB (and part of the problem is they are partially elected) focuses more on stuff like spending the money, rather than the boring side of processes to do with governance and accountability.
I think of all the ways that the CEO and/or the Board should have got some idea there was something wrong:
- Was there an internal audit function? External audits generally do not detect fraud. A large organisation should have an internal audit function.
- Many of the fake invoices were for software updates that were never done. Was there a policy around independent security checks of the IT system for vulnerabilities that would have exposed these were not done.
- Why was the contract for services not competitively tendered? A contract of $17 million over some years should be decided at board or at least CEO level and be a competitive tender. A CIO should not be delegated the authority to decide this alone. A competitive tender would have probably exposed the company was a sham.
- Why did the CEO or CFO never get suspicious that they had never met staff from this company they had paid $17 million to? When you are spending that much with a company you should have a relationship with them – you may even have had their Directors come along for discussion.
- Did those who signs cheques ever question the invoices? The company I am on is of course much smaller than a DHB, but as a signatory and Director I often question several of the cheques I have to sign. Not in a hostile way, but in a “I don’t know what services this company provided for us, tell me what they did and which approved activity it relates to”
- Why did the Board and/or CEO never question the cost of the IT support services? Even if the services this firm was providing was real, they seem to be to be massively expensive. Did no-one have any experience of value for money for such stuff? Did they question the increase in the IT budget? Did they ever say “Let’s tender this out to see if we can reduce it?”
- Did the Board have a policy of regular reviews of major suppliers and major contracts? The Board should not do the detailed reviews of course, but they should set the policy and require the CEO to implement it, and make recommendations to them?
- Did the Board have a robust financial delegations policy? At what level did expenses have to be approved by the Board, but the CEO, the CFO, Departmental Heads etc? How often did they review this policy?
- When a supplier is a major cost (such as $17 million over several years) you expect them to be a well known firm. No one expects the $5,000 a year supplier to be more well known than the ABC computer shop but if you are paying millions to a company you expect it to be well known (especially in a small city like Dunedin), to have a shopfront, be in the yellowpages, have a website. You may even expect to have had some first or second hand dealings with it.
I could go on and on. To be clear – no organisation can ever be so good they fraud is impossible. Corrupt staff can always work out a loophole to some degree. But the size of the scam, the ongoing duration of it, and the fact it would have been so simple to detect, points to a significant failure in policy, process and governance.
Yes there have been changes in Chairs and CEOs during this time. But unless they are brand new into the job, both the Chair and the CEO need to be held accountable for what happened, and not keep blaming it on the corrupt Swann. His scam was not the genius con of the century. It was simplistic and should have been detected far earlier.
Related posts:
- Ryall appoints new Otago DHB Chair
- Hawke’s Bay District Health Board
- Audit Office on Hawke’s Bay District Health Board
- Hawke’s Bay District Health Board
January 29th, 2009 at 12:06 pm
AFAIK the Chair can only be sacked by the Health Minister. This is an unusual situation with boards. With most boards, the Chair is appointed by the members of he board and can be removed by a majority of board members at any time. It is worth noting that he chair of the Hawkes Bay Regional Council had insufficient numbers to survive a confidence vote and yesterday resigned rather than be dumped by fellow councillors.
There seems to be a further complication with health boards. The CEO interacts with the Ministry to a significant extent and this tends to weaken the employment relationship. For example a CEO could lobby the Ministry to have a board sacked to deflect any prospective dismissal. This is what seemed to have happened in a case last year.
Vote:January 29th, 2009 at 12:14 pm
It is obvious and simple incompetence – so incompetent it almost implies he had help. Either way heads should be expected to roll.
Simple diligence rules would find out what value for money was being gained by the IT spend, how measured and how competitive. There are some specific rules about gaining business with a DHB that require evidence that it’s a competitive contract. Obviously, none of these things happened. There are rules about auditing computer hardware and software – ditto.
Not sure I agree on your comment on the size of the company involved (I work in IT) and the big boys are more incompetent than a sharp smaller quality organisation – size is a guarantee of expense not quality.
Vote:January 29th, 2009 at 12:32 pm
Why not consider the Whanganui District Health Board who have been Investigsting breaches of the Patient’s rRghts since
last September.
The Whanganui District Health Board on 19 January 2009:
“Thank you for your email. As mentioned in our previous letter, concerns about lack of access to the incident report and medical records can be raised with the Privacy Commissioner or Ombudsmen’s office. I note that you have previously been working with the advocacy service, and you are welcome to contact them again if you want any support in dealing with the Whanganui District Health Board. ”
These remarks were echoed by the Health and Disability Commissioner who also recommended seeking the assistance of the Ombudsman or Privacy Commissioner
Vote:January 29th, 2009 at 1:23 pm
Every day we put our trust in others. At a real basic level we trust drivers to stay on the correct side of the road, we trust our neighbours not to hop the fence and help them selves to our gear. We trust employees to do their job without ripping the company off. When some corrupt individual betrays our trust he lets us all down. We start developing systems (spending money) to catch the small percentage of corrupt individuals. It is clear that the consequences for the corrupt individuals do not outweigh the benefits. To set up more systems to find corruption, costs more money and penalises the majority. To change the situation we must make the consequences of dishonesty outweigh the benefits.
When we say that someone has repaid their debt to society what do we mean. Say someone defrauds a company of 1 million dollars, we imprison them for 2 years at a cost of 200K per year and say they have repaid there debt to society. We should actually put a figure on the debt these fraudsters owe society and allow them to live on the average wage until they have repaid their debt or they die. As a concession we could make the debt interest free.
Vote:January 29th, 2009 at 1:25 pm
Looks like an instance of “The buck stops on someone else’s desk”. At the heart of good governance is acceptance of responsibility (this includes accounyability and transparency) and leadership. There is a good reason why English naval captains in the 17th – 19th centuries would go down with their ships. The rewards of leadership had to be matched by responsibility for when the ship hit a reef etc, even if it was done by a junior officer. Ultimately you are responsible for ensuring you have competent staff who you place trust in. Yes bad apples do exist and bad luck happens, but as CEO/Chair, it is your fundamental job to mitigate against that happening.
This applies to all organisations both private and public, if you are worried about being blamed or the ship sinking, don’t accept the offer to be the captain.
So yes, even though they maybe good people and largely blameless, they best they can do is set an example and retain some public and personal respect.
My other concern is that due to DHB’s beign elected there maybe an element that the chair does not like the new government. Thats a bigger sin, your job is to serve the government of the day free of favour. Again if you can’t do that don’t accept the job and hand your resignation in so we can at least respect you for your personal principles.
Vote:January 29th, 2009 at 1:26 pm
Anyone who doesn’t question why a DHB employee is turning up to work in a Lamborghini, deserves to be sacked, although he’ll still be a board member, as he’s an elected rather than appointed member. Just as long as they don’t make Judith Meddlicott the new chair (I’m sure she consumes more than her fair share of health dollars). Although If I was Tony Ryall, I’d leave him in place for a bit, at least till the practical combination of the Southland and Otago DHB’s is completed, as that’s got to save the govt a few dollars in efficiency savings
Vote:January 29th, 2009 at 1:30 pm
Frank said “Why not consider the Whanganui District Health Board who have been Investigsting breaches of the Patient’s Rights since last September.”
Frank – what else could you expect from a Board which includes amongst its number a man who wears eyeliner and divvies up his time being a radio talkback host, media commentator, TV host, Mayor of a provincial city, DHB Board member, father to innumerable children and Expert on Everything?
Vote:January 29th, 2009 at 1:32 pm
I know the process companies must go through to be approved at my work, and there is no way ABC would be approved even if the spend was $50 – all our suppliers existence must be verfied by Accounts Payable staff through a number of means. As the spend increases, the level of checks increase.
Vote:January 29th, 2009 at 2:09 pm
It isn’t personally corrupt, but a lot of government IT procurement is not at all competitive. In my experience, products (both hardware and software) are selected because an individual staff member prefers them and they are available under some enterprise licensing or preferred supplier agreement. Vendor lock-in also plays a part. There isn’t much (any?) oversight to ensure that the best product is procured using an open and competitive process.
I’d be surprised if this lack of competition for IT procurement wasn’t costing the government tens of millions of bucks each year.
Vote:January 29th, 2009 at 2:12 pm
We do have to be aware of the difference between governance and management – as a board member one provides governance but should not get involved in ongoing management. For instance, the board should be happy that there are proper checks and balances in place around wise spending of money, verification thereof, factors to reduce opportunity for fraud etc. They do not get involved in the implementation or monitoring thereof. To this extent they would be forced to rely on their senior management.
Thus the main culprits (other than the CIO) are the CEO and CFO. Similarly, the DHBs I have dealt with have a purchasing manager or procurement person who is responsible for ensuring contracts, purchases etc are managed and dealt with properly. Depending on the extent of their role – some merely are there to drive the process rather than have any say in the decisions – they would also be up for the chop – assuming contracts put in place on their watch.
Though if the board had not received confirmation that there were appropriate policies in place they join the queue.
As I said before, at best gross incompetence and the CEO and CFO should be dumped, probably the Purchasing Manager (if he exsists) and if the board has not done its governance role properly then the board should follow after they made sure the current senior managers involved were given the boot.
Vote:January 29th, 2009 at 2:44 pm
davidp
I agree with your comments for many circumstances but it’s also interesting how many government IT procurement processes go the other extreme and use expensive external consultants who choose products, which as you say “are selected because an individual staff member prefers them” – replace staff with consultant. They often have pre-determined ideas.
…..or if these consultants come from one of the fat four in particular they rarely have any real knowledge or experience of the products being selected and often don’t choose the appropriate product. The process they use is defensible and the reports look pretty and everybody has an iron covered bottom so no fingers can be pointed later when it all turns to jelly.
There is a side effect of these types of processes in that the consultant makes the selection process as large as possible (supposedly for reasons of thoroughness but mainly for the aforementioned derriere galvanisation process and because he/she earns more money), which pushes the cost of sale through the roof. This cost ends up in the final prices paid as it’s a cost of business for the vendors – so this costs millions of dollars in the end as well. In our IT business we’re seriously considering staying away from government IT RFPs as they’re a waste of time and a lottery.
On the DHB sides – the amount of repetition of IT infrastructure is quite scary – from an IT perspective there are too many DHBs – they all do many of the same things differently and, particularly the smaller ones, don’t have large enough or experienced enough IT departments to manage what is one of the most complex IT environments around. As such, I’ve seen some very weird IT choices in DHBs but that’s a whole other story. I would suggest that would be costing 10s of millions of dollars a year as well.
Vote:January 29th, 2009 at 3:46 pm
>On the DHB sides – the amount of repetition of IT infrastructure is quite scary – from an IT perspective there are too many DHBs – they all do many of the same things differently and, particularly the smaller ones, don’t have large enough or experienced enough IT departments to manage what is one of the most complex IT environments around.
I completely agree on both points. The wastage on IT duplication in the health sector is incredible. Also, these systems all have to interact with each other so you lose economies of scale, need to implement multiple systems that do (essentially) the same thing, and then you need to integrate them all.
I also have concerns about the level of IT skill in provincial NZ. Maybe I’m a snob, but it is hard enough keeping skilled IT staff in Wellington and Auckland when the opportunities in Australia are often so much better. Are there really skilled staff in Gisborne and the West Coast? There may be a few people who “retire” to these areas for lifestyle reasons and are happy to keep working in IT. But I’d hate to have to recruit IT specialists for a DHB.
Vote:January 29th, 2009 at 4:04 pm
Your analysis and questions are spot on DPF As I and others have said time and again the governance of organisations in general in NZ is pitiful pathetic and sooooo sad. The Otago Hawkes Bay Wanganui HBs the list just goes on and on. From the fraudulent to the incompetent I have yet to see a Board that I have any confidence in Many are nice people but hopelessly unskilled for the task. They wouldnt know a good governance principle if it kicked them in the arse.
There are plenty of very good people out there but they either cant be bothered getting involved or dont get picked And dont start me on CCMAU One of the most incompetent outfits Ive ever seen More interested in having the right ‘quota” on a Board than having the right skills and competence.
Vote:January 29th, 2009 at 4:06 pm
Employee Fidelity Insurance – Declined
The assist the Chairman and CEO decide their path perhaps they could ask why the ODHB increased its employee fraud cover from $2m to $5m from 1 July 2006 and then started their investigation into the fraud through a document created by the Southland District Health Board IT manager entitled “Sink the Bismark” 28 days later whereby they set out to get Swann.
The board had been warned some years previously about Swann in a letter signed by two Dunedin Accountants including a Step cousin.
I understand the insurance claim was turned down some months ago and the reason was nothing to do guilt or innocence. This does not seem to have been admitted by the ODHB yet.
When this is coupled with a board minute dated 2 November 2006 which states:
Moved Mr R J Thomson, seconded Ms M L Rosson, that it be noted the Board has informed its solicitors of their concern relating to prior events and instructed them to make that information available in the appropriate way and time to the Board’s insurers and there is to be no intent to deprive the insurers of that information (whether by acts of ommission or commission).
Carried
There may be grounds for the minister to investigate the ODHB to establish if there has been insurance fraud.
Vote:January 29th, 2009 at 4:16 pm
1000 Hip operations.
The ODHB and some public have been quick to promote what the ODHB could have done with its $16.9 million.
My understanding prior to the population based funding formula which was inroduced about the end of or after the main fraud ceased that was the DHB’s prepared district plans which included their budgeted expenditure and that the Government largely funded those. Therefore if the expenditure had not been budgeted the ODHB would never have had it anyway.
The ODHB has claimed the GST so the ODHB claimed 1 ninth back from the Inland revenue Department. Therefore the charges amount is flawed.
Vote:January 29th, 2009 at 4:21 pm
Perhaps a more pertinent question is why ex Minister Hodgson is trying to defend the indefensible.
Methinks more Labour lackies caught with their snouters in the trough and attack is the best method of defence.
And all because he didn’t have the ‘balls’ to act.
Nuff said.
Vote:January 29th, 2009 at 4:47 pm
Blame the other guy.
The chairman has rushed to print to say the main fraud was well bedded before his time. Well lets examine a few facts the fraud started part way through 2000 in a minor way. There was 198 invoices that made up the $16.9m. The current chairman assumed his job about 1 January 2001 when DHB’s were created.
The fraud was terminated about early Sept 2006. That makes 68 Full months under the regime that is busy blaming the previous regime and about 6 to 8 months is a small way on the previous regime.
Vote:January 29th, 2009 at 4:52 pm
And the winners are:
The ODHB civil legal team.
The total cost of the Fraud is estimated by hospital staff to be 3.5m. Of which a large portion goes to the lawyers. The chairman has said recently that was wrong and only about $1m has been speant on legal fees. I believe the top figure is more correct.
And
The who was a former partner in the Lawyers office. – Yes our dear friend David (Ex minister) Parker.
Vote:January 29th, 2009 at 4:57 pm
Who else at the ODHB enjoyed the assets purchased with the fraudulent money and other benefits:
Staying for a week each time in two Wanaka Houses (Did he pay?)
Was out fishing on one of the boats. I have the Albatross pictures he took on the day.
Was driven around in one of the cars.
Was shown over the large ship and viewed the renovations.
Had Swann’s friends apply lime and fertiliser on his lifestyle block.
Purchase plumbing supplies through a Company entitled Computer South which he denied knowing of.
asked Swann to negotiate a discount when he purhased a vehicle from himself from a supplier to swann of the expensive cars.
The answer is the CEO.
Vote:January 29th, 2009 at 5:01 pm
Failure of Governance.
Largely elected boards are a failure.
The simple fact is the CEO sets the agenda of meetings, attends 99% of the meetings except if there is a conflict such as salaries.
Edits the minutes
Spins to the board only what he wants.
When the board is comprised of people who do not understand proper board governance it is a recipe for disaster.
Vote:January 29th, 2009 at 5:12 pm
Why was Swann rolled – Apart from the ODHB paying over $7,500 a day and the intermediate company being in the top 10 suppliers consistently for 5-6 years.
He was a impediment in a clear email trail to a joint venture between the ODHB and the SDHD (Southland). This joint venture and shared ceo roles elevated the CEO salary to $465k pa. Yes the man who failed the notice the leak of $7,500 or more per day.
Vote:January 29th, 2009 at 5:46 pm
What did the former CFO know?
Firstly he denied knowing the intermediate company Sonnford Solutions Limited. Only to be exposed by documentary evidence presented through Swann whereby the CFO signed a Capex application for Sonnford Solutions. This was later exposed by the ODT newspaper in Dunedin.
The ODHB solicitors prpared a memorandum which states that the CFO told the Govt Auditor not to Audit IT. If that has any basis in fact all parties need to be held to account.
Vote:January 29th, 2009 at 5:48 pm
The Judge -
was a former SFO prosecutor that worked with the SFO solicitor for the case.
Vote:Not a good look for the Judiciary.
January 29th, 2009 at 5:51 pm
The ODHB obtained search powers to search any property in New Zealand for assets. Yes – even yours and they did not have to explain why.
A judge issued such orders before a civil claim was in place. (No legally that is unlawful)
That is a monumental stuff up by the former judge.
Vote:January 29th, 2009 at 5:52 pm
Wishart – where are you there is a book in this one.
Vote:January 29th, 2009 at 7:06 pm
I discovered something while observing the education department closing our school. The problem is not those in the system but the system. get rid of district health boards I will say that same old rant government should provide the ability to obtain health services not provide them.
Vote:January 29th, 2009 at 7:17 pm
Friend – sounds like
slijmbal (50) 4 0 Says:
January 29th, 2009 at 12:14 pm
It is obvious and simple incompetence – so incompetent it almost implies he had help.
might be true – not surprised –
Friend – write your own book!
Vote:January 29th, 2009 at 9:17 pm
Friend of the Board…keep it coming…
Vote:February 1st, 2009 at 2:04 am
Friend of the Board, write the book.
Vote: