Your explanation of why you have been in detailed staff newsletters, ODt and now this formum discussing the issues when the ODHB has civil proceedings against 19 defendants would be appreciated. Some of the very issues you refer to about levels of IT spend and evidence in that case. I suggest you might be a dedicated and good person but have little understanding of governance.

Perhaps some answers to the questions in other forum string “Thomson responds” would be helpful. There are some real governance issues in that one.

I have no reason to doubt your integrity but you play the political, “Me” and blame others cards which are irrelevant to deflect from the real questions.

This issue is about governance pure and simple and not the buck passing you attempt to place on the former board and former CFO’s.

You are not presenting to total picture. Your term started before you chaired the first meeting. The $8m flat IT budget is mischieveous. During the period you mention there was a massive IT expansion of PC’s and two new IBM RS6000′s were acquired. There was also a significant change it IT when the labs software was decommissioned. I listened to the business analysts who set the budgets and they simply looked at the previous year and extrapolated. Total and utter incompetence was what I heard.

You have not touched on the fact the CEO recommended a change from J D Edwards to Oracle Financials which was a significant cost. Both of these products are designed to prevent invoice approvals outside delegations levels and order/contract matching. It was apparent that non of these controls were implemented.

I challenge you to admit that the ODHB had Swann approving expenditure in other areas of Propharma and building related suppliers which were well in excess of his delegations yet only singled out his IT excess delagation spending to the SFo and brushed the others under the carpet.

It is well known that many senior people in the ODHB spent outside their delgated authority. I checked a years contract register and found one entry for $900k recorded against a manger at the same level of Swann.

I again refer you to some simple questions in the other forum thread.

Simply the organistion you chaired paid around $7,600 per day to Swann and when the invoices were not presented the business analalysts went and asked for them. Your religious reference is appropriate.

Where does the ODHB draw the line? Many people have told me that medical staff get benefits or kickbacks through supporting medical suppliers either through trips, research grants stc. Where is the line drawn?

We trust people on a daily basis to do the right thing, however from time to time our trust is betrayed. In some instances the consequences of betrayal do not exceed the benefits. If we divide 17m by the time the fraudster is likely to spend inside it would appear that the fraudster made a commercial decision that a number of untrustworthy people would snap up given the opportunity.

Wear a bullet proof vest! Be aware that no matter how many systems you might have in place (and ours were standard governance systems notwithstanding the views of some above) a clever fraud will always be able to find their way around them. If the person in charge of a specialised area is honest then you have a reasonable chance of detecting things through systems. If the person in charge is the crook then your likelihood of detection plummets because they are the person whose advice you are seeking and the person who is reporting to the CEO or Board or both. You need to benchmark regularly against others. that might throw up something (although didn’t in our case). You need to schedule an independent review of specialised areas from time to time – this is particularly so in areas that a CEO or a Board would struggle to grasp – and I think IT is one of those. If your CIO says you ned an XJ6 with double overhead cams and a 78rpm floppy then by and large a Board will not have someone with the expertise to challenge that. Again, we did audit IT systems and this didn’t show anything up – maybe the power of the person in charge thing again. I think the biggest thing though is an IT approach to the link between contract, authorisation level, delegated authority and payment authorisation. this is bloody complicated and quite expensive in a half billion dollar a year turnover business with tens of thousands of invoices a year. The balance between cost and risk will vary between organisations i guess. we have moved down that route but still have to use some manual checking and sampling to complete all the loops.

I guess, as a final comment on all of this – if you think, as it appears many do, that fraud avoidance is about systems then you are deluding yourself. systems will encourage a better class of crook (if there are none then anyone can do it pretty obviously) and a better class of crook is often pretty good at this. Understanding the psychology of why people fail to report and how you increase that likelihood is I think one of the most important learnings.

I’ve enjoyed the interchange, even if most of you are to the right of Ghenghis Khan. It’s probably run its gamut. I’ve commented about as widely as i really can and the things that I might otherwise want to say i can’t always for legal or other reasons. so I’ll sign off now. cheers. Richard

[DPF: Thank you for your multiple contributions. I think almost everyone has been impressed with you willingness to discuss the issues in detail. I know I have been]

Based on your experience what advice would you be give to board chairs? What have you learned from the experience?

I understand that this is one of the larger corporate frauds and possibly could become the subject of a book or movie. In most of the books and movies I have seen on fraud topics the fraudster usually gets offered a job with some government agency to help them out catching other fraudsters. I wonder which department will snap this fraudster up once corrections have finsihed rehabilitating him.

This situation, both the fraud and the accountability has intrigued me, but I’m waiting for the book/movie to get the real story.

My concern is the basis that this is all grouned on – he had a budget, he spent that budget, we never could have found it.

Sorry – as a taxpayer, just because you spent it last year does not give you the RIGHT to spend it next year. In an environment where efficency and scale rapidly reduces total cost I would expect a compently managed OPEX budget in IT to reduce over a 3 year period – whether formal tendering is in place or not.

Why did the Board not ask/seek some form of cost reduction from IT? Were there no specific initiatives with a business case that saved money that should have been reflected in next years budget? Why is status quo “good enough”? Do you only look at areas that think they need more”, not areas that have too much to begin with?

Oh for some form of zero based budgeting and contestability for where my $$$ go.

just to be clear – as a member of a board I am aware where the responsibilities lie and realise that boards can be deceived. I also understand the difference between governance and management.

But I am also aware that if the board has not convinced itself of the correctness of spend it is guilty by omission – this may be harsh but we rely on you guys to get it right. Hopefully, information will be made public to show that the board was deceived in a way that it could not be expected to catch but whether that is true is currently unknown. If you add to this the history of screw ups at this level in NZ – most related to incompetence – I include local government in this – then the assumption the board got it wrong is not unreasonable – you are guilty until proven innocent in the publicly elected arena, remember. And this assumption is more often right than wrong once the facts are known. Goes with the territory.

The simple statement that such a significant level of fraud took so long to be found means that there was some sort of major f**k up cannot be disagreed with and seems to be missing from the current discussions. I don’t care how many changes of staff or people who did not stand up and mention lifestyle etc This amount of money should be checked to be accountable – it surely cannot have been. I am not naive about these things and often work at a senior level within multi-billion dollar companies as well as not for profit organisations. I repeat, this was a major f**k up.

I still think you’re wrong in terms on not falling on your sword and it’s not to do with whether you screwed up or not – it’s to do with setting incredibly high standards for those we elect – we need those standards to be met. We trust you guys.

The comments which auditor one uses was simply in response to someone asking me to comment. I agree regarding reliance on auditors. Sadly though I think there is a widely held view that this is part of what auditors protect you against.

I applaud your willingness to enter in to public debate, seriously, good on you. Especially, on a right leaning blog site.

But nowhere am I hearing where the screw up was, and let’s not pretend otherwise, this is a screw up of significant proportions. If you look at my previous posts I do not believe the initial screw up occured at board level though it’s possible the board messed up as well but they would have needed management to mess up first.

You do miss the intent around the captain going down with the ship protocol. It’s almost a subconscious need to make the top man realise that we rely on them to get it right. It is not necessarily fair but it is, I believe, based on deterrent value. The boss better make sure all is good though in this case I start with the CFO and CEO not the board. Understand, we give you guys our trust and corresponding authority – we need you to use it wisely. We have high expectations, accordingly.

Relying on auditors is dumb so your comments around which auditor one uses strike me as irrelevant.

In terms of the board spotting fraud, I agree. In terms of the board making sure that management could spot fraud, I disagree as per my statement earlier. Management should be set up to manage fraudulent opportunities and if the board has not confirmed this is the case then they have secondary guilt by definition.

Couldn’t agree with you more. Great shame that all those people who actually knew him didn’t think the same

To DunedinblogAl:

“One of the main faults of the ODHB was to allow Swann to act as a one-man-band in the IT area. He seems to have got away with this by a combination of bullying, and ingratiating himself with management with favours and hospitality.”

I think thats probably a fair comment although to be equally fair, such behaviour is not just the perogative of a fraudster, and it tends to be evaluated differently now because of what we know.

To Christopher: “i generally hate Labour filth with the fury of ten thousand suns”

Don’t hold back now Christopher. I have been trying to imagine my Aunty Pam as “National filth” and no matter how hard I try she still seems like a nice lady who just happens to support a different party to me. But I’ll work on it.

and “I find his assertions that it’s ok to be appointed politically but not removed politically … to be quite nauseating and typically socialist”.

There are a range of comments from others of similar ilk. Actually, I think there is a strong case for appointments that are made at a political level (probably just Chairs, as it would be chaos otherwise) that they should have to tender their resignation at a change in govt. If a Chair is good (and a Minister is sensible) then they will probably look to keep them on regardless of political stripes, as changing everyone at the same time would be potentially quite damaging, but it provdes a Minister with the opportunity to make changes as they see fit, and I don’t actually have any problem with that. I did have a problem with process here. When you offer a new Minister a full briefing so that they will have all the detail (not just what is in the public arena) and the professional briefing you think you are going to is turned into a three ring political circus by the Minister, then you tend to react. Hence my refusal to resign and my statement to him that he should have the courage of his convictions and sack me and state why. I had no doubt what the outcome of that would be and stated so publicly.

To Paul: “I wonder if you’d like to comment on the role of your audit committee and any external auditors? I had an experience where external auditors on an audit committee didn’t discover some very questionable conduct – conduct that was similarly difficult to spot because of quite deliberate acts of what I believe was deception – but which was, I thought, discoverable by experts. To this day, I’m sorry that (a) there wasn’t a criminal investigation and (b) the auditors weren’t sacked on the spot. Perhaps that’s unfair, however what’s the point of hiring and paying external auditors if all they aren’t able to add to the oversight (and by this I mean provide more penetrating oversight)? ”

DHB’s have no choice as to who they use as an external auditor. It is Audit NZ unless they appoint someone to act on their behalf. It’s not contestable at our end. My experience would mirror yours. Auditors do have to get lucky to catch a fraud like this. They did sample some of the invoices as it transpires but checked them for delegated authority rather than trying to match them back to a contract and reviewing that contract. In a sense you need a marriage of lawyer and accountant and a great deal of luck for an auditor to strike gold. I think that many feel that auditing is a protection. In my view it isn’t. Interestingly the auditors testified in the trial – and this is a paraphrase as I haven’t got the actual wording here – that variations of several million dollars would not have been seen as material by them.

Finally, there are two issues being mixed up here. One is whether the Board (or me) should have been able to see the fraud and therefore were incompetent because of their failure to do so. That part I reject.

The second is whether the Chair should resign when something that is not within their control happens. The Westminster convention (although the westminster of a long time ago I suspect). I actually think this is just as daft as sacrificing virgins and killing every tenth legionaire as an example. And lets just keep this separate from me for a moment – symbolism has its place I guess but it’s not nearly as good a principle as fairness. If a Chair, or a Minister, has stuffed up by omission or commission then they should resign and if they don’t they should be sacked. If they haven’t then sacking them is about nothing more than the gods demanding a sacrifice. The next time there is a fraud in the Ministry of Health I won’t be calling for the Minister to resign, unless he was aware of the problem and did nothing, or had been made aware of a loophole and ordered staff to do nothing, or whatever. If he couldn’t have known then the opposition calling for his resignation is just plain daft. The sense I get from most of the flavour of peoples posts is that you are big on symbolic sacrifice. Fair enough, I just have a different view

But in the big bad world of political appointments, things are not quite so easy. Whilst NZ is spared the mass resignations of people like Mr Thompson and the endless appointment and confirmation process of the incoming administration in the US, nonetheless Chairs of DHBs, given that their boards are mostly elected, are reasonably political positions. DHBs control large budgets and effect the health outcomes, and employ large numbers of, the people in the regions they cover. The position of Chair is most sought after, it is very high profile in the community and looks very good on any CV. The likelihood that Mr Thompson got the nod from the Labour Minister of Health for his ahem – favourable ideological views on matters political is very high.

If there were no problems at the ODHB then Thompson likely would’ve stayed. However, in the political world, when it become public knowledge that a senior employee perpetrated a fraud over 3 years to the tune of $17million (a record it seems), I dont care how nice, honest, thorough and dedicated to uncovering the fraud Mr Thompson was, his head is the head that must be served up. It Politics 101 – if Mr Thompson doesn’ like the outcome then he should never agreed to play in this particular sandpit. If a National government appointed the DHB Chair that administered this Board and the incoming new Labour Minister was faced with the news of this huge fraud, you can GUARANTEE the National appointee’s head would roll.

If you are going to live by the political sword then you can die by the same political sword. All of Richard Thompson’s protestations of unfair treatment reveal his naivete of the world he entered the day he signed the contract as Board Chair.

However, this is not the fault of the auditors (as much as I dislike the current auditing approach) . Any organisation that has had large size and extended timescale fraud is at fault. No discussion.

As I said before in order of culpability —- CFO, CEO, Chairman of Board, Board (if there’s a purchasing officer they often need to go in the mix as well) – the cut off how far along the chain that blame should be shouldered depends on the individual circumstances.

The wholesale reliance on it is scary.

All the people who do use their real names on this blog are right wing, apart from one notable exception (philu). It is common practice on the internet to use aliases, and is especially helpful in political debate because it discourages ad hominem attacks.

Ahem…?

And may I ask what you think Redbaiter’s doing?

False invoicing won’t be picked up by a Board unless it results in a change against budget or an increase in spend (or auditors get lucky). It should also get picked up by staff where it falls outside of delegated authority. There were a few invoices that did but the majority were individually within delegated authority.

Based on the “large transactions and variations” approach of auditors I assume you mean? Again, I despair the predictability and superficiality of the audit process.

As you note, many commenters here are incapable of anything other than reflexsive partisanship and purile insults. Not all, but many. I’m sure you can distinguish between them.

I wonder if you’d like to comment on the role of your audit committee and any external auditors? I had an experience where external auditors on an audit committee didn’t discover some very questionable conduct – conduct that was similarly difficult to spot because of quite deliberate acts of what I believe was deception – but which was, I thought, discoverable by experts. To this day, I’m sorry that (a) there wasn’t a criminal investigation and (b) the auditors weren’t sacked on the spot. Perhaps that’s unfair, however what’s the point of hiring and paying external auditors if all they aren’t able to add to the oversight (and by this I mean provide more penetrating oversight)?

It’s clear that your sacking is convenient. That’s politics. I suspect however, you’re standing and influence will only be enhanced (including by your comments here).

Oh Christopher – you have forgotten the big rule.
It goes lie this: “The buck stops here!”
Ireelevant is the question if Thomson is to blame – hes the boss and when there is a screw up like this the boss gets the chop – “The buck stops here!”

That’s a good point.

Him leaning to the left when a right leaning govt comes in is also rather terminal as well.

This actually has set me a little against Thomson. I find his assertions that it’s ok to be appointed politically but not removed politically, (or rather, it’s not ok if the “right” does it, somehow implying that we have a right-wing government), to be quite nauseating and typically socialist.

To be honest, I supported him a lot more before he came on here with his attitude. At least he can spell correctly, though, unlike the usual lefty trolls.

Him leaning to the left when a right leaning govt comes in is also rather terminal as well.

The sheer size and time scale of the fraud points to major incompetence and for me the buck on financial fraud always stops with the CFO. Listening to Richard I get the impression that the latest CFO found the fraud (correct?) but I would look to know who the CFOs who did not as they really should not be allowed positions of responsibility until we are sure they are not vulnerable to the same incompetence. A good CFO is close to major spends and knows the whys and the wherefores and is hard to fool. Obviously not in this case. A good CEO needs to be happy that he has a good CFO and frankly, in the case of major fraud is almost as culpable as the CFO. Frankly, the order of blame is CFO, then CEO and then the board members. We do seem to be this arse about face.

The tendency for high reliance on auditing needs to be bred out of these guys. Auditors often have a small number of highly competent staff and the rest are qualified monkeys going through a rote process that is easily fooled if one has decent accounting background.

Case in point; I recently joined the national board of organisation, became treasurer as I have experience in running businesses. First thing I did is to sit down with the CFO equivalent and walk through all the money, accounts, sources, spends, authorities and checks. Not an audit – I was just aware that I needed to understand the financial workings of this organisation, major spends, weak spots etc. Now, in the case of fraud possibilities, I know which sets of three people need to work together (or some of them be incompetent) if there is any possibility of significant fraud – not that I believe they are likely to but that I would not be diligent in my role if I did not understand the weaknesses in the organisation. The previous treasurer was an accountant and was really happy that the accounts structure had been “fixed” but apparently never bothered to see how the system was managed and to look for making sure the money is safe.

Barry’s comments around limited understanding of finance is relevant. The other board members’ eyes glaze over when we discuss the finance side, they struggle to understand the various financial reports and I have to give them a business focussed description of what is happening.

In the case of Richard, the appointment and subsequent removal are probably affected by political leanings, but to me what is also relevant is the protocol that the captain goes down with the ship (even if it’s not the captain’s fault). I would hope in a similar position I would fall on my sword (be hard to do though).