Kiwiblog

I was very pleased to see Michael Swann get nine and a half years jail for his unprecedented fraud of $17m from taxpayers through the Otago District Health Board.

Despite what he says, he has shown no remorse. His pitiful attempts at a defence, that his company did deliver the services contracted showed that. At least Kerry Harford admitted guilt and remorse early on and his sentence of four years three months is about right also.

Look at Harford arguing to the end that what he did nas not so bad:

Mr Haig took issue with the victim impact statement which said the defrauded money could have been used for surgery or more nurses.

“My instructions are that is completely wrong. The money that was taken was health administration money.”

While there was no denying much of the money had been spent on property – “not spectacularly luxurious property I might add” – boats and cars, there was “no real champagne lifestyle”.

I hope the Parole Board don’t let him out halfway through. I don’t detect one hint of remorse.

The ODT editorial says:

First, the crimes of Swann, especially, were those of cunning calculation, carried out from a position of absolute trust and significant authority, involving a sum of money unimaginable to most people. …

Second, Swann and Harford robbed a public institution, not some private enterprise, and thus stole from all taxpayers, rich and poor.

Third, the institution was a hospital board, that is to say, an entity dedicated to the sick and injured, where no “profit” is expected and where every cent of income is desperately important – literally life-saving.

In the annals of so-called “white collar” crime in this country there has been no more despicable example.

One aspect of the editorial scares me:

As to the difficulty of establishing its criminality, it is notable that when first presented with suspicion of what seemed initially to be highly complex circumstantial evidence, the Dunedin police declined to investigate.

The Serious Fraud Office, with its special skills and powers, was finally the agency to put Swann and Harford behind bars.

The Police would not investigate????

And Labour tried to abolish the SFO and transfer its functions back to the Police! Thank God for a change of Government.

Former Otago DHB Chair has responded to the debate over his removal, commenting in the thread.

Its one of the things I like about blogs, is that people can respond or argue their viewpoint in their own words.

As widely expected Tony Ryall has replaced the Chair of the Otago DHB. His PR said:

This afternoon Mr Ryall announced he has removed Richard Thomson from the position of appointed Chair of the Otago District Health Board.

“During Mr Thomson’s chairmanship, the largest fraud in New Zealand State Services history was taking place at Otago DHB. $17 million was defrauded over 6 years,” said Mr Ryall. …

Mr Ryall also announced that Mr Errol Millar, an appointed member of the Otago District Health Board will take up the role of Chair immediately.

Mr Millar was appointed to the Otago DHB in 2007, having been appointed to the Southland DHB in 2002 and 2004. He was also Chair of the Airways Corporation 2001-2004, and is currently Deputy Chair of the Civil Aviation Authority. …

Mr Thomson remains an elected member of the Otago District Health Board.

This isn’t about blame or responsibility for the fraud – but accountability.

As I blogged a few weeks ago, the Board does have some accountability for this. Their goverance was sub-standard in my opinion. They should have had policies around competitive tenders etc.

I’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:

1. Was there an internal audit function? External audits generally do not detect fraud. A large organisation should have an internal audit function.
2. 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.
3. 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.
4. 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.
5. 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”
6. 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?”
7. 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?
8. 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?
9. 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.

I have been following with interest the case of Michael Swann who stole millions off the Otago District Health Board since 2000.

The information to date was bad enough – there seemed a total lack of internal controls and/or internal audit. With millions paid for non existant software upgrades and licenses etc, it should have been easy to spring the hoax early on.

Add to that the fact Swann was driving luxury cars well beyond his means, and flaunting his wealth – someone should have got suspicious. I remember former SFO Director Chas Sturt once rumbled a fraudster (Hancox) just based on a comment at a dinner party that he seemed to live beyond his means.

But the latest news in today’s ODT (offline) is that the ODHB was warned in 1998 that Swann had “criminal intent”. Appalling. Even if they could not act on the allegations, they should have made damn sure their controls and checks were first class. But hey, when it is just taxpayer money, why bother?