Sunday, 4 August 2013
Chapter 2: False Invoice Fraud - Michael Swann and Kerry Harford
In August 2000, Michael Andrew Swann (born 1962) and Kerry Gray Harford (born 1960) presented the first of what would total 198 invoices, for information technology (IT) services, to the Otago District Health Board.
IT services that were never actually provided.
Instead, over the next six years, prior to Swann's dismissal in October 2006, the pair defrauded the District Health Board out of $16.9 million.
In March 2009, Swann was sentenced to nine years, six months in prison, Harford getting four years, three months.
HealthCare Otago was renamed the Otago District Health Board in January 2001. In May 2010, it merged with the Southland District Health Board to create the Southern District Health Board.
To avoid confusion, the term 'Otago DHB' or, where appropriate, simply 'DHB' have been used to cover both it, the earlier and later organisations.
DHBs are responsible for ensuring the provision of health services, including hospitals, care, and similar facilities, to populations within a defined geographical area.
Michael Swann and Kerry Harford were partners when it came to defrauding the Otago DHB of $16.9 million over a six year period.
It wasn't, however, anything like an equal partnership.
Michael Swann, born Michael Wilson, had grown up in Dunedin with his mother, Marie, and adopted father, Jim Swann.
Prior to attending Otago University, he'd attended John McGlashan College. Where he'd first met Robin Hugh Sew Hoy, who'll become important later on.
Swann's been married twice, and is the father of four children with ex-wife Anna Laura Devereux.
And he had a somewhat shady past: Appearing in District Court four times, he'd been found guilty on six charges. Albeit minor ones.
More importantly, in February 1996, as a 34 year old programmer, he'd filed for bankruptcy. The result of a 'failed IT venture,' Swann had left his creditors around $1.1 million out of pocket.
In New Zealand, a bankrupt cannot, without written consent: "Enter into, carry on, or take part in the management or control of any business," or: "Be employed by a relative or entity owned, managed, or controlled by a relative."
Very stringent requirements. But, in what was to become a pattern, Swann chose to simply ignore them.
Because very shortly afterwards, he was working for himself again. As the Judge at his sentencing stated: "You were self-employed, undertaking contract work within the marine industry in relation to computer design and systems support."
And in December 1997, Swann secured a six-month contract role in the Otago DHB's IT department. When this ended in May 1998, he accepted a permanent role as a 'Technical Leader.'
He must have done a good job because, that December, he was promoted to 'Business Unit Manager.'
Three months later, in March 1999, he was officially discharged from bankruptcy.
Promoted once more, in November 1999, Swann was appointed the Otago DHB Chief Information Officer (CIO), its head of IT.
He was now a member of the Executive Management Team, with a six-figure salary, and a Delegated Financial Authority (DFA) of $200,000.
Two months later, he and old college buddy, Robin Sew Hoy, began stealing from the DHB.
And, in August 2000, Swann, petty criminal, recently discharged bankrupt and thief begun a fraud that would net him and Harford $16.9 million.
Kerry Harford, married father of two, and Michael Swann were close personal friends.
Close enough for him to have been best man at Swann's 1995 wedding to Anna Devereux.
The pair had first met at Otago University in the 1980's where Swann had studied IT. Harford, who'd later claim he knew little about IT, became a land surveyor.
Also unlike his friend, Harford had no prior convictions.
This, of course, hadn't stopped him from getting involved in massive fraud anyway.
As the Judge at the pairs' sentencing stated: "Without your involvement this fraud would not have made it off the ground."
What Were They Like?
So how did others perceive Michael Swann and Kerry Harford?
Michael Swann's personality appeared to prompt a wide variety of reactions from friends, and those who worked with, or for, him.
Everything from 'generous' and 'thoughtful,' down to being described as 'a bully' with a 'split personality.' Someone who wasn't above using 'stand-over tactics' to get what he wanted.
One suspects it was more the latter than the former because a Judge would state he: "Interacted aggressively with your fellow Otago District Health Board staff."
Another good example would be when an employee, querying Swann about spiralling equipment maintenance costs was told: "What do you want me to do? Turn the f*cking things off?"
The issue not raised again, because the man found the CIO 'intimidating.'
Regardless, he could also be persuasive, as the sentencing Judge stated: "You were able to manipulate … personnel working in the finance department to deflect any inquiries that arose."
For example, despite one witness stating the fraudulent invoices arrived into the financial department: "In an unusual manner" - Swann hand-delivered them - when the CIO asked for immediate payment, this most often happened.
A good measure of his personality can be seen in the period between his dismissal in October 2006 and his trial two years later, when there was a belief among his acquaintances and junior work colleagues that he'd clear his name.
In fact, during his trial, 20 references and testimonials spoke of his 'high intelligence' and 'generous support.'
There can be little doubt Swann used a situation-appropriate mix of 'Good CIO/Bad CIO,' depending to who he was talking to.
And what he wanted.
What about Kerry Harford?
What about him, really? Because little useful personal information was reported in the media: His part in the fraud, fine.
He did manage to convince some of his work colleagues, at least, of his innocence, even after being charged. Claiming it was all Swann: That he'd been fooled by his ex-friend.
A partner in Harford's surveying firm stated, six days after the trial: "I think he believed he'd been duped by a master conman so we gave him the benefit of the doubt." And that: "Our association with Kerry led us to believe he was an honest person."
However, despite all Harford's claims of being blameless and honest?
It's too obvious he was guilty as charged.
Swann And Harford's System
Michael Swann presented the first of 198 fraudulent invoices to the Otago DHB in 2000.
So how did he manage, over a six year period, to con them into paying out $16.9 million? An average of $2.8 million a year!
Like so very many other frauds covered in this book: Easily.
Swann created an invoice and emailed it to Harford as an attachment. Harford printed this off, snail-mailing it back to the DHB where Swann, as CIO, approved it before demanding quick payment. They'd then split the proceeds.
And this is where that 'senior/junior partner' relationship kicked in. Swann received the lion's share of the money: 90 percent. While Harford got 10 percent.
Because the latter only acted as a 'buffer' between Swann and the DHB: Swann not wanting them to find out an employee was receiving money from the company concerned. Later, in court, he also claimed that 90-10 split was because his was the greatest risk.
Harford wanting his own involvement limited.
Which makes, albeit perverse, sense.
Now 'invoices' imply a company, and the pair had to have at least one, simply in order to ‘justify' those 198 payments. In fact, two were used.
When Swann presented the very first invoice in August 2000, it came from an unregistered, Dunedin-based company: Harford Sonntag and Associates. Which tendered, between then and October 2000, four invoices, costing the DHB around $238,000.
At around $60,000 each, we can assume this was Swann and Harford 'testing the water.'
And the water must've been good, because they stopped using Harford Sonntag, and the first of what would end up being 194 Sonnford Solutions Limited invoices was presented to the DHB in November 2000.
Harford Sonntag and Sonnford Solutions, along with a number of other companies, are covered in more depth in the following section.
So your company produces invoices? But these aren't worth the paper they're printed on unless you've got a contract in place with your target company. Because such a contract would, and should, be referenced before any payments are made.
Swann actually created 16 contracts between Sonnford Solutions and the DHB. Because then their individual worth was lower: Bypassing the need to submit them to the appropriate authority.
When later scrutinised, these were found to contain numerous inconsistencies, such as referencing other agreements the DHB didn't have.
The majority of those 198 invoices were for computer server maintenance and other related support services.
Services never provided.
Because the three server machines at the very centre of the fraud were actually serviced by the DHB's own staff, including Swann himself. Who between them, managed to keep them going through a combination of in-house maintenance, cannibalised parts from other machines, and sheer good luck, it has to be said.
When IBM engineers checked these servers later, it was discovered they were still running on the original software and programs installed by them. Some of which dated back to 1999.
Peter Hodgson, ex-Minister of Health in April 2009, stated Swann's fraud was regarded by the Serious Fraud Office (SFO) and others involved as: "Sufficiently clever that Audit New Zealand, when it looked at the Otago District Health Board on six separate occasions in the intervening years, did not see anything."
Swann and Harford managed to fool the DHB for six years because, on the face of it, everything appeared entirely legitimate and above-board: Weren't there referenceable contracts in place? Weren't there invoices proving services rendered had been? Wasn't the hardware still up-and-running?
And anyway, hadn't the CIO, a trusted member of the Executive Management Team, approved each and every invoice for payment?
The Various Companies Involved
It'd be impossible to cover a false invoice fraud without also covering off the numerous companies' at its heart.
Harford Sonntag And Associates
As stated, Harford Sonntag and Associates provided the first four invoices to the Otago DHB.
Unfortunately, as the company was unregistered, very little information is available.
However, it's still (2013) listed on the NZTrades Directory website, under 'Surveyors.'
Obviously Kerry Harford's doing then.
Sonnford Solutions Limited
Sonnford Solutions Limited invoiced the Otago DHB for hardware and software maintenance, licences, and external support.
It's contracts with the DHB stating any work done was to be carried out on a 'time and materials' basis. A fairly standard arrangement in which a third party is paid for hours worked, at an agreed hourly rate, and any materials and equipment costs are passed onto the client.
Was wasn't usual, of course, was that this ended up costing Sonnford Solutions sole client nearly $16.7 million.
Michael Swann presented the first Sonnford Solutions invoice in November 2000.
However, according to Companies Office, the company wasn't actually incorporated until November 2001.
When it was, it initially had only one director: Eleanor Leigh Sonntag. But two equal shareholders: Herself and Kerry Harford.
In February 2002, the directorship changed when Sonntag was joined by Harford.
Then, in December 2008, four days before Swann and Harford's trial ended, Sonnford Solutions directorship changed again. Sonntag now back to being sole director.
Two years after that, the company’s name changed to Pinnacle Physiotherapy And Training Limited, with Sonntag still at the helm.
Now throughout the company's checkered history, Harford retained, in fact still does, his 50 percent shareholding.
Of course, the real reason the company was created was to enable Swann and Harford to charge the Otago DHB for services rendered.
Which Sonnford Solutions very successfully did, 194 times.
It was also this company that directly led to Swann and Harford’s fraud being uncovered.
Computer South Limited
In March 1997, Michael Swann had Computer South Limited incorporated.
He'd done so because pretty much anyone wanting to work as an independent IT contractor did so through a limited liability company.
However, him being an undischarged bankrupt, he couldn't do that. Not without written consent anyway.
So Swann did the next best thing: He got a friend to do it on his behalf.
Not Kerry Harford however: Computer South was set up with Peter Bruce Ibbotson as sole director.
Ibbotson was a plumber and a friend of Swann's since 1987. He'd later state he had little to do with the company, being: "Involved in name only."
And the judiciary agree, the Judge at a 2010 reparations hearing stating: "As with other companies of which Mr Ibbotson is a director and shareholder, Mr Swann remained the person in control." Entirely believable, given Swann's personality.
The SFO said the company existed solely as a bank account for Swann because he didn’t operate a personal bank account. The SFO estimated around $9.1 million passed through the company.
There's little in the way of a paper trail for Computer South: It never declared any employees, and filed no tax returns or accounts.
But it did have three shareholders: Anna Devereux held 34 shares, Ibbotson 33, and lawyer Iain Grant Fyfe holding 33.
Devereux was Swann's wife. While Fyfe remains a partner in the Wanaka branch of Checketts McKay Law. The same company that'd help Swann set up his numerous trusts.
Now the Checketts McKay website states Fyfe has a particular interest in: "Asset Protection, Trusts, Wills and Estate Planning." More on this, and him, later.
On September 8 2006, the Otago DHB launched an official investigation into Sonnford Solutions Limited, culminating in the police and SFO being called in that same month.
Also in September, Computer South's shareholding changed.
On September 14, Devereux was arbitrarily removed as a shareholder, Fyfe later saying her husband had instructed him to do so. Then, on the 22nd, Fyfe removed himself, leaving Ibbotson as the only shareholder. No reason was ever given for Fyfe's self-removal.
Although the timing is … interesting.
Computer South Limited was deregistered on December 24, 2010.
While the fraud was affected through Sonnford Solutions Limited, and the majority of Michael Swann's funds channelled via Computer South Limited, there were at least two other registered companies involved.
An eclectic duo they were, too: Organic White Meats Limited and Fresh Free Range Chickens Limited.
Both were incorporated in June 2002, both with Peter Ibbotson as their sole director.
Their shareholding is interesting though: 100 shares being jointly held by Ibbotson and Checketts McKay Trustees Limited.
These two companies were used to buy property on Swann's behalf, via trusts.
Trusts set up by, you guessed it, Checketts McKay.
Fresh Free Range Chickens was struck off in June 2011, while Organic White Meats is still (2013) registered.
In 1983's otherwise entirely forgettable 'Superman III' movie, there's a character named Gus Gorman (played by the late Richard Pryor).
Now Gus is supposed to be a computer genius, a man who manages to hack into his employer's financial systems.
When the hack's uncovered, an executive remarks: "A genius hacker like this will have covered his tracks too well." Unfortunately for Gus, at that very moment, he's seen driving into the company car park.
In a brand new Ferrari.
Silly, yes. But funny, too.
Why bring this up? Because Michael Swann did exactly this.
And not just the once, but many times, over many years.
In 2008, Minister of Health Tony Ryall asked some hard questions of the Otago DHB. One, widely reported at the time, was how could Swann drive a Lamborghini into the DHB's car park and: "Park it next to the District Health Board Corollas," without any questions being asked?
A good question, and one the author will explore soon.
Another unusual, albeit more mundane, thing was Swann’s work laptop.
This may've had little bearing on the outcome of his subsequent trial, but it's worth noting that this went missing sometime between when the DHB began to suspect him, and his dismissal.
He claimed it'd 'crashed,' and that he'd handed it to the DHB helpdesk to fix.
The same helpdesk his friend, Robin Sew Hoy, was running on the DHB's behalf.
It's never been found.
Show Me The Money
Michael Swann made over $15 million from the fraud, Kerry Harford around $1.8 million. So what did the pair do with their ill-gotten gains?
Michael Swann received his 90 percent 'cut,' just over $15.1 million, through Sonnford Solutions Limited.
From there, this was disbursed in one of three ways.
Around $9.1 million into his Computer South Limited bank account, $5.3 million into one of the Checketts McKay Law managed trust accounts, with the remaining $2 million going direct to various creditors.
So what did he spend 'his' millions on?
Well, Swann was a man with expensive hobbies. It's been estimated he spent something like $7.8 million on cars, boats, and ships.
For example: On November 10 2005, he paid $179,000, through Sonnford Solutions, to a Dunedin car dealer in part payment for a Porsche 911 bought in his name. Computer South paying the $80,000 balance on On November 22.
Swann later traded this car in for a Mercedes Benz, before inexplicitly spending another $250,000 to buy the same Porsche back. Although this time registered in his wife's name.
When Swann's assets were seized, he then had four vintage Rolls-Royces, three old Mercedes-Benz saloons, two Jaguar E-Type sports cars, a 1911 Cadillac, and a number of Land Rovers, Land Cruisers, and other, more conventional, vehicles.
Then there were those ships and boats: He'd bought two ex-tugboats, the 'Aratiki' and 'Hikurangi', a couple of more mundane pleasure boats, and three inflatable rubber dinghies!
And then there was the 'Townsend Cromwell'.
Built in the US in 1963, this 564-ton, 50 metre ship, had originally been a Hawaii-based fisheries research vessel. When decommissioned, she'd been gifted to American Samoa, who on sold her to a local shipping company. Which had failed and, in 2005, the vessel had been up for sale in Auckland.
Swann bought her for $800,000, and she arrived in Port Chalmers, Dunedin in August 2005. He said he was going to use her for cruises, so had her refitted and refurbished. The vessel had 17 cabins, and could sleep over 30 people.
It was because of this, he'd been nicknamed 'Money Bags' by other boat owners at the time.
Besides cars, boats and ships, 'Money Bags' also spent $3.7 million on properties.
'Properties' plural because, by 2006, he had eight: Three in Dunedin, another three in Port Chalmers, one in Waynes north of Dunedin, and yet another in Wanaka.
Not one of which had actually been bought by Swann. All being held by one of a number of trusts.
Now the Swann family actually lived in one of Dunedin's finest houses, the Historic Places Trust listed Ferntree Lodge. Which had been Government-valued at $905,000 in 2012.
And he'd also bought the next-door section.
Simply because it'd overlooked his own, and he hadn't liked that!
And those trusts? Ferntree Lodge, for example, had been bought by the Ferntree Lodge Family Trust. That next door property by the Organic White Meats Trust.
As for the rest of the money? He withdrew over $1 million in cash, spending around the same amount on household items like food and drink, and on credit card repayments.
In short: Swann was a man with expensive tastes who'd found a way to satisfy them.
Kerry Harford's spending was much more mundane.
His 10 percent equated to around $1.8 million. And he'd transferred around $550,000 of that into various personal bank accounts for 'living expenses,' with another $350,000 going to pay off personal debt.
Having said that, like Michael Swann, around $375,000 did go on vehicles, boats and property.
Unlike his fellow fraudster though, Harford paid his bills: $23,000 going on accounting fees and, in fact, he'd actually paid $388,000 to the Inland Revenue Department (IRD)!
Doing the math here, over the six years of the fraud, Harford had 'topped-up' his salary by a very respectable $300,000 a year.
Not too bad for a 'junior partner'!
It took until October 2006 for Michael Swann to be dismissed for 'gross mismanagement.'
With 20/20 hindsight: Could or should this have happened any sooner?
The short answer would have to be 'Yes.'
A good opportunity was missed prior to his first role with the Otago DHB in December 1997, and many more after he'd become permanent in May 1998.
And the author believes each deserves a closer look.
Background or pre-employment checks are nothing new.
In Michael Swann's case, unfortunately for all concerned, it's obvious these weren't done by the Otago DHB's Human Resources (HR) function. More on this later.
For now: A simple credit and/or criminal background check would've uncovered the fact he was an undischarged bankrupt and had six prior convictions..
The 1998 'Warning Letter'
Another opportunity was missed just weeks after Michael Swann's appointment as a permanent staff member.
In late June or early July 1998, Otago DHB Chairman Ross Black had been verbally warned Swann was 'trouble.'
An action followed up shortly afterwards by a letter to Black from two Dunedin-based accountants, which the author thought best to reproduce in its entirety here:
"Further to our recent telephone conversations, both [name blacked out] and I are concerned for the well-being of Heathcare Otago Limited while they have employed Mr Michael Swann as their IT manager. As much as we are normally supportive of Dunedin and its people, in this particular case we have been involved in several instances of outright dishonesty that can be clearly attributed to Mr Michael Swann.
From our past experience we are of the view that he is an improper person to hold a position of responsibility particularly where he has access to capital expenditure, normal revenue and expenditure flows and sensitive personal information.
We are also concerned for you as Chairman where you have the ultimate responsibility for some one whom we believe has criminal intent and is working within Healthcare Otago Limited.
We would be grateful if this letter could be treated as confidential although we are both in a position to clearly substantiate the comments that have been made. We would be happy to discuss this further with you at any time should you consider it appropriate and provide further detail to support our views."
Although never stated: This must've concerned Swann's 1996 bankruptcy?
Later, at Swann's trial, Black stated he'd: "Met with the [Acting] CEO [Dr. Bruce Gollop]. Investigations into him [Swann] were immediately commenced."
Before going on to state, despite the letter claiming otherwise, the allegations: "Were totally unsubstantiated," therefore couldn't be used.
Continuing: "It would have been different had he had a criminal record."
In what way does Swann's six prior convictions not constitute 'a criminal record'?
When Gollop took the stand, he said he'd informed Audit New Zealand (Audit NZ) of the letters existence.
Interestingly, he also claimed he'd raised the letter's contents with Swann.
Unfortunately for the DHB, Gollop also said the legal advice he'd taken reckoned they couldn't use unsubstantiated, unproven allegations to review Swann's employment.
Effectively, or ineffectively, depending on your viewpoint, that was about it as far as any real investigation into the letter's allegations went.
Richard Thomson replaced Black as Chairman in 1999. But Thomson, Chief Executive Officer (CEO) Bill Adam and his 2003 replacement, Brian Rousseau, wouldn't find out about the letter for another eight years.
The authors' of this letter, despite media requests, have never had their names made public.
All That Money
It was MP Tony Ryall who'd asked how Michael Swann could drive a Lamborghini into their car park, and yet no one asked any questions.
He'd also asked why: "No one ever asked about how a former bankrupt and District Health Board manager could afford such a lifestyle?"
Ryall was, in fact, mistaken.
During December 2008's trail, Dunedin businessman and former mayor, Sir Clifford Skeggs said he'd 'informally' raised concerns about Swann with Otago DHB Board members 'sometime' in 2005 or 2006.
Stating: "I did say to people in the hospital board arena that I couldn't comprehend how a man could spend so much money."
When Skeggs had asked him outright about his money, he'd been told by Swann his money came from a computer program he'd sold to Microsoft in the United States. This was the same story he'd spun to his friends and work colleagues.
A story they all, unfortunately and obviously, believed.
No one bothered to follow-up either Skeggs' query or Swann's claim.
As any fraud investigator would tell you: Sudden wealth, or a lavish new lifestyle, can be pointers to a possible fraud.
But then, no one likes to make a fuss.
Sonnford Solutions Limited was at the very heart of Michael Swann and Kerry Harford's $16.9 million fraud.
Were any opportunities missed there?
At his trial, Swann stated the Otago DHB: "Got very good value, as evidenced by six years of operation on their system with little or no failure."
Not wrong about any failures perhaps, but way off the mark with his 'very good value' comment.
In 1999, the DHB's annual budget for IT maintenance and equipment leasing had been $1.4 million. By the time of Swann's dismissal in 2006, it'd risen to $8 million a year.
IBM later reckoned the 'services' the DHB had paid $16.9 million for would/should have cost nearer $2.9 million. If provided by them, of course.
Why didn't anyone notice?
One DHB accountant said he'd become aware of Sonnford Solutions' invoices in '2000 or 2001' because, procedurally, he had to be informed of any $50,000-plus payments to ensure funds were available.
When he'd queried Swann about these, he'd been told the company saved the DHB: "Hundreds of thousands of dollars" for IT services because it'd negotiated deals they: "Couldn't possibly negotiate."
And that's about as far as he got.
In 2002, Arlee Folkers was appointed the DHB’s Chief Financial Officer (CFO).
And she said at Swann’s trial, shortly after being appointed, she'd queried Swann about Sonnford Solutions.
Only to be told it provided a sort of 'risk insurance': In that the DHB could call on the necessary expertise if a problem occurred with any one of the servers.
As the sentencing Judge stated: "This was a patently false explanation that you put forward at your trial and which the jury rightly rejected."
Folkers also said, by the time she'd been appointed, the DHB had already been paying the company for several years. She therefore assumed somebody had already vetted the company, stating either: "The auditors or members of my staff."
Folkers left the DHB in March 2006.
In the end, it was down to her replacement, Robert Mackway-Jones.
He being the one who'd asked the right questions about Sonnford Solutions.
Internal And External Audit
How was it internal and external audits hadn't uncovered a $16.9 million fraud?
A false invoice fraud undetected during six years of audits.
The Audit NZ external auditor assigned to the Otago DHB between 2000 and 2003 had found nothing untoward, saying the Sonnford Solutions Limited invoices were only a 'tiny fraction' of the total number handled by the DHB every year.
Before claiming international estimates suggest external audits only uncover between five and 10 percent of fraud anyway.
So a 'don't blame us' from external audit then.
The DHB's internal auditors were Deloitte. And they didn't do any better.
In the fallout following Michael Swann's dismissal, both Audit NZ and Deloitte were held to be 'non-accountable': Due to the fact they hadn't been specifically tasked with investigating him.
The question is: Why weren't they?
1998's 'warning letter' was covered earlier in this section.
Hadn't Dr. Bruce Gollop, then Acting CEO, claimed at Swann’s trial he'd informed Audit NZ of the letter's existence at the time?
However, Audit NZ said they weren't aware: That they would've expected to have been told of anything 'untoward' during the course of their audits.
An opportunity missed then. Because even a cursory investigation into Swann's activities would've surely uncovered something 'untoward.'
Ironically, one outcome of this was that during his 2008 trial, Swann's defence had argued Sonnford Solutions contracts were legitimate because they'd passed six internal and external audits.
In 2007, the New Zealand Institute of Chartered Accountants issued the "International Standard on Auditing (New Zealand) 240", which outlined an auditor's responsibilities relating to fraud during an audit of financial statements.
Nowhere is it stated auditors have responsibility for detecting fraud. What it does say is that unless the auditor has reason to believe the contrary, they may accept records and documents as genuine.
Put simply: Auditors can be lied to.
The same as everyone else then.
How Were They Caught Out?
Given the previous section: How were Michael Swann and Kerry Harford eventually caught out?
During the pair's trial, Otago DHB Chairman Thomson said that early in 2006, the Board had received an anonymous tip-off warning them of Swann's extravagant lifestyle.
Information based, apparently, on discussions the tipster had had with the authors' of the 1998 warning letter.
Thomson going on to say this warning wasn't ignored. That it had, in fact, prompted the investigation which ultimately led to Swann's dismissal.
A version of events backed up by Peter Hodgson, ex-Minister of Health, who'd stated: "It was sufficiently concerning so that the chair of the District Health Board took a number of actions."
All entirely plausible.
That it made the then under-fire DHB Chairman, and an ex-Minister of Health, look good didn't hurt any, of course.
It didn't help though: Thomson was fired by Hodgson's replacement in February 2009.
Unfortunately, the actual evidence entirely contradicts this version of events: Here Swann's downfall was more the result of CFO Robert Mackway-Jones' hard work.
Back in 2003, Southland DHB CFO Mackway-Jones had begun working in cooperation with his opposite number, Arlee Folkers, at the Otago DHB.
And when she resigned in March 2006, he'd been formally seconded to the Otago DHB.
By mid-2006, Mackway-Jones began questioning variations between the IT department's budgeted and actual expenditure. He'd found the department's costs 'proportionally skewed' towards external charges, as opposed to wages, and so on.
As any good CFO would do, he'd begun 'drilling down further.'
It was Mackway-Jones who finally noticed the payments made to Sonnford Solutions Limited: "Didn't make a great deal of sense."
The amounts being so large, he failed to see what the value was to the DHB.
When he couldn't find any contracts relating to Sonnford Solutions, he'd questioned Swann. Who claimed these were a continuation of previous contractual arrangements, made through Computer Associates, dating back to the late 1990's.
When Mackway-Jones asked for copies he was, at first, provided with a single, very generic one: Swann supplying the 'actual' contracts a few days later.
The CFO noted what was described in those contracts, and what the invoices were charging for, didn't match.
So Mackway-Jones did entirely the right thing: He went straight to the Board with his findings.
In August 2006, Swann, then about to go on leave, presented the last ever Sonnford Solutions invoice.
As per his instructions, these were immediately referred to the CFO.
The result? On September 8 2006, Mackway-Jones and CEO Brian Rousseau launched an official investigation.
An investigation that ended with Swann and Harford's indictment.
19 days after the Otago DHB began their official investigation, on the evening of September 27 2006, the SFO raided Michael Swann's office.
On October 3, the DHB announced an employee had been suspended over a possible fraud 'worth millions of dollars.'
Eight days later, Swann was named.
And dismissed on October 19 for: "Gross mismanagement of the District Health Board's IT procurement, including failure to comply with delegation of authority and purchasing policies."
More on these policies soon.
Now, although some of Swann's assets were seized at that time, it wasn't until October 27 the DHB lodged a civil claim against him for their losses.
In November, 'deleted' invoices on Harford's home PC were recovered by an SFO forensic accountant.
That same month, a copy of the 1998 warning letter was sent, by one of the two signatories, to the Minister of Health and the SFO.
On May 27 2007, the SFO filed three charges, under the Crimes Act 1961, against Swann and Harford.
Two that Harford Sonntag and Associates and Sonnford Solutions Limited, with intent to defraud, used invoices: "To obtain a privilege, benefit, pecuniary advantage or valuable consideration." One that Sonnford Solutions, with intent to obtain a pecuniary advantage, also dishonestly issued invoices to the DHB.
The pairs' jury trial began in the Dunedin High Court on November 18 2008, with both pleading not guilty to all charges.
Over the course of the two and a half week trial, more than 100,000 pages of documents were tabled, and 49 witnesses called.
And, on the morning of December 5 2008, the jury gave its verdict.
Sentencing And Prison
The jury found Michael Swann and Kerry Harford guilty on all counts.
Both were remanded in custody pending sentencing on March 11 2009.
Then, a week before sentencing, Swann's lawyer requested an adjournment and that his client be granted bail.
No surprise: Both applications refused.
This is only mentioned because Harford actually joined the Crown in opposing this move!
Sentencing, therefore, went ahead as planned.
During the course of which, the Judge stated to Swann: "The cause of your predicament is undoubtedly your sustained and blatant dishonest behaviour and astonishing greed."
Continuing: "In your case, it is hard to think of a more serious and cynical breach of trust." Finishing with: "In terms of mitigating factors concerning the offending, Mr Swann in your case there are none."
Pretty damning stuff.
An interesting aside here, we're aware Swann had appeared in District Court four times prior to working at the Otago DHB, and that he'd been found guilty on six charges. A fact brought up during his sentencing, but the Judge was dismissive, stating: "Any previous convictions I put in the minor category."
Addressing Harford, the Judge stated: "You claimed that you were ignorant of the fact that these business dealings were fraudulent."
Something Harford had done from the beginning.
However, Swann's now ex-friend had owned up in the end, expressed his remorse and, more importantly, by then had reached a confidential financial settlement with the Otago DHB. All of which the Judge took into account.
The maximum sentence for both men was seven years on each of the three charges.
Regardless, the Judge set the starting point for Swann at 10 years, six months before inexplicitly, and despite his earlier statements, subtracting a year due to Swann's 'remorse,' and his attempts to reach a settlement with the DHB.
For Harford it was five years, with nine months deducted for much the same reasons.
Swann, therefore, was jailed for nine years, six months, with a minimum non-parole period of four years, six months.
Harford got four years, three months, with a non-parole period of just over a year.
The pair were incarcerated in the low- to medium-security Otago Corrections Facility at Milburn, 50 kilometres from Dunedin.
A prison, incidentally, referred to by locals as 'The Milton Hilton.'
Harford was released on parole on April 26 2010: Just three days after he became eligible. He'd served one year, six weeks.
Between his sentencing and today [July 2013], except for several reparations trials, his subsequent appeals against these, the Sew Hoy case, and a move in 2012 to the Christchurch Men's Prison, he remains in jail.
The Sew Hoy Case
In September 2009, six months after Michael Swann's sentencing, his John McGlashan College school friend, Robin Hugh Sew Hoy, pleaded guilty in the Dunedin High Court to making 'kickback' payments to Swann between January 2000 and September 2006.
Payments made to ensure Sew Hoy's company continued to receive favourable treatment from the then-CIO. His company provided helpdesk services to the Otago DHB at $95 an hour.
Of which Swann pocketed $25. Amounting, via 85 payments, to over $755,000.
By itself, over $165,000 more than Lynette Fiebig's not-for-profit fraud.
An arrangement begun seven months before Swann presenting the first of his 198 fraudulent invoices.
Sew Hoy had actually been providing services to the DHB before his friend's employment but, after that happened, these services increased significantly.
In November 2009, Sew Hoy was sentenced to 10 months' home detention and paid $325,000 in reparations.
It should come as no surprise by now: Swann initially denied any involvement.
Before changing his mind and, in February 2010, being sentenced to 20 months. To run concurrently with his earlier sentence.
During Swann's sentencing, the prosecutor stated: "The same three persons who had been providing the service on behalf of Robin Sew Hoy were then employed by the Hospital Board with an immediate saving to the Board of approximately $500,000 per year."
This case being a good example, as if another were needed, of the DHB not keeping their eye on the ball of course.
Michael Swann appeared before a Parole Board, held in Christchurch Men's Prison, in May 2013.
This despite the fact he'd been given a non-parole period of four years, six months in March 2009, meaning he shouldn't have been up before the Board until September 2013.
However, he was actually eligible at that time because he'd spent 110 days remanded in custody prior to his sentencing.
Controversially though, the Board's decision was delayed after one of Swann's supporters wrote a letter threatening legal action if Swann didn't receive a favourable outcome. Bizarrely, this supporter was alleged to have objected to any form of independent inquiry or analysis by the Board regarding Swann's risk of reoffending.
Causing a Canterbury University professor, when approached by the media for comment, to state: "This letter will screw Swann's chance of an early release."
And it did. The Board deciding Swann should reappear at the next Parole Hearing in June, before an entirely different panel.
Meanwhile, the Southern DHB remained oblivious of the fact Swann had already appeared before the Parole Board in May, until this was reported in the media. They believed this wasn't going to happen until July.
The DHB sent a letter to the Board in June, asking when Swann's next hearing would be, and advising they wished to make a submission.
The Parole Board received the letter on the day of Swann's June hearing.
That'd be too late then.
At that June hearing, Swann was told by the Board: "There was light at the end of the tunnel," and: "You have to get on with your life."
No surprise, his reply was: "Thank you very much."
The Board going on to say he mustn't be involved, directly or indirectly, in managing any business, or in handling other peoples' money or invoices. Fair enough.
They also reckoned Swann wasn't likely to reoffend, therefore didn't need anything like an 'intervention programme' or one-on-one psychological help. Stating his behaviour in prison had been good, apart from one 'minor misconduct' concerning the use of a phone in 2011. It was noted prison staff had sent letters in support of Swann to the Board.
When released on parole, Swann will go to work for a Christchurch engineering/biotech company which manufactures health products. The owner of this firm being the one who'd written that 'threatening' letter to the previous Board.
The hearing was then adjourned until July 2013.
Swann, of course, still faces a $6 million pecuniary order made under the Proceeds of Crime Act 1991. The police correctly reckoning there are still assets waiting to be found.
When the Parole Board met in July, they announced Swann would be released from prison on July 31 2013, but remain on parole until May 2018.
Swann will initially be paroled to live at Alasdair Cassels' family home. A $1.35 million Governors Bay, Banks Peninsula property, south of Christchurch.
This caused some controversy, given this property boasts an indoor pool, harbour views and is surrounded by a vineyard.
Cassels himself is a director and majority shareholder of Cassels & Sons Brewery, as well as being the director of a dozen other companies.
He said he'd received a call for help from Swann, whom he'd first met years ago, stating: "The guy's served his time and he's trying to get himself rehabilitated, trying to get himself back into the work force. Why should he be cast on the rubbish heap?"
Unlike, for example, the New Zealand Herald's coverage of tax fraudsters Barrie Skinner and David Rowley's case, the Otago Daily Times followed Michael Swann and Kerry Harford very closely.
Beginning by detailing each prosecution witnesses' testimony as they took the stand in November 2008's trial.
Unsurprisingly, their emphasis throughout was on how the pair defrauded almost $17 million from the Otago DHB by doing little more than creating fake invoices.
And on how a succession of current and ex-Chairmen, CEO's, CFO's and General Managers didn't know much of anything when it came to Sonnford Solutions Limited.
Much attention was also, and of course, lavished on Swann's extravagant lifestyle: The exotic cars, expensive boats, the ships and all those properties.
Then there were his denials he'd done anything wrong.
With Harford it was all about his being a 'victim': That his friend had conned him.
Not that the local media bought any of this, it has to be said.
Trial done, the emphasis shifted onto other aspects of the fraud. Such as how the DHB was hunting for, and selling off, Swann's assets.
Then, entirely as expected, the resultant political sniping was gleefully reported.
And then, of course, the recriminations soon began: Why was the 1998 warning letter ignored? Sir Clifford Skeggs' 'informally' raised concerns? How was it audit didn't pick up the fraud? And on.
All helped along by the controversy continuing to follow Swann.
For example, it was widely reported he'd received some legal aid funding for his continuing fight against those asset seizures. And how he was allowed by the Crown to sell off some of 'his' assets to help fund his legal bills!
2009's Sew Hoy case only ensured the publics' interest remained high.
Then Harford's 'early' April 2010 release brought the entire case, once again, to everyone's attention. Followed, in August 2011, by his court appearance for breaching his parole conditions: He'd taken a job in Christchurch without permission.
Otherwise, Harford's kept a pretty low profile.
Not so Swann. He continues to be the focus of many editorials and articles.
Serving as 'case study' for some, and as a warning by others.
And the inevitable political fallout?
It began in November 2006, the month after Michael Swann's dismissal, with a vocal Parliamentary debate.
As he had to, Minister of Health Peter Hodgson stated: "The Otago Health Board's actions and sequence of events to date has been commendable."
While opposition MP Tony Ryall was all about asking the hard questions, such as: "Is the Minister telling the House that no one at the district health board asked how a former bankrupt and hospital manager on $200,000-a-year could afford such extravagance over such a period of time?"
Alright Swann's salary had actually been a still-respectable $145,000 a year in 2006, but this did force Hodgson to admit: "The alleged extravagance is actually greater than the member portrays."
When asked why this hadn't been investigated earlier, the Minister stated: "I cannot confirm that there was no earlier investigation."
Here Ryall got sarcastic on it: "Have you asked?"
To which Hodgson countered with: "I will not confirm that no one ever asked questions in earlier years, and I will not reveal - because it is not in the public interest at this stage - what questions were asked, in what year, and by what persons."
Despite Hodgson's comments otherwise, eight days before this debate, he'd received a copy of that 1998 warning letter.
Three days after the debate an email was sent to Otago DHB management and the SFO, this stating: "The Minister already has a copy of it [the warning letter] and needs to be briefed as to its release in order to deal with the inevitable questions in the House, and we need to strategise for the publicity that will ensue. Because as soon as the letter is in the public domain, the next questions will be: who received it, what did they do with it, why did they employ Swann?"
All leading to the one high-profile casualty: DHB Chairman Richard Thomson.
Sacked by now Health Minister Ryall in February 2009: Three months after Swann and Harford were found guilty, and one month shy of their sentencing.
Ryall stating: "During Thomson's chairmanship, the largest fraud in New Zealand state services history was taking place at Otago DHB."
In his own defence, Thomson stated: "If you inherit something that started before you were even there, and if you act on the first piece of information that's available to you and you put a stop to it, you'll actually be held as responsible as the criminals."
Political fallout indeed!
In Thomson's place, Ryall appointed Otago DHB Board member Errol Millar as Chairman. Millar also serving on the Southland DHB.
Common sense, or purely political move?
What is known is: In May 2010, the Otago and Southland DHB's were merged to form the Southern DHB.
It's worth noting that of all the cases covered in this book, Thomson was the only senior figure to actually lose his job as a direct result of a fraud.
When it came to reparations, both the Otago DHB and Crown have diligently pursued Michael Swann in court, through the office of the Solicitor-General of New Zealand (the Solicitor-General).
Entirely understandably: They wanted their money back.
And in March 2009, the Solicitor-General ordered the seizure of property identified as Swann's. Including property apparently owned by third parties on the grounds it was subject to Swann's effective control, or 'tainted property.'
'Tainted property' defined as that: "Used to commit, or to facilitate the commission of, the offence; or proceeds of the offence."
By the time the case went to court in May, vehicles, boats, ships and real estate totalling around $7 million had been located.
It was a complex case, with 15 people and companies named in the court papers: Everyone from Ibbotson, Devereux and Fyfe, to Checketts McKay Trustees Limited, Organic White Meats Limited and Fresh Free Range Chickens Limited.
In July 2010, orders were issued confiscating numerous properties and assets 'owned' by various people or entities.
Prior to this, in May 2010, Swann had stated in an affidavit: "I can definitely say that there is nothing by way of hidden or missing property."
Despite this, many such 'hidden or missing' assets were subsequently found.
None of it with Swann's help, it must be said.
And it's known more assets still exist. For instance, 'somewhere' there's a 2006 Volkswagen Touareg SUV waiting to be found.
Throughout this process, the Crown stated Swann has: "Actively tried to mislead the authorities by providing false information in an affidavit and by using associates to hide assets."
Can anybody be surprised at this?
As at May 2010, the total paid by the DHB in legal and other costs stood at over $1.6 million. Unfortunately for them, while they did receive that $325,000 from Sew Hoy, all other monies recovered go directly into the government's coffers.
As at August 2012, that amounted to around $6.9 million.
The Otago DHB Takes Action
As in many of the cases outlined in this book, the Otago DHB already had systems in place to deal with fraud.
It's just that 'C-level' DHB management hadn't, obviously, bothered to enforce them. Not in any meaningful way anyway.
For example, there was a 'two tick' procedure, requiring two signatures prior to releasing funds to pay significant invoices. So why hadn't this picked up Michael Swann's invoices?
Because he'd simply ignored it: Knowing it wasn't enforced.
Of course, and regardless, a $16.9 million fraud demanded visible changes.
As Minister of Health Tony Ryall stated: "I want an assurance from the Ministry of Health that systems have since been put in place to prevent this happening again."
Therefore, also in common with many of the cases in this book, the DHB up and became very proactive.
Their subsequent actions best summed up by June 2007's 'Chief Executive Officer's Report'.
Which points out the Board-appointed Finance, Audit and Risk Committee has responsibility for monitoring compliance with the many, newly-introduced, policies. That it's also to review the outcomes of all internal and external audits, and fraud investigations.
It's worth nothing that, regardless of Audit NZ's comments otherwise, all external audits now had to seek: "Opportunities to maximise the value of the audit in a fraud control context."
Additionally, new HR policies and processes were to be introduced: To include such things as CV, criminal record and reference checks, and fraud awareness training during staff inductions.
Then there was a new Delegation of Authority Policy, and an Internal Audit Policy. The latter including fraud risk identification and 'targeted' forensic audits.
Mention was also made of the Ministry of Health's new Fraud Hot Line.
Good and proactive measures every one. Providing they are, and continue to be, effectively enforced.
Did Anybody Else Take Action?
While the Otago DHB took early action, what about the other 19 DHB's?
For this, we have Audit NZ's April 2012 'Summary Of Our Fraud Survey Results For District Health Boards'.
The first ever done, the 'catch-phrase' on its title page is somewhat ironic: "Cleanest public sector in the world: Keeping fraud at bay."
That aside, it does make for interesting reading.
While most DHB's said they had a fraud policy, when asked if this was regularly communicated only 58 percent said it was.
Interestingly, only 64 percent said they had a 'protected disclosure' (i.e.: 'whistleblower') policy, even though this is actually a legal requirement. Although a majority agreed they were now encouraged to raise concerns.
One thing they all took seriously was background checks, including criminal history checks. The survey stating they were, in fact, far better than most other government agencies.
Counter-balancing this though, less than one third of employees had received any fraud awareness training.
One stand-out though is the fact three-quarters had someone directly responsible for fraud risk, including investigation.
Given the above, it would appear the majority of DHB's are now fairly proactive when it came to fraud prevention and detection.
Which has to be a good thing.
No surprise, given the amount and time period involved, Michael Swann and Kerry Harford's fraud had to involve other people.
Willing and/or knowing participants.
In this section we'll take a closer look at two of those at the very centre of the $16.9 million fraud: Anna Laura Devereux and Iain Grant Fyfe.
The former Swann's wife, the latter his lawyer.
Who we won't be looking at is Swann's friend, Peter Ibbotson, or Harford's wife.
Essentially because neither was that critical and, in fact, Harford's wife still has name suppression.
Anna Devereux and Michael Swann had been friends since the late 1980's.
And they'd married in 1995, the year before Swann filed for bankruptcy. She was his second wife, and the pair had four children together.
They'd officially separated in January 2007, three months after her husband's dismissal, and four months prior to him being charged.
Apparently, she never questioned where her husband got the money from to fund his obvious passion for cars or boats.
For instance, at Swann's 2008 trial, Devereux had stated: "Michael loves cars and one would turn into another, but that was his domain and I never asked where the money had come from."
Concerning Sonnford Solutions Limited, she said she understood the company was 'something' to do with boats and, possibly, computers.
And that she had nothing much to do with it, other than being recorded as a shareholder. Before going on to say she'd 'no idea' how the company generated it funds.
Given Swann's personality, this is possible.
However, the question does have to be asked: How could Devereux not know something wasn't right?
The same question could be put to Harford's partner.
And, for that matter, to the spouse or partner of every other fraudster in this book.
Iain Grant Fyfe
The other major player in this drama has to be lawyer Iain Fyfe, partner in Checketts McKay Law in Wanaka, 275 kilometres from Dunedin.
After all, he was a one-third shareholder in Computer South Limited. A company whose registered office was Checketts McKay.
The same firm that'd set up Swann's many trusts. A company listed as trustees in several of those same trusts.
Whichever way you care to look at it: Fyfe was pivotal, it could be argued instrumental, in Swann's part of the fraud.
And yet, their relationship was never really questioned, in any depth, by the media or most anybody else.
At the 2008 trial, Fyfe said he'd first met Swann in 1988, through Anna Devereux. That he began acting for him professionally in March 1997, when Checketts McKay had helped him set up Computer South, with himself as one of its shareholders.
Fyfe said he had little to do with Computer South or its other shareholders. Also saying he and Swann hadn't discussed the company much: Just confirming, year on year, his client wanted to keep it going.
Concerning money, he said he got his instructions from Swann, who'd advise him when it was due, and brief him on how this was to be split.
As for the trusts, Fyfe stated Swann: "Was keen properties were not retained in his own name or Anna's name and preferred, where possible, that a family trust was used as the entity to own assets."
And that was about all Fyfe did.
Except that he did get Devereux and himself removed as Computer South shareholders on September 14 and 22 respectively.
In Devereux's case, he said Swann had instructed him to. But then he'd done so without officially or otherwise confirming her agreement.
As for removing himself, we may never know the why.
What's known is the Otago DHB had launched its official investigation on September 8, culminating with the SFO's raid on Swann's office on September 27.
It has to be said: The timing here is suggestive.
Around $9.1 million passed through Computer South, with another $5.3 million going via Fyfe's firm.
Given this: How was it possible Fyfe had no idea what was going on?
Is it a case of 'ignorance is bliss'?
Even if you are a trained lawyer and a partner in a law firm?
Many of the points raised in this section have been made before, but it's felt they're worth reiterating here, as findings or observations resulting from a close analysis of the media articles, the Otago DHB's statements, the court records, parliamentary debate papers, and other sources. All of which are freely available online (see 'Bibliography').
Much of what follows is the author's opinion, backed up by facts where and if at all possible.
The author also restricted himself to what he saw as only the most pertinent findings, a 'Top 4' in this case, the rest thought to be adequately covered in the body of this chapter.
Personal Verification Limited has a webpage entitled 'Why Verify?'
Which states: "A poor hiring decision can have disastrous consequences for a company." Continuing with the: "Financial security of the business may be undermined," and that the risk to an employer's 'reputation and integrity' should be considered.
And not new: Background checks have been carried out for generations.
Sadly, good advice not followed by the Otago DHB. Not at the time of Michael Swann's first contract role, or following his appointment as a permanent staff member.
Not to mention once he'd been promoted to CIO, with a DFA of $200,000!
Remember Swann had six prior, okay minor, convictions.
But there were six of them.
And that, when he'd joined the DHB in late 1997, he still had 15 months to go before being discharged from bankruptcy.
No excuses: Background or pre-employment checks are quick, relatively inexpensive, and allow you to take the guesswork out of hiring.
Not bothering in this case cost the Otago DHB and taxpayer $16.9 million.
'Sloppiness' or 'negligence'?
Swann And Harford's System
Michael Swann put the first fraudulent invoice in for payment in August 2000.
And he and Kerry Harford went on to defraud $16.9 million from the Otago DHB through a system you'd be very hard pressed to call anything near 'complex.'
Harford posted an invoice to Swann, who authorised it and presented it for payment. Once it was paid, the pair would split the proceeds. That was about it.
Except they managed to do this 198 times!
We know the ex-Minister of Health reckoned the SFO regarded Swann's system as clever enough for Audit NZ not to see anything unusual.
This simply must be disputed: There was nothing smart or even new about this particular invoice fraud.
No new twist or variant making it 'clever' in about any way imaginable. The three examples of other false invoice frauds at the end of this chapter prove this.
About the only part that is surprising is the fact it went on for so long.
The reasons for this have been covered.
Reasons best summed up by CFO Arlee Folkers. Who, you'll recall, had assumed 'somebody,' as in auditors or her staff members, had already vetted Sonnford Solutions Limited.
Again proving assumptions can be dangerous.
And costly in this case.
During sentencing, the Judge had rightly stated: "In terms of mitigating factors concerning the offending, Mr Swann in your case there are none."
No argument here: This being entirely too obvious.
Then why wasn't it so obvious to the very same Judge?
Who, within minutes, subtracted a year due to Michael Swann's 'remorse' and his 'attempts' to reach a settlement?
The Judge in Wayne Patterson's $3.4 million benefit fraud case refused to give him any such discount because he, equally obviously, felt no remorse.
Okay Harford got time subtracted, but then he'd already come to a financial settlement with the Otago DHB.
Hadn't Swann stated in his May 2010 affidavit that: "There is nothing by way of hidden or missing property."
And yet, within a month, the police located a 1998 Mercedes Benz hidden at the address of one of his associates. One he'd bought in November 2008, just before his trial!
Throughout the asset seizure process, the Crown stated Swann: "Actively tried to mislead the authorities."
Not so much in this case it would seem.
Checks And Balances Unenforced
The Otago DHB already had some systems in place to deal with fraud.
At least adequate systems it's apparent senior management simply hadn't bothered enforcing, such as that 'two tick' procedure.
Systems Michael Swann ignored because he knew he safely could.
Post-Swann's fraud however, didn't the DHB suddenly became very proactive, as 2007's 'Chief Executive Officer's Report' demonstrates. With all sorts of new and positive anti-fraud measures introduced.
History, however, tells us you can have all the Finance, Audit and Risk Committees, policies, processes, and checks and balances, in the world, but that these alone won't ensure your organisation is, or ever will be, fraud-free.
This can only be near-achieved with the full and active cooperation of your staff, linked to some effective monitoring and active enforcement.
'Old school' and inelegant perhaps, but then it works.
It's just a shame the DHB hadn't educated their staff and enforced what they already had in place.
A $16.9 million shame, as it happens.
'Master Fraudsters' Or 'Mere Chancers'?
Michael Swann had six prior convictions.
'Minor' maybe. But they were convictions, and there were six of them.
What's this tell us?
First things first: He wasn't anywhere near honest!
Alright, not a 'career criminal' like Wayne Patterson maybe. But, with four District Court appearances, you'd be hard-pressed to describe him as anything like a 'law-abiding citizen.'
In fact, Swann was a man given to temptation: In common with all of the other fraudsters in this book, a flawed person who simply couldn't resist exploiting a flawed system.
Then there's those 'sideshow' Sew Hoy kickbacks. Remember, these began seven months before Swann and Harford presented their first fraudulent invoice.
Given this, we can definitively state Swann's dishonest.
But is he clever?
Or only 'sufficiently clever,' as MP Peter Hodgson had said, in another context.
Okay, he certainly knew what he was doing. That he could defraud a cash-strapped organisation of $16.9 million, over such an extended period, proves this.
However, is he that clever?
Looking at the evidence in this chapter and the facts in their entirety, the author would argue Swann was nothing more than a 'chancer.'
A man who went ahead and did what we wouldn't.
The type of man who'd drive a Lamborghini into the Otago DHB car park because he took the chance nobody would ask any questions.
That he was right, didn't make him clever.
And Kerry Harford?
During his sentencing, the Judge had stated: "Without your involvement this fraud would not have made it off the ground."
And yet, it could be argued, if not Harford, then it may well've been someone else: Swann was going to do what he did anyway, with or without his friend. This friend.
It was just easier 'with.'
So, while not in any way being dismissive, we can dismiss him.
Harford was no 'victim,' as he claimed, but then it was always about Swann, wasn't it?
Michael Swann and Kerry Harford's six-year, $16.9 million fraud remains the biggest false invoice fraud in New Zealand's history.
There have been many other local cases though, and the following are three of the more interesting examples from the last few years.
Learn how Ross and Wendy Davidson used debt-factoring as a factor in their $3 million fraud. How Martyn Scott betrayed a friend and neighbour's trust to fund his kids' school fees. And how Peter Nitschke 'robbed Peter to pay Paul' yet still lost the family farm.
Ross And Wendy Davidson
Christchurch couple, Ross and Wendy Davidson, 57 and 50, were jailed in August 2010 for a fraud that netted them around $3 million.
Ross receiving four years, eight months on 30 charges of using a document with intent to defraud. His wife one year less on 17 charges.
The pair owned One Call Flooring Limited which, from 2005, passed their invoices onto a debt-factoring company, Easy Factors International Limited.
Easy Factors would 'buy' these invoices, paying One Call Flooring 80 percent of their value, before collecting the debt themselves.
For this, they received a five percent fee, with the balance going back to the Davidsons'.
As it turned out, most of One Call Flooring's invoices were false and, by late 2006, Easy Factors had become increasingly concerned about their low debt-collection ratio.
When they sent letters to various debtors to verify their debt, what they'd got back were unopened letters due to incorrect addresses or notification PO boxes had been closed.
When the SFO were called in, they found Easy Factors had received 534 fraudulent invoices to the value of almost $9 million. The company's total losses then being around $1.6 million.
During sentencing, the Judge stated the Davidsons' used the money: "To prop up a high standard of living."
In January 2011, General Manager Martyn Tewsley Scott, 51, was sentenced to three years, three months prison for stealing over $1.4 million, between 2004 and 2009, from National Fire & Security Limited, a security equipment supply company.
Scott had pleaded guilty in the Auckland District Court in 2010 to seven charges laid by the SFO.
These included diverting supplier payments to one of his own bank accounts, double paying supplier invoices with the second payment going to himself, and creating false supplier invoices, which he also paid to himself.
The company's owner had been a good friend and former neighbour of his.
Despite Scott 'only' being paid a $75,000 salary, he still managed to send three children to exclusive King's College, take them on overseas holidays, and buy late-model European cars.
When his lavish lifestyle was questioned, he claimed he had a wealthy mother.
Scott was caught out in February 2009, when the owner's wife, querying why suppliers hadn't been paid, found money had instead been sent to the same bank account his salary was paid into.
Despite repaying $600,000, Scott still left the company $800,000 short.
A debt that's since grown to more than $1 million with interest and penalties.
The company owner, after the trail, stating: "I don't think he is remorseful at all. He has never apologised for what he's done."
In March 2012, Peter Joseph Nitschke, 32, was sentenced in the Feilding District Court to two years, three months' jail on seven fraud charges.
Charges laid by the SFO relating to $2.3 million he'd used in a 'brazen' attempt to keep his failing farming business going.
Nitschke had been Operations Manager, and a 20 percent shareholder, in Capehorn Farming Company Limited, a family-run, bull-fattening business.
A company placed into receivership in December 2010, owing nearly $12 million.
First incorporated in 2001, the business had expanded rapidly, at one stage managing over 20,000 bulls. But by early 2010, beef prices were falling, and the company was in trouble.
So Nitschke began falsifying invoices to livestock financial company, StockCo Limited, for non-existent bulls, or those due to be sold. These invoices totalled $881,000.
Nitschke used the money to pay other creditors.
When StockCo demanded an audit, Nitschke secured a $1.5 million Bank of New Zealand loan to repay them in order to avoid this.
Despite this, Capehorn Farming failed anyway and, when the receivers were called in, he confessed his fraud.
Nitschke's lawyer stated his client: "Hoped he could farm his way out of trouble."
The Judge was unsympathetic, stating: "You have destroyed your credibility and lost a five-generation farm."
The author wishes to gratefully acknowledge the following (online) sources:
Otago Daily Times: Articles from 3rd, 18th (x2), 19th (x2), 20th (x2), 21st, 22nd, 24th, 25th, 26th (x2), 27th, 28th (x2) and 29th November, 1st, 2nd (x3), 3rd (x2), 4th (x2), 5th (x2), 6th (x3), 8th (x4), 9th (x3), 10th (x3), 11th (x3), 12th, 13th, 16th and 23rd December 2008; 11th, 12th (x3), 13th, 14th, 18th and 19th March, 2nd, 4th and 30th April, 9th (x2), 18th and 19th May, 11th and 16th June, 2nd July (x2), 13th August, 8th (x2) and 11th September, 7th October, 17th and 18th (x2) December 2009; 11th and 12th February, 15th April, 10th May, 4th June, 24th September, and 19th October 2010; 7th March, 13th April, 9th and 23rd May, 3rd June, 12th July and 23rd August 2011; 7th and 21st February, 31st March and 15th April 2012; 16th and 21st May, 14th and 15th June, 16th, 17th (x2), 18th and 19th July 2013.
Stuff.co.nz: Articles from 16th and 20th July 2013.
New Zealand Herald: Article from 16th July 2013.
TV3 News: Article from 16th July 2013.
Radio New Zealand: Article from 16th July 2013.
NewstalkZB Radio: Article from 16th July 2013.
Judicial Decisions Online: Rulings from 17th and 25th November 2008 (High Court); 4th and 11th March, and 15th May 2009 (High Court); 11th February, 1st and 27th September, and 29th October 2010 (High Court); and 3rd June 2011 (Court of Appeal).
New Zealand Parliamentary Debates (Hansard): 'Parliamentary Debate' papers from 21st November 2006; 'Questions for Oral Answer - Questions to Ministers' papers from 11th February 2009; 'Parliamentary Debate' papers from 29th April 2009.
Companies Office: Copies of 'Certificates of Incorporation' for Computer South Limited, Fresh Free Range Chickens Limited, Liberty Publishing Limited, Organic White Meats Limited and Sonnford Solutions Limited.
Miscellaneous: Copy of 'Chief Executive Office's Report' from June 2007; copy of 'Summary Of Our Fraud Survey Results For District Health Boards' from April 2012.
Bibliography For 'Other Examples' Section
Stuff.co.nz: Ross and Wendy Davidson articles from 26th June and 30th August 2010. Peter Nitschke article from 20th March 2012.
New Zealand Herald: Martyn Scott articles from 21st and 22nd October 2010; and 27th January 2011.
Manawatu Standard: Peter Nitschke article from 30th March 2012.