Fraud and Dishonesty In New Zealand

New Zealand is perceived as being the least corrupt nation on earth, but perception doesn’t always match up to reality. Many of New Zealand’s largest businesses listed on the NZX50 don’t pass some fundamental best practice ethics tests and fraud is rife in smaller businesses, government departments are not immune as you can see from the data below, neither are Universities free from “financial irregularities”

About half of New Zealand firms have experienced fraud a survey has found.

In 2011 the Pricewaterhouse Coopers Global Economic Crime Survey  found that 49.5% of respondents indicated they had been victims of at least some level of fraud during the last year, up from 42%  in 2009

New Zealand ranked fourth out of 78 countries as one of the most likely to experience fraud, slightly better than Britain, but worse than Australia and the United States. source

Another company KPMG has produced a fraud barometer for New Zealand

“…the incidence of ’super frauds’ continues to drive the aggregate value of frauds to record annual levels.

Super-frauds are defined as cases where the value is greater than $3m.

KPMG Fraud Barometer – June 2011: – key insights

•  Value of large fraud cases, defined as over $100,000, totalled $79.8m (down from $100m in the last period)

• There were 29 cases in total (down from 30 in the last period)Of the 29 cases, three were ‘super-frauds’, these totalling $62.9m

•  One of the super-fraud cases, a result of a ‘kiting’ scheme valued at $39.6m, accounts for practically half of the value of total large fraud cases in the survey period.

“These figures show that there has been no let up in large frauds continuing to occur and brought before the New Zealand courts. Fraud is a constant and serious threat to all sectors of the New Zealand economy, including commercial business, governments, non-profit organisations, and individuals,” says Stephen Bell, Head of Forensics at KPMG New Zealand…”

Here are some links to reports of fraud and corruption in New Zealand and Kiwis who are using fraud to maintain lavish lifestyles, some of them also have serious million-dollar gambling habits that result in the companies they work for being dragged to the brink of receivership.

The largest employee theft committed in New Zealand was by former ASB investment banker Stephen Versalko, who stole $17.8 million over nine years. source.

The largest (alleged) fraud in New Zealand’s history, involving $1.7 billion involves five people in the affairs of South Canterbury Finance. It is currently under investigation and will go to court in January 2012.” source

Despite stealing hundreds of thousands of dollars people are frequently sentenced to nothing more onerous than community service.

Click on the links to read the full stories:

A broad view

• New Zealand is perceived to have one of the ‘lowest rates of corruption’ but it has suffered more than $72 million dollars worth of fraud in the first six months of 2010, that is only the “tip of the iceberg” says KPMG forensics expert Stephen Bell.

• “The Serious Fraud Office (SFO) dealt with more than 200 inquiries and more than 100 cases in the year to June and needs more staff to deal with the work.”

“Fraud is hurting the not-for-profit (NFP) sector and more needs to be done to police the issue according to accounting firm BDO. BDO’s 2012 Not-For-Profit Fraud survey shows that reported fraud is down 19% to 12% there are concerns fraud is still going undetected. There is a “it won’t happen to us” attitude within the NFP sector, BDO’s NFP sector leader Bernard Lamusse said.

“While the majority of respondents (86%) agree that fraud is a problem for the sector as a whole, only 8% believe it’s a problem for their individual organisation. This could also explain why 72% of respondents still don’t see a great importance in fraud prevention,” Mr Lamusse said.

A major concern is the significant rise in amounts stolen via electronic funds transfer and online banking – on average costing an organisation $370,000, which accounts for nearly half of the total value of fraud committed.” more here NBR

• The Global Economic Crime survey showed that economic crime continues to be a serious issue affecting New Zealand organisations with the current economic crisis increasing the pressures and incentives to commit fraud. New Zealand had the eighth highest reported level of fraud across the 54 countries that took part. (2010 report)

• “It appears to be that many of New Zealand’s largest listed businesses don’t pass some fundamental best practice ethics tests” says Transparency International New Zealand.”Of the companies on the NZX 50, 44% have policies prohibiting bribery and 18% have policies on regulating facilitation payments. This does not compare favourably with the percentage of companies prohibiting bribery in comparable markets overseas. Of the top 100 companies by market capitalisation in the UK, 72% have explicitly prohibited giving and receiving bribes. In Europe the figure is 57% and in the US it is 69%.” Read a copy of this report in the BOX Widget in the side bar ->

• Government dept WINZ fails to stop staff fraud – “An internal fraud unit at Work and Income was not able to prevent 13 cases of staff theft in the past five years, involving sums totalling more than $180,000. Since 2006, a dozen employees of the Social Development Ministry have either lied to procure welfare payments or deliberately defrauded the system from within, documents disclosed to The Dominion Post under the Official Information Act show…” (April 2010)

• SkyCity continues to profit from crime. “The Problem Gambling Foundation questions why SkyCity Casino continues to profit from the millions of dollars that finds its way into their coffers from criminal activity.  Hot on the heels of the multi-million dollar drug ring that used SkyCity Casino’s VIP lounge as an office to plan P deals, the casino profits again from the $2.7 million stolen from an Auckland business that ended up in their VIP high roller room. Graeme Ramsey, Problem Gambling Foundation CEO, says SkyCity should not be able to retain the profit derived from criminal activity. “Here are two cases of fraudulent activity where millions of dollars have ended up in SkyCity’s coffers,” he says. “Why should SkyCity be able to profit from crime? An innocent Auckland business has just lost $2.7 million and they deserve to be recompensed in the same manner as the ASB Bank reached a successful agreement with Peter Versalko’s service provider.”

• Employee theft is a serious problem for Southland businesses, who are often put under financial pressure by thefts. “Southland Chamber of Commerce chief executive Richard Hay said the chamber was “constantly” hearing about problems involving dishonest staff. “But that’s not to say it’s epidemic,” he said. “It certainly is a larger issue than people would perceive it to be.” Most cases were not reported to the authorities but instead dealt with internally.” source

• “The Serious Fraud Office is investigating five related party loans involving South Canterbury Finance made between 2005 and 2009…The company went into receivership on August 31, triggering a $1.6 billion payout under the Government’s deposit guarantee scheme.”

• The recession is causing an increase in insurance fraud in New Zealand. “The latest recession-driven trend in insurance fraud is for uninsured people to take out a policy after being burgled and then claim for the losses.” New Zealand Insurance Council spokesman Terry Jordan said fraud was thought to cost the country between $150 million and $300m a year.

• Shoplifting costs NZ shopkeepers up to $800,000,000 a year, the most popular items stolen include lipsticks, shaving products, perfume and infant formula.

• Four NZ military officers seconded to the United Nation Dept of Operations in New York allegedly made false declarations to obtain overseas allowances. A military court found the allowances had been paid illegally and the Auditor General slammed the culture within the defence force that allowed it to continue.

• National list MP Aaron Gilmore claimed on an website to be a member of the US Chartered Financial Analysts Institute. He said that the error “was made when information his office provided was edited by Parliamentary Service.”  A week later, after an investigation by the NZ Herald, “he admitted that the error, and four others, were made in his own office and he took “full responsibility for those errors”.

• “A Timaru accountant has been fined for his audit of a failed finance company, understood to be Mascot Finance. The New Zealand Institute of Chartered Accountants professional conduct committee has ordered that Martin Wakefield director Richard John White be “severely reprimanded” and pay costs to the institute in the sum of $2675 after breaches of its code of ethics and the fundamental principles of competence, performance and independence.” (Feb 2011)

Kiwis “using fraud to maintain lavish lifestyles”-  Individual cases of Fraud and Deception

• An air conditioning installer has been jailed after pleading guilty to a $570,000 fraud. John William Jackson was sentenced to two years and five months in prison  following an investigation by the Serious Fraud Office (SFO). Jackson admitted six charges under the Crimes Act of accessing a computer for dishonest purpose. The SFO says between 2006 and 2009 Jackson used internet banking to divert $571,340.67 of company money to bank accounts linked to him and his family. (March 2012) source
• “Papamoa Justice of the Peace Martin Elliott has resigned after being convicted of fraud. Elliott, a former principal of Hamilton’s Fraser High School, pleaded guilty in January to two charges of using a document for pecuniary advantage and was last month sentenced to 40 hours’ community work.” Elliott altered invoices to obtain about $6000, including “work done on his personal property that was invoiced as part of a school construction project.” (March 2012) source
• “A former fine wine consultant at an exclusive Auckland auction house has been convicted of 16 counts of fraud after defrauding affluent clients of over $1.3 million – including faking vintages. Simon Gregory Mickleson, 43, appeared in the Auckland District Court yesterday pleading guilty to all 16 charges. He will be sentenced on June 14.”  (March 2012) source
• The chairman of the committee behind a high-profile national rugby tournament said yesterday he was devastated by the fraud charges laid against another Queenstown organiser. Police charged a 50-year-old Queenstown man with allegedly defrauding the annual rugby sevens tournament of $80,000.” (March 2012) source
• “A man who propped up his failing family farming business with a “brazen fraud” of more than $2 million has been sent to jail with his reputation in tatters. In the Feilding District Court yesterday, Peter Joseph Nitschke, 32, was sentenced to two years and three months’ jail on seven fraud charges relating to about $2.3m he obtained dishonestly.” (March 2012) source
• “Five people charged in the biggest alleged fraud in New Zealand history are expected in court in January. The Serious Fraud Office has laid 21 charges involving $1.7 billion against the five, who were involved in the affairs of South Canterbury Finance.” source
• Financial adviser, Robyn Claire Bugg, 50, from Hamilton stole more than $90,000 from her employer and was jailed for two years and four months. She pleaded guilty to 15 charges of fraud and was ordered to  pay $91,435 in reparation. The judge said  her premeditated and fraudulent offending had brought her former employer’s business, Watson Davies Transport, “to the brink of insolvency”. (October 2011) source
• 68-year-old James Lindon Graham  (the “Sukarno fraudster”) was sentenced to three years and two months for defrauding elderly North Otago and Canterbury investors of $1.6 million. He admitted 99 charges of fraud in the Timaru District Court before Judge Brian Callaghan. source
• A 44 year old  Wellington man  has appeared inWellington District court charged with defrauding St Patrick’s College of more than $126,000. He faces eight charges of dishonestly accessing a computer and one charge of money laundering. He has name suppression and remanded until September 2011. (August 2011)  source
• Jonathan Kirkpatrick,  53, former head of AUT’s business innovation centre pleaded guilty to stealing more than $500,000 over a nine-year period from the university. He is also a former dean of Dunedin’s St Paul’s Cathedral. (August 2011)
• “Hundreds of thousands of dollars have gone missing from the accounts of a taxpayer-funded (Auckland University of Technology) AUT is making an urgent audit into the suspected theft but would not reveal any details, including whether a staff member was responsible, how long the alleged offending remained undetected or how it was discovered.” It is thought $500,000 has gone missing (July 2011) source (see above)
• “Former National Finance director Trevor Ludlow has been convicted of seven charges relating to theft and false accounting. National Finance went into receivership in 2006 owing investors $24 million. …(He) was found to have breached the terms of the trust deed under which National Finance operated, defrauding investors of an estimated $3.5 million. This included about $2.7m of unauthorised or unsecured advances made to his Payless Car group of companies as well as undisclosed related party transactions totalling more than $800,000 to an audio company, a property in Fiji, and land purchased for another company he owned. ” (July 2011) source
• “A Tauranga detective’s wife convicted of stealing more than $25,000 from an elderly bank customer was found guilty of stealing a further $41,000 from another customer. Vicki Lee McCaskie, 45, who had worked at Westpac Bank’s Cherrywood Branch, pleaded guilty in Tauranga District Court this week to eight charges of obtaining by deception.” source
• “A former MP played a part in a fraudulent money-go-round involving children’s books, a Serious Fraud Office prosecutor has told a judge. The former MP, whose name is suppressed, is on trial in the Auckland District Court with three others accused of involvement in a swindle involving hundreds of thousands of dollars between 2003 and 2005.” (May 2011)
• “Caroline Farani is accused of stealing more than $100,000 from her employer in five months – and giving herself a $6000 pay rise on her first day at work. The 30-year-old, from Petone, Wellington, is alleged to have used the money to fund a lavish lifestyle that included overseas travel and high-tech gadgets.” (May 2011)
• “Police and the Serious Fraud Office (SFO) are investigating allegations of employee fraud at one of New Zealand’s oldest friendly societies, the Hibernian Catholic Benefit Society.” (June 2011) the former employee “allegedly stole more than $1 million from the society’s members over a number of years. source
• Rimutaka prison guard Johan Clarke jailed for two years and three months after pleading guilty to six charges of corruption which involved the smuggling of drugs (10 grams of methamphetamine and 10 ounces of cannabis) cellphones and food for two inmates over a period of five months.
• Rolleston woman, 41 year old Maria Anne Kahu, stole $1.03 million from her employer over a six year period to feed a lavish lifestyle. She was the office manager of a digital printing company in Christchruch . She was sentenced to prison for three years and nine months in April 2011
  
• After a 2.5 year old investigation by the Serious Fraud Office a former ACC national property manager, Malcolm David Mason, 50, received an 11 month home detention sentence after he pleaded guilty to three charges of bribery and corruption. He admitted to taking a of $160,000 bribe from a property developer and a business class trip to the 2008 Singapore grand prix.
• Accountant Richard Arthur Watson admitted stealing more than $5.4 million from the Ross Group. Watson, who was on a salary of $300,000, spent $2.7 million as a VIP at the Sky City casino. Gib Beattie, director of forensic investigation firm Beattie Varley & Associates, said senior staff in positions of trust knew how to exploit systems. “Business owners need to have a good hard look at how the money goes out, not just in, and a lot can be saved with regular audits.”
• “A Timaru accountant has been fined for his audit of a failed finance company, understood to be Mascot Finance. The New Zealand Institute of Chartered Accountants professional conduct committee has ordered that Martin Wakefield director Richard John White be “severely reprimanded” and pay costs to the institute in the sum of $2675 after breaches of its code of ethics and the fundamental principles of competence, performance and independence.” (Feb 2011)
• Charity worker Paul Tuba Mika, 55 sscammed millions of dollars from an elderly wealthy woman by telling her a false story that he had cancer. He is awaiting sentence for eight fraud charges (April 2011)
• Senior business manager Herminia Lanuza almost crippled the company she worked for when she stole more than than $2.7 million over six years and gambled the cash as a VIP high-roller at SkyCity.Her partner Divinia Granados, an accountant, also pleaded guilty to laundering stolen money through bank accounts. The missing millions were uncovered only after an unpaid tax bill was discovered in March 2008.
• A former MP is facing fraud charges involving nearly $2 million. He and two others are accused of being involved in a $1.8 million swindle of Auckland sports clubs, a children’s charity and various companies set up around gaming machines between 2003 and 2005. His name is currently suppressed.
• Police are investigating allegations that $100,000 of tax payers’ money went missing from the Taeaomanino Trust. ”It’s alleged family members were employed by senior managers but never actually worked for their salary, and expense claims were inflated.”  In October the trust was selected as a provider for the government’s Whanau Ora scheme.
• Auckland accountant, James Colin Raea was jailed for two-and-a-half years after being found guilty of 74 tax evasion and fraud charges. Three companies he owned owed Inland Revenue $860,000, in addition to his personal debt of more than $300,000. “The offending included filing false or misleading GST returns, and failing to file GST and income tax returns from property sales. Raea was an accountant for 10 years and a member of the New Zealand Institute of Chartered Accountants for 12 years.”
• “An ex-real estate agent allegedly used fake paperwork to secure bank mortgages in other people’s names as part of an elaborate property scam involving more than $10 million. The 38-year-old man, who has name suppression, went on trial in the Auckland District Court … facing Serious Fraud Office allegations that he deceived banks into lending money on 10 residential properties in Auckland.”
• “A Timaru accountant has been fined for his audit of a failed finance company, understood to be Mascot Finance. The New Zealand Institute of Chartered Accountants professional conduct committee has ordered that Martin Wakefield director Richard John White be “severely reprimanded” and pay costs to the institute in the sum of $2675 after breaches of its code of ethics and the fundamental principles of competence, performance and independence.” (Feb 2011)
• “A dental specialist and academic who fraudulently collected money from a company through forged invoices has been sentenced to community work and ordered to repay almost $10,000. Alan Graham Thomas Payne, 53, a specialist prosthodontist and former head of department at Otago University’s School of Dentistry, pleaded guilty in the Whangarei District Court … to two charges of using forged documents and one of obtaining money by deception.”
• “Two employees of a historic Hastings ice cream shop have admitted stealing more than $156,000 from the business over four years… The women said they had used it to buy food and clothes, and items on online auctions. Neither had previous convictions.”
• “An Auckland man has been charged with an alleged $1.4 million fraud at a security equipment supply firm…The Serious Fraud Office alleges (Martyn Tewsley Scott, 51, from Meadowbank) redirected invoice payments due to suppliers to bank accounts under his control while he was general manager of National Fire and Security Limited.”
• a 35 year old former business bank worker in the Waikato is fighting for name suppression after she was charged with defrauding $1.4 million from the bank and its customers.
  
• 65 year old Roger McClay, ex MP and Children’s commissioner, was sentenced to 300 hrs of community service for defrauding the charity World Vision, Parliamentatry Services and Keep New Zealand Beautiful a total of $24,687.10. The money  World Vision lost could have been used to construct “three rainwater harvesting tanks of 46,000 litres each at schools and development programmes to keep hundreds of children safe and healthy.”- trial judge . The money has been repaid.
• 28 year old Sarah Marie Olsen appeared in Hamilton court charged with deceiving Waikato buisnesses out of nearly $530,000 allegedly to maintain her lavish lifestyle. She will reappear in court on 17 August .
• “Stephen Gerard Versalko, 52, married with three children, lived the high life for nine years after siphoning $17,763,110.19 off 30 wealthy clients from ASB Bank, where he worked. Outside of buying property, his biggest spend was on sex – including $3.34m on just two Auckland prostitutes with whom he had long-term relationships.”
• A former Whangamata beneficiary who part-owned almost $1 million worth of property escaped a prison sentence and was instead given 350 of hours community service after fraudulently obtaining more than $100,000 in benefit payments.
• A Wellington woman has admitted a $2 million fraud, discovered after her employers found their profits were not as high as expected.  In Sept 2008 the company, whose name was suppressed, “noticed its profit margin had changed. Analysis of company finances between July 2003 and September 2008 revealed hundreds of fraudulent transactions using computer-generated invoices.” (April 2010)
• Canterbury racing, betting and travel industry figure Dennis Price stole from his new employer to cover up his frauds on another.
• A checkout operator at Hawera New World supermarket systematically stole nearly $100,000to maintain her gambling addiction. The theft was so severe that it almost put the supermarket out of business.
• Linda Allan, a 60 year old office administrator at a Whangamata building company Peter Davison Builders Ltd, stole more than $166,000 from her employer from September 2005 t0 August 2008. ” Her actions often resulted in the company’s account going into overdraft, causing the business to incur interest or dishonour charges amounting to $27,189.77. Her victim, Peter Davison, also paid out a further $35,500 in investigation costs and legal fees to resolve the company fraud. Allan’s offending was discovered only after she took sick leave and Mr Davison took a more “hands-on approach” to the company’s accounts.”
• A Work and Income government employee faced faces two years’ jail after using false identities and inventing a child to defraud more than $36,000 but she was given seven month’s home detention “Letitia Lilly Anne Proctor, 23, pleaded guilty in Palmerston North District Court …to four charges of fraud and one of computer crime carried out between August 27, 2008, and May 27 this year. She had worked for the Social Development Ministry since April 2006 and was a case manager at the Work and Income Palmerston North branch from July last year.” (June 2010)
•  53-year-old Peter Edward Hynes was extradited from Australia to face 41 fraud charges totalling $1.5 million. He left New Zealand when his company went into liquidation and it took several years to find him in Australia where he was living under an assumed name (July 2010)
• “The former manager of the Vincentian drug and alcohol rehabilitation centre in Christchurch has been charged with dishonestly obtaining subsidies totalling $1.37 million. A total of 465 charges have been laid by the Ministry of Health against Rodney David Mason, 57, who is now listed as unemployed…The trust was funded by the Canterbury District Health Board. In November 2008, planning and funding general manager Carolyn Gullery said the board was ending the contract due to ”serious governance and management issues with the trust” June 2010) See also Rehab manager admits fraud.