Stuff: Alleged vehicle fraud at DCC

Stuff has been told the council’s former chief executive, Paul Orders, investigated concerns about possible fraud within Citifleet/Citipark raised by Dunedin City councillor Lee Vandervis and found nothing untoward.

### stuff.co.nz Last updated 21:27 02/07/2014
Dunedin council’s vehicle network revealed
By Wilma McCorkindale – Fairfax News
Investigations into alleged vehicle fraud at the Dunedin City Council Citifleet/Citipark unit have unravelled a vast network of vehicle transactions over the past 11 years, an informed source has told Stuff. The probe has been under way for more than a month. Accountancy firm Deloitte was commissioned to investigate whether dozens of Dunedin City Council fleet vehicles had been sold and the proceeds pocketed. The investigation was sparked when discrepancies appeared in the number of fleet vehicles recorded by the council’s fleet unit Citifleet/Citipark.

The investigation has shocked those in the Dunedin car retail, automotive, and enthusiast community.

Stuff has been told this week the council gave Deloitte investigators a list of council vehicle movements through a network of buyers and subsequent owners over the 11 years. It included buyers of the vehicles, who now owned the vehicles, and how long they had owned them. At least three people, who took ownership of many vehicles, are among those in a network under suspicion of being involved in the fraudulent activity.
Stuff understands Citifleet/Citipark manager Brent Bachop, who died on May 21 in a suspected suicide, was allegedly among the network of buyers. It is understood Bachop had been told that discrepancies had been found in vehicle numbers within his unit. Bachop had worked in the unit for more than 20 years, the past 10 or so as manager.
Read more

Related Posts and Comments:
1.7.14 DCC: Far-reaching fraud investigation Citifleet
3.6.14 DCC unit under investigation

Posted by Elizabeth Kerr

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22 Comments

Filed under Business, DCC, Democracy, Economics, Media, Name, New Zealand, People, Politics, Project management, Property

22 responses to “Stuff: Alleged vehicle fraud at DCC

  1. Elizabeth

    Received from Jeff Dickie
    Thu, 3 Jul 2014 at 9:57 a.m.

    On Tuesday, 1 July 2014 3:12 PM, Cushla Turner wrote:

    Dear Jeff,
    Thank you for your letter to the editor received recently. The contents have been noted. However, it was not selected for publication.
    Kind regards,
    Cushla Turner
    Editor’s Secretary
    Otago Daily Times

    ————

    On 30/06/2014 12:46 PM, Jeff Dickie wrote:

    Observing local government in Dunedin over the past dozen years has been like watching an ongoing Monty Python sketch, only sillier. The latest allegations of fraud regarding Citifleet, involving hundreds of thousands of dollars, must surely be a wakeup call for ratepayers. How can numerous vehicles simply go missing with nobody noticing? The answer is ego and failing to stick to core business. Two successive mayors have been distracted by a series of large expensive vanity projects. Had a close eye been kept on various DCC entities, such as the CST, DVML, DVL, Delta, and now it appears Citifleet, ratepayers would likely be hundreds of millions of dollars less in debt.
    Instead, we have seen an expensive and wasteful distraction with the failed Chinese hotel project, and professional rugby manipulate gullible and weak politicians and officials at a massive cost. Council continues to spend borrowed money to fund a proposed office in Shanghai, to look into registering cats, and to fund a very poorly thought out cycleway. One can only wonder what other financial skeletons there are in the DCC closet? There might be a use after all for the $3,900 camel leg irons recently bought by the mayor!

    Jeff Dickie, Woodhaugh

    • Beck Enham

      Jeff, another letter of yours that deserves to be read. The ODT advisory is a standard format reply re editorial decisions. I have received several, with good reason, in my case. The alternative is a ‘To Correspondent’ note in Letters column. I believe this to be the case, but, really, what would a fugitive of ‘The Weather Underground’ know?

  2. Bev Butler

    The question now needs to be asked: Who did Paul Orders get to investigate the concerns of possible fraud raised by Cr Lee Vandervis and why was nothing untoward found?

  3. Rob Hamlin

    The answer Bev lies in the difference between a normal audit and a full forensic audit. A normal audit tends to only look at documents. A full forensic audit looks at the relationship between documents and reality. Due to the time and effort involved full forensic audits are usually only applied to a very small part of an organisation’s activities. The discovery of ‘audit defeating’ activities such as false documentation is usually the trigger and indicator of target.

    Let us examine two simple fraud procedures when applied to a car fleet.

    FRAUD 1 – Transaction Fraud

    1. Ten cars are ordered from a dealer, but only eight are delivered at a cost of $30,000 per unit. The dealer may be ‘in’ on this, or the documents for purchase of ten may be forged without their knowledge. The dealer gets paid $300,000, on paper, but only $240,000 is paid in reality. The remaining $60,000 is lodged elsewhere at 4% compound.

    2. For three years, the fleet has eight real cars and two paper ones. They are all depreciated at 30% pa ‘straight line’ or at whatever is the maximum rate.

    3. By the end of the third year the eight real cars are sold on the open market for $3,000 or equivalent.

    4. The two paper cars are also ‘bought’ out of the fleet using identical documentation for $6,000 taken from the $60,000 (which has by now grown to $67,500).

    5. The residual $61,500 is now pocketed.

    FRAUD 2 – Depreciation Fraud

    1. Ten cars are ordered from a dealer, and are delivered at a cost of $30,000 per unit. The dealer gets paid $300,000.

    2. All ten cars are depreciated at 30% pa ‘straight line’ or whatever is the maximum rate.

    3. By the end of the third year the ten cars have a paper value of $30,000 ($3,000 per vehicle), but an actual market value of $120,000 ($12,000 a vehicle).

    4. The cars are ‘bought’ out of the fleet for $3,000 a unit by an entity that is specially set up to do so and are then onsold on the open market for $12,000 per unit, or for some lesser wholesale rate if a degree of ‘fencing’ is involved.

    5. The residual $90,000 profit is then pocketed.

    There is of course no reason why both frauds cannot be run at the same time to generate a greater profit!

    The fact is that a normal audit will not pick this up, unless an aggressive stocktake forms part of it, and even then this would only pick up Fraud 1, and even then only if it caught the fraud ‘in delicto flagrante’ before the paper vehicles were sold out. Such a stocktake would have to check VINS etc to defeat attempts to bring in ‘guest’ vehicles (no pun intended) for the duration of the stocktake.

    A full forensic audit locates items in real time and traces their history to match paper with events and apply a plausibility test to them. Depreciation fraud like Fraud 2 displays no unit discrepancies and can thus only be picked up by an involved audit of this nature. One can appreciate just how much work and unpleasantness is involved – especially when the targets are uncooperative!

    Discovered vehicle discrepancies would be characteristic of Fraud 1. Attempts to trace vehicles through multiple subsequent ownerships would be characteristic of investigations of Fraud 2 or something similar, or even more primitive such as straight theft. Both activities are mentioned in this Stuff article. There are various flavours of both these frauds, and many other basic fraud platforms too.

    There is one common feature – all of these serious audit-defeating frauds involve falsified documents and/or third party connivance. It is for this reason that the discovery of even one falsified document should be taken very seriously. Third party connivers are in my opinion equally guilty and should be pursued with equal vigour, but in my experience (Swann’s mate excepted) they rarely are.

    I used to chase these for living. I can remember one delightful incident when I was standing outside a hangar in which there were supposedly two corporate jets. Eventually after absolute insistence from my boss, the keys were reluctantly produced and the hangar opened.

    Inside were about half a dozen rusty oil drums – sic transit gloria!

  4. Elizabeth

    Thanks Rob. Also need to look at fleet maintenance service contracts with local providers. Some outrageous billing has occurred, for many years. The investigation for fraud has lots of avenues, shall we say.

  5. Phil

    Stuff is on the money. So to speak. Shame that ODT couldn’t be bothered to go to the same amount of effort. My understanding is that members of a local car enthusiast club benefited by virtue of having repairs carried out by local car repair companies at a lesser then normal rate, with the car repairs companies being compensated by repairing DCC owned vehicles for a higher than normal rate. I am not suggesting that the club members knew that anything illegal was happening. A lot of businessses offer discount to DCC staff employees in order to attract volume buying. Nothing unusual in that and club members may have thought that they were taking advantage of a similar extended offer. However, and if the above is shown to be correct, then the car repair companies were clearly and knowingly in on the scheme. The car dealer(s) obviously were, as there must have been more than one payment made for each car sale. One for the DCC books and one (as Rob describes) not. The problem for any criminal investigation is whether or not any of these private business knew at the time that there was fraud involved (or should have known) or whether or not they were told that it was an approved transaction. Sadly, we’re only ever likely now to get one side of the story.

  6. Peter

    I agree, Phil. Wilma Mc Corkindale’s report is far more informative.

  7. In answer as to why the ODT doesn’t seem to be motivated in some instances to search for and report the real stories, perhaps lies in Chris Trotter’s column in this morning’s ODT. It almost looks like it.

  8. Elizabeth

    Barry Stewart on Channel 39 news says tomorrow’s ODT has “more on the alleged $1 million fraud at the Dunedin City Council”.

    Stuff’s story must have rustled up some action at the editorial snakepit.

  9. Hype O'Thermia

    The ODT should try the internet, it’s amazIngly quick for finding out what’s happening not merely a few blocks up the road – all over the world, no exaggeration. I admire their staunchness in continuing to support Pony Express, but realistically in 2014 they need to keep up with what’s happening. Either that or rename – Otago Several-Days-Ago Times.

  10. Phil

    Interesting triangle between the dealership mentioned, the local hotrod club, and the local gym group. Ain’t a big town. Jimbo impresses yet again with his verbal gymnastics. He could weasel for NZ. Meanwhile Athol chooses to play just plain difficult.

  11. Anonymous

    “How the hell did it happen?” –Staynes

    Because credulous individuals are in charge of an organization with insufficient oversight and governance.

  12. Whippet

    “How the hell did it happen?” Just ask Swann. Elected people asleep at the wheel.

  13. ‘How the hell did it happen?’— Staynes. DUH?! It’s the “Culture Stupid!” You have been there long enough to know that if you had just looked around you. ‘Monkey see, Monkey do’, that’s the way it is. Internal and external audits saw nothing. TEN YEARS! and no-one saw anything. Mr Harland was indeed in charge of ‘La La Land’ while the Mayor and councillors were ‘bamboozled’ by the administration. We have to bet that this is not the finish. ‘We ain’t seen nothin’ yet’. Watch out for the Property Dept, maybe a little peek at the traffic fines control, all manner of operations. When the ‘wide boys’ can see an opportunity they go for it in spades. No-one can convince me that there was not a lot of blind eyes in that building right from the top to the bottom, and plenty of reasons for being blind. I suspect that in the end not much will happen as it will largely lie with elected council to decide. The top brass have never shown any liking for accountability, but rather a ‘see no evil, hear no evil, steady as she goes let’s make this the best little city on the planet attitude’. Oh Yeeeaahhh!

  14. Elizabeth

    Earlier:

    ### whaleoil.co.nz July 1, 2014 at 4:00pm
    Looks like Dunedin City Council will have a use for those shackles after all…
    By Cameron Slater
    Looks like Dunedin City Council will have a use for those shackles after all. A fraud probe is looking into whether dozens of Dunedin City Council vehicles were sold over the past decade, and the proceeds pocketed. Profits from the purchase and sale of Citifleet vehicles, allegedly amounting to more than $1 million, were being investigated, Stuff has been told. […] Most ratepayers no longer have much confidence in their councils as they run away with their rates dollars spending on frivolous items, pet projects and covering up idiocy or lack of proper controls. The problem with all councils is idiots are elected but the council staff remain no matter how tough a mayor or council may be. They are empire building little Mussolinis in the most part and totally out of control of the elected officials. As councils have got bigger through amalgamations so too have the problems.
    Read more

  15. Elizabeth

    █ ODT stops Comments at each story.

    Dunedin City Motors dealer principal Robert Bain, contacted by the ODT, yesterday confirmed his company was ”assisting Deloitte in their inquiries”. […] Allegations a handful of car dealers had been favoured over others in the city are being investigated. (ODT)

    ### ODT Online Sat, 5 Jul 2014
    Complex web uncovered in $1m Citifleet investigation…
    By Chris Morris
    A Dunedin family and at least one of the city’s car dealerships have been linked to an investigation into an alleged $1 million fraud within the Dunedin City Council’s Citifleet department, it has been confirmed. The Otago Daily Times has been told about 25 of the vehicles missing from Citifleet appeared to have been sold to members of a Dunedin family, unconnected to the council or to any city motor vehicle dealership, before being on-sold. Much of the sales history has been identified by staff from independent financial consultant Deloitte, which is examining transactions while investigating alleged fraud for the council.
    Read more

    ● The Deloitte report is expected to be completed by mid-August.

    ****

    ### ODT Online Sat, 5 Jul 2014
    ‘How the hell did it happen?’ – Staynes
    By Chris Morris
    Dunedin deputy mayor Chris Staynes has a simple question as the Citifleet investigation continues: “How the hell did it happen?” […] The council had internal and external audit processes in place, but they had failed to detect any sign of trouble within Citifleet until a change of process identified a ”discrepancy” earlier this year. The ODT understands the discrepancy involves up to 100 missing vehicles which are believed to have been sold, with up to $1 million in sale proceeds unaccounted for. […] Former council chief executive Jim Harland – who quit in 2011 after more than a decade in charge – defended his handling of the organisation. […] the council’s former finance and corporate support general manager, Athol Stephens, who oversaw the procurement process […] who was also acting chief executive when Mr Harland resigned – declined to comment about details of the investigation, or the council’s processes, yesterday.
    Read more

    • Hype O'Thermia

      Gee whillikers and golly gosh old bean, no comments allowed, I’m astonished!
      Who could have predicted that?
      It’s almost as if someone wants to protect rotters. Some people might add further information from their own observations. Aren’t they lucky there are other places to comment!

  16. I see Cameron Slater talking about Muscleinis, er, Mussolini. On the subject of military readiness, the sharrow on the Roads actually indicate a Corporal on an Army Indian crossing.

  17. Elizabeth

    It appears the issue arose when the new group chief financial officer, Grant McKenzie, insisted earlier this year on ”independent oversight” of the council asset list. (ODT)

    It is important, too, the police are brought in when businesses discover what has gone on. Simply insisting an employee leave, an understandably easy way out, can just pass the problem on. (ODT)

    ### ODT Online Sat, 5 Jul 2014
    Editorial: Fraud warning for everyone
    OPINION The suspected disappearance of dozens of vehicles at the Dunedin City Council is a wake-up call not just for the council but for all organisations and businesses. While fraud is yet to be established in this case – and may not be – deceit and misappropriation are all too common. […] What the city council story, at least so far, tells us is that complacency can be dangerous. Proper processes, audits, independent checks and proper supervision are all necessary. But this can be time-consuming and add to costs, and so an effective and efficient balance is required.
    Read more

  18. Elizabeth

    Old Chestnuts

    It is important, too, the police are brought in when businesses discover what has gone on. Simply insisting an employee leave, an understandably easy way out, can just pass the problem on. (ODT 5.7.14)

    —————

    [last days / dates of exit]

    29.10.10 – Why did Jim Harland leave suddenly. Fired or given options.

    17.10.11 – Grant Strang fired or given options. Lump-sum payment: $167,527.

    28.11.11 – Graeme Hall fired or given options. Lump-sum payment: $214,845. LinkedIn profile updated (January 2014): Journey manager (employed by NZTA’s Jim Harland).

    14.3.13 – Was Athol Stephens fired or given options.

    28.4.14 (announced) – Was Robert Clark fired or given options.

    26.3.14 (announced) – Was Steve Prescott fired or given options. Contribution: $7000 towards legal expenses, plus undisclosed entitlement sum. DCC’s Mick Reece provides reference – Prescott gets new job at Ashburton District Council.

    2013/14 – Was Guy Hedderwick (ex DVML commercial manager) fired or given options. 2013 based at Adelaide on part-time contract with DVML. Patterns of work expenditure launch Crowe Horwath review (May 2014) – Hedderwick allegedly dismissed for another (serious) reason picked up by Review, not invoice fraud.

    21.5.14 – Brent Bachop (Team Leader – Citifleet) dies suddenly. Ongoing fraud investigation into Citifleet/Citipark unit.

    This list is not complete.

  19. Jacob

    Strange that the insurance company is paying out thousands of dollars on an alleged fraud before the police have established that it was fraud.

    {Link added; earlier loaded at another thread. -Eds}

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