Rainy Day reading —The Spinoff : Ministry of Transport fraud case

The ever-deepening storm centred on the Joanne Harrison fraud case just became a hurricane. Yesterday’s State Services Commission investigation report is likely to trigger a new chain of events that could extend well beyond embattled Auditor General Martin Matthews, writes Peter Newport

### thespinoff.co.nz July 21, 2017
Politics
The Ministry of Transport fraud case: Why the rot goes deeper than Joanne Harrison
By Peter Newport | Contributing writer
The State Services Commission investigation, published yesterday, makes one thing very clear: Joanne Harrison influenced the exit of four fellow Ministry of Transport employees who tried to tell their bosses that she was a fraudster. She managed to hire friends and steal over $700,000 from the ministry despite numerous staff attempting to call attention to her actions. This all happened while she was reporting directly to then-chief executive Martin Matthews, who is now our auditor general – albeit on temporary leave. The Commission has now apologised and is offering compensation to those former staff members. Its report also highlights many other issues at the Ministry, arguing that the 17-year-old legislation that covers whistleblowers needs to be changed and improved.

A second investigation, into whether Martin Matthews is a suitable person to continue as auditor general, is due from Sir Maarten Wevers in the coming days. Matthews is currently constructing his response to the unpublished, but complete, Wevers investigation. He has been given until the end of this week to complete it.

The Harrison case has some similar dynamics to the Todd Barclay drama. It’s become less about the initial problem than how it was handled. Who told the truth and who tried to obscure or even bury the truth. The difference with the Harrison situation is that she is now in jail and the truth is coming out – fast.

The Spinoff has been looking at exactly who did what, and when. That job has been made easier by a new, recent MOT whistle-blower who has produced and provided to us a detailed timeline noting all the evidence, which we publish here, utilising material released by the Ministry of Transport and available to view here. The same whistle-blower has shared a bizarre insight into Martin Matthews’ statements during his time at the Ministry of Transport.

But first, a quick tour of the jigsaw puzzle of documents that reveal a picture of Martin Matthews being given not clues, or hints, but what appear to be multiple solid facts that highlighted Joanne Harrison as a Grade A con artist and thief.
Read more

Founded in 2014, The Spinoff is New Zealand’s fastest growing media startup, amassing a monthly New Zealand audience of over 500,000 in less than three years.
We’ve assembled a team of agenda-setting journalists and critics, working across text, audio and video to create a true 21st century media brand. In just two years, The Spinoff has been nominated for 24 Canon awards, winning six. Our growth has been driven by a creative editorial style and innovative business model, emphasising long-term relationships with like-minded brands and a close connection with a young, educated and urban audience. Duncan Greive won both NZ Marketing Magazine‘s Editor of the Year as well as the People’s Choice title for Editor and Media Visionary in their media issue, July 2017. The Spinoff also claimed the title for Digital Media Brand of the Year as well as the People’s Choice title for the same award.

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Comment received from russandbev
2017/07/21 at 10:52 am

The recent revelations about what happened to the whistleblowers in the Ministry of Transport have, I’d suggest, application in Dunedin. Think of the parallels. In the MoT case a manipulative person with a barely-hidden track record of fraud and vindictiveness as well as a well developed sense of entitlement goes about systematically defrauding a government department of close on 3/4 million dollars. Not through some incredibly complex fraud, but one of simply creating business that didn’t exist and creating invoices from them for services that were never provided. Not exactly something that would take a lot to investigate.

Whistleblowers blow the alarm whistles to their managers and nothing happens and the further up the chain the questions were asked, the more dismissive the denials became. Meantime the fraudster moves against the whistleblowers. The Head of the Ministry moves on to even more wondrous things as Auditor General (is that ironic or is that ironic?) and the Minister dismisses all suggestions of wrong-doing. Even the Speaker of the House who employs the Auditor General doesn’t want to get involved.

Now found that the whistleblowers were entirely vindicated by their concerns and they get private and public apologies and a confidential settlement to, in part, recompense them for their treatment by both a fraudster and by management and governance failures. The Protected Disclosures Act [2000] is supposed to protect whistleblowers in BOTH public and private sectors.

Now, I don’t think anyone is suggesting fraud in the case of Aurora/Delta and that should be made plain. However look at the track record of these companies. A fearful record of stupid property speculation costing many many millions which is still going on thanks to Yaldhurst. A willingness to go along with borrowing to supply dividends to the DCHL and the DCC. Decades of ignoring maintenance on the Aurora network closely linked to the governance requirements to minimise costs, maximise profits and supply dividends to build vanity projects by the owners and now the spendup of northwards of 3/4 billion dollars on urgent maintenance bought about these years of neglect.

And then think of the years and layers of denials that these things happened over. When Richard Healey found he could no longer keep working in the company because of all that was being hidden, he gets vilified by EVERYONE that should have listened. EVERYONE is in denial including his past Managers who continued to receive their grossly inflated salaries and those in governance – many of whom refused to even sit down with him and discuss his concerns.

Am I the only one to see the parallels in how a Ministry or a City company deals with whistleblowers? I wonder if we will ever see similar end results in the case of Richard Healey?

{Link added. -Eds}

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Reply from Elizabeth
2017/07/21 at 1:02 pm

Not involving Aurora:

Charges of Constructive Fraud have been brought, by joinder, against Delta Utility Services Ltd in the Christchurch High Court by the caveators (original property owners of the Noble Subdivision) at Yaldhurst. The case proceeds.

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█ Transparency International New Zealand
http://www.transparency.org.nz/

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Related Posts and Comments:
19.7.17 Southern Police : Nothing changed since Tom Lewis wrote Coverups & Copouts
18.7.17 Delta | Infinity | CCC staff collude to defeat Yaldhurst residents (again)
23.5.17 Topical debates on Corruption in New Zealand
22.2.17 Some Councils/CCOs get cleanup from FRAUD and CORRUPTION #NotAll
9.12.16 Auckland corruption charges proved —ring any bells? #South
28.1.16 New Zealand local government T-shirt #haze #corruption
20.9.15 Corruption serious threat to New Zealand #CAANZ
14.9.15 Screening tonight: Paradigm Episode 2! Local Government Corruption in NZ #Sky #YouTube
23.7.15 Publicise: laudafinem.org
13.5.14 Stuff: Colin Espiner usefully defines Corruption

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Posted by Elizabeth Kerr

This post is offered in the public interest.

Topical debates on Corruption in New Zealand

At Twitter:

It shouldn’t be career ending to get done over by a crooked employee but it should mean you can’t be Auditor-Generalhttps://t.co/wvMn1dehUU

— Matthew Hooton (@MatthewHootonNZ) May 22, 2017

A convicted fraudster apparently headed an inquiry into workplace harassment just months before she was arrested https://t.co/FqTA5VgyRZ pic.twitter.com/fAKwp0hsuI

— nzherald (@nzherald) May 22, 2017

Other media items:
22.5.17 Can the Auditor-General be trusted to combat corruption?
21.2.17 NZH: Ex Ministry of Transport manager jailed for $726k fraud
26.8.16 Former Ministry of Transport fraudster denied bail

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Read Bryce Edwards’ full opinion piece linked below, and the associated reference links.

It’s Worth Your While Dunedin
Because you know instances of this bigger story, and you know them well.

The following is an abridgement.

This website has bolded some words provided by Mr Edwards and the commentators he cites. Words that bloggers increasingly have a ‘steam problem’ to include in everyday use of the English language.

So much for district heating schemes, eh.

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### NZ Herald 2:48 PM Tue May 23, 2017
Political Roundup: The unaccountability of elites
Politics
By Bryce Edwards
OPINION —How much accountability is there in New Zealand politics and public life? Not enough, it seems, going on recent controversies. Mistakes by those in authority can lead to disasters and misfortunes of various magnitudes. Yet a number of recent examples – ranging from the Pike River tragedy through to the Havelock North water contamination crisis – suggest that there is often a worrying lack of consequences or accountability for the authorities involved.
Following on from yesterday’s Political Roundup column about managers failing to prevent serious fraud in a government department (Can the Auditor-General be trusted to combat corruption?); an obvious question is whether New Zealand has a culture in which there’s a lack of accountability for elites who make serious mistakes.
This need for this question is further underlined by Peter Newport’s strongly argued opinion piece, Is fraudster Joanne Harrison’s old boss really fit to lead NZ’s top public watchdog? In this must-read piece published yesterday, Newport details all of the whistle-blowing attempts to alert Ministry of Transport managers to the crimes being committed in the government department, and how those whistle-blowers then lost their jobs, seemingly as a result. Reading Newport’s account, it seems that much of the fraud was entirely preventable. He asks: “Where was human resources? The Public Service Association? The police? The SFO? The auditor general? The chief executive? This all happened in a modern New Zealand government ministry. In the full light of day.”
He concludes that “the chief executive, and his successor, have consistently refused to properly investigate either what she got away with or the further systemic failings behind the scenes… It’s disgusting. Where does the buck stop and who gets the whistle-blowers their jobs back?”
….[break]
Part of New Zealand’s democratic deficit relates to a lack of a culture of accountability in public life and governance. According to Karl du Fresne, “Accountability, the long-established principle that someone should be seen to take responsibility for serious mistakes, is frequently talked about but rarely practiced” – see his column, Accountability the price of keeping the system honest. He makes some important points about the apparent decline in standards of accountability in political and public life in New Zealand, pointing out that the end result, is “public confidence in ‘the system’ continues to be steadily eroded.” This is a major democratic problem, says du Fresne: “If no one ends up accepting personal responsibility and incurring a penalty, there’s little incentive to make sure it doesn’t happen again. […] Part of the problem is that “genuine political commentary and critical analysis in New Zealand has been eroded almost to the point of non-existence over the past few decades”. This is the view of Bob Gregory of the Victoria University of Wellington, who links the decline of accountability to the decline of public debate and information…..
….[break]
So, does all of this lack of accountability mean that New Zealand is possibly more vulnerable to corruption than people assume? This is discussed by former parliamentary staffer Grant McLachlan in his opinion piece, NZ should raise the bar on corruption. McLachlan suggests that New Zealand isn’t well protected from corruption: “Our processes to deal with corruption are flawed. […] When a judge in our highest court doesn’t declare a conflict of interest, the Attorney-General shouldn’t offer the judge a golden handshake to save the taxpayer the cost of an inquiry. When a dodgy mine explodes killing 29, out-of-court payments should not influence the dropping of a prosecution. The Protected Disclosures Act was meant to protect good faith whistle-blowers when reporting ‘serious wrongdoing’. Poor internal processes, however, have resulted in witch-hunts and whitewashes.”
….[break]
Finally, does the culture of misinformation and opaque politics play a part in limited accountability? Graham Adams thinks so, and says that there’s good reason for being appalled by the deception that comes out of government these days. He says “Kept in the dark and fed endless bullshit, it’s difficult for even engaged citizens to make sense of much in New Zealand’s public and political life” – see: Information underload: We’re all mushrooms now.
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█ Bryce Edwards, until recently a lecturer in Politics at the University of Otago, researches and critiques New Zealand politics, public policy, political parties, elections, and political communication. His PhD, completed in 2003, was on ‘Political Parties in New Zealand: A Study of Ideological and Organisational Transformation’. He is currently working on a book entitled ‘Who Runs New Zealand? An Anatomy of Power’. He is also on the board of directors for Transparency International New Zealand.

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Posted by Elizabeth Kerr

This post is offered in the public interest.

[picdn.net]

DCC Annual Report to 30 June 2012 – borrowing and interpretation

DCC Annual Report (PDF, 1.1 MB)

Comments received.

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Mike
Submitted on 2012/11/18 at 12:48 pm
well spotted – so in essence DVML quietly borrowed an extra $8.5m and managed to transfer it to the DCC without incurring any tax because it was a ‘capital gain’ rather than a ‘dividend’

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Rob Hamlin
Submitted on 2012/11/18 at 2:07 am
Another little gem from the DCC annual accounts. A positive little Kimberly it is. Calvin Oaten and I found this little morsel from the sewers of local government yesterday and will now share it with you.

On page 132 it has a table of figures titled ‘Separately Disclosed Revenue’. One line entry towards the bottom is particularly interesting. The title is ‘Profit on sale of Stadium (2012)……. $8,480,000’. This profit appears in both ‘Core Council’ (DCC only) and ‘Consolidated’ (Council & DCHL) columns.

Initially, this seems like great news. We’ve sold the bloody thing and got eight and a half million dollars for it. But, as is always the case, things are not all as they appear.

Nearly sixty pages later, on page 188, we have the following sheet of gibberish:

“Sale of Forsyth Barr Stadium to Dunedin Venues Limited

On the 31 May 2012 the Council sold it’s [sic] interest in the stadium to a wholly owned subsidiary Dunedin Venues Limited. This was the culmination of a project spanning five years during which time the method of delivering the project changed and as a result there is a technical accounting surplus on disposal of $8,380,000. The following note is an explanation of these technical accounting issues.

Book Surplus on disposal of the stadium $ ‘000
Sale price 225,000
Capitalised stadium cost including interest 216,520
Surplus on sale of asset as per 2012 Annual Accounts 8,480
Less stadium costs written off to operations in 2007-2008 5,537
Plus stadium revenue included in operations in 2007-2008 (583)
Surplus on disposal 3,526

Book surplus on disposal of the stadium
The method of undertaking the stadium project changed over the years of the project. The accounting treatment always followed the method of project delivery and was audited as being the correct treatment at the time. In 2007–2008 year it was expected that the project would be delivered by a third party and that the Council expenditure was therefore operational. This resulted in $5,537,000 being correctly expensed in 2007–2008 year. In subsequent years once the decision was made that the Council would build the stadium, the expenditure was correctly capitalised. The surplus of $3,526,000 would remain as it is the difference between all the costs incurred by the Council and the sale proceeds received.”

Also on page 123 we have this note to one of the CCO fragmentary reports:

“CCO Property Plant and Equipment
All CCO property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses.
The Stadium is a separate class of asset and is recorded at cost less any accumulated depreciation and any accumulated impairment losses.”

So what happened? Well, you may remember that the total cost of the Stadium came in at around $216.5 million. Then, last year the DCC acquired a ‘valuation’ for the Stadium (God knows how and God knows from who) of $225 million. Its commercially realisable value is in fact, as we all know, the commercial value of the site minus the costs of demolition and removal, which is as near zero as makes no difference.

However, it now appears that DVL then ‘bought’ the stadium from the DCC at this higher valuation. It is hard to see any good reason why they would do this, as the historical cost of the stadium itself was $216.5 million – this figure would have fitted well with their own policy for valuation in the note on page 123. As the structure was brand new when ‘bought’, a second valuation was unnecessary. The historical cost of construction would have been more than adequate as a transfer price.

However, it appears that this unnecessary valuation exercise and its absurd outcome has allowed a further $8.5 million to be transferred from DCHL to the DCC this year on top of the $17.95 million handed over as a dividend, for a total of $26.45 million. It can also be claimed now with a straight face that DVL are acting in accordance with their requirement to record assets at cost as $225 million is what they ‘paid’ for it!!

Now let’s deal with the gibberish on page 188, which covers the financial year 2007-2008 (presumably ending 1 April 2008). Apparently, this specific structure incurred over five and a half million dollars of costs and over half a million dollars of REVENUE!!! before it had been fully designed or even approved as a specific entity that the DCC was actually going to construct! The final approval came nearly a year later I seem to recall.

I personally find this reduction in this ‘accounting profit’ to be wholly incredible. I can also find no adjustments matching this $5 million or so in the costs side of the DCC’s figures – even though the $8.5 million extra revenue appears in its entirety. Mind you, in the 200 pages plus of fragmentary and largely useless figures, I guess that I could have missed it.

Page 13 is also interesting. It is entitled ‘Audit Report’. Properly audited accounts require a signed statement by the auditor to form part of them, stating that the auditor’s unqualified opinion that they are satisfied with the accounts – or a statement of their reservations (qualifications) if they are not.

Page 13 is blank (surprised?)

On page 1, we have the following statement:

“This report asks the Council to approve and adopt the Annual Report for the year ending 30 June 2012.

The Director of Audit New Zealand responsible for the audit and the Audit Manager will attend to discuss the audit and answer any questions from councillors.”

In my opinion this is utterly inadequate basis upon which to approve this report. It should not have been even presented to Council, let alone approved, without a complete auditor’s report being attached to it.

It seems that the Council will have to find $25 million plus in savings by next year just to tread water, and that’s if we don’t get any more unpleasant surprises. Interesting times.

[ends]

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Posted by Elizabeth Kerr

Dunedin City Council – all reports posted, belatedly!

Annual reports for council-owned companies were withheld from public and media scrutiny, without notice, prior to the council meeting held on Monday, 29 October 2012. The Mayor of Dunedin Dave Cull and DCC chief executive Paul Orders are individually responsible for deliberately withholding this financial information. Although, along with them, we suspect other players in the woodpile.

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### ODT Online Wed, 31 Oct 2012
Report about stadium loss slips under radar
By Chris Morris
A worse-than-expected $3.2 million loss recorded by the company running Dunedin’s Forsyth Barr Stadium did not rate a mention at this week’s Dunedin City Council meeting. It emerged yesterday Dunedin Venues Management Ltd and Dunedin Venues Ltd’s annual reports had quietly slipped through Monday’s full council meeting without a question or word of debate. There had been no mention of DVML or DVL on the meeting’s public agenda, and it appeared the reports had not been circulated publicly, to media or even some council staff, as required, in the days before the meeting, the Otago Daily Times discovered yesterday.
Read more

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DUNEDIN CITY COUNCIL AGENDA
MONDAY, 29 OCTOBER 2012, 2.00 PM
COUNCIL CHAMBER, MUNICIPAL CHAMBERS29 October 2012

Agenda – Council – 29/10/2012 (PDF, 118.9 KB)

Report – Council – 29/10/2012 (PDF, 77.9 KB)
ISCOM Approved Out of Water Supply Area Connection – Mr J D MacDonald, 3509 Sutton-Clarks Junction Road, RD 2, Outram 9074

Report – Council – 29/10/2012 (PDF, 1.1 MB)
Approval and Adoption of Annual Report

Report – Council – 29/10/2012 (PDF, 788.2 KB)
Vehicle Access John Wilson Ocean Drive

Report – Council – 29/10/2012 (PDF, 4.6 MB)
Speed Limits Bylaw Review

Report – Council – 29/10/2012 (PDF, 978.0 KB)
Speed Limits – Safer Speeds Demonstration Area

Report – Council – 29/10/2012 (PDF, 1.8 MB)
Submission on the Local Government Regulatory Performance Issues Paper

Report – Council – 29/10/2012 (PDF, 155.1 KB)
Meeting Schedule for 2013

Report – Council – 29/10/2012 (PDF, 1.2 MB)
Aurora Annual Report 2012

Report – Council – 29/10/2012 (PDF, 1.8 MB)
Delta Annual Report 2012

Report – Council – 29/10/2012 (PDF, 813.7 KB)
Dunedin International Airport Annual Report 2012

Report – Council – 29/10/2012 (PDF, 1.0 MB)
Dunedin Venues Limited Annual Report 2012

Report – Council – 29/10/2012 (PDF, 1.1 MB)
Dunedin Venues Management Limited Annual Report 2012

Report – Council – 29/10/2012 (PDF, 225.0 KB)
Taieri Gorge Railway Annual Report 2012

Report – Council – 29/10/2012 (PDF, 2.8 MB)
Dunedin City Treasury Annual Report 2012

DCC Link

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### ODT Online Wed, 31 Oct 2012
Stadium finances dismay
By Chris Morris
Dunedin Mayor Dave Cull says the Forsyth Barr Stadium’s finances are “not sustainable”, after confirmation the company running the venue lost nearly $1 million more than expected in its first year of operation. The result was contained in Dunedin Venues Management Ltd’s 2011-12 annual report, released to the Otago Daily Times yesterday, which showed the company lost $3.2 million in its first year. That was $814,000 worse than the $2.4 million loss forecast in May, when DVML’s revelations of a half-year, $1.9 million loss prompted the council to launch a review of the entire stadium operation.
A copy of Dunedin Venues Ltd’s annual report was also released yesterday, and showed the company that owned the stadium – and received rent from DVML – recorded a $4.312 million loss for the same period.
Read more

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Posted by Elizabeth Kerr