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March 2004 Edition----to page back through Previous Editions click here

This month we celebrate the recent demise of New Zealand’s hitherto Commerce Minister. Dancing with the plus key is permitted. Ms Dalziel was one of the few people to publicly congratulate Liz Hickey on her appointment with the International Accounting Standards Committee in May 2003. Ms Hickey of course was the audit partner who feigned mistakes and misjudgments to allow the Bank of New Zealand to overstate its 1990 profit by about $70m. Ms Hickey had been Chair of the Accounting Standard Review Board until May (a Dalziel appointment) and of course had languished on the Securities Commission since before exposure of her BNZ deeds in 1993, the last pathetic reappointment also being a Dalziel one.

Ms Dalziel made two female appointments to the Securities Commission following Ms Hickey’s departure giving the commission a female majority. She also made two reappointments at that time. Reappointments give appointees the message that if they forget about independence of thought and tow the appointor’s line there may be further rewards awaiting them.

The Securities Commission claims to be still investigating something about Tranz Rail, the company that operates New Zealand’s railway network. Its rather hard to be sure just what it is investigating but by investigating it keeps the lid on suspicion of scandals until they seem too old to be concerned about.

What the Securities Commission should be concerned about was the purchase of Tranz Rail shares by many New Zealand insurance related fund managers, on behalf of the funds which they manage. This took place in February 2002. A whole range of anomalies were present in Tranz Rail’s annual accounts for the year ended 30 June 2001. These included: 1 The capitalisation of maintenance expenditure that was necessary on an ongoing basis to keep the business operational. This had been going on for some time. 2 The leasing of assets by way of financial lease and the treating the arrangement as a traditional lease in the accounts. Therefore the assets so leased were not appropriately depreciated.

Despite these matters the 2001 accounts showed a net profit of only $6m, down from $47m in 2000 and $70m in 1999. But did that stop Institutional investors rushing off to squander their clients funds on shares in this company? Not one bit. This is also despite the Fay Richwhite camp being involved both as company directors and share vendors. These people had long adverse exposure in the Bank of New Zealand and Winebox inquiries.

The “institutions” and associates spent $170m on shares in the “bookbuild” operation. The price paid per share was $3.60 or more. There followed a 5 for 7 share issue at 75 cents which would set the price of the watered shares at $2.40. Most of the Institution managers then decide to sell off the Transrail shares in 2003 for about $1.10 incurring a 50% or aggregate $80m loss for their investor clients. If the shares were a good long term buy in Feb 2002 they still were in late 2003. The market had held up well and the government was offering more support. There are accountants in all these Institutions. Accountants who should have blown the whistle and now deserve no such position.

February brought the focus of attention on Commissioners by this and any other name including Investigators and Judges. It is an era (and error) when such people invariably favour the people who appointed them over the truth and get away with it. The accounting profession might not be so high profile at the moment but it is up to the same practices and the community suffers badly as a result.

Let us see if we can trace the roots of this horrible professional corruption. The Hutton findings were that there was nothing corrupt about the claims that Iraq possessed various weapons of mass destruction prior to it being invaded last year. It has been greeted with widespread cynicism and immediate acknowledgment in Britain and the US that there were no such weapons and the setting up of “independent” inquiry bodies to see how the false proclamations have come about. Having “removed” the threat of criminal liability via Hutton it was time to be more honest about the facts. The US apparently wants to model its inquiry team on the Warren Commission, the commission that has been ridiculed by news media for finding that Lee Harvey Oswald acted alone in the 1963 assassination. The evidence seems overwhelming that a gunman on the grassy knoll did the job but there is insufficient traction for the inquiry to be reopened. It could result in a bit of a civil war and justice is thought not to be worth that risk. So the Warren Commission is a successful model. Moon and Space “projects” of that era are also seen as being successful so more have recently been announced. It is all a matter of what quasi-religion the community can see fit to go along with in the interests of short term harmony.

In New Zealand we have seen the setting up of a Commission of Inquiry into certain police malpractice in the mid 1980s. This is the era when the law seemed to be unofficially suspended for members of the establishment. This would now seem to be being reviewed starting with the least acceptable of crimes, those where women are the victims. Hopefully accountants are not too far down the list. Any inquiry is better than none. In this police matter there would seem to be an element of promotion of people to make them too big to tackle which is so rife in the accounting sector.

The NZ inquiry system run amok when Mr Justice Mahon reported on the 1979 Erebus aircraft disaster. Certain of his findings were criticized by the government and referred to the Court which overturned them. The message was that Commissioners should reflect government wishes which seems to have been followed ever since. Justice Mahon died soon after, possibly as a result of the rebuke. Recently the findings of the Court against Justice Mahon were overturned by government decree but no attempt was made to discipline the judges concerned.

Similarly the no action was taken against persons found to have “planted” evidence by the Commission of Inquiry into the conviction of Arthur Allan Thomas in the late 1970s.

Recent times have seen a multitude of instances where significant evidence or advice given to a jury is acknowledged to have been wrong but retrials or pardons have not been allowed. Retrials are very costly but after a few of them the need for more would stop. The appeal court tends to assume the role of a jury and decides that the conviction is still valid. A fair jury trial which is supposed to be one’s right is thus circumvented. Let us mention some of these cases briefly.

David Bain case: Lots of evidence was given at the trial but according to the Appeal Court just 3 pieces of evidence prove his guilt. All the other evidence was presumably only needed for a jury, whose collective members are not as clever as them. Presumably as they see it juries are only used because there are only a few clever people like them and they can’t rule on all cases.

David Tamihere case. Evidence was presented to the jury that a watch belonging to a victim was found in the accused’s possession. In the summing up the jury was told “the watch, remember the watch”. Since the victim came from Sweden one might assume that this was unlikely to be a mistake but it was subsequently shown to be wrong. Again no retrial.

To be continued.