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

A new Financial Year dawns. For some purposes anyway. Let's hope some past financial scandals are dealt with this year, and some accountants are brought to account.

March 2004, has seen developments in scandals with ironic links to the past. The following require comment:

(1) 1.9m of fraud at Social Welfare is investigated by Deloittes.

(2) Winston Peters, MP works towards prosecution of former SOE chairman Dr Armstrong, having apparently given up on accused BNZ conspirators.

(3) Lavish expenses paid to objector representatives with regard to the proposed new Waikato prison are under investigation, but similar payments for the fake BNZ insurance policy drawn up in 1988 have not so been.

(4) Paul Dyer the AMP Henderson investment officer gets a similar job with New Zealand Superannuation. He opposed the appointment of Lindsay Pyne to the Telecom board at its last AGM. But was he involved in AMP Henderson buying Tranz Rail shares in Feb 2002, costing AMP investors and policy holders about $10m?

(5) It seems that the sharemarket is getting back into boom mode. Highflier entrepreneurs are coming into prominence. It is about a generation since the mid-eighties boom. Does each generation have to learn by experience?

A young female employee of the Social Welfare Department by name of Lisa Clement has been found to have defrauded the department of $1.9m. The "big 5" firm of Deloittes was called in to investigate the matter. Its findings seem to be that the fraud was cleverly executed and no other employee deserved censure. The Auditor General doesn't seem to feature in these matters anymore The Auditor General never seems to discover any irregularity of note anymore either. It seems that he does not since for him to do so could embarrass the government. Instead he is often called upon by the government to furnish a report once a financial scandal has come into the open. Not so this time. Deloittes said that some budget managers should have been more vigilant but did not seem to comment on the actions of internal or external auditors. The external audit was no doubt contracted out to a big 5 member also. And big 5 members seldom criticize each other. The suggestion is not that auditors should have found these irregularities but more that it should have been checked out whether audit tests should have picked it up. Auditing is now being billed as being so difficult that it is wrong to suggest that an auditor should ever find anything.

Ralph Marshall of Deloittes was chairman of the Institute of Chartered Accountants of NZ a couple of years back. During his tenure the Institute launched its "Corporate Transparency" initiative. In launching it Mr Marshall mentioned that in the mid 1980s NZ had a reputation of being the wild west of accounting. But the report his committee eventually came up with made no mention of such a reputation nor any more recent NZ accounting scandal. It said there could be and inevitable would be scandals in the future but the past somehow warranted no criticism.

John Hagen was both chairman or equivalent of Deloittes in New Zealand and chairman of the Accounting Standards Review Board in recent times. Mr Hagen was called as an expert witness for Kiwi Cooperative Dairies Ltd in defense of an action brought against it by certain shareholders of Tui Milk Products Ltd in 1996. Tui merged with Kiwi in 1996 after Tui shareholders voted to do so by a narrow magin over the required 75% in favour. Mr Hagen apparently told the high court that an Ernst and Young report showed that with the merger "Tui shareholders were projected to be approximately 90c per kilogram of milk ahead of their stand-alone position" It was not explained that a kilogram of milk solids had to be supplied in each of the following 19 dairy seasons in order for the shareholders to benefit from the merger to the extent of 90 cents in total (present value). Mr Hagen's statement was used by the judge to argue the Tui shareholders had done well as a result of the merger.

It is argued that it is inappropriate for Deloittes to have investigated and reported on the Lisa Clement case given the track record of their high echelon and it is significant that no qualified accountant appeared to cop any blame from them.

Dr Ross Armstrong appears to have got into trouble on two counts. He appears to have claimed the same expenses in each of his capacities as an State Owned Enterprise chairman, when he was such, and he also attempted to organise a grouping of companies which it was intended would get an advantage when seeking to obtain government contracts, because of his close contacts with the Government. The Rt Hon Winston Peters MP is apparently pursuing a private prosecution against Dr Armstrong according to recent reports. Dr Armstrong would appear vulnerable because he does not have the safety of numbers (in the same boat).

This situation should be compared to accusations of Mr Peters in the House of Representatives on 23 September 1992 and on 7 October 1992. Unfortunately this hansard is not now readily available on the internet but the following is an extract from each.

23 Sept: "the BNZ in 1988 provided to the New Zealand Government, the New Zealand people and to overseas institutions that provide them with funding lines, a false set of accounts.

" This was done by a compiracy between: some BNZ office holders and executives, the BNZ's auditors, the BNZ's lawyers, and Fay Richwhite.

"Some of the BNZ executors and directors because they knew and agreed with the concealment arrangement: the BNZ auditors, Ernst and Young, who the documents show gave the BNZ advice on the transaction called a profit smooth": the Banks lawyers, Buddle Findlay, who acted for all parties and organised the scam: Fay Richwhite who facilitated the re-insurance half of the circle.

7 Oct: "The whole arrangement concerns a NZ $30,000 piece of paper. It looks like a valid deal but it is facade without substance. A facade designed for the sole purpose of deceiving the market, deceiving the minority shareholders buying BNZ shares, deceiving the taxpayer-owner who we represent and, last, to deceive the overseas financial markets providing credit lines to the BNZ as to the true credit worthiness of the Bank.

These allegation applied more to the 1990 annual accounts of the BNZ than to the 1988 ones as stated.

The facts contained in the 1993 Securities Commission report into this affair verified most of the allegations but the Commission chose the accuse nobody of foul play and after a discussion after the release of the report a greater conspiracy including Mr Peters and the news media seemed to ensue and little more occurred.

The trick of making someone a capital payment by masking it as payment for expenses has come to light. Payments to secure approval of a new Waikato prison seem to have taken the form of lavish expense payments to the extent of about $1.3m. A similar amount in dollar terms (more than double in real terms) was spent by the Bank of New Zealand in 1988 to produce the fake insurance policy referred to above. Buddle Findlay appeared to be the prime legal firm involved. We take the opportunity to expose this fake document.

The entity "New Zealand Superannuation" has the capacity to manipulate the New Zealand stockmarket for good or evil. It is progressively investing taxpayer money for ultilization in about 30 years time when obligations to assist the elderly will be greatest. The temptation is that it will also assist the government of the day by keeping the sharemaret in a stable and/or thriving state. That of course is good as long as it is not at the expense of long term objectives. The question when buying shares these days is probably "will NZ Superannuation support the stock and so keep the price rising?".

The latest appointment to this "NZ Superannuation" agency is one Paul Dwyer. He has been an investment officer for AMP Henderson in recent times. In October last year he was apparently instrumental in AMP voting against Lindsay Pyne being appointed to the Telecom board. Mr Pyne signed the 1990 Bank of New Zealand annual accounts despite knowing that the fake insurance policy cited above had been used to inflate the reported profit. A feather in the cap for Mr Dwyer. But Mr Dwyer would also seem to have been about in February 2002 when AMP bought Tranz Rail shares at prices inflated by bad accounting and unjustified hype which he should have been well aware of. The Fay Richwhite camp was an influential shareholder in tranz Rail in early 2002 just as it was in the BNZ in 1990. The NZ Government was the BNZ's major shareholder in 1990 and while it was not a shareholder in Tranz Rail in 2002 it had a keen interest in the affairs of this company as the operator of the country's only railway network. It seems like there was a plot to rid the country of FR influence for the price that FR wanted. But this time it has not been the taxpayer but certain shareholders and investor's in insurance products who bore the loss. AMP and others sold their Tranz Rail shares to Toll last year for less half the price that they paid. People who tow the Government line should not officiate on New Zealand Superannuation.

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