Otago Dhb Fraud

Otago DHB Fraud

In this example, the Otago District Health Board failed to establish good internal control principles.

Between 2000 and 2006, Michael Swann, the chief information officer of the Otago DHB and his associate Kerry Harford managed to siphon $16.9 million in taxpayer funds for non-existent IT work from the Otago DHB. The pair managed to defraud the organisation by faking insurance-type invoices from Kerry Harford’s company related to the provision of IT licences, services and support.

Meanwhile during 2003, the Otago DHB was in dire financial straits due to an overfunding of $32 million and running an operating deficit of $11 million. The CEO or the Board never took notice of this situation to investigate why the IT budget has increased so much or why the cost of these IT support services were so expensive. Surely these figures were material enough to warrant some sort of an investigation.

The $16.9 million fraud was a result of failure of good governance and poor internal controls by the Board. Of course, it’s impossible to have in place an internal control system that is 100% fraud proof. But in this case, the scam was simplistic and should of been detected had the board acted upon warning signs about a senior official who had around 20 cars and a handful of yachts. As Swann was in a place of higher management and authority, he was able to by-pass the use of in place basic internal controls to swindle millions of dollars.

This fraud could have been detected had there been an independent internal verification of the accounting records. The management of the organisation should have hired an internal auditor to verify that all the invoices and transactions were valid and reliable. Doing so would have exposed this corruption early on. But instead, Swann escaped detection for almost 6 years.

This example of fraud shows how important good internal control principles are in preventing fraud within an organisation. Without them we will see...