Contractors, officials in graft probes

16:00, Dec 19 2012

Two alleged cases of corrupt practices by contractors and officials involved in the Christchurch rebuild are under investigation.

In the first, a Fletcher EQR quantity surveyor left the country immediately after he was questioned about alleged collusion with a contractor overpricing and invoicing for work that it alleged was not done.

He was working out of a particular Fletcher EQR hub.

EQC general manager, customer services, Bruce Emson said, in a statement, an investigation into the activities was nearly complete.

The activities were discovered by EQC hub staff and also highlighted by EQR systems, he said.

His staff had noticed concerning patterns in pricing by a particular contractor.


"While the investigation isn't complete, it appears the majority of the money will be able to be recouped as some payments are due to the contractor, which we will now likely withhold."

In the other investigation, the Serious Fraud Office is involved in an investigation at Lumley Insurance into alleged collusion between a loss adjustor and contractors.

The Press understands a contractor and a claims handler are alleged to have colluded to skim off an illegal margin.

In September the then head of the Serious Fraud Office, Adam Feeley, spoke of an insurance fraud being investigated in Christchurch amounting to possibly as much as "tens of millions" of dollars.

The Press understands he was referring to the alleged dealing at Lumley, but that intensive inquiries and audits now appear to show a smaller scale of alleged misconduct.

Feeley's comments followed a visit to Canterbury by Deloitte (Canada) partner Peter Dent.

He warned that if Christchurch followed some other disaster cities, fraud and corruption could amount to 10 to 20 per cent of total insurance claims lodged.

Figures on the extent of the total insurance claim in Canterbury are flexible but range between $20 billion and $30b.

An EQR spokesman said the organisation had informed EQC of the alleged misconduct at the EQR hub, but it was up to the commission to decide on the question of referral to the police.

In the last two years one EQR member (the quantity surveyor) in Christchurch had been suspended after corruption allegations and another had resigned just before the start of an investigation, he said.

His organisation conducted email sweeps across the whole business and had peer-group checks on staff processing of pricing submitted by contractors.

In addition, EQR's operations were audited by EQC, other government entities and the Fletcher Building audit function, he said.

Emson said it was likely all homeowners whose properties were repaired by the EQR hub contractor would be contacted and their repairs reviewed to ensure they were completed according to the agreed scope.

Fletcher EQR general manager David Peterson said the allegations were extremely disappointing but praised his organisation's systems for detecting it.

"While this shows our systems are working, we can and will learn from [it] what has taken place ... and

improve our ability to prevent and detect attempts to distort pricing for personal gain."

Emson said any allegations found to have substance would be pursued "to the limit of our ability, including referral to police if appropriate."

Asked why the matter had not been immediately referred to the police, he said good indications that criminal behaviour was involved were needed before that step was taken.

"The investigation to establish this is still under way, and referral to the police will result if we are satisfied that is indeed what we are dealing with. This is the same process we follow for suspected claims fraud."

Lumley declined to comment.

The Press