Contractor fees at heart of fraud
Heart of the City spent almost $800,000 on contractor expenses in recent years, with the bulk expected to have been paid to disgraced former chief executive Alex Swney.
Last week the 57-year-old entered a surprise guilty plea to four representative charges filed by the Inland Revenue Department over $1.8 million of unpaid taxes.
Besides founding and leading Auckland's inner-city business promotion group, he did consultation work for it, issuing invoices through his company AGS Services, now in liquidation.
The money he received, together with his salary, was largely funded out of the pockets of the local businesses he championed.
Heart of the City, which has tax-free status itself, recorded almost no contractor expenses in its financial statements before Swney set up AGS Services in late 2010.
However, its financial statements show it spent $793,573 on contractors in the combined 2011, 2012 and 2013 financial years.
Heart of the City has launched its own civil action against Swney after an investigation by independent advisory firm McGrathNicol into the organisation's finances.
It was not immediately able to comment on whether the contractors' fees were paid solely to Swney, or the nature of the work the former Auckland mayoral candidate had been paid for.
As chief executive Swney was also likely to have earned the lion's share of the $600,000 to $700,000 spent on salaries and wages each year.
His job is currently being advertised on Seek in the highest salary bracket of over $200,000.
The bulk of Heart of the City's funding comes from the Auckland Council, which has poured close to $20m into it over the last five years.
That money is, in turn, mostly stumped up by local businesses, through a targeted rate levied on properties in the central business district.
Liquidators of AGS Services have promised to report breaches of legislation to the relevant authorities if they uncover sufficient evidence.
The Serious Fraud Office has confirmed it is investigating Swney.
Inland Revenue alleged Swney did not provide tax forms over extended periods during the 12 years to July 2012.
The court heard he had not registered for GST or provided any returns, despite providing taxable services.
Swney will be sentenced on April 30, with Inland Revenue chasing a further $1.4m in penalties and interest on top of the unpaid tax bill. Tax evasion carries a maximum penalty of five years in jail, and/or a fine of up to $50,000.
Terry Baucher, director of specialist tax firm Baucher Consulting, said anyone earning more than $60,000 in contractor fees in a 12-month period was required to register for GST.
He said GST fraud involving the withholding of tax collected or the use of false numbers was relatively common, but difficult to get away with in the long run.
"What people should know is that Inland Revenue's information gathering systems are probably second only to the SIS and GCSB," Baucher said. The taxman regularly cross-referenced GST receipts with the invoices of those claiming to have paid the tax.
Swney's own undoing was the result of a routine checkup into a GST receipt filed by Heart of the City. "On the face of what I've heard, it doesn't sound as if he was terribly sophisticated about it," said Baucher. Fairfax NZ
- The Press