Three face trial on multi-million dollar fraud charges

Dismissed Otago District Health Board information officer Michael Swann and business associate Kerry Harford have been committed for trial for alleged frauds totalling $16.9 million against the health board.

The Serious Fraud Office alleges the pair fraudulently obtained more than $16.9m from the board using invoices from Harford-owned companies for a supposed insurance-type service relating to the provision of IT licences, services and support.

Those services were already covered under agreements with IBM.

Swann and long-time friend Robin Sew Hoy are to face trial in the High Court on one charge under the Secret Commissions Act.

That alleges Sew Hoy made, and Swann accepted, what the Crown says was essentially a $757,685 "kick-back" in respect of $4,743,167 of health board IT help desk services work directed to Sew Hoy's company, Innovative Systems Limited, between January 14, 2000 and November 3, 2006.

The three men appeared before Justices of the Peace for a brief depositions hearing today when they were committed for trial and remanded on bail until January 25.

Written evidence statements from a total of 47 witnesses were handed to the court by Crown and SFO counsel.

Swann, 45, self-employed and Harford, 47, a Queenstown surveyor, denied three allegations of fraudulently using documents for financial gain.

Summarising the background to the charges , SFO counsel Robin Bates said Swann was the health board's chief information officer and a member of its senior executive team during the relevant periods when he set up a system whereby invoices from Harford's company, Sonnford Solutions Limited (Sonnford) were paid by the board.

The invoices were representative of a supposed insurance-type service relating to the provision of IT licences, service and support.

Harford, a close friend of Swann, had no specific IT knowledge or experience and had not been involved in the IT industry in any way, Mr Bates said.

Between September 1, 2000 and August 18, 2006, the ODHB paid a total of $16,902,145 to Sonnford and its predecessor, Harford Sonntag and Associates. Of that sum, Sonnford retained 10 per cent, which Harford used for lifestyle expenditure.

The remaining 90 per cent passed to a Swann-controlled company called Computer South Limited.

Swann was a signatory on that company's bank account and was in full control of the funds, which were spent on boats, cars and property, the court heard.

After the SFO began investigating the payments, Swann produced 16 contracts signed outside his authority and the ODHB's code of conduct requirements, claiming to be between the ODHB and Sonnford.

They purported to be an insurance type arrangement whereby Sonntag, should it be asked, would source computer maintenance engineers for the board at certain hourly rates, but the particular services were already covered under agreements with IBM, the providers of the IT equipment, and the charge-out rates in the contracts signed by Swann were not in line with the industry standards, Mr Bates said.

No actual work or services were ever performed by Sonnford to justify the payments made by the ODHB to the company.

It was alleged the invoices from Sonnford were produced by Harford, received personally by Swann who authorised their payment and passed them to the ODHB accounts section to be paid.

The corrupt payment charge against Swann and Sew Hoy relates to what the Crown said was essentially a "kick-back" to Swann as an inducement to increase the amount of ODHB IT help desk work carried out by Sew Hoy's company, Innovative Systems Limited.

Swann and Sew Hoy had been friends since childhood, Mr Bates said.

Before Swann was employed by the ODHB in 1998 to manage its IT functions, the board operated an in-house IT help desk, although Sew Hoy's company had been conducting business in a relatively small way with the board.

After 1998, there was "a significant increase" in the work carried out for the board by Innovative Systems.

From January 2000 until September last year, any work Innovative Systems carried out was charged out at $95 per hour, a rate the Crown contended was excessive and above industry standards. And between January 14, 2000 and November 3, 2006, the ODHB

paid $4,743,167 to Innovative Systems for "services and consultancy" provided, namely the IT help desk.

Of that amount, the company paid $757,684.89 to Swann's company, Computer South Limited.

No invoices were generated by Computer South and the Crown says there was no justification for any payment by Innovative Systems to Computer South or, in effect, Mr Swann.

This was simply "a kick-back" in respect of ODHB work directed to Innovative Systems by Swann, Mr Bates said.

- NZPA