August 2002 Post-Election Special

Page Index: political labour , alliance , act , national Hoaxes & Coverups: Christian Tenets ,moon visits 1969-72,professional accounting conduct,fraud combat Institute of Chartered Accountants of NZ 1st reference ,2nd , 3 ,4

There is a lot of fraud or suggestions of it on the New Zealand scene at the moment that it is difficult to keep up with it. And he remnants of fraud disclosure would seem to have had an effect on the election results. We will start our discussion with the top politicians and then move on to more blatant examples of fraud in the accounting sector. Inter-relationships abound.

to index The Prime Minister, Helen Clark, infringed according to some quarters for signing works of art which were not of her creation. There was at least one instance when, prior to becoming Prime Minister she was ask by various charities to produce an art work for them to sell. Current ethics seem to say that its all right to deliver a speech or sign a document which as been drafted by someone else but not to sign a picture drawn or painted by someone else. Signing a document means "I treat this as being mine" while signing a picture means "I created this". Well we can all potentially make a mistake and she has acknowledged hers. The interesting question is whether courts should expect a higher lesser or the same standard of her than an individual of low public status. She presumably did not have the inclination to create something herself but wished to give a contrary impression or she wanted people to think that she was a more able artist than she was, as the then shadow minister of arts. It would seem that she sees her obvious abilities in becoming Prime Minister is not enough and she wants to demonstrate multiple abilities like Winston Churchill. She has already pleaded for her husband to be recognised as a world expert in his field. If she signed the paintings because of economic poverty it would probably be more excusable. The public seem to be excessively forgiving. Sure anyone can slip up but it is probably best that those who do are weeded out of top level positions. There is always someone who can take their place. Labour won but not as well as they had hoped for.

More positive news was that the Minister of Education has dismissed a Ms Irwin from an education ethics committee when it came to his attention that while working for a previous employer she had set up a potentially competing firm with a similar name to one used by the employer. This action compromises the security of employment concept but would seem to nevertheless be justified.

Next on the list is a John Davy was charged with fraud or similar for producing an untrue CV to get an high profile job and got 3 months jail. A degree might be only as good as the University which it comes from but if you claim to have an MBA from a University which does not exist that too is not on. The interesting issue here is how he was caught out. The job he got was with an organisation which by and large was being left to the Maori community to manage. There is probably widespread suspicion that this community is lacking in the necessary skills and hence the news media has put the spotlight on it. If another community had employed him the issue might never have come to light It is high time the media spotlight went on the accounting profession leaving the Maori community to gain some experience in peace. Ernst and Young have been appointed to report on what, if any, damage Mr Davy has done and how he come to be employed. We ask "How do they get such work? and offer the answers.

to index The minor political parties deserve a little consideration. The former Alliance parliamentary leader, Jim Anderton, has also signed artistic work which was not of his own doing and needs black marks for that..But he is gone from the Alliance now. The other hot issue is that the Alliance party has vigorously supported the Political Integrity Act which prevents members from changing parties without an election, and then many of their members have come very close to breaching it as the party disintegrated on the back of poor showings in popularity surveys. But it is no offence just to come close. It is just like driving at the speed limit,. The Alliance is generally recognised as being New Zealand's most left wing political party. There was no sucess for it in the election without Mr Anderton. From an ethics viewpoint it deserved better.

to index The corresponding party on the right wing is the ACT party. It had two of its Members of Parliament who have had close associations with people who have been involved in investment scams or pyramid selling. One has become deputy leader, the other was not re-elected. Such associations also are no offence but reflect badly on their judgement and have set a bad example to the public as people who claim to have a good feel for business. Another of their MPs, Stephen Franks has been involved with the deterrence of insider trading. Mr Franks does not want insider trading to be a criminal offence however, but has been involved in the setting up of a private trust which will take civil action against such securities traders. The question is can such a trust dish out acceptably fair justice when it is not under public control? The issue of insider trading is one of fraud and is a bug bear of the whole free enterprise system. Failure to criminalise it is unjustified encouragement of it. Act just held its own in the election.

to index We come next to the National Party , the major political party in opposition and main component of the government from 1990 to 1999. The Serious Fraud Office apparently investigated a donation made to them in 1996 which might not have got to them, at least in part. I doesn't sound much for them to worry about, they should get some free auditing and any funds that they were deprived of might be recovered for them, but did they protest! Nationals Deputy leader Mr Sowry has gone on record as saying that National might not support the reappointment of the director of the SFO because he had told the prime minister's office of his commencing the inquiry. They apparently do not want the SFO hanging around their records..

National seems to have released various details of what it is all about. It appears to concern a donation made by Fay Richwhite. This firm, or the firm Capital Markets which it controlled, were of closely involved with the Bank of New Zealand in 1990 when the overstated profit was declared and with the Winebox disclosures.An NZ Herald article outlining how investors in Capital Markets were treated can be accessed from here. It just happens (or happens anyway) that the present chairperson of the National Party Michele Boag was an executive of Fay Richwhite back in 1996. The National leader Bill English apparently went to the same school as (Sir) Michael Fay had done, and has emphasised a wish to move on from the 80s. Mr English has made several brief references to Michael Fay and the BNZ fiasco during his campaign, most having the effect of belittling these issues relative to something else. He talks about the debt currently run up by District Health Boards as being the size of the BNZ bailout debt. The difference would seem to be one debt comes from extra expediture on people's health while the other was from lending for share speculation without much recovery effort. to index Fay Richwhite seems to have virtually quit New Zealand now but seems to still have plenty of tentacles out so it can detect and stamp out any action against it which might be looming. Jim Hoar who is on the Investigations committee of the Institute of Chartered Accountants of NZ is a one time employee of Fay Richwhite. for instance. The National Party is the casulty of the election and the Boag factor is getting a lot of the blame.

Many other accountants are trapped in to defending Fay Richwhite and other causes because they or their firm have been involved in giving Fay Richwhite advice on the running of dodgy schemes. In the mid 1980s Fay Richwhite looked like they were likely be become a sole dominating influence on the New Zealand corporate scene and the accounting firms saw the need to keep in with them by providing advice which was positive to their ends, or they might be without any work. At the same time these firms were growing fast by merging with regional accounting firms throughout the country. The regional accountants were too easily lead with the promise of more business and joined in joint and several liability contracts with people that they hardly knew. > to index . Michael Fenton was such an accountant and would have been a partner in KPMG Peat Marwick in 1988 when this firm apparently advised the European Pacific group (a company owed by Fay, Richwhite, Brierley Investments, and Bank of New Zealand) that by calling a five year investment bond an insurance policy the total proceeds of the bond can be applied to any year to offset bad debts in the accounts. This procedure was used by Bank of New Zealand to create or inflate a declared profit in the 1990 year. Mr Fenton is again chairperson of the Professional Conduct committee of the Institute of Chartered Accountants of New Zealand, a position which he has held for most or all the 1990s. He retired as an accountant several years back and was not the committee chairman in the 2001 year but he is back again.

> to index The Institute of Chartered Accountants of NZ has been very slow in announcing its committee compositions for this year. They should have been sorted out at the time of the AGM in the November but they weren't declared on the web site until April. There is good news and bad news. Mr Fenton is back as chairman. On the other hand Elizabeth Hickey the infamous Ernst and Young auditor of the 1990 BNZ accounts is no longer on the Financial Reporting Standards Board or any other ICANZ committee as far as can be ascertained. She is also no longer with Ernst and Young. That should not excuse E&Y in any way. Peter Garty the E&Y Audit Partner for the NZ in 1990 is off a couple of influential committees. But he is on the committee which makes the Public Sector Annual Report Awards. The Awards for 2002 have just been announced (16 May 2002).In the public sector section the winner is the Reserve Bank and one of two commendations goes to the Accident Compensation Corporation for their showy but substandard effort. ACC's auditor changed in 2001 to Warren Allen of Ernst and Young.

to index At the ICANZ/s Young Accountant of the Year ceremony at the end of 2001 Warren Allen got a special "most valuable contribution to the profession" award. This was by way of an sideline award since he does not come into the "young" category. This year it would seem the awards have escalated to "Chartered Accountant of the Year". It is probably seen in some quarters as too good an opportunity to raise the profile of selected accountants so that they might remain out of trouble. To the extent that it shows up the immaturity of the Institute it is a good thing however. Some of Mr Allen's fame and reputation comes from his long standing chairmanship of the Education committee of the International Federation of Accountants. The IFAC boasts 156 members in 114 countries and is about to get a NZ CEO as well. This out of proportion influence would indicate some propping up of the NZ profession by the big accounting firms. An "outstanding", in the sense that finalising is overdue, paper of the Education committee is entitled Competence-Based Approaches to the Preparation and Work of Professional Accountants. This paper represents academia gone mad and gives the impression that New Zealand is leading the field in such matters. It can be downloaded from the website www.ifac.org or a version with slightly diminished presentation is available from here.

The narration now deviates a little to consider the matter of hoaxes

to index The greatest hoaxes of history are probably the assertions of conception by a virgin, bodily resurrection etc contained in the Christian religion. It is hard if not impossible to prove these assertions wrong, nevertheless in recent years the number of people claiming to believe them in a physical sense has fallen fast. Disbelief has followed from greater understanding of reality and of the background surrounding the origin of such assertions. The driving force for people proclaiming the assertions over the centuries is probably that Christianity has been seen as the mainstay of civilisations which have been relatively good for the average citizen and going along with the whole package was seen as a small price to pay for maintaining the civilisation. hence the hoaxes have perpetuated. The argument is that it takes a giant hoax to maintain a climate of truth and honesty. Attempts to maintain the hoaxes have cost many people their lives in horrid circumstances in past centuries however as has attempts to expose and ridicule the hoaxes.

to index The greatest hoax of the modern era would seem to be the landing on the moon by American astronauts in 1969 and the early 1970s. There seems to be more physical evidence to prove that this is indeed a hoax but again it is understanding the situation in which the landings were claimed to have taken place and the failure to build on and glory in the "success" of the "landings" which makes it obvious. The overwhelming expression of the time was how incredible the landings were and this remains true with the hoax realisation. The authorities appear to be still defending the hoax allegations in the same manner as many Christians have defended rising from death however, while the news media report the hoax allegations without comment. Nobody is happy about having been had The idea is probably to let belief in the landings slowly fade out but no doubt many people have been brutally treated in the initiation and perpetuation of the hoax and in many cases they or their families deserve compensation. As with the Christianity hoaxes people have gone along with the moon landing hoax as the price to pay to maintain a superior ideology. The Russians were winning the space race and because of it perhaps many people and nations were aligning with them. But the communist challenge has been overcome and this any other similar hoaxes should be dismantled forthwith.

to index We return to accounting and the New Zealand scene where no doubt the same justifications apply although the real reasons are more personal and sinister. The professional conduct committees of the Institute of Chartered Accountants of NZ have a "coverup if you can regardless" mentality despite their proclamations of member integrity. The Professional Conduct Committee vets the complaints as they come in. They receive all the information which the complainant has to offer and if it is a matter of improper accounting (as opposed to improper general behaviour) they will invariably reject it with minimal comment. Two examples are being prepared for this site. The Professional Conduct Committee contains no lay members. They introduced lay members into the system to give the idea of their being no professional protection but cunningly this does not apply initial vetting. The only appeal to this process is to lay person known as a Reviewer of Processes. This lay person is selected for specific appeal and reports on whether in his/her opinion the complaint has been processed properly. But required processes of the Inveastigations committee is minimal and hence so is the appeal process.

to index As with the Serious Fraud Office (a government agency) the term "investigation" has been elevated. This is the term for what takes place when it is determined that their is substance to a complaint, or, more likely, that a complaint cannot be ignored. Logically it really needs an investigation to determine whether there is substance but this term seems to be reserved for the preparation of a prosecution or its equivalent. Investigation is billed as a highly skilled process. The assumption is that it is a technical process about being consistent about what determines guilt. In practice it is more likely to be a matter of gauging public opinion to determine whether a prosecution can be safely dispensed with. At least where it is a member of the establishment who is accused. The Investigation Committee of the ICANZ does contain lay members and is supposed to work more openly, but is another opportunity to vet anything that gets through the Professional Conduct Committee. Any upheld complaints will be members who have been convicted of serious offences in court, or perhaps have exhibited very bad manners in a social sense, but the offence is unlikely to have anything to do with accounting.