Report
of the
SERIOUS
FRAUD OFFICE
TE
TARI HARA TÂWARE
for
the year ended June 2001 Presented
to the House of Representatives pursuant to Section 30 of the State Sector Act
1988 and Section 39 of the Public Finance Act 1989 Hon. Margaret
Wilson Attorney-General Pursuant to Section 22 of the State Sector Act 1988 and
Section 39 of the Public Finance Act 1989 I refer to you the financial
statements for the Serious Fraud Office for the year ended 30 June 2001. DJ Bradshaw Director The Serious Fraud Office (SFO) is an operational department
whose purpose is to detect and investigate cases of serious or complex fraud
offending (in terms of the Serious Fraud Office Act) and expeditiously
prosecute offenders. The services provided by the Serious Fraud Office contribute
to the Government’s strategic objectives, principally in the areas of
encouraging a strongly growing, internationally competitive enterprise economy
and building an economically strong and cohesive New Zealand. Honest capital markets are crucial to achieving the objective
of maintaining a strong and internationally competitive economy.
Successful investigation and prosecution of “white collar” crime
sustains New Zealand’s reputation for honest capital markets, as well as
deterring potential offenders. By maintaining an effective “white collar” law
enforcement department, the Serious Fraud Office is contributing towards
enhancing investor confidence and encouraging investors to invest in New
Zealand. All
too often a recognition of the role played by staff in a government department
is to be found in the final paragraphs of any report.
This year I want to highlight the important staff resource that exists
within the Serious Fraud Office.
Experience
around the world has shown that it takes special skills to effectively combat
serious or complex fraud. A
number of countries have established agencies like the Serious Fraud Office as
a means of developing those special skills.
New Zealand established its Serious Fraud Office a little over 11 years
ago. Today the Office is well
placed to lead the fight against serious or complex fraud. It has achieved this primarily by investing in its people.
The combination of training, experience, ability and commitment has
seen the Serious Fraud Office staff stand at the forefront of their respective
areas of expertise. Very
few of our investigations are straightforward.
Each case requires sound judgement, based on years of experience, to be
able to identify the key issues necessary to establish whether or not a fraud
has been committed. Further
skills are required to then prove the fraud in a Court of law.
Not everyone welcomes the involvement of the Serious Fraud Office with
open arms. Witnesses and victims
initially are not always happy to co-operate with our investigations, often
because they do not want to believe that the trust that they had in a person
may have been misplaced and as a consequence they may have lost money.
Suspects can become quite aggressive when they realise that the Office
is investigating their activities, and sometimes the Office will encounter
unnecessarily obstructive tactics from defence counsel.
Conversely the Office does receive a tremendous amount of support from
the majority of the people that we approach for information.
Special mention needs to be made of the assistance received from the
banks and other large financial institutions.
Nearly every investigation requires detailed examination of bank
accounts. And in many cases we
also require individual deposit slips and cheques.
I can not overstate the value that I place on the co-operation that the
Office receives from these organisations. An
investigation requires careful attention to detail.
For the forensic accountant this requires hours of analysis of the
financial records of companies and/or the personal accounts of individuals.
Not only must our forensic accountants be able to understand and
interpret the financial records, but they must also be able to work alongside
the investigator to see how the accounting material fits with all the other
evidence gathered during the investigation.
Ultimately in a prosecution the forensic accountant must be able to
present a clear explanation of those financial transactions to a jury.
This last requirement is a particular skill that is emphasised in the
training of our forensic accountants. It
is not a skill that is naturally associated with many accountants in the
private sector. Investigators
must be skilled at gathering evidence and interviewing witnesses and suspects.
They need to be able to recognise the essential elements of any
possible offending and the possible defences to ensure that these matters are
fully covered in the documentary evidence obtained, and at interview.
Equally they need to identify the matters that are not relevant to the
investigation to keep the investigation focused and to avoid individuals
having to undergo unduly lengthy interviews.
This is particularly important where the offending may be either
extremely complex or have taken place over a period of time.
An interview on just the relevant points in such cases will often take
quite some time. The
prosecutors employed within the Serious Fraud Office play an important role in
assisting the investigators and the forensic accountants to recognise the
requirements of particular offences, to assist in assessing the strength of
the various pieces of evidence, and to ensure that all the steps taken during
an investigation are within the law. It
is essential that our prosecutors remain familiar with all of the developments
in the law in relation to prosecutions for serious or complex fraud. Standing
behind the investigators, forensic accountants and prosecutors is a team of
dedicated support staff whose work is essential to the success of an
investigation. Documents are
critical to every investigation. It
is not unusual to receive 10,000 or more documents in any one investigation.
Each individual document is given a unique identification number, has
to be scanned in to our computer system, and then the original must be held
securely in case it is required as a Court exhibit in a later trial.
Volumes of the key exhibits required by the Court in a prosecution have
to be compiled for every trial. Our
support staff fully appreciate the importance of documentary evidence in an
investigation and subsequent trial. The
support staff are largely unseen but they play an essential part in the work
of the Office and in the prosecutions brought by the Office. When
a case changes from being an investigation into a prosecution the team
assigned to the case must use all of their accumulated knowledge, collective
skills, and professional experience to assist in the presentation of the case
before the Court. The commitment
of the team assigned to a case to take an inquiry right through to the end of
the prosecution is one of the real strengths of a Serious Fraud Office
prosecution. It
is heartening to receive from one of the most senior Crown prosecutors in New
Zealand the following comments on the Serious Fraud Office staff following a
lengthy trial lasting almost 4 months.
“In the lengthy and intense period of pre-trial preparation his
assistance was invaluable. He
knew the case backwards and his judgement was faultless.”
“Put bluntly, we were spoiled by their [SFO team] energy and
competence.”
“your personnel made a truly co-operative effort towards the
prosecution process, decision making and tactics … they exhibited the
highest level of professionalism.” Such
comments from our independent prosecutors have been the norm over the years. During
the year the Law Commission completed several projects on topics that were of
direct interest to the Serious Fraud Office.
For the most part the Serious Fraud Office was in agreement with the
recommendations made by the Law Commission.
It remains to be seen how many of the recommendations in the Reports
will be given effect to by the Government.
The indications to date are that the key recommendations will be
implemented. The
changes recommended to the jury system would go some way towards facilitating
a more efficient and effective trial process for cases of serious fraud. The Law Commission’s report on juries left unanswered,
however, the fundamental question for serious fraud trials. That is, whether today such cases are of such inherent
complexity that the jury system is simply no longer appropriate for these
trials. I intend to reflect
further in the coming year on what other forms of trial might be more
appropriate for serious fraud offences. The
Law Commission has recommended changes to the way that preliminary hearings
are conducted. It has recommended
that the prosecution evidence should be presented in written form and that an
application to hear oral evidence of a witness and to cross examine should be
granted only in very limited circumstances.
This should reduce the time that it takes for a case to reach the full
trial hearing. At present most
Serious Fraud Office prosecutions take between 12 and 24 months to go through
all of the preliminary stages and to reach a trial date.
It is not just the preliminary hearings that create this delay.
Getting Court fixtures for lengthy trials where there may be more than
one senior Counsel involved, is fraught with problems that add to the delays.
There can be no doubt that it is in the interests of a fair justice
system to do whatever we can to keep such delays to a minimum. Parliament
will shortly complete its consideration of the Crimes Amendment Bill (No 6)
which includes amendments to several parts of the criminal law to reflect the
widespread use of technology in everyday affairs.
It was a Serious Fraud Office prosecution (R v Wilkinson)
that was the catalyst for these changes.
That case highlighted the gap in our criminal law in relation to the
theft of credits occurring electronically within our banking system.
The anomaly was referred to the Law Commission which recommended
changes to our criminal law. Other
amendments to Part X of the Crimes Act 1961 will help to ensure that the
criminal law applying to fraud offences remains relevant in today’s
environment. E-crime
has been receiving considerable publicity lately.
The Crimes Amendment Bill (No 6) when passed into law will introduce a
series of new offences dealing specifically with computer crimes e.g. hacking.
Importantly the Bill will also update the laws covering fraud offences
to ensure that existing offences when committed using electronic means, will
not go unpunished as a result of technical arguments based on out dated
definitions in the Crimes Act. There
is no doubt that computers are being used more often now in the commission of
crimes and that law enforcement agencies need to be able to understand how the
offending occurred, how to collect the electronic evidence and how to present
it in Court. But for the most
part the offences themselves are not radically different.
The use of computers in perpetrating fraud can be compared to the
introduction of the motor car. There
were some new offences but a bank robbery using a car as the getaway transport
rather than a horse was nonetheless a bank robbery. The Serious Fraud Office has over the years been ensuring
that it is properly equipped to investigate serious or complex fraud offending
when all or a part of the offending involves the use of electronic devices.
The Office has achieved this by a combination of training our staff to
a particular level of expertise in relation to computers, and by having access
to the more extensive skills of the Police Electronic Crimes Laboratory for
the more complex computer investigations.
The Office is also monitoring the training on e-crime being given to
fraud investigators in the Australian States to see if there are any aspects
of the training being undertaken in Australia that would be of benefit to the
staff of the Serious Fraud Office. The
Serious Fraud Office operates at the boundary between the criminal law and the
commercial law. It interacts
closely with bodies such as the Police in the law enforcement field, and the
Securities Commission and the Ministry of Economic Development in the
commercial field. The Office
continues to have a steady stream of investigations and prosecutions.
Each complaint received must be carefully assessed to judge whether it
is a matter of a simple company failure or a sharp commercial practice, or
whether the conduct complained about has crossed the line into the field of
potential criminal offending. Not
every bad investment or failed company can be attributed to criminal fraud.
To the person who has lost their money, however, the term “fraud”
tends to take on a much wider meaning. It
is not always understood that Parliament has required that I must be satisfied
on the information before me that I have reasonable grounds to suspect that an
investigation may disclose serious or complex fraud, or that I reasonably
believe that an offence involving serious or complex fraud may have been
committed, before I can commence an investigation.
This is an appropriate threshold given the far-reaching consequences
that can follow a Serious Fraud Office investigation.
Where I am satisfied that the threshold has been met, the Office
undertakes a rigorous investigation making full use of its powers and
expertise. In some cases the
matter falls more appropriately into the jurisdiction of another agency in
which case the Office will refer the matter to that agency – for example the
matter may be a fair trading issue for the Commerce Commission. The
Office will continue to take every opportunity to warn the public about
questionable investment schemes even where there may be no apparent criminal
offending within New Zealand. Given
the large amounts of money that we see going into the various “schemes”,
despite all the warnings that have been given, one can only conclude either
that New Zealand has some very persuasive individuals promoting the schemes,
or that New Zealanders are still naďve when it comes to parting with their
money. The Serious Fraud Office
can only do so much. The old and
oft repeated adage “If it looks too good to be true, it probably is”
remains as valid today as it did many years ago. Statement of Responsibility for the Year Ended 30 June 2001 In terms of sections 35 and 37 of the Public Finance Act 1989, I am responsible, as Chief Executive of the Serious Fraud Office, for the preparation of the Department’s financial statements and the judgements made in the process of producing those statements.
I
have the responsibility of establishing and maintaining, and I have
established and maintained, a system of internal control procedures that
provide reasonable assurance as to the integrity and reliability of financial
reporting.
In
my opinion, these financial statements fairly reflect the financial position
and operations of the Department for the year ended 30 June 2001.
DJ
Bradshaw
Neville Macindoe Director Chief Financial Officer28 September 2001 28 September 2001
Unqualified
opinion We have obtained all the information and explanations
we have required. In
our opinion the financial statements of the Serious Fraud Office on pages 15 to
38: s
comply with generally accepted accounting practice and s
fairly reflect: -
the financial position as at 30 June 2001 , -
the results of its operations and cash flows for the year ended on that
date and - the service performance achievements in relation to the performance targets and other measures set out in the forecast financial statements for the year ended on that date.
A
J Shaw Audit
New Zealand On
behalf of the Controller and Auditor-General Wellington,
New Zealand Statement of Objectives and Service Performance for the Year Ended 30 June 2001
Statement
of Service Performance 1.
SUMMARY OF TOTAL CASES FOR THE YEAR ENDED 30 JUNE
2001
A total of 46 cases were on hand at the beginning of the year at assessment/detection, full investigation or prosecution stage. During the year a further 94 new cases were received and 2 cases were reinstated. This gave the Office an overall case load of 142 files. At the end of the financial year this had been reduced back to 52 cases – 13 at assessment/detection, 19 at full investigation and 20 prosecutions. Note: Assessment
every complaint received undergoes an initial assessment to determine
whether it should be further investigated Detection
some complaints require further consideration of all the documentary
material to determine whether the complaint should proceed to a full
investigation Investigation
involves obtaining and analysing documents, researching financial
transactions and interviewing potential witnesses and suspects to determine
whether charges are to be laid Prosecution involves preparing the prosecution files, brief evidence and conducting the prosecution
2.
CLASS
OF OUTPUT: INVESTIGATION AND PROSECUTION OF SERIOUS OR COMPLEX FRAUD Description The output class involves the investigation of suspected cases of serious or complex fraud brought to the attention of, or detected by, the Serious Fraud Office, and the prosecution of those cases where the Director is satisfied that a prosecution should be commenced. Following
investigation, the Director makes a decision on whether or not any criminal
charges should be laid. The
prosecution of the case requires the preparation of a well-researched and
documented prosecution case. This
encompasses the filing of all court documents, the preparation, researching and
collating of all documentary and oral evidence; and appearing as Counsel at all
preliminary court hearings and as Junior Counsel at trial. This
output class includes the briefing of the outside Counsel engaged for the
trials, the giving of evidence at trials and the provision of expert advice
throughout the course of trials. Outcome To combat serious or complex fraud offending. Details of Complaints and Investigations As the trends in the diagram below indicate, there has been some fluctuation in the number of new complaints received but this statistic alone is not a sound measure of workload as the nature of the complaints can vary significantly. Moreover, some complaints fall outside the “serious or complex” category and are more properly referred immediately to other agencies.
12
investigations were completed and proceeded to prosecution; 9 were fully investigated but did not proceed to prosecution; 9 were referred to other more appropriate agencies, namely: 4
to the Police 2
to the Banking Ombudsman 1
to the Ministry of Economic Development 1
to the Inland Revenue Department 1
to the Royal Canadian Mounted Police 60
files were closed following consideration and assessment as they were
found not to justify further action; 13 files are at the assessment or detection stage; 19
investigations are underway. Performance Targets to
focus the assessment and/or detection stage and decide within six months whether
to abandon preliminary work or to proceed to a full investigation
The
performance target was met in all but one case with the decision point being
reached well within the timeframe, usually within one month. The one case that fell outside of the timeframe exceeded the
6 month target by 4 months and has since been closed. The
Management Team formally reviewed all the cases on hand at least monthly to
ensure that the desired level of momentum was sustained and that the
investigations were focusing on the key issues. Only
one of the cases on hand at assessment or detection stage as at 30 June 2001
exceeded the target of six months. During
the 12 month period, 69 cases at assessment/detection stage were closed or
referred to other more appropriate agencies. that
in 80% of the cases sufficient work will have been completed within 12 months to
reach the prosecution decision point During
the reporting period a total of 40 cases
were at the investigation stage and of these: 9
were
completed but did not proceed to prosecution 12
resulted
in prosecution 19
remain
under investigation In the 12 cases where the investigations were concluded and proceeded to a prosecution, the average length of time from the receipt of the complaint to the prosecution commencing was 10 months. Four investigations fell outside of the 12 month period. Two of these were decided within 13 months, one within 14 months and the further case involved multiple defendants (16) and took 26 months to get to the prosecution stage. Of the 9 investigations that were completed but did not result in a prosecution two exceeded the 12 month target, one by a further 12 months and one by a further 14 months. The former investigation was delayed as a result of a claim of legal privilege that was challenged by the Office. The other case involved a joint exercise with the Police Of
the 19 cases on hand at the investigation stage, the average age of the
investigation is 7 months with three having been under action for 12 months or
more. These three cases are very
near to completion, one involving requests for information from overseas. Overall,
the performance target has been achieved with 9 cases out of the total of 40
(19%) exceeding the 12 month target, but several of these cases being decided
within a few weeks of the target deadline. to
present properly prepared and well researched prosecution cases, achieving a
minimum of 85% successful prosecutions During the year ended 30 June 2001, 12 new prosecutions were commenced and 12 prosecution cases were concluded. The prosecutions concluded had a total of 16 defendants and resulted in 5 convictions, 7 guilty pleas, 2 acquittals (the same case), 1 dismissal and 1 stayed decision. At
the end of the period there are 20 prosecution cases under action. The
fact that the majority of the prosecutions completed in this period were
successful was very pleasing. This
success rate has also maintained the overall high rate of success in the
prosecutions pursued by the Office since its inception and up to 30 June 2001. These
statistics are summarised in Appendix A – page 49. to
meet the dates set by Courts All dates set by the Courts have been met. to
achieve at least an 80% Senior Counsel satisfaction rating for the quality of
the case investigation, preparation and prosecution Senior Prosecuting Counsel and Judges made favourable comments about the high quality of case preparation. The overall professionalism of the case presentation by the Office was identified as a factor in the successful determination of the cases. There
were no unsatisfactory reports. Assessment
will continue to be carried out by observation by the Director, peer review and
Judicial comment. A formal debriefing process is in place and is continuing to be refined to ensure that prosecutions taken by the Office are fully researched and well prepared and presented. that
the outputs are provided within the appropriated sum – financial performance Statement of Cost of Services (GST
exclusive)
3 USE OF STATUTORY POWERS
The
breakdown of the use of the statutory powers during the year was as follows: SFO Act, Part I Detection of Serious or Complex Fraud
SFO Act, Part II Investigation of Suspected Offences Involving Serious
or Complex Fraud
Performance The Director (or the Assistant Director, Prosecutions, in the Director’s absence) personally signs all Notices requiring persons to attend to answer questions. An Assistant Director under delegated authority signs notices requiring the production of documents. To ensure that requisite grounds exist for the exercise of these powers an internal control procedure is followed before the Notices are referred for signature. Search
Warrants are issued on written application to a Judge.
The Director, or an Assistant Director, must be notified of any request
for a search warrant. There
is, therefore, an audit process in place in all instances of the exercise of
these statutory powers to ensure that the provisions of the Serious Fraud Act
are met. Prosecutions Completed Case 1 JAFFE, Eric Isobel Company Director, was convicted, after a 5-week trial in March 2001 at the Auckland District Court before Hubble J. and a jury, of 7 counts of fraudulently obtaining of investors funds without first providing them with a prospectus for his company Industrial Banking Corporation. He was sentenced to 4 years imprisonment on 18 May 2001. Case 2 PALMER, Graeme Ashley Robert Unrelated to the Serious Fraud Office’s case of 10 instances of alleged factoring of debt, Palmer was convicted in Auckland 2000 for sexual matters and sentenced to preventive detention. He appealed that sentence, but was unsuccessful. The Director of the Serious Fraud Office decided, once the appeal had been rejected, that the Serious Fraud Office charges were no longer a good use of public resources as any conviction(s) would only have led to concurrent sentences being imposed. The charges were therefore withdrawn. Case 3 McDONALD, Philip James A Solicitor was convicted in the Christchurch District Court in July 2000 after a 3-week trial before Noble J. and a jury, of 3 counts of conspiracy to defraud and one count of attempting to pervert the course of justice by persuading a co-accused to flee the jurisdiction without testifying against him. He was sentenced in August 2000 for three and half years imprisonment. As previously reported the following co-accused had already been dealt with: RABBETT, Paul Stanley RABBETT, Anthony JONES, Lynette
Case 4 RUTHERFORD, Kenneth Graeme A former Citibank Deputy Chairman and kiwifruit grower, was convicted, in the Auckland High Court in July 2000 after a 3 week trial before Justice Randerson and jury, of 23 counts of deceitfully obtaining funds from family, friends and associates for European investments but then remitting the same to Nigeria in the hope of gaining large rewards. He was sentenced to six and a half years imprisonment on 16 August 2001. Case 5 BEECROFT, Craig John AINSWORTH-KIRK, Blair A
Director and Mortgage Broker were both acquitted, after a 12 week trial in the
Auckland District Court in December 2000, before Johnson J. and a jury, of 2
counts of using a document to obtain an advantage.
The allegation was that they had defrauded Tainui Corporation by
purchasing Hamilton property and seeking to sell it onto Tainui at twice the
price, without advising Tainui of their personal interests. Case 6 FRANCIS, Kerry Patrick Accountant
and Investment Advisor, pleaded guilty in the Nelson District Court in January
2001 to 18 counts of fraud arising from misrepresenting investments to clients
and using the funds to support an exhorbitant lifestyle. He was sentenced to 4 and half years imprisonment by Walker
J. Case 7 McDONALD, Annabelle Jane HALL, Elizabeth Mary Ellen A Manager and Housewife were charged in the Auckland District Court in relation to a housing mortgage scam. McDonald pleaded guilty and was sentenced by Lockhart J in March 2001 to 9 months imprisonment suspended for 18 months and 175 hours Community Service. The charges against Hall were then withdrawn, and she was discharged. Another accused Ross Moncrieff Bennett had earlier pleaded guilty and been dealt with. Case 8 COLLINS, John Gerrard GRAHAM, Paul Joseph A Drainage Contractor and a former Housing New Zealand Ltd employee were charged respectively with offering and accepting bribes, amounting to $60,000, in relation to Mr Graham's employment with Housing New Zealand Ltd. Both pleaded guilty to their respective charges. Mr Collins was sentenced in February to 9 months imprisonment suspended for 18 months, and was granted leave to apply for Home Detention by Deobahkta J. Mr Graham was sentenced in August 2000 to 12 months imprisonment and granted leave to apply for Home Detention by Morris J. Case 9 DONALD, Shelley Margaret A former Secretary of the Auckland Regional Staff Friendly Society, pleaded guilty to stealing not less than $260,000 from her former employer and forging the annual accounts for the 1997-99 years. She pleaded guilty and was sentenced in February 2001 by Field J to 3 years imprisonment. She appealed that sentence, but the appeal was refused by Justice Chambers in June 2001. Case 10 LEISHMAN, Grant John A
former Accounts Manager pleaded guilty to 3 counts of false accounting, forgery
and using a document. Those charges
were representative counts of 122 instances of offending, whereby the accused
stole $2.5m from his former employers. He
was sentenced in September 2000 to 5 years imprisonment by Saunders J. in the
Dunedin District Court. Case 11 McRAE, Roderick Scott A
former Tax Agent pleaded guilty to 18 representative counts, reflecting his
theft of $1.045m from clients, the IRD, and lending institutions.
He was sentenced by Morris J. in the Auckland District Court in June 2001
to 4 years imprisonment. Case 12 TOON, Mark O’Connell A former Department of Conservation Manager, pleaded guilty to creating two companies which he used to invoice the Department of Conservation for $180,000 for work not performed and for which he then authorised payment by the Department of Conservation. Keane J. sentenced him in the Wellington District Court in March 2001 to 20 months imprisonment with leave given to apply for Home Detention. Statement of Accounting Policies for the Year Ended 30 June 2001 Reporting Entity The Serious Fraud Office is a government department as defined by section 2 of the Public Finance Act 1989. The
Serious Fraud Office’s financial statements have been prepared in accordance
with section 35 of the Public Finance Act 1989. The
Serious Fraud Office does not administer any Crown activities or trust monies. Measurement System These financial statements have been prepared on the basis of modified historical cost except for certain items with specific accounting policies outlined below. Accounting
Policies Budget
figures The budget figures are those presented in the Budget Night Estimates as amended by the Supplementary Estimates and any transfer made by Order in Council under section 5 of the Public Finance Act 1989. Revenue The Serious Fraud Office derives revenue through the provision of outputs to the Crown and interest on its deposits with the New Zealand Debt Management Office (NZDMO). Such revenue is recognised when earned and is reported in the financial period to which it relates. Cost
Allocation The Office has derived the costs of outputs shown in these statements using a cost allocation system which is outlined below: Cost Allocation Policy Direct costs are charged directly to significant activities. Indirect costs are charged to significant activities based on cost drivers and related activity/usage information. Criteria for Direct and Indirect Costs “Direct Costs” are those costs directly attributed to an output. “Indirect Costs” are those costs that cannot be identified in an economically feasible manner, with a specific output. Direct Costs Assigned to Output Direct costs are charged directly to outputs. Personnel costs are charged by recording the time spent on each output. Basis for Assigning Indirect Corporate Costs to
Outputs Indirect costs are allocated to outputs according to the proportion of time spent on each output. Receivables Receivables are recorded at estimated realisable value, after providing for doubtful and uncollectable debts. Operating Leases Leases where the lessor effectively substantially retains all the risks and benefits of ownership are classified as operating leases. Payments under these are expensed in the period in which they are incurred. Fixed Assets This
initial cost of a fixed asset is the value of the consideration given to acquire
or create the asset and any directly attributable costs of bringing the asset to
working condition for its intended use. Fixed
assets, or groups of assets forming a network or which are material in
aggregate, costing more than $1,000 are capitalised and recorded at historical
cost. Depreciation Depreciation
of fixed assets is provided on a straight line basis so as to allocate the cost
of assets, less any estimated residual value, over their useful lives. The
useful lives and associated depreciation rates for major classes of assets are: Furniture,
fixtures and fittings
5 years
20% Office
equipment
5 years
20% Motor
vehicles
4 years
15% Computer
equipment and software
3 years
331/3% The cost of leasehold improvements is capitalised and amortised over the unexpired period of the lease or the estimated remaining useful lives of the improvements, whichever is shorter. Provision of Employee Entitlements Provision is made in respect of the Office’s liability for annual leave entitlements. The provision has been calculated on an actual entitlement basis at current rates of pay. In terms of employee’s contracts, there is no provision for retirement or long service entitlements. Statement of Cash Flows Cash means cash balances on hand, held in bank accounts, and deposits with the Debt Management Office. Operating activities
include cash received from all income sources of the Office and record cash
payments made for the supply of goods and services. Investing activities
are those activities relating to the acquisition and disposal of non-current
assets. Financing activities
comprise capital injections by, or repayment of capital to the Crown. Financial Instruments The Office is party to financial instruments as part of its normal operations. These financial instruments include instruments such as bank balances, investments, accounts receivable and accounts payable. All financial instruments are recognised in the Statement of Financial Position and revenues and expenses in relation to all financial instruments are recognised in the Statement of Financial Performance. All
financial instruments are shown at their estimated fair value. Goods
and Services Tax (GST) The Statement of Unappropriated Expenditure and the Statement of Departmental Expenditure and Appropriations are inclusive of GST. The Statement of Financial Position is exclusive of GST, except for Creditors and Payables, or Debtors and Receivables and which are GST inclusive. All other statements are GST exclusive. The
amount of GST owing to or from the Inland Revenue Department at balance date,
being the difference between Output GST and Input GST, is included in Creditors
and Payables or Debtors and Receivables (as appropriate). Taxation Government departments are exempt from the payment of income tax in terms of the Income Tax Act 1994. Accordingly, no charge for income tax has been provided for. Commitments Future payments are disclosed as commitments at the point a contractual obligation arises, to the extent that there are equally unperformed obligations. Contingent Liabilities Contingent liabilities are disclosed at the point at which the contingency is evident. Taxpayers’ Funds This is the Crown’s net investment in the Office. Changes in Accounting Policies There have been no changes in accounting policies, including cost allocation accounting policies, since the date of the last audited financial statements. Statement
of Financial Performance for the Year Ended 30 June 2001
Statement
of Financial Position as at 30 June 2001
David
Bradshaw
Neville Macindoe Director
Chief Financial Officer 28
September 2001
28 September 2001 Statement
of Cash Flows for the Year Ended 30 June 2001
At balance
date, the Serious Fraud Office has operating lease commitments in respect of
premises in Auckland.
The Serious Fraud Office has no
contingent liabilities at 30 June 2001 (2000: Nil) Statement of Unappropriated Expenditure as at 30 June 2001
Notes to the Financial Statements for the Year Ended 30 June 2001 Note
1: Other Revenue
A capital charge is paid to the Crown based on
Taxpayers’ Funds at 30 June and 31 December each year.
The capital charge was 10% for the 2000/2001 financial year (2000: 10%) Note
4: Fixed Assets
The Serious Fraud Office is party to financial instrument arrangements
as part of its everyday operations. These
financial instruments include instruments such as bank balances, investment and
accounts receivable. Credit
Risk In the normal course of its business the Serious Fraud Office incurs
credit risk from trade debtors, and transactions with the New Zealand Debt
Management Office (NZDMO). The
Office does not require any collateral or security to support financial
instruments with the NZDMO, as this entity has a high credit rating. Fair
Value The fair value of financial instruments is equivalent to the carrying
amount disclosed in the Statement of Financial Position. Currency
and Interest Rate Risk The Serious Fraud Office has no material exposure to currency risk, and
its financial instruments are not interest rate sensitive. Note 8: Contingencies The Serious Fraud Office does not have any contingent assets as at 30
June 2001 (30 June 2000: Nil). Contingent liabilities are separately disclosed in the statement of
Contingent Liabilities. Note
9: Related Party Transactions The Serious Fraud Office is wholly owned by the Crown, which is also its
source of revenue. If the Office enters into transactions with other government
departments, these transactions are carried out on an arm’s length basis.
They are not considered to be related party transactions. Note
10: Major Budget Variances Major variances in financial statements compared to the Budget Night
Estimates are: Statement of Financial Performance Personnel costs The level at which vacant positions were filled together with a change
in the management structure resulted in actual personnel costs being lower than
budgeted. Operational costs Operational costs were higher than budgeted, due mainly to higher than
usual travel for investigations overseas and overseas witness costs. Management Performance Infomation Corporate and Collective Interest Management Report for the Year Ended 30 June 2001 Integrity
of the Public Service Staff of the SFO are aware of and observe the standards of behaviour required of them as public servants. A very high standard of professional conduct is “a must” for staff, who are also required to observe the secrecy provisions of the Serious Fraud Office Act. Inter-departmental
Liaison The Office continued to play an important role as a member of the inter-departmental Money Laundering/Financial Action Task Force (FATF) Working Group. The contribution that the Office can make to policy debates is to provide advice based on the actual experience that it has as an operational department. In addition, the development of sound working arrangements with other local enforcement agencies is a practical means of ensuring there is inter-departmental coordination and the best use of available resources. Senior staff have been allocated a specific responsibility for liaising with the appropriate local agencies and formal operating protocols have been developed with a number of key agencies such as the Police, Inland Revenue Department and the Securities Commission. Accommodation The Office is located only in Auckland and occupies 1272 square metres spread over two floors of the Duthie Whyte Building at 120 Mayoral Drive, Auckland City. There is no vacant space as at 30 June 2001. The rental costs for the year were $349,225 ($325,652 in 1999/00) including landlord operating expenses but excluding other utility costs such as cleaning and energy costs which were:
Energy
Usage Costs
Fuel
Usage and Costs
Management
of Information The operational information held by the Serious Fraud Office relates to the investigation and prosecution of cases and, as it is “protected” in terms of the Serious Fraud Office Act, very stringent security provisions apply. Information is shared with other agencies only in very limited circumstances as permitted by the legislation and as required for the proper enforcement of the law, both in New Zealand and overseas. The over-riding consideration for the Office in all cases is to ensure that all information is accorded the level of confidentiality required by the Serious Fraud Office Act 1990. There is no “on line” or similar access to any Serious Fraud Office information. Management
of Human Resources The enhancing of investigative skills and techniques continued to be a priority for the Management Team to ensure that the Office keeps abreast of developments in relation to serious fraud offending, and the investigative skills and tools needed to combat such crime. For example training was provided to investigators to improve their capability of retrieving and analysing information held on computers seized as a part of an investigation. Professional training for the lawyers and the accountants in the Office continued and the Office supported staff with part time relevant tertiary studies. Prosecutors have the opportunity to obtain additional Courtroom experience through an arrangement with the Crown Solicitor in Auckland. The pace and change and development, particularly in technology is rapid and provides new fraud opportunities. The Office continues to keep abreast of international developments by maintaining close relationships with our counterpart overseas agencies and also by participation in inter-departmental working parties such as the Asian Crime Unit and the Money Laundering (FATF) Group. Seven staff left the Office during the year and all positions except one were filled during the year. We have been in the fortunate position of having very strong schedules of applicants for all positions. Equal
Opportunities We are committed to equal opportunities for all our staff and to ensuring that the employment policies and practices support the recruitment and retention of the widest possible range of skills. As a small, highly specialised department it is difficult to achieve a wide “mix” of ages, genders and cultural diversity. Furthermore there are relatively few vacancies occurring each year. Including the Director, the staff complement as at 30 June 2001 is 36 – 21 men and 15 women (there was one position vacant). Information About the Department The Office is committed to the maintenance of high professional standards in the attainment of its objectives. Policy
on Acceptance of Cases Selection For the purposes of determining whether an offence involves serious and/or complex fraud, the Serious Fraud Office Act 1990 provides that the Director, among other things, may have regard to the following four factors: · the suspected nature and consequences of the fraud; · the suspected scale of the fraud; · the legal, factual and evidential complexity of the matter; · any relevant public interest consideration. It is not possible to be specific as to the cases that will be investigated and prosecuted by the Serious Fraud Office. However, the following criteria are generally considered: · all fraud involving over $500,000; · all fraud perpetrated by complex means; · any other complaint of fraudulent offending which is, or is likely to be, of major public interest or concern.
The Director has full discretion in the selection of cases. Referral
of Cases The Complaints Officer is available to be contacted by the public in the first instance. Complaints and referral of cases come from Government Departments, liquidators, receivers, statutory managers, professional associations and the general public. On occasions the Office is also pro-active in undertaking enquiries. The Serious Fraud Office emphasises the need for expedition in enquiries relating to fraud and therefore encourages such contact at an early stage. Independence
of Director It is an important constitutional principle in New Zealand that decisions by law enforcement agencies on the investigation and prosecution of individuals should not be subject to political control or direction. The Serious Fraud Office Act 1990
provides that, “in any matter relating
to any decision to investigate any suspected case of serious or complex fraud,
or to take proceedings relating to any such case or any offence against this Act
(the SFO Act), the Director shall not be responsible to the Attorney-General,
but shall act independently”. Where complaints are considered inappropriate for the Office, every endeavour is made to refer them to the relevant enforcement and/or regulatory body for further action. Handling
of Cases Every complaint received undergoes an initial assessment to determine whether it is a matter for the Serious Fraud Office. After this assessment, if the Director decides to act on a complaint, the first step is often a further consideration of all the documentary material – referred to as “the detection stage”. At the completion of the detection stage the Director, after consultation with senior management, will then decide the next step. Some cases will be closed at this stage, other upgraded to a full investigation. Some cases will move to the full investigation stage immediately after assessment, where the evidence available supports that step. Experienced investigators and forensic accountants work together on investigations, under the overall supervision of the senior management team. Typically, potential witnesses and suspects are interviewed, documents obtained and analysed, and financial transactions researched. Investigation teams regularly exchange information, share experiences and expertise in order to maintain consistency. Prosecutors are assigned to each investigation. They advise on legal issues, including the exercise of the powers of the Office. Appraisal meetings are held regularly (currently monthly) to ensure that for each investigation and prosecution an appropriate level of resources is being applied, professional standards and disciplines are being adhered to, and proper progress and direction is being maintained. All current files being worked on are considered at these appraisal meetings. On the completion of a full investigation the Director holds a review of that case attended by the investigation team and senior management. At the conclusion of the review, the Director, having consulted with senior management, determines whether a prosecution is appropriate. The Serious Fraud Office Act provides for a panel of experienced barristers to conduct all prosecutions. The Director instructs a member of this panel to conduct a particular prosecution. The Office staff prepare the prosecution files, brief evidence and assist in the conduct of the prosecution. Powers
of the Serious Fraud Office The powers of the Office are prescribed in the Serious Fraud Office Act 1990. The Director has wide powers to undertake the detection and investigation of serious or complex fraud. It is essential that the Serious Fraud Office obtains the necessary information to assess a complaint, carry out detection and decide whether an investigation should be commenced. The powers for detection and investigation are far-reaching; it is not only persons suspected of offences that must provide information to the Director, but also anyone holding information, which the Director considers may be relevant to an investigation. These powers of compulsion are a vital investigative tool in the area of serious fraud offending. The Director’s powers are delegated to investigative staff who obtain documents and conduct investigations on behalf of the Director. The statutory powers are always exercised with great care and are powerful in reducing the timetable for investigations. Legal Responsibilities The Serious Fraud Office operates under the Serious Fraud Office Act 1990. All requirements of that Act have been met. In Part II of this report (pages 21-22) there is an analysis of the Notices issued in terms of the provision of the Act. Management and Structure 6 appointments were made during the year and 7 staff resigned. As at 30 June 2001 the staffing level is 36 (there is one position vacant as at 30 June 2001) Organisational Structure Public Relations The goal of the Office in relation to public relations over the past few years or so has been to demystify the Serious Fraud Office without sensationalising the work of the Office. Information about the Office has been conveyed in a low-key manner whenever an appropriate opportunity has arisen. The Office does not routinely provide media releases about cases that it has under investigation nor cases that it is prosecuting in the Courts. The general policy of the Office is to neither confirm nor deny whether the Office is investigating any matter, except where there is an over-riding public interest. Such an approach protects the integrity of the investigation and limits the potential harm, either commercial or personal, that can be done to an individual or an organisation if the Serious Fraud Office was to publicly announce that it was investigating there affairs. Similarly with prosecutions, the Office does not generally regard it as its role to be making press releases about every prosecution. It will, however, assist the media in its coverage of Serious Fraud Office prosecutions by confirming the dates of Court appearances or details of charges, if requested. In many cases name suppression affects the extent of the media coverage given to prosecutions brought by the Serious Fraud Office. From time to time the Director may determine that there is a need to alert the public to a particular fraud or scam that is known to be affecting New Zealanders. The Office responded to several media enquiries concerning such matters as Nigerian letters and prime bank instrument scams during the year. The Office’s information brochure has been distributed to every Citizens Advice Bureau and Community Law Centre in the country with the offer of providing speakers to local meetings etc if required. At the end of June five requests had been received and dates and times were to be finalised. The Office also established a website
during the year which provides details of not only how the Office operates but
also a brief overview of pending prosecutions and outcomes. APPENDIX A Total Prosecutions to 30 June 2001 from Date of
Inception
a.
Prosecution
file refers to a
prosecution involving either one defendant or multiple defendants or can involve
separate prosecution trials. b.
Prosecution
success refers to
cases successfully prosecuted in whole or in part: (i)
“Whole”
– where all the defendants have been convicted on all charges or a significant
number of charges. (ii)
“Part”
– where a prosecution case results in the conviction of the majority of
defendants on all or a significant number of charges. c. Suspended file refers to a prosecution that has been unable to be concluded as the accused is not able to be located or is not in New Zealand. |
