Defence ministry defrauded of $150k
The Ministry of Defence has overhauled its finance procedures after being fleeced of almost $150,000 by a member of a procurement project based in the United States.
A top ministry official says it missed early opportunities to identify the theft, attributing dodgy documentation to incompetence rather than malice.
Faith Helen Ruggiero was convicted of felony larceny at a Connecticut court earlier this year after being arrested in July 2016.
The ministry commissioned an external review into “financial irregularities” it uncovered in February 2016 as it prepared to wind up the Maritime Helicopter Capability Project, set up to acquire and upgrade 10 Seasprite helicopters.
According to a ministry document, an internal investigation found about US$100,000 (NZ$146,530) “unaccounted” from the Connecticut-based project team office’s $US7.8 million administration budget.
After American authorities investigated, Ruggiero was convicted of felony larceny in March and given a five-year prison sentence, suspended for five years.
The ministry received a one-off restitution payment of US$50,000 from Ruggiero in April, with the court ordering further payments worth US$40,000 over five years.
"That’s a big lesson for us, it’s a big lesson for me personally: you shouldn’t just think somebody is incompetent if they don’t do their job properly.”
Ministry of Defence deputy secretary Carol Douglass told Newsroom the theft was first uncovered after the ministry identified a “misappropriated” refund cheque.
A number of irregular payments between May 2014 and January 2016 were eventually uncovered in the offshore bank account used to pay for the daily management of the Connecticut office.
Douglas said Ruggiero had gathered the money opportunistically over two years, deliberately overpaying or double-paying for items like a rental car then banking the refund into her personal account.
She also falsified documents to hide payments for personal items.
While concerns with the documentation supplied by Ruggiero were raised before the theft was uncovered, Douglas said it was seen as “a competency issue” rather than a criminal act.
“I guess that’s a big lesson for us, it’s a big lesson for me personally: you shouldn’t just think somebody is incompetent if they don’t do their job properly.”
While there were some checks and balances in place for the project office, Defence Secretary Helene Quilter said it wasn’t subject to “the same rigorous scrutiny and oversight” as the procurement of the Seasprites itself.
Global auditor appointed
Once the theft was uncovered, reviews were carried out by both Audit New Zealand and Gordon Davis, the former chief legal adviser for the State Services Commission, Quilter said.
They found the ministry’s policies, systems and processes had been adequate, but a series of failures in implementing them prevented Ruggiero’s fraud from being detected earlier - although ministry reconciliation processes did eventually uncover it.
Quilter said all recommendations from the two audits had been fully implemented, including the appointment of a “global auditor” to oversee ministry project teams working outside of New Zealand.
There had also been a wider overhaul of ministry procurement practices, including the hiring of specialists in project management, financial management, and commercial expertise.
Defence Minister Ron Mark told Newsroom it was "always concerning" when fraud was committed, but he was happy Ruggiero had been brought to justice and most of the stolen money recovered.
While it was difficult to plan for a staff member with criminal intent, Mark was confident the ministry had worked hard to strengthen its internal controls and audit systems which would make it more difficult for fraud to be committed in the future.
"Procurement practices have been reformed in recent years and I’m happy with the recently completed review by Sir Brian Roche. That said, I will still keep a close eye on things though as it is a fairly new system which has yet to be fully tested.”
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