SFO charges result in conviction for former Chief Executive
SFO charges result in conviction for former Lion Foundation Chief Executive
David John Conroy, former Chief Executive Officer of the Lion Foundation was today found guilty of one count of false accounting and two counts of false accounting by an employee.
The verdicts came at the end of a two week jury trial held in the Auckland District Court before Judge Gibson.
Serious Fraud Office Chief Executive, Adam Feeley, said the decision brought to an end a very long and demanding case for the SFO.
“This case is illustrative of the time and dedication required of a serious fraud investigation, and there are simply no shortcuts if a matter is to be brought to a successful conclusion.”
The charges were laid by the SFO and related to three journal entries made between 2002 and 2004 in the Lion Foundation accounts, which had the effect of writing off almost $520,000.00 from a debt balance owed by the Strathern Inn in Invercargill.
Mr Conroy made the journal entries without the knowledge or approval of the Board in order to hide the true amount owed to the Foundation by the Strathern Inn.
Mr Conroy was remanded on bail for sentencing on 13 April 2011.
For further information
General Manager, Fraud and Corruption
Serious Fraud Office
Phone: 021 675 647
Note to editors
David John Conroy joined the Lion Foundation, a charitable organisation that owns gaming machines, on 1 April 2001 as Financial Controller. He later became CEO. The Lion Foundation provided 18 gaming machines to the Strathern Inn in Invercargill. The Strathern Inn was owned by Sharon and Wayne Ogilvy: Mrs Ogilvy managed the business and gaming machines whilst Mr Ogilvy took no active part in the operation of the business.
The Lion Foundation is the authorised owner of gaming machines installed at its members’ premises but delegates its operation to the premises through Site Agreements. The Strathern Inn Site Agreements required the premises to deposit gaming machine proceeds in full into the Lion Foundation’s bank account within five working days of the weekly profit return date, and also that all proceeds were kept separate from all other moneys at all times and were not banked into her own trading account or any other account other than the Lion Foundation bank account.
The weekly gaming machine proceeds of the Strathern Inn was generally between $20,000.00 and $35,000.00, averaging about $25,000.00, throughout the period Sharon Ogilvy owned the Strathern Inn. These gaming machine proceeds should have been banked into the Lion Foundation’s bank account in full within five working days, but this regularly did not occur. While some funds would be banked into the Lion Foundation’s bank account, the funds were often late and short of the total required.
From February 2001 the Lion Foundation regularly advised Mrs Ogilvy of their concern at her failure to bank gaming machine proceeds within five working days. As a result of continued short banking the Lion Foundation started to withhold site rental payments from September 2001 in an attempt to recover funds not banked by Mrs Ogilvy. Despite withholding site rental payments the Strathern Inn continued to short bank gaming machine proceeds and the debt continued to grow.
The Lion Foundation Board was aware of the Strathern Inn’s debt and was advised by David Conroy in late 2001 that the debt was approximately $110,000.00.
Within the Lion Foundation’s accounts three large separate write-off journal entries were posted against the Strathern Inn’s debt, each of which should have been authorised by the Lion Foundation Board.
The first journal write-off was for $72,657.00 and was dated 31 July 2002. The journal entry records the credit as site payments, but in fact did not represent payments actually made. The journal entry had the effect of reducing the amount recorded as owing by the Strathern Inn to below $110,000.00 which was the amount David Conroy had told the Board was the outstanding. The Lion Foundation Board did not authorise this write-off.
The second journal write-off was for $201,204.00 and was posted on 2 July 2003, despite the transaction date being shown as 1 March 2003. The entry was posted by the “System Administrator” user, which was David Conroy at the time. The journal entry records the credit as site payments but in fact did not represent payments actually made. The journal entry had the effect of reducing the amount recorded as owing by the Strathern Inn to below zero as at 1 March 2003. The Lion Foundation Board did not authorise this write-off.
The third journal write-off was for $246,062.27 and was posted on 19 March 2004, despite the transaction date being shown as 31 December 2003. The entry was posted under David Conroy’s user name and password. On 18 March 2004 an employee had advised David Conroy that the Lion Foundation auditors had noticed that the Strathern Inn’s then recorded debt amounted to approximately $250,000.00. The journal entry records the credit as “Player Wins” but this was not the case and the journal did not represent payments actually made. As at 31 December 2003 the amount recorded as owing by the Strathern Inn was less than $205,000.00. The journal entry had the effect of placing the Strathern Inn account in credit of approximately $50,000.00. The Lion Foundation Board did not authorise this write-off.
In total, between December 2000 and July 2005 the shortfall in banked funds at the Strathern Inn was $1,270,625.31. A total of $459,755.66 in site rental payments was withheld by the Lion Foundation resulting in a loss to the Lion Foundation of $810,869.65. The three journal entries posted by David Conroy totalled $519,923.27 and had the effect of reducing the Strathern Inn’s debt balance in the Lion Foundation accounts.
Mrs Ogilvy previously pleaded guilty to charges of theft by a person in a special relationship and theft by a person required to account in relation to the same facts and case summary. She was sentenced in November 2009.
Role of the SFO
The Serious Fraud Office (SFO) was established in 1990 under the Serious Fraud Act in response to the collapse of financial markets in New Zealand at that time.
The SFO operates three investigative teams:
- Fraud Detection & Intelligence;
- Financial Markets & Corporate Fraud; and
- Fraud & Corruption.
The SFO operates under two sets of investigative powers.
Part 1 of the SFO Act provides that it may act where the Director “has reason to suspect that an investigation into the affairs of any person may disclose serious or complex fraud.”
Part 2 of the SFO Act provides the SFO with more extensive powers where: “…the Director has reasonable grounds to believe that an offence involving serious or complex fraud may have been committed…”
The SFO’s Statement of Intent 2010-2012 sets out the SFO’s three year strategic goals and performance standards. It is available online at: www.sfo.govt.nz