Fake School for Scoundrels

May 23, 2009

It is reported from London that thousands of young Pakistanis exploited a hole in Britain’s immigration defences to enrol as students at a network of sham colleges. Many of the “students” came from the hotbed heartland of Al Qaeda and the Pakistani Taleban. 

The ersatz Manchester College of Professional Studies had three small classrooms and three students for the up 1797 students on its books. Now that’s a highly productive teacher/student ratio. It charged NZ$2,600 for admission places and fake diplomas and falsified records to help often militant immigrant students stay on in Britain.

The three “headmasters”,  or rather headshysters, earned an estimated $NZ15.5 million from the scam. I’m all in favour of lifting the financial rewards for education professionals but that’s a little over the top.  

The  phantom college was removed from an official government register of education providers last year, though other fake schools have sprung up mushroom like  elsewhere. 

One wonders how they get on the official list in the first place. No doubt because education quality controls in Britain, as elsewhere, involve creating and pursuing paper trails which may bear no resemblance to reality but satisfy bureaucratic box- ticking behaviour whether the schools are bogus or not.

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Madoff Ripoff

December 27, 2008

The Swan fraud is a pygmy compared with the giant Madoff ripoff, which could amount to US$50 billion. Bernard Madoff made off with other people’s money for decades from the inner sanctum of New York’s financial tabernacle via an upmarket Ponzi scheme.

Charles Ponzi arrived in the United States in 1903 with two dollars and fifty cents in his pocket. The scam which bears his name is an illegal investment vehicle that pays off old investors with money from new ones, and relies on a constant stream of new investment. Such schemes eventually collapse under their own weight.

In Ponzi’s case he initially canvassed friends and associates to back his scheme, offering a 50% return on investment in 45 day based on the “great returns” available from postal reply coupons which, he explained to the credulous, made such incredible profits easy. He started his own company, the Securities Exchange Company, to promote the scheme.

By July 1920 he had made millions. People were mortgaging their homes and investing their life savings. Most did not take their profits, but reinvested. As long as money kept flowing in, existing investors could be paid with the new money, but colossal liabilities were accumulating.

Ponzi lived luxuriously: he bought a mansion and brought his mother from Italy in a first-class stateroom on an ocean liner. He was a hero among the Italian community, and was apparently cheered wherever he went. When things turned sour, many who were ruined were so blinded by their faith in the man or their refusal to admit their foolishness that they still regarded him as a hero. In November 1920 Ponzi pleaded guilty to mail fraud and was sentenced to five years in federal prison. Other prison terms followed.

Madoff’s modus operandi was more conservative-he only offered 11-14%- and carefully targetted. He operated in a different social milieu to Ponzi , the common denominator being the credulity of investors.

When jailed for an earlier financial infraction before he hit upon the scheme which bears his name, rather than inform his mother in Italy of this career impeding development and his new insider status, Ponzi posted her a letter stating that he had found a job as a “special assistant” to a prison warden. Madoff’s court case is ahead of him. With his background, he can probably aspire to be the Executive Assistant to the Prison Governor.


Money Transfusion Fraud: How healthy is the health system?

December 22, 2008

It’s hard to believe but almost $17 million was siphoned off from the Otago District Health Board between 2000 and 2006 into the coffers of a company which no Board officials even knew existed (see NBR).

This was the financial equivalent of having a patient hooked up to a blood transfusion system in a public hospital ward for six years without a doctor or a nurse stopping even once to check on progress.

Michael Swan, the leading fraudster, pulled a six figure annual salary from the ODHB as IT supremo and much more from the fraud. No one in authority appeared to raise an eyebrow when he swanned in and parked his late-model Lamborghini, one of his 30 cars, next to the Board’s rather more modest Toyota Corollas.

The fact that he and his partner in crime Kerry Harford could keep the drip feed money transfusion going so long raises questions not just about the board in question but the whole health system, with its 23 district health boards in a country with the population of Melbourne.

It also raises the question of money spent on IT general. Public sector IT in-house projects, from the failed Police INCIS project in the 1990s to other more recent botch ups, do not fall in the fraud category. They are instead financial large black holes into which taxpayers money is unaccountably bulldozed with the best of intentions and often the worst of outcomes because of poor conceptualisation or weak implementation.

There are huge governance and management issues to do with public sector IT projects, especially the greenfields variety. These are exacerbated by the increasing rate of change and the lack of digital literacy displayed by many board members whether elected or appointed. This is a far from healthy state of affairs in the health system and elsewhere in the public service.