Bungled handling of a secret government report has revealed alarming levels of fraud at the Accident Compensation Corporation scheme and in the health sector.
The publicly funded agency's own estimates suggest more than $500 million is being lost annually to malfeasance, but less than 1 per cent of this total is being detected.
The figures are found in a draft report by the Serious Fraud Office assessing the cost of economic crime.
While the February 2013 report was never officially finalised, and the numbers were blacked out in response to an Official Information Act request from the Herald, a botch-up in the censorship process means the redacted text is easily revealed.
Scroll to the end of the article to see the full report
The redactions show ACC estimated up to 11 per cent of its more than $2.5 billion annual spend was being misappropriated by exaggerated injuries and medical providers inventing "phantom" clients.
"Total fraud is estimated by ACC to be somewhere between 8-11 per cent of total entitlements paid," the report said.
In response to questions from the Herald, ACC back-pedalled from its own estimates. A spokeswoman said the 8 to 11 per cent figure "seems to have come from a small scale internal study of a small number of files in 2003 and it wasn't robust".
The SFO report disclosed internal estimates at the Ministry of Health suggest a fraud problem of a similar size to ACC.
"The Audit and Compliance section of the National Health Board also provided an estimate for total fraud of 2 per cent of the national healthcare costs of $6 billion," redacted text reads.
The report also canvassed $8 billion of other health spending - mainly by district health boards - estimating 3 per cent of that was also being lost to fraud.
The Cost of Economic Crime
The report said ACC's fraud estimate encompassed medical providers inventing "phantom" clients, and claimants who misrepresented their injuries in order to receive compensation payments.
In the health sector, the National Health Board said its estimate covered prescription fraud by pharmacists, doctors inflating patient registers to rort medical subsidies and patients obtaining treatments they were not entitled to receive.
A spokesman for Michael Hundleby, acting national director of the National Health Board, said the SFO report "was never completed due to concerns around its accuracy and validity of its methodology".
Radio New Zealand obtained a 2012 draft of the report which estimated the cost of financial crime to New Zealand at up to $9.4 billion. The 2013 draft released to the Herald had watered that figure down to $300 million of "detected financial crime".
During question time in Parliament last week, Michael Woodhouse, Minister Responsible for the Serious Fraud Office, echoed concerns over the report's methodology and said the report had involved "considerable work".
The redactions uncovered
"The SFO, in consultation with other government agencies, ended that work," he said.
Labour Party finance spokesman David Parker expressed disquiet that the report had been buried and its conclusions redacted.
"In order for people to be willing to pay taxes and levies they've got to have confidence that other people are doing likewise and the system is not being rorted ... transparency is important."
He said the gap between fraud estimated by the Ministry of Health and ACC, and the low rate of detection, demanded answers.
Spokesmen for ACC and the Health Ministry said they employed investigation teams and the public should have confidence in their stewardship of public funds.
The apparent high levels of fraud in ACC and health contrasts markedly with SFO estimates of benefit and state housing housing fraud, where the quantum is lower and detection levels far higher.
A spokeswoman for the SFO said the report was never published because its methodology, largely based on a similar study in the UK, was "not directly applicable to the New Zealand context".
The redactions were made to protect the confidentiality of advice from officials and to maintain free and frank advice to ministers.
Alerted to the botched redaction process she denied her office was responsible for the mistake.
Spokesmen for ACC and the Ministry of Health denied requesting redactions.
The full report: Cost of Economic Crime Redacted August 15, 2014 (App users click here to read)