Australian Aerial Patrol under investigation: report lays finances bare

The Australian Aerial Patrol’s Harry Mitchell talks to the Mercury in March about the organisation’s attempt to secure a new pilot.

The Australian Aerial Patrol’s Harry Mitchell talks to the Mercury in March about the organisation’s attempt to secure a new pilot.

SPECIAL INVESTIGATION

Allegations of financial mismanagement and fraud within the region's charitable aerial patrol have been laid bare in a damning report that questions how the organisation absorbed $750,000 in international drug money. 

The NSW Crime Commission is now coming after the money under proceeds of crime legislation.

Meantime the heavily indebted patrol – the recipient of hundreds of thousands of dollars in public money and charitable donations each year –reportedly teeters on insolvency. 

The patrol's general manager Harry Mitchell declined to respond on Thursday to serious allegations surrounding the  decline. 

These include claims he: 

  • Used patrol funds to finance his personalised 'YIPYIO' car number plates.
  • Billed the patrol more than $120,000 for years worth of radio traffic reports he never delivered. 
  • Ran up large entertainment bills and used patrol money for likely personal costs including property repairs and fuel charges.

The allegations are contained in a report by Ian Fargher, a University of Wollongong lecturer in forensic accounting investigation and former Assistant Commissioner of Taxation. 

Clouded: Harry Mitchell has denied wrongdoing concerning the charity's finances. Picture: Sylvia Liber.

Clouded: Harry Mitchell has denied wrongdoing concerning the charity's finances. Picture: Sylvia Liber.

Patrol board members, John Weston and Mike Galliano, hired forensic accountant Ian Fargher to go through the books in mid-2015, when the retirement of Mr Mitchell's secretary brought scrutiny to the services' financials.

The report attempts to account for $750,000 paid to the patrol by pilot Bernhard Stevermuer via his business, Always Airborne Pty Ltd, between December 2013 and July 2014.

The money was part-payment for the $1.5 million sale of the commercial sectors of the aerial patrol, which has arms in aircraft maintenance and pilot instruction. 

Before the remainder of the money could change hands, the Middle Eastern Organised Crime Squad swooped on a plane piloted by Mr Stevermuer into at Albion Park's Illawarra Regional Airport.

Police claimed Mr Stevermuer's deposit was part of huge profits from a drug trafficking syndicate run by his associates. He was convicted of dealing with property suspected of being the proceeds of crime and knowingly participating in a criminal group. In September, the NSW Crime Commission ordered the aerial patrol to freeze the money. 

Shown a letter from the NSW Crime Commission asking for the  missing $750,000, Mr Mitchell told the ABC he was “familiar with that document”.

“The money was all used, it’s gone,” he said.

There is no suggestion that Mr Mitchell is part of the consortium or knew anything about the drug syndicate.

He has already repaid the cost of his personalised number plates, according to the ABC report.

'He can't plead ignorant: Former board member Mike Galliano hired a forensic accountant to examine the patrol's books. Picture: Sylvia Liber.

'He can't plead ignorant: Former board member Mike Galliano hired a forensic accountant to examine the patrol's books. Picture: Sylvia Liber.

Mr Mitchell served as both the patrol's general manager and president until a turbulent annual general meeting on February 26, where he relinquished the presidency.

Former board member Mike Galliano told the Mercury Mr Mitchell had also served as minutes keeper at past board meetings. 

“The buck's got to stop with him,” Mr Galliano said. 

“He was the president and he was the general manager so he's got to know what's gone on there. He can't plead ignorant to it.”

Speaking to the ABC, Mr Mitchell, who has worked at the patrol for 35 years raising millions for the charity, denied financial allegations against him.

“I worked my butt off and so have our volunteers in trying to achieve what we wanted to achieve to provide a valuable and unique community service,” he said.

He also denied wrongdoing concerning the charity's finances.

“I am not the treasurer. I didn't have access to funds. I wasn't the signatory,” he said.

Where’s the money?

Forensic accountant Ian Fargher notes his report is based on incomplete financial records which were provided to him.

The report attempts to answer the question of why the patrol’s debt didn’t decrease by a full $750,000 between December 2013 and July 2014.

In those seven months, the service accepted that amount in eight payments, as a part payment for the commercial sections of its business, NSW Air Pty Ltd and Aero V.

Company records show Mr Mitchell is the sole director and secretary of both companies, which conduct flight training, joy flights, maintenance and repairs.

“The aerial patrol’s cash at bank has deteriorated over the years before 2013 and improved since the receipt of the abnormal income,” Mr Fargher said. “However the improvement is not commensurate with the improvement expected in regards to the amount of abnormal income, $750,000.”

In trying to ascertain where the money went, Mr Fargher has analysed transfers in and out of the account it was paid into.

He said the $750,000 of “abnormal income” made up 91 per cent of payments into that account in 2013/14 and 2014/15.

Analysing funds going out of the account, Mr Fargher found $264,144 of the $750,000 was used to pay off loans, interest and capital purchases.

He said 36 per cent – or $272,000 – was transferred out to the patrol’s “inter-entities”, with $89,639 of that money used to pay off a St George bank loan and $27,044 paid to a loan from Mr Mitchell.

This leaves $369,173 unaccounted for, as a “significant operating subsidy which has generally not been reflected, as would be expected, in increased profitability of aerial patrol enterprises or as surplus cash held at bank”.

Structural problems

The report calls into question the structure of the business and charity, saying its accountability is “impaired” through the duel roles of general manager and president – both held by Mr Mitchell.

“It is noted that this is not a recommended corporate structure as there is an inherent conflict between the operational role of the general manager and the provision of strategic direction by the chairman of the board,” the report says.

Mr Fargher says the position of the general manager is “poorly defined and, despite a long term occupant, the contract appointment is confused as to remuneration, superannuation, responsibilities and conduct”.

It also says the management of the patrol’s finances are “confused with multiple bank accounts, many inter-entity transfers, ad-hoc personal loans, poor and in consistent notations leading to confusion as to business, charity and personal money”.

“Harry Mitchell has day to day management control of the aerial patrol’s business including instructing administration staff in the processing of accounts, payments and operational requirements,” the report said.

“This is evident by work practices and notes on account postings from time to time.”

The report recommends that “excess expenditure, over-charges and private benefits” be fully quantified or repaid by Mr Mitchell.

Money paid for services not provided

According to Mr Fargher’s reports, Harry Mitchell is employed by the patrol as a contractor through his family trust, The Mitchell Family Trust.

The trust is managed by Omega Management and Promotions Pty Ltd,  a company which has Mr Haralambos Mitchell of Kiama Downs as its sole director.

“The trust is contracted to provide the [general manager] to the aerial patrol,” the accounting report says. “This arrangement is not formally documented and has been manipulated for tax and superannuation purposes.”

The accounting reports says Omega provided weekly invoices to the aerial patrol for payments of wages and traffic reports, since “around 1989”.

“Provision of the traffic report service ceased in 2008 however Omega continued to charge for these services at $334.51 per week,” the report says. 

It says Mr Mitchell, as the aerial patrol general manager and sole director of Omega, therefore approved and received payment of about $121,758 for services that were not provided.

“The aerial patrol should immediately pursue a refund from Omega (and or the GM) for $121,758.

Alleged misuse of charity funds

In addition to allegations about Mr Mitchell receiving payment for services he didn’t provide, there are many pages of the forensic accounting report dedicated to his potential misuse of the charity’s finances.

He allegedly abused his fuel card, allegedly paid for personalised “YIPYIO” number plates for his own use, and allegedly made suspect superannuation payments onto his American Express card.

Mr Fargher says the aerial patrol pays for a Holden SS Commodore for the use of the general manager which has the “unusual” number plates YIPYIO.

These plates – which cost $440 a year – are reportedly paid for by the aerial patrol charity, but owned by Mr Mitchell.

“It would appear inappropriate that personalised number plates owned by a contractor are appended to a motor vehicle owner and paid for by a charity,” the report says.

The report also says Mr Mitchell ran up costs by thrice updating his company car before its lease ran out.

Using aerial patrol money, he allegedly paid a cheque of $5000  as a lump sum, in order to bring the on-paper cost of the car repayments down and meet a board-imposed threshold on the cost of a new lease. Mr Fargher says this money was “deliberately disguised”.

There are also questions over a series on “non-fuel transactions” for newsagency items, drinks and sweets and the purchase of lower grade unleaded petrol unsuitable for Mr Mitchell’s “high octane” fuel car.

Mr Fargher recommends the organisation “immediately clarify the role of the vehicle and ensure its independence as an asset of the aerial patrol by ensuring the proper use of the vehicles fuel card (only fuel for that vehicle and no add-on non vehicle shop purchases) and replacement of the vehicle number plates to plates owned by the aerial patrol.”

Mr Fargher also points to “significant entertainment bills”, including a $792.30 charge for Murphy’s Bar and Grill and a $420 bill at The Lagoon which were charged to aerial patrol cards.

“It is reasonable to expect that a charity would be very conscious of large entertainment bills such that they are accountable to public scrutiny,” he said.

Mr Fargher also found a number of costs paid for by the charity which relate to rental property repairs, mowing transactions and casual labour costs which were “beyond the needs of the aerial patrol”. 

He said it was “vital” these payments were clarified by the charity’s board “as if these payments relate to personal expenses of the general manager then it would appear to be extremely egregarious and deliberate removal of funds from a charitable organisation for private purposes”.

Mr Fargher notes that Mr Mitchell: “appears to have made disorganised financial decisions without transparent consultation with the board.

“The GM’s duel roles of president and GM hinder the proper due diligence a board would provide regarding the business and charitable operations,” the accountant said.

Missing tax payments

The Australian Taxation Office is allegedly chasing Mr Mitchell for hundreds of thousands of dollars.

According to Mr Fargher’s report, the subsidiaries NSW Air Pty Ltd and Aero V, owe $142,521 and $47,501 to the ATO respectively. He says this could indicate the aerial patrol is insolvent.