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South Link Health (SLH) says it found out through reading the Otago Daily Times that the Southern District Health Board had called in a forensic accountant over what the Dunedin-based independent practitioner association believed until this week was a commercial dispute.
SLH executive director Dr Murray Tilyard said yesterday commercial negotiations were no longer appropriate.
Chairman Joe Butterfield told the health select committee this week his preferred outcome remained a commercial settlement.
Dr Tilyard said: ''You can't mediate your way out of fraud [allegations]''.
''If they had raised that at any stage, we would have had to disengage from mediation. Because the issue of fraud would have to be ... examined before you could go back to mediation.''
SLH learnt of the allegations through the media, and did not know until yesterday morning the board had hired a forensic accountant.
Dr Tilyard said the issue was causing distress for Dunedin-based staff, and for general practices owned by South Link Health Services.
But there had been huge support from member practices, and the wider primary care sector, since the allegation surfaced this week, he said.
Dr Tilyard said he greatly respected board member Richard Thomson, who raised the alarm with the Auditor-general.
However, he believed Mr Thomson acted on incorrect information about the cause of the long delay in finalising the matter.
He said SLH had health funder approval to use savings from laboratory and pharmaceutical contracts for other health programmes, and did not owe any money.
Turnover in senior management on the health board made it difficult to bring the long-running matter to a close because of a lack of institutional memory, and a lack of adequate health board records.
SLH had supplied large amounts of documentation to the board to support its position.
It included written evidence that approval was granted by the then funding managers. Dr Tilyard believed SLH had become an election year ''political football''.
''What we struggle to understand is why in 2014 are we still in dispute over matters which occurred in the 1990s until 2002.''
The Otago Daily Times asked Mr Butterfield and board chief executive Carole Heatly to disclose when the forensic accountant was engaged, but both declined.
Mr Butterfield said he had spoken to the select committee, and did not think it appropriate to comment further.