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The admission came as Mr Butterfield was questioned by Parliament's health select committee yesterday.
The dispute involved whether SLH spent savings achieved in laboratory testing and pharmaceutical contracts as per its agreement with the funding authority.
It is estimated the original $5.3 million arising from 1990s health contracts could have ballooned to about $15 million with interest.
Contacted by the ODT yesterday, SLH chairman Dr Dean Millar-Coote categorically denied any suggestion of fraud.
Later in Parliament yesterday, Health Minister Tony Ryall rejected a suggestion he discouraged the board from taking the matter to police.
Board member Richard Thomson when contacted by the Otago Daily Times yesterday, said he raised the alarm with the Auditor-general, which brought the long-running matter to a head last November.
He did it because of the ''absolute frustration'' he felt at the lack of action from the Ministry of Health audit and compliance unit, which was informed in late 2010.
''I have asked almost monthly for three years why we have not had the investigation we requested.
''I spoke to the auditors when I believed that there was no other way to get action.
''I did not go through the Swann fraud to be a party to what seemed to me to be a wilful failure to act.''
Mr Ryall sacked Mr Thomson as chairman of the old Otago Health Board in the fallout from the Michael Swann fraud.
Mr Thomson said he did not know if fraud had been committed in this instance, but the concerns warranted proper investigation.
Under questioning by Green MP Kevin Hague, Mr Ryall said he was alerted by the Auditor-general in November 2013 that the dispute might involve fraud.
He said he had not been advised about the 2010 legal advice, and rejected Mr Hague's suggestion he discouraged the board from taking it to police.
Mr Ryall said he advised Mr Butterfield the matter should be referred to the Serious Fraud Office if the board believed there was a case to answer.
Mr Ryall rejected Labour MP Annette King's assertion he pressured the Auditor-general not to use the word fraud in the Audit Office report.
SLH chairman Dr Millar-Coote said the group had scrutinised its role in the dispute, and ruled out fraud.
As far as he was aware, SLH was not aware of the 2010 advice to the health board.
Earlier yesterday, Mr Hague and other MPs quizzed Mr Butterfield and senior health board managers who appeared by video-link before Parliament's health select committee for the board's financial review.
Mr Hague, a former health board chief executive, asked why the matter was not referred to police.
Mr Butterfield said the 2010 legal advice indicated further investigation was needed to determine whether fraud had occurred, and that investigation was continuing.
The Christchurch 2011 earthquake added to delays by disrupting the Ministry of Health audit and compliance unit.
In the meantime, the board wanted to settle with SLH, and Mr Butterfield did not want to prejudice talks by commenting.
''If there is fraud, of course we will refer it on to the appropriate authorities. We have not established it is fraud, yet, and may not.
''Our prime aim still ... is to try and get a commercial settlement that is accepted by both parties.''
Ms King asked whether Mr Ryall told the board not to pursue the case through the courts, which Mr Butterfield rejected.
''To the contrary, he has agreed with my view ... that if there is fraud we have to establish that, and if that's the case we have to go to the appropriate authorities,'' Mr Butterfield said.
Mr Butterfield could not be contacted for further comment.
In a statement emailed to the ODT, chief executive Carole Heatlysaid the board was working with an independent forensic accountant.
''Our aim is to recover the money on the behalf of the public. If we are advised there is evidence of any illegal actions by South Link Health we will refer those to the Serious Fraud Office.''
The Green Party has called for an investigation into whether the independent practitioner association has a case to answer.
Mr Hague said the lack of action over the fraud concerns seemed ''inexplicable''.