window service accessing SQL-Server 2005 - vb.net

I have a window services which watches a folder for a file copied to it, if one arrives it gives it a good name (rename) and is supposed to convert its contents to a sql-server 2005 database.

The rest of the code works fine but trouble is when the application trys to login to sql-server. it reports the error " Login failed for user 'NT AUTHORITY/LOCAL SERVICE'". below is the function with the code.

I the testing invironment, every thing works fine, but the window service fails at that stage

Thank you

Private Sub exportData(ByVal dname As String)
        Dim dline As String
        Dim oread As IO.StreamReader
        Dim k As Double
        Dim fullRecord As Boolean

        db = New SqlConnection("Data Source=Tony;Initial Catalog=phc2012;Integrated Security=True")
        db.Open()
        If autoConv = 1 Then
            oread = File.OpenText(dname)
            k = 0
            While oread.Peek <> -1
                dline = oread.ReadLine
                If (dline & "").Trim.Length = 0 Then Continue While
                tstr = "SELECT * FROM [dictionary] WHERE (((secType)='" & Mid(dline, recTypeStart, recTypeLen) & "'))" _
                         & "  or (((secname) is null)) ORDER BY secname DESC, fldstart"
                cmd = New SqlClient.SqlCommand
                cmd.CommandText = tstr
                cmd.Connection = db
                drd = cmd.ExecuteReader
                If drd.HasRows Then
                    sql1 = Nothing : sql2 = sql1
                    Do While drd.Read
                        fstart = CType(drd("fldstart"), Int32) ' start of the field data
                        flen = CType(drd("fldlen"), Int16) ' field length
                        ftype = CType(drd("fldtype"), Int16) ' field length
                        If sql1 = Nothing Then
                            sql1 = "INSERT INTO [" & drd("secName").ToString & "] ("
                            sql2 = "values ("
                            fullRecord = False  'record has only ids no need to save it
                        End If
                        Dim s As String = Mid(dline, fstart, flen).Trim
                        If s.Trim.Length > 0 And s.IndexOf("*") = -1 And s.Trim <> """" Then
                            sql1 = sql1 & "[" & drd("fldname").ToString & "],"
                            fullRecord = True
                            If ftype = 1 Or flen = 3 Then 'integer/float
                                If IsNumeric(s) Then
                                    sql2 = sql2 & s & ","
                                End If
                            ElseIf ftype = 2 Then 'string
                                sql2 = sql2 & "'" & s & "',"
                            End If
                        End If
                    Loop
                    tstr = Mid(sql1, 1, sql1.Length - 1) & ") " & Mid(sql2, 1, sql2.Length - 1) & ");"
                    cmd = New SqlClient.SqlCommand
                    cmd.Connection = db
                    cmd.CommandText = tstr
                    'close the data reader to free resources for the next record
                    drd.Close()
                    If fullRecord Then cmd.ExecuteNonQuery() ' save only valid record
                End If

            End While
            oread.Close()
        End If
    End Sub

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