Former department head unrepentant after ombudsman lashes excessive spending

By Stephen Easton

July 10, 2019

An ombudsman’s investigation has found a former department head committed misconduct through inappropriate expenditure and by getting involved in a related information request from the Liberal Party, which sacked him once in government.

Michael Deegan, now the chief executive officer of Inner West Council in Sydney, disputed the findings of two investigations by the South Australian ombudsman Wayne Lines about his time as CEO of the SA Department of Planning, Transport and Infrastructure.

Lines found the former CEO had committed misconduct by upholding an FOI decision that blocked access to the fine details of his own spending, which the ombudsman described as “substantial mismanagement of public resources” amounting to maladministration on the part of DPTI.

The reports expose serious gaps in departmental policies and procedures, and major differences of opinion between the ombudsman and the public servants as to their legal or ethical responsibilities, and what kind of expenses are appropriate.

The department is now required to ensure its credit card and FOI policies are stronger, and the government has been told to issue a clear service-wide policy explaining when it’s acceptable for the taxpayers to pick up the tab for meals, drinks and entertainment.

Excessive consumption

Lines found Deegan’s spending at restaurants and while travelling was far from appropriate for a public service CEO. He considers this spending was at times unjustified, of dubious public value, beyond community expectations, poorly documented and also “involved the purchase and consumption of significant quantities of alcohol, absent sufficient or any rationale” on regular occasions.

The report includes a long list of meetings held over meals and drinks, and three examples Lines found particularly bad:

  • a $214.50 meal with an unknown private stakeholder where over $100.00 was spent on alcohol.
  • a $1,190.50 meal “apparently” with five external stakeholders, “including an astonishing $664.00 spent on alcohol”.
  • a $262.50 meal with another senior DPTI employee and a private stakeholder where about $100.00 was again spent on alcohol.

The ombudsman decided not to consider whether the CEO had personally committed “misconduct and/or maladministration” but said Deegan’s use of his departmental purchase card was “wrong within the meaning of section 25(1)(g) of the Ombudsman Act” in his opinion. He concluded:

“A member of the public could rightly question the public value arising from the use of departmental funds in such circumstances. In respect of these and other transactions, there was, if nothing else, the risk of an appearance of personal enrichment. While Mr Deegan strongly denies that he sought personal enrichment, and I do not express any view in that regard, I consider that I am entitled to express a view about the risk of such expenditure being viewed in that light.”

Deegan said he rarely drank the alcohol himself, but the ombudsman doubted this claim and said that only in “exceptional circumstances” would this be acceptable.

Lines also found the former DPTI chief set up an actual or potential conflict of interest by signing off an internal review of a freedom-of-information request about the same matter: his own expenses. The request came from then-opposition MP Rob Lucas, who is now the Treasurer.

The former CEO misunderstood the relevant legislation, according to the report. Deegan argued it was his job to sign off decisions in all internal FOI reviews as the department’s principal FOI officer. But while the application for internal review must be addressed to the principal officer, it is “the agency” that makes the decision, not any one person, according to Lines:

“There are sound policy reasons why a principal officer should not be determining an FOI application in relation to which they have a conflict of interest.”

Deegan disagreed with the findings and said they lacked evidence. “Furthermore, there are a number of inferences and assumptions that are made in your report, which do not form a sound basis for the ultimate findings, having regard to the seriousness of the allegations,” the former CEO told the ombudsman, via his lawyer.

He said his normal practice of paying for meals and drinks with “contractors and third parties” was intended to avoid the problem of actual or perceived conflicts of interest if they had paid. But Lines points out a lot of the meetings could have been held elsewhere, like at the office. The ombudsman was also concerned to find the department head and then-minister dining out on departmental funds at least twice.

Deegan’s response accused Lines of retrospectively applying his personal views to the DPTI and public service policies that applied.

“It appears from your findings that no officer in the public sector should have a credit card to purchase meals, drinks and entertainment expenditure in the course of their duties. With respect, that is something that should be determined by the Government of the day and not by you as Ombudsman.

“Indeed it is submitted that your findings have an air of unreality in the context of the work environment in today’s public sector and its dealings with the private sector, which often require out of normal hours meetings including at meal times. Senior Public Servants are not able to simply work 9am to 5pm which seems to be your assumption.”

Lines rejected this and several other arguments from the former CEO, and re-asserted the legal basis for his findings and recommendations.

The investigation also found former chief corporate officer Julienne TePohe was “wrong” to approve the CEO’s purchase card expenses but cleared her of misconduct and maladministration. TePohe submitted that in reality, she was only playing an administrative but not an approval role, and pleaded that “the organisational hierarchy in place” made it difficult for a public servant to question the boss on their credit card spending.

Lines had “genuine concerns” about the role played by TePohe, who also acted as CEO for several months after Deegan’s dismissal, and her attempts to justify specific expenses. He accepted she was in a “difficult position” but found she still had financial control responsibilities that she was unwilling or unable to carry out.

In one case, TePohe suggested staff had been rewarded for outstanding performance with the gift of a meal but this would breach SA public service policy, and was not backed up by records submitted to the inquiry. Lines suspects she came up with this story after his inquiry began.

However he found her responsibility was lessened by “the nature of [her] responsibilities in respect of the purchase card; her subordinacy to the former Chief Executive within the organisation; [and] the overall deficiencies of the agency’s policy framework”.

FOI battle with MP ends badly for public servant

With the FOI request from then-opposition MP Rob Lucas, the department told him it had already proactively disclosed the CEO’s expenses as required. But Lucas wanted to see more detail from the invoices. The request was not handled within the statutory time frame (which is the same as being denied) so he asked for an internal review.

The original decision was upheld, officially by Deegan himself as the department’s principal FOI officer, agreeing with the advice of others.

“If all invoices were to be requested, then consultation with all related parties would need to be undertaken and this would be an unreasonable use of agency’s resources,” added his review decision.

Lucas went to the ombudsman for an external review, which later found this claim was made without any effort to identify what documents would fall into the scope of the request. The department’s very slow response to the ombudsman’s review forms the basis of the second set of findings against it.

The ombudsman does not believe Deegan “actively sought to insert himself into the process or direct any particular outcome” based on internal correspondence. The report portrays a CEO typically playing a tick-and-flick role in FOI reviews, always approving the recommended decision.

Lines accepted there were “some mitigating circumstances”but also questioned some of the claims made in Deegan’s defence.

“Mr Deegan recalls that he did canvas the issue of the potential conflict of interest with the FOI team,” his lawyers submitted. “He was advised however that this was a matter of departmental policy concerning expenditure on credit cards.”

According to Deegan, he accepted this advice and believed the discussion was recorded in a memo, possibly signed by the FOI manager or TePohe, who said her former CEO was “passionate about controlling conflicts of interest” but could provide nothing to back up his recollection.

“Ms TePohe advised that DPTI did not retain a copy of a memo consistent with Mr Deegan’s submissions to my investigation (i.e. pertaining to the potential conflict of interest). Ms TePohe stated that she had ‘no recollection’ of preparing or signing such a document and ‘no specific recollection’ of speaking with Mr Deegan about a potential conflict interest arising from Mr Lucas’ request.”

The FOI manager did not recall this conversation or any memo about it either. “She advised that she could not recall any other person raising the possibility of Mr Deegan’s conflict of interest,” according to the report. The ombudsman concluded it was unlikely to have happened.

Deegan also claimed the department ran a “forensic audit” of his expenses, for example, but TePohe strongly contradicted him. Her submission suggests Deegan exaggerated the scope of a much simpler record-keeping audit that did not consider whether the spending was appropriate.

Ombudsman doesn’t like to be kept waiting

The second report is highly critical of how the department responded when Rob Lucas inevitably appealed the FOI decision to the ombudsman.

Lines found DPTI had breached the FOI Act by failing to provide him with material he requested for seven months.

“It was not until January 2018 that DPTI compiled the materials relevant to the applicant’s request and supplied them to my Office. The delay of approximately one year from the making of the application for access to the proper commencement of the external review was, in my view, wholly unconscionable. The application had by that time lost all currency. It was in any case rendered largely irrelevant by the change of government which shortly followed.

“As near as I can tell, DPTI first commenced compiling the relevant documents in approximately October 2017. By that time, DPTI had failed to adhere to five successive deadlines imposed by my Office. It would go on to miss three more.”

Deegan disagreed with the findings again, citing “substantial pressure” on the department’s FOI officers as a mitigating factor and blaming the ombudsman’s office for adding to that pressure.

He said there was high turnover in the FOI unit and as CEO he met regularly with “the better practitioners” to try to retain them. He also went on the attack again, blaming the ombudsman’s staff — “with Helen Lines being a notable exception” — for a generally poor relationship between the agencies.

The former CEO accused Lines of taking a “punitive approach” to the external FOI review and argued he should have considered that allocating sufficient resources to comply with the FOI Act depends heavily on the government’s priorities. FOI is rarely a priority for any government.

The second report details copious internal correspondence within DPTI and with the ombudsman’s office, as the department missed eight deadlines and struggled to furnish the requested information, supposedly due to insufficient funding, staff turnover, letters getting lost in the mail, and so on. Lines says his report shows the relationship was not as bad as Deegan claims.

“I do not accept that my approach was unduly ‘punitive’,” he adds. “I consider my approach reasonable especially considering the period taken by [the department] … to release all the required documents.”

In the end Lines took the “highly unusual” step of threatening a summons under the state’s Royal Commissions Act to get hold of the information.

One big no-no is altering documents after they are requested under FOI, as DPTI did with one transaction record.

“Although no doubt intended to clarify the circumstances surrounding the relevant transaction, the covert alteration of records requested under the FOI Act is enormously troublesome. There were other ways in which DPTI could have clarified the matter.”

The department’s poor FOI performance led the ombudsman to place it under further scrutiny. Lines wants to see improvements that enable it to deal with FOI requests “promptly and efficiently” by September 27 and has asked for a detailed report on its FOI performance by the end of next February.

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