'Stockholm syndrome' facilitated corruption, IBAC hears

By David Donaldson

March 1, 2016

Both a culture of integrity and effective oversight processes are needed to prevent corruption in government agencies. Hearings at the anti-corruption inquiry into the Victorian Department of Education’s failed Ultranet software project suggest both were lacking in the department at the time.

There was a culture of fear and a sense of “Stockholm syndrome” during the time Darrell Fraser was deputy secretary, the inquiry heard on Monday, and the fact that “sham” payments were being made to contracted company CSG was “common knowledge across the department”.

Dr James Watterston, who was a regional director at the department until 2009, told the Independent Broad-based Anti-corruption Commission hearing that soon after he returned as deputy secretary in 2012 — after Fraser had left — media reports led him to discover unusual payments in the department’s records.

“Despite the massive expenditure, the report never officially made it past draft stage.”

The suspect transactions included monthly payments to CSG and a contract for $4 short of $1 million — the threshold at which expenditure would have to be decided outside the department. Watterston stated the payments were to cover legal expenses incurred by CSG as part of the Ultranet project, which the company was contracted to deliver.

But according to records from the time the contract for just under $1 million was made with Alliance Recruiting, the agreement was for the delivery of a report on technology connectivity issues for the Ultranet system. Despite the massive expenditure, the report never officially made it past draft stage. Its content was “amateurish in the extreme”, containing nothing more than a lay person would have been able to identify, said Watterston, suggesting the report was “worth more like $90 than $900,000”.

Alliance Recruiting “clearly” didn’t have the expertise to conduct the consultancy, he argued.

When he spoke to colleague Ben Cushing, who had been working at the department throughout that period, about the suspect $1 million contract, Cushing’s response was “fuck, I told [acting secretary Jeff Rosewarne] not to sign it”. Cushing said “it was wrong and he had felt sick about it as it was not appropriate or within procurement rules.” He told Watterston he was “powerless” to stop it due to the positions of those who authorised it: deputy secretary Fraser and acting secretary Rosewarne.

Over his time in the department, Watterston says he came to the conclusion many people knew about suspicious payments:

“Over time, post this event … it became evident to me that that was common knowledge across the department. So yes, it was confirmed that people had been aware of that event.”

‘Like finding out your husband has another wife and kids’

Despite this, the culture of the department was one of fear, and that if staff were not overly supportive of the leadership “you could be ostracised in a way that would be career limiting”. This fostered a “Stockholm syndrome”, he said, where people were “captured” and the only way to cope is to agree with the captors:

“I was really conscious of the fact that people had probably been involved in things that given their own choices, they wouldn’t have been.”

Sonya Velo-Johnstone, who played an administrative role in the $1 million payment to Alliance Recruitment, said finding out the true nature of the contract was “like waking up and finding out your husband has got another wife and kids”:

“Everything turned to shit basically, like I thought this was a real project and he was basically saying it was … a fraud, a bogus.”

Velo-Johnstone added that former senior executives Dianne Peck and John Allman had told her to change the the way the department recorded the payments so that they were coming from the secretariat budget and not Ultranet around the time of a Victorian Auditor-General’s Office investigation.

With hindsight, she believes this was to “hide” payments “because it was a fraud”.

Procurement board ‘rubber stamp’

The hearing made clear that the department’s procurement processes were inadequate to prevent the type of alleged fraud involved in the Ultranet case.

One witness, former head of procurement Janet Thompson, agreed that one could be forgiven for thinking the Accredited Purchases Unit, of which she was then chair, was “no more than a rubber stamp”.

Thompson, who is now on leave from the department without pay, admitted an application to the unit by Fraser to exempt the just-under-$1 million agreement from having to go to tender was granted without any kind of verification of the information provided by him. Requirements to gain an exemption — normally procurement between $150,000 had to go to tender — such as that the company had worked extensively with the department previously, that there was not enough time to go to tender, or that the company had specialised knowledge, were not checked.

Any procurement over $1 million would have needed to be approved by the Victorian Government Purchases Board outside the department.

Unusually, after that exemption was approved, a new application was forwarded to the Accredited Purchases Unit to change the definition of that procurement from a “consultancy” to a “contract”. Consultancies must be noted in the annual report and are often subject to freedom of information requests, whereas contracts are much less transparent, not needing to be published. The request was approved.

Thompson she had never seen another re-application to change from a consultancy to a contract, despite looking at perhaps 300 applications per year. Although her signature was placed on these approvals, she said the unit had no internal audit process to verify information provided by business units.

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