Banker schools corruption ‘completely unacceptable’: Callister

By David Donaldson

Monday May 2, 2016

The corruption uncovered in the Independent Broad-based Anti-corruption Commission’s inquiry into so-called “banker schools” is “completely unacceptable” and has “no place in the public sector”, Victorian Department of Education and Training secretary Gill Callister says.

Friday saw the release of the final report on Operation Ord, which revealed how a core group of senior education department officials — including former director Nino Napoli — siphoned off millions of dollars in public funds intended for school education for their own personal benefit.

IBAC is now preparing a brief of evidence for consideration by the Office of Public Prosecutions for criminal charges “regarding the conduct of a number of individuals”.

The investigation found a long list of shortcomings in departmental systems, controls and culture “in which the misconduct and corrupt conduct was able to flourish for at least seven years, and probably significantly longer”, including:

  • The operation of two different finance systems with differing levels of control and visibility;
  • Different rules and culture between schools and the department;
  • Poor controls around procurement;
  • Poor controls around accountability and financial management;
  • Inadequate separation of duties;
  • Inadequate auditing;
  • A culture of selective compliance with policies and procedures;
  • A culture of entitlement which enabled inappropriate conduct and expenditure of public funds, such as the purchase of alcohol, to be generally accepted;
  • The failure of senior leadership to set the right tone at the top, model organisational and public sector values and address serious issues; and
  • A culture of bullying of individuals who raised concerns about poor processes and inappropriate expenditure.

“While it is stark to see this level of past corrupt conduct laid out in detail,” Callister said, “we have not been waiting for the final report to take action.”

None of the senior executives involved in the corruption work in the department any more and the banker school model that allowed corrupt behaviour to take place has been abolished.

DET has established a new specialist fraud and corruption investigation branch and has strengthened its financial management training for principals, school councils and business managers. The secretary said in a statement:

“It is extraordinary that this behaviour came from some of the most senior and influential people in the department …

“It is therefore critically important that we model ethical behaviour from the top down, which is why we have set new standards for ethical leadership, which all executives must uphold. These include a leadership charter for executives, embedding the public sector value of integrity in all executive officer performance plans, and beginning all executive board meetings with a discussion about some aspect of integrity and how it relates to our everyday work.”

‘Officers considered policies as optional’

IBAC argues having two different accounting systems, with differing levels of transparency and control, between schools and the department’s central office was “probably the single most significant structural factor that enabled the abuse of the banker school system”. There was subsequently poor visibility from the centre as to how funds were being spent:

“Importantly, there was no procedure whereby payments at the school level were automatically or routinely referenced back to the funds advanced by central office that were used to make those payments. Once a grant or other allocation of funds for some generic purpose (for example, ‘Partnership Programs’) was signed off centrally and made to a school (being a payment outside the School Global Budget, which essentially covered recurrent expenses), those funds became invisible to central office.”

Procurement processes were undermined by conflicts of interest not being declared when engaging companies and protocols around obtaining quotes not being followed. Gifts from contractors went undeclared and an unfair advantage was offered to at least one supplier from whom gifts had been received, the report argues.

It found business managers “consistently” failed to check that the goods or services invoiced had been delivered or performed, invoices often contained insufficient information, yet were paid, and there was acceptance of informal arrangements and the maintenance of unofficial records.

The report notes that Napoli’s abuse of his powers to both sign off on things and hold and disperse money showed the importance of separating duties between different individuals. Napoli admitted to stealing department money during IBAC hearings last year.

During the period in question the department had a culture antithetical to public service values, the report says, with evidence given in hearings indicating that “some officers considered procedures and policies as optional or not applicable to them”. There was also a “boys’ club” mentality that facilitated a “noticeable pattern” of male principles receiving benefits, such as additional school funding, travel opportunities and employment opportunities, and the recipient’s school making payments at the request of senior officers at central office.

IBAC intends to release a report on its second inquiry into the Department of Education and Training, Operation Dunham, which looked at the contracting process around the failed Ultranet software system, later this year.

Progress on integrity reform

The department released a list of anti-corruption steps it is taking in response to Operations Ord and Dunham. The integrity reform program includes over 100 commitments. Steps already completed include:

  • Establishing an Integrity and Assurance Division to lead the Integrity Reform Program and provide central oversight of the department’s integrity performance;
  • Establishing five Integrity Leadership Groups across regions and central office made up of peer‐nominated corporate and school staff to identify integrity issues, contribute to decisions and promote integrity across departmental workplaces;
  • Introducing Speak Up, an independently hosted whistle‐blower service for staff to raise concerns about unethical conduct;
  • Appointing two independent ethics experts to the Department’s Integrity Committee to strengthen program oversight;
  • Introducing a new leadership charter for all executives;
  • Designing resources to support staff in schools and offices to talk about and make ethical decisions;
  • Introducing a new data analytics tool to review approximately 8 million school financial transactions for anomalies in real time; and
  • And rolling out a new travel policy to ensure value for money and that each trip has a clear educational benefit.

Steps currently being implemented:

  • Rolling out an executive rotation program to break down unhealthy networks and increase knowledge sharing across the department;
  • Taking action to prevent suppliers offering inducements that could affect contract decisions;
  • Overhauling the school auditing process to include a risk‐based approach so those schools with unusual transactions or increases in spending face increased scrutiny; and
  • Reviewing gifts, benefits and hospital and conflicts of interest policies to make compliance clearer and easier.

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