Victorian minister’s ‘temper’ may have contributed to cover up of $257m bad pandemic payments: IBAC

Victoria’s Independent Broad-based Anti-corruption Commission found that senior public servants hid the wrongful payment of $257 million of pandemic support to more than 9000 ineligible businesses.

The investigation concluded that the associate secretary and deputy secretary of the then-Department of Jobs, Precincts and Regions withheld information in 2021 and 2022 from the department’s secretary, Simon Phemister, and the Minister for Industry Support and Recovery, Martin Pakula, about the wrong payments.

IBAC’s Operation Harmonia, an investigation that began in August 2022 following corruption allegations by public servants, found that thousands of businesses backdated GST registrations to qualify for Covid-19 support payments.

Some $100 million was paid to businesses that reported no sales in the required period between July 2019 and July 2022, suggesting they were dormant companies not entitled to compensation for one of the longest pandemic lockdowns in the world.

Even after the department found out what was happening, it failed to act, meaning fraudulent businesses continued to be paid money they weren’t entitled to, IBAC said.

A report prepared for Mr Pakula and the Auditor General’s Office revealing the mistake was altered to by the department’s deputy secretary to remove information after the suspected loss was estimated to be more than $285 million, IBAC said.

In 2021, another senior public servant told the Victorian Ombudsman that the GST was accurately assessed without disclose the department could not work out when the payments had been backdated.

When the state’s auditor-general reviewed the grants in 2022, the department’s deputy secretary misled the new minister, Ben Carroll, who is now premier, by wrongly stating that no incorrect payments were made and Mr Pakula had approved of the department’s approach to grant assessments, the report said.

Information was also withheld from the Victorian Ombudsman and false information was provided to Mr Pakula, who is now the chairman of Crown Melbourne, the city’s casino and hotel resort.

While Mr Pakula was not told about the problem, his aggressive personality may have discouraged public servants from giving him the bad news, the IBAC report said.

“IBAC found that information on the suspected loss was withheld in circumstances where it was understood the information would not be welcomed by the Minister or would otherwise reflect poorly on the department,” a summary of the report said.

“Minister Pakula acknowledged that his temper may have been a factor that contributed to the decision not to report this issue. IBAC also found that Secretary Phemister was known to be close with the Associate Secretary and Deputy Secretary. This perception may have deterred others from bringing concerns directly to his attention.”

Crown did not immediately respond to a request for comment on behalf of Mr Pakula.

With Victoria holding an election next month, the report is a blow to Mr Carroll’s Labor Government, which opinion polls show is behind the Coalition.

IBAC said it would not pursue criminal charges over the failures, but said ministers “must be mindful that their conduct impacts culture and can deter public servants from providing frank and fearless advice”.

“What Operation Harmonia has uncovered is behaviour contrary to the Victorian Public Sector code of conduct, professional obligations and a clear failure to act in line with the high integrity standards expected of Victoria’s public officers,” IBAC Commissioner Victoria Elliott said.

“An absence of a positive risk culture and failure to provide frank and fearless advice, no matter how uncomfortable, ultimately left the department vulnerable to an even greater risk of fraud and corruption.

“While officers within the department spoke up, their leaders failed to act, meaning the government was left uninformed and unable to move quickly to address this suspected significant loss of public funds.

“This special report exposes serious failures by senior public officers, and informing Victorians of these findings is crucial in promoting transparency and accountability in the public sector. “

The Business Costs Assistance Program was created to help small and mid-sized businesses through the pandemic. Launched in early 2021, it initial paid $2,000 to hospitality, tourism, events, food wholesaling, and some retail businesses hit by a lockdown in February and March.

By the middle of the year it was increased to $2,500 per business, then $4,800, and expanded across the economy. About $8 million of the misallocated money has been retrieved and a further $5 million is being repaid over time.