CenITex blasted over 'serious improper conduct'

An investigation into Victoria's IT shared service provider CenITex has uncovered cases of serious improper conduct and sham procurement.

The scathing report, tabled in state parliament today (pdf), provides a blunt assessment of contractor behaviour, procurement and recruitment practices, mostly in the now-defunct Efficient Technology Services (ETS) division.

ETS was tasked with delivering a whole-of-government ICT service. The other division of CenITex focused on 'business as usual' ICT infrastructure maintenance for departmental customers, and was not implicated.

Acting ombudsman John Taylor noted his investigation had identified "failures in internal checks and balances; serious improper conduct; undeclared and inadequately managed conflicts of interest; and poor procurement and recruitment practices."

Taylor used a series of 19 case studies to highlight some of the most serious issues uncovered in the course of the investigation.

They included:

• A CenITex data centre lead who received more $1250 a month from a company he helped to win over $430,000 of business for, including from CenITex. He was dismissed for "gross misconduct".

• An IT architect  recommended additional work be given to a company he had a conflict of interest with. He eventually sought $175,000 from the company, in part for furnishing assistance "to get into CenITex". The company reportedly refused to pay, and the architect left CenITex in 2011.

• A "sham" request for quotation (RFQ) process in which a company not on the eServices panel was engaged in a $137,000 deal before the supposed RFQ for the contract wrapped up. "The requests to other organisations to submit quotations were invitations for them to waste their time and resources," Taylor noted.

• A procurement exemption that ended up benefitting a single company. The exemption was allegedly known internally as a "blank cheque", as it provided "notional approval to engage contractor(s) for unspecified projects up to the value of $995,000 without any competitive process". The signatory of the exemption refuted the "blank cheque" allegation.

• Allegations of contract-splitting to avoid the need to tender. The ombudsman uncovered a company paid over $40 million between 2009 and 2012 "spread over approximately 330 purchase orders", of which 270 were "for under $150,000". The ombudsman did not make a finding on the allegation.

• Contract rates for a chief information officer of $396,000 for 12 months. The ombudsman said that appeared "to be excessive".

• The use of 'pass through' arrangements to hire contractors, where a company supplied contractors through a recruitment agency and on to CenITex. An internal probity review found the contractors' rates were about $100 to $300 a day higher than usual. The extra money went as a fee to the company supplying the contractors, unbeknownst to CenITex officials.

• Four contractors engaged from a single company, where documentation supporting their employment "had clearly been cut and pasted". Three of the contractors had the same resume.

"Companies, and their contractors, were awarded significant contracts valued at up to $4 million without any competitive process," Taylor noted.

"In some instances, nepotism and favouritism informed procurement and recruitment practices.

"Often, the companies or contractors were chosen because they were associates or friends of other contractors already working at CenITex; some appointments were made on the basis of false and misleading documentation.

"Others were initiated or overseen by individuals within CenITex who had a clear conflict of interest and stood to gain financially from the transactions."

Taylor alleged some contractors viewed policies and procedures as "hurdles that needed to be overcome to deliver a project, rather than processes designed to ensure that public monies were spent appropriately".

He blasted CenITex for employing a "high proportion of contractors" that lacked knowledge or experience of proper procurement processes.

"Owing to a flawed, decentralised procurement system, such contractors were able to engage other contractors," Taylor noted.

"Unsurprisingly, poor practices developed as a result."

Current CenITex CEO Michael Vanderheide was in the process of implementing "new policies, procedures and initiatives", and had offered "in principle acceptance" of all of the ombudsman's recommendations.

The investigation was initiated based on evidence obtained from whistleblowers.