Australia: Ombudsman finds overspending and corruption in Victorian Building Commission

Last Updated: 6 March 2013
Article by Kate Devenish and Claire Barrance

In brief - Report identifies failure of governance and questionable recruitment of staff

On 10 December 2012, the Victorian Ombudsman released its "own motion" report after receiving information from a number of sources about concerns relating to the conduct and operation of the Victorian Building Commission. The concerns related to, amongst other things, overspending, corruption and operating at a deficit.

Unfavourable media coverage following release of Ombudsman's report

"Scathing" and "devastated" are just some of the terms that have appeared in the press in connection with the Victorian Ombudsman's report into the inner workings of the Victorian Building Commission. (See Richard Baker and Nick McKenzie, Safety at risk over building misconduct: watchdog, The Age (online), 12 December 2012 and Chip Le Grand, Former building regulator 'devastated' by Ombudsman's claims, The Australian (online), 13 December 2012.)

As a result of his investigation, the Ombudsman identified a number of serious issues relating to the core functions of the Commission and the Building Practitioners Board (BPB), including an inappropriate registration process of building practitioners, failure of governance and administration and questionable recruitment of staff.

Registration of building practitioners highly flawed

In Victoria, a number of building professionals (such as builders, engineers and building surveyors) are required to be registered with the BPB. The Ombudsman found, however, that the registration process for building practitioners had been poorly administered and the Commission could not confirm that only building practitioners with the necessary and appropriate qualifications obtained registration.

The Ombudsman found that:

  • Building practitioner applicants who failed stages of the competency assessment (in particular the computer and written tests) were still allowed to progress and were granted registration.
  • Building practitioner applicants who seek registration as a domestic builder are only required to complete a face-to-face interview with a contracted assessor. The interviews are not recorded or sufficiently documented.
  • For a fee, third parties are able to complete the application and supporting documentation on behalf of a building practitioner applicant.
  • In some instances, building practitioner applicants were coached prior to their interview with an assessor.
  • Of 27 registration files reviewed by the Ombudsman's office, the BPB had only sought to conduct a reference check of the building practitioner applicant on one occasion.
  • Former Registrar, Mr Peter Brilliant, might have placed himself in a position of conflict by assisting certain building practitioner applicants with the registration process.

Audits of registration system identify serious shortcomings

The Ombudsman commissioned two audits of the registration system by the Victorian Auditor-General and Deloitte. The Deloitte audit identified that:

  • One building practitioner applicant recorded a 71% result on the computer based test, despite having only answered seven of the 50 questions.
  • In 30% of applications, it could not be determined that the building practitioner applicant had completed the written test.
  • In 50% of applicants, it could not be determined that the building practitioner applicant had completed a face-to-face interview.
  • In 90% of applicants, concerns had been noted in relation to the completeness of the Competency Assessor's report.

The Ombudsman stated that the result of the audits "demonstrates the vulnerability of the system to corruption." (See Victoria, Own motion investigation into the governance and administration of the Victorian Building Commission, Parl Paper No.204 (2012) 36.)

Applicants progress despite failing early components of assessment

It is concerning to the industry and to Victorians who engage these builders that a registration system allows building practitioner applicants to progress to the next stages of registration despite having failed earlier components of the assessment. Building practitioner applicants who fail any stage of the assessment should not be allowed to progress their application further until satisfactorily completing that particular stage of assessment.

It is also of concern that a number of building practitioner applicants refer to hypothetical building experience in their application, rather than actual building experience and yet are still granted registration on the basis of the hypothetical experience.

As a result of the investigation, the Ombudsman has made a number of recommendations relating to the registration process, ensuring face to face interviews are audio recorded and that the Registrar is not involved in the assessment of applications.

Significant sums of public money spent on hospitality, entertainment and travel

The Ombudsman also reviewed the Commission's use of corporate credit cards, which included use for hospitality and entertainment, corporate hospitality, travel and accommodation expenditure.

The investigation found that the Commission spent significant amounts of public funds on industry bodies that included:

  • Over $200,000 spent on meals and entertainment over a three year period.
  • Over $100,000 spent in 18 months on entertaining at sporting events.
  • Over $300,000 incurred by the former Commissioner and another Director over a three year period in relation to overseas travel.
  • Nearly $950,000 spent in less than four years on sponsoring various events and awards of bodies such as the Master Builders Association of Victoria and the Housing Industry Association of Victoria.
  • A substantial increase in the cost of developing the Commission's e-toolbox customer relationship management system (from an initial cost of $698,000 to over $4.65 million).

In reviewing the Ombudsman's draft report, the previous Commissioner, Mr Arnel, acknowledged and accepted that he was responsible for the appropriate use of public funds and that there were some instances of excessive expenditure identified by the investigation. However, in post report interviews, Mr Arnel stated that he thought the spending was "appropriate". (See Tina Perinotto, Tony Arnel on the inquiry into the Victorian Building Commission, The Fifth Estate (online), 20 December 2012.)

Hospitality, entertainment and sponsorship of external stakeholders

Moreover, the investigation identified that during his time as Commissioner, Mr Arnel also held the position of Chair for both the World Green Building Council (WGBC) and the Green Building Council of Australia (GBCA). The Ombudsman identified that considerable Commission resources had been committed to supporting Mr Arnel in his roles with the WGBC and the GBCA, for example, $874,041 spent in support of and to sponsor events, dinners and projects over a five year period, of which only $18,000 was reimbursed by the WGBC and the GBCA.

The Ombudsman has recommended a review of the Commission's practice of providing hospitality, entertainment and sponsorship to external stakeholders and has sought an audited statement on how monies paid by the Commission to the GBCA and the WGBC since their inception have been spent.

Dubious employment practices, favouritism and cronyism

During his investigation into the process of recruitment and termination and the role of contractors, the Ombudsman found that:

  • Consultants and contractors were engaged by the Commission and paid up to $350,000 a year without competitive or open tender processes.
  • Managers and directors knowingly employed people with questionable backgrounds and a criminal history.
  • There were examples of cronyism with regard to the staffing of the Audit and Investigation Unit (AIU), which consisted almost exclusively of former police officers.
  • Favouritism and assistance had been provided to preferred applicants.
  • A former staff member was re-engaged as a contractor three days after his resignation. The former staff member earned nearly triple his previous annual salary in the following twelve month period.
  • There was a failure by the Commission to conduct background checks of potential employees.
  • The termination payment of the previous Commissioner, Mr Arnel, was deemed to not be in accordance with the term of his contract with the Commission.

In addition, the invoices rendered by the external contractors contained scant detail, without any particulars of the services rendered. When asked as to the content of the invoices, five of the external investigators agreed that the lack of detail could be "taken advantage of". In particular, one external investigator stated "there was no requirement [for] accountability. It should have been a lot tighter." (See Victoria, Own motion investigation into the governance and administration of the Victorian Building Commission, Parl Paper No.204 (2012) 61.)

Ombudsman recommends review of suitability of current Commission employees

Insofar as the Commission was concerned, the Ombudsman recommended that successful employment applicants undergo criminal record checks and complete a statutory declaration in relation to their background.

The Ombudsman also recommended that when recruiting investigators for the Commission, the Commission place appropriate emphasis on investigative experience, as well as knowledge.

In light of the findings, the Ombudsman has recommended a review of current Commission employees' suitability for continued employment with the Commission.

Ombudsman's findings of concern to Victorians and the building industry

As a result of the investigation, the Ombudsman identified serious issues relating to procedure and conduct in the operation of the Commission and, in particular, the BPB. The issues identified are a cause for concern for all those in the industry, and in addition, those Victorians seeking to engage builders for construction and renovation work.

Of the 16 recommendations made by the Ombudsman in the report, eight of the recommendations have been accepted, a further six have been agreed (two in principle) and the remaining recommendations have been flagged for further discussion.

New industry body to oversee governance for builders, plumbers and architects

In late November 2012 it was announced that the Commission, the Plumbing Industry Commission and the Architects Registration Board would be replaced by a new body called the Victorian Building Authority which will streamline the governance for builders, plumbers and architects.

The legislation formalising this arrangement will be introduced to parliament in 2013. In early 2013, an independent assessment will be undertaken to assess the most appropriate organisational structure for the Victorian Building Authority and meetings will be held with key industry stakeholders and government advisory forums in order to obtain feedback on the arrangement.

The Commission is currently operating as normal and will continue to do so until legislation is passed by parliament.

It is hoped that with the streamlining of the regulatory boards together with the recommendations made by the Ombudsman regarding increasing reporting and regulation of the practices within the Commission, the industry can be provided with a watchdog that is free from corruption, indulgence and maladministration.

Kate Devenish Claire Barrance
Construction and engineering
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Kate Devenish
Claire Barrance
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