Special reports

Operation Meroo

An IBAC investigation into allegations that the former CEO of a Victorian regional health service misused their position and engaged in corrupt conduct, including that they subverted procurement processes and failed to declare and manage conflicts of interest.

IBAC found the former CEO awarded a contract worth nearly $1 million to a consultancy while they were in a personal relationship with one of its directors. The former CEO also authorised payment of invoices to an electrical company owned by their relative several years after the work was purportedly undertaken and without proper verification.

The former CEO failed to declare or manage clear conflicts of interest, as they were required to do. IBAC also found the former CEO inappropriately expended the health service’s funds on travel and hospitality and regularly failed to comply with Agency policies and procedures.

  • IBAC is Victoria's anti-corruption body responsible for preventing and exposing public sector corruption and police misconduct. The following is a summary of an IBAC investigation called Operation Meroo.

    In 2018, IBAC commenced an investigation into allegations of corruption against the former CEO of a Victorian regional health service. The health service operates a number of campuses that provide acute care, residential aged care, disability services and community services.

    IBAC investigated allegations that the former CEO:

    • used their position to award a contract to a company with which they had personal associations
    • failed to comply with the health service's procurement policies when sourcing goods and services, including awarding work to their relative's electrical company
    • used their position to circumvent proper recruitment procedures
    • used the agency's purchasing cards for travel and hospitality expenses that were not within the guidelines of their employment
    • provided false information to the Department and the Commonwealth Department of Health to receive government funding for capital works projects
    • received a financial benefit from two car dealerships, the suppliers of the health service's fleet vehicles.

    IBAC found the former CEO:

    • awarded a poorly defined contract worth nearly one million dollars between 2010 and 2017 to accompany without following a competitive process
    • was in personal relationships with one of the company's directors and a subordinate of the former CEO but did not declare conflicts of interest
    • provided that company director with benefits which were inconsistent with the health services policies
    • authorized the payment of invoices without verification to a relative's company between 2012 and 2015 totaling around $74,000 for work purportedly undertaken in 2004
    • did not comply with the health service's policies in relation to recruitment and promotions
    • expended the health services funds inappropriately on travel meals and alcohol
    • was involved in funding applications for building works to the Department and the Commonwealth Department of Health which contained false information, but there was not enough evidence to determine the impact of the false information on the applications.

    IBAC did not substantiate the allegation that the former CEO received any personal benefit when purchasing fleet cars for the health service.

    IBAC found that agency's board failed to govern effectively and did not adequately oversee the former CEO. For example, by failing to scrutinize the former CEO's expenditure. The inadequate oversight by the board effectively facilitated the former CEO's conduct. Board members did not have the skills and capabilities to fulfill their responsibilities.

    In addition, IBAC identified issues with the oversight of the health service by the then Department of Health and Human Services, despite red flags regarding the conduct of the former CEO. Oversight of health services now rests with the Department of Health following machinery of government changes.

    IBAC also found that the health service had a culture which discouraged employees from speaking up and contributed to the board of the health service failing to properly scrutinize the former CEO's conduct.

    The former CEO was responsible for the day-to-day management of the health service for the public good. The former CEO's failure to uphold the Code of Conduct for Victorian Public Sector Employees and the failure of the board and the Department to hold the former CEO to account resulted in significant cost to the health service.

    In 2017, the former CEO was placed on leave during an independent review of the organisational culture at the health service. The former CEO did not return to work and later formally resigned from the health service.

    IBAC has made three recommendations to address the issues identified in Operation Meroo.

    The first recommendation is that the health service review its policies systems and practices to address corruption vulnerabilities, including by:

    • strengthening controls applying to procurement, including ensuring suppliers are engaged in a way that is consistent with competition requirements
    • ensuring a strong conflict of interest framework is in place, including requiring declarations of consensual personal relationships between employees; and
    • regularly communicating with employees and board members regarding their responsibility to report suspected corrupt conduct.

    The second recommendation is for the Department of Health to work with the board's Ministerial Advisory Committee to ensure the Committee:

    • considers public health service and public hospital board evaluations prior to the annual appointment process, and takes action to address issues and risks identified in those evaluations
    • that they introduce a more formal process for conducting board director exit interviews; that they address the vulnerabilities of public health service and public hospital boards in regional and rural areas, including maintaining required levels of capability; and
    • for the committee to review the support provided to public health services and public hospital board members, including training and resources.

    The third recommendation is for the Department of Health to:

    • ensure its systems for monitoring the performance of public health services and public hospitals centrally record concerns or issues raised, to collate information on each health services risks in a systematic way
    • review and strengthen controls around appointment and performance management of public health service and public hospital CEOs.

    The misuse of any public funds causes harm to communities as it can impact on the delivery of vital service and reduce public confidence in public institutions, services and government. This is particularly acute in health care.

    Victoria's public health services and public hospitals and other agencies, particularly in regional or rural areas and those governed by boards, should consider the corruption risks outlined in this report; the identified vulnerabilities and recommendations made; and determine how they can mitigate these risks in their own agencies.

  • IBAC publishes responses to our investigations to inform the community about actions agencies advise they are taking, and to share learnings that may help other agencies improve their systems and practices to prevent corruption and misconduct.

    Between May and July 2022, Agency A provided IBAC with its response outlining how it had implemented Recommendation 1 arising from Operation Meroo. Agency A's response is below.

    Recommendation 1 – Agency A reviews its policies, systems and practices to address the corruption vulnerabilities identified in Operation Meroo, including by

    a) strengthening controls applying to procurement, including by ensuring suppliers are sourced in a way that is compliant with competition requirements, that key elements of the procurement process are segregated and subject to appropriate oversight, and robust record-keeping practices are in place so that activities and decisions are auditable.

    Chief Procurement Officer Role

    The role of Chief Procurement Officer has been assumed by Agency A’s Chief Finance Officer. This role reports to the Chief Executive Officer but also has direct access to the Board of Directors. Key responsibilities of this role include ensuring that:

    • the appropriate oversight of the development, application and ongoing assessment of Agency A's procurement governance framework is maintained at all times
    • all procurement activities apply strategies, policies, procedures, practices and probity that comply with HealthShare Victoria's (HSV's) policies and any other relevant requirements of the Health Services Act 1988
    • the procurement complaints management process demonstrates due process and integrity
    • probity is maintained in all purchasing, tendering and contracting activities engaged in by Agency A.

    Contracts and Procurement Officer Role

    Agency A has also established the role of Contracts and Procurement Officer. The holder of this position is responsible for the effective and efficient administration of all substantive procurement related administrative deliverables including:

    • coordination of procurement related processes including tendering and contract negotiations
    • ensuring that suppliers comply with all contractual requirements and the regular and timely review of contracts and contractual requirements for effectiveness, value for money and probity.

    Procurement Policy

    Agency A has also comprehensively reviewed its Procurement Policy which is now underpinned by all relevant probity related imperatives including that:

    • Agency A only purchases goods and services that meet specification, and which are required to be delivered on time at competitive prices
    • Agency A at all times seeks to obtain best value for money based on whole of life cost
    • procurement processes are appropriately transparent
    • procurement related risks are identified and appropriately managed
    • ·open and fair competition is facilitated; and
    • consistent procedures are followed in accordance with Agency A's other procurement and probity related policies; HealthShare Victoria's policies; the Health Services Act 1988; and the Standing Directions 2018 under the Financial Management Act 1994.

    Where available, Agency A sources goods and services under contracts that have been negotiated on an industry wide basis by HealthShare Victoria (HSV). HSV is an independent public sector and commercial provider of supply chain, procurement and corporate services to deliver health-related goods and services. Competition in the sourcing of prospective suppliers for goods and services not acquired through HSV negotiated contracts is strengthened through use of value thresholds with an associated minimum number of quotes required as shown below.

    Value thresholds

    Quotation Parameters and Method

    $0 - $2,000

    Minimum of one (1) verbal quote or price list

    $2,001 - $10,000

    Minimum of two (2) written quotes

    $10,001 - $100,000

    Minimum of three (3) written quotes


    Complexity and risk analysis undertaken to determine

    the type of market approach to use i.e. expression of

    interest, public tender.

    Agency A's procurement policy also clearly specifies and details the procurement related roles and responsibilities of all Agency A employees. Segregation of duties is maintained appropriately throughout the procurement process from the initial identification of a procurement need through to final payment to the supplier.

    All procurement is subject to an Instrument of Delegation which specifies levels of maximum financial authority by position for each major type of procurement. For example, all types of procurement expected to exceed a cost of $100,000 (excluding GST) may only be approved by the Board of Directors, in advance.

    Procurement Review Committee

    A Procurement Review Committee has been established to support the effective management of procurement whilst ensuring the highest levels of probity are maintained at all times.

    The Procurement Review Committee's membership includes Executive Directors, Departmental Managers, the Contracts and Procurement Officer, the Chief Executive Officer and other staff as required. This approach aims to ensure a broad range of expertise and input is included in the procurement process as well as to optimise the level of transparency associated with procurement related decision-making.

    Purchasing card expenditure is reviewed by the Board monthly. Use of purchasing cards is limited to two employees and authorisation of card usage is required prior to any transaction being made.

    Capital Project Expenditure

    Capital project related expenditure is reviewed and approved by the Project Control Group Committee, a sub-committee of the Board of Directors.

    This Project Control Group Committee meets on a regular basis and is comprised of board directors, management, architects, quantity surveyors, project managers and any other persons possessing relevant expertise as required from time to time. For projects of high value and/or risk, representatives of the Department of Health are also included.

    A capital project expenditure listing report is reviewed by the Board of Directors monthly. This report includes the initial budget, actual expenditure to date, forecast total expenditure to complete, and total allocated funding (i.e. government, community and/or internally sourced) for each project.

    Procurement related complaints

    Agency A welcomes feedback on its procurement practices from suppliers, both current and potential. Information is also published on Agency A's website explaining how suppliers may submit feedback either directly to Agency A’s Chief Procurement Officer and/or externally to HealthShare Victoria.

    The abovementioned web page also provides information for current and prospective suppliers in relation to upcoming supply opportunities as well as the terms and conditions which cover commercial engagement with Agency A.

    Record keeping

    A new contract management system has been introduced to facilitate:

    • the timely review of contracts
    • secure record storage; and
    • detailed audit of contract related compliance requirements.

    Appropriately detailed procurement related audit trails including purchase orders, delivery dockets, invoices and payment details are documented and securely maintained in Agency A's financial management information system for review as required.

    Internal Audit

    Agency A's procurement policies and activities are also reviewed from time to time by its internal auditors, a Chartered Accounting firm wholly independent of the governance and management of Agency A. As part of this process a review of compliance with the Standing Directions 2018 under the Financial Management Act 1994 is undertaken on an annual basis.

    External Audit

    Agency A's annual financial accounts are audited by the Victorian Auditor General’s Office. As part of this process the auditor reviews Agency A's internal controls including those related to the procurement process.

    Australian Centre for Healthcare Governance (ACHG) Integrity Governance Framework Assessment Tool

    Agency A assesses itself against the ACHG’s Integrity Governance Framework Assessment Tool. The tool assists organisations to review their local controls and systems having regard to the three lines of defence risk management model, adapted for application in the health service environment.

    The three lines of defence model is used across the public sector as a systematic and practical approach to addressing fraud and corruption vulnerabilities.

    The most recent assessment indicated that Agency A is consistently conforming in the twelve specified elements of better practice regarding procurement, contract and project management.

    b) ensuring a strong conflict of interest framework is in place (including requiring declarations where consensual personal relationships exist between employees) and that employees and suppliers understand their obligations to identify, declare and manage conflicts of interest (and that conflicts of interest are avoided where possible)

    Agency A's Conflict of Interest Policy has been comprehensively reviewed to ensure it is reflective of best practice and includes the following stipulations:

    • Agency A will take a proactive approach to assessing and managing conflict of interest risks
    • all employees have a duty to place the public interest above their private interests when carrying out their official functions
    • all employees are accountable for avoiding and/or identifying, declaring and managing any actual, potential or perceived conflicts of interest that may apply to them
    • employees with direct reports are accountable for overseeing management of their direct reports’ conflict of interest, modelling good practice and promoting awareness of conflict of interest policies and processes
    • employees with direct reports will ensure they are aware of the conflicts inherent in their team’s work and functions and monitor the risks to which their direct reports are exposed
    • the policy includes definitions of both a private interest and a consensual personal relationship and details the different types of conflict of interest which may arise
    • provision is made by the policy in relation to identifying and managing consensual personal relationships with reference to the Managing Consensual Personal Relationships Practice Guide as published by the Victorian Public Sector Commission
    • the policy provides clear direction to any individuals or groups undertaking activity for or on behalf of Agency A (including employees, contractors and consultants) as to how a conflict of interest might arise and how to appropriately respond

    The policy also includes instructions for how to report suspected mismanagement of a conflict of interest in accordance with Agency A's Public Interest Disclosures Policy.

    The following employees must complete a Declaration and Management of Private Interests form upon appointment, annually thereafter and within five working days after the employee’s relevant circumstances change:

    • Chief Executive Officer
    • Executive Directors; and
    • any other employees assessed from a risk-based review as warranting declaration of private interests having regard to the nature of their employment.

    Board Directors are also required to complete a Declaration of Private Interests form on an annual basis.

    Registers for Gifts and Benefits and Conflicts of Interest are maintained and reviewed by the Finance and Audit Committee (a sub-committee of the Board) monthly.

    A conflict of interest review form is required to be completed by all employees who sit on a recruitment panel for all roles of employment and also by those who sit on procurement assessment panels.

    The annual employee performance appraisal process requires each employee to consider and declare whether they have or may have a conflict of interest in connection with any aspect of their role.

    c) regularly communicating with employees and board members regarding their responsibility to report suspected corrupt conduct; how to make a report; and what support is available under the Public Interest Disclosures Act 2012 when they do report.

    The purposes of Agency A's Public Interest Disclosures Policy include to:

    • ensure that all staff are aware of the Public Interest Disclosures Act 2012
    • define key relevant terms i.e. corrupt conduct, improper conduct and public interest disclosure
    • detail the circumstances in which public interest disclosures may be made and to whom they may be made
    • describe the circumstances when mandatory reporting is required.

    As part of their orientation process all newly appointed employees undertake an interactive session on corruption. The session is also required to be undertaken by all employees every two years thereafter as part of Agency A's mandatory People and Culture training program. The following key elements are covered in the session:

    • advice that Agency A maintains a zero-tolerance approach to corrupt conduct
    • examples of behaviour that would constitute corrupt conduct with reference to Australian Standard AS 8001-2021 Fraud and Corruption Control
    • types of conflicts of interest to which employees may be exposed and relevant examples
    • employee responsibilities in relation to actual or potential conflicts of interest
    • the Public Interest Disclosures Act 2012 and its application to Agency A and its employees.

    HealthShare Victoria's probity training program is required to be completed by board directors, all staff with management responsibilities, and employees involved in any aspect of Agency A's procurement function.

    The annual employee performance review process now includes a reminder about employee obligations to report any suspected fraud or corrupt conduct and includes a link to Agency A's Fraud, corruption and other losses prevention and management policy for further guidance.