Department warned icare had 'direct line to the Treasurer'

NSW Treasurer Dominic Perrottet's own department raised concerns about his close relationship with icare, warning the scandal-ridden insurer often bypassed the bureaucracy, failed to comply with key policies and lacked transparency.

An internal note from a senior Treasury official to colleagues in June 2018 obtained by The Sydney Morning Herald listed a series of challenges facing the department in dealing with icare. "A direct line to the Treasurer means icare often bypasses Treasury," the note said.

NSW Treasurer Dominic Perrottet.Credit: Peter Braig

Other concerns included icare’s "non-compliance" with recruitment policies and limited disclosure of capital expenditures. The official's note referred to "non compliance" with a Cabinet-endorsed process known as the ICT Assurance Framework (IAF) - the government’s key oversight and governance process for major IT projects costing over $10 million.

The IAF requires government businesses such as icare to comply with certain processes and checks to ensure Cabinet has confidence that major digital projects are scrutinised by expert, independent reviews, meet regular reporting requirements and are delivered on time and on budget.

Mr Perrottet's close relationship with icare has in recent weeks become a major controversy. Political opponents have seized on his strident defence of the agency to demand he step aside.

Last week the Treasurer's chief of staff Nigel Freitas resigned after revelations two of Mr Perrottet's ministerial staff, including senior policy advisor, Ed Yap, a former US Republican operative, were paid by icare in breach of regulations. Mr Freitas blamed it on an "administrative oversight".

The controversy engulfing icare has also claimed the scalp of chief executive John Nagle, who revealed to an inquiry last week that he was sanctioned by the board and reported to the Independent Commission Against Corruption because of a failure to properly disclose a contract handed out to his wife.

The resignations follow a joint The Sydney Morning Herald, The Age and ABC's Four Corners investigation into icare that uncovered serious mismanagement in the agency and revealed the regulator had "grave concerns" about its deteriorating financial position and plunging return to work rates.

Mr Perrottet has enlisted Treasury Secretary Michael Pratt to conduct an audit into the Treasurer's staffing arrangements. But Mr Pratt's former role as deputy chair of icare has prompted Labor to describe the appointment as a "sham".

Treasury's concerns about "non compliance" with the IAF requirements came when icare was implementing a computer-driven claims model for its workers compensation scheme, known as the Nominal Insurer Single Platform (NISP).

Costs of the claims model have now blown out to $360 million, and the NISP was identified by the regulator in late 2019 as having major problems, including delays and inaccuracies which impacted return to work rates. "Implementation of the NISP has cost considerably more than originally estimated," the regulator said in a report.

Instead of adhering to the standard IAF requirements, icare instead used an external assessment provided by consulting giant KPMG.

In an email to Treasury executives dated January 25, 2018 obtained by the Herald, Mr Pratt endorsed the role of KPMG in ensuring icare met the IAF requirements. "This is working very well and has proven to be effective for the Board," Mr Pratt wrote.

He added that he was very familiar with the process because he had implemented it. "I know it well as I put it in place as Chair of the ICT Board Sub Committee," he wrote.

However, on February 13, 2018 the senior Treasury official raised concerns about the role of KPMG in the external assurance process, saying it didn't meet independence requirements. "It does not make a difference that KMPG are engaged by the Board and independent of management – still not perceived to be independent," the bureaucrat wrote in an email to colleagues.

In June, 2018, the Treasury official referred to icare's approach to meeting IAF requirements as non compliant.

Mr Perrottet has repeatedly defended icare board directors and executives. But Labor's finance spokesman Daniel Mookhey has called for him to step aside. "The Treasurer's relationship with icare is so entwined and conflicted that instead of holding the agency to account, he's shielded them from scrutiny."

Mr Mookhey said Treasury's decision to allow icare to use different IAF standards "led to the ruin of the NSW workers comp system".

"Treasury missed a golden opportunity to save icare from themselves," he said.

Mr Perrottet did not respond directly to questions about the specific internal concerns, including the agency's direct line to him. Instead, in a statement, Mr Perrottet said the government's fast-tracked review into icare would conduct "a root and branch examination" of the workers compensation scheme.

"Concerns or issues with icare will be examined by this review, which will be headed by retired Supreme Court Judge Robert McDougall QC," Mr Perrottet said. "I look forward to announcing more detail around the timing of the review shortly."

A series of questions were also sent to NSW Treasury referring to the decision to use KPMG instead of the standard approach to IAF requirements. In a statement a spokeswoman said Mr Pratt determined the IAF standards would apply to icare and wrote to icare chairman Michael Carapiet to confirm this in February 2018.

She said the NISP was therefore subject to the requirements of the IAF. She said DFSI were the responsible agency for "operationalisation" of the IAF.