Dutton ignored warnings as offshore processing show ‘rolls on’, says Labor

A damning internal Home Affairs audit shows Paladin, the contractor paid $532 million to run the Manus Island detention centre, was never properly assessed for its ability to run the centre, and the department failed to consider the corruption and fraud risks of working in Papua New Guinea.

Documents tabled in parliament on Monday show that when then-minister Peter Dutton was sent a briefing note about the audit, he simply indicated he had “noted” the report without having a discussion about it with his department.

Home Affairs secretary Stephanie Foster told a Senate hearing Dennis Richardson had said there was no “unfinished business” in the department she needed to address.Credit: Alex Ellinghausen

The revelation comes as Home Affairs secretary Stephanie Foster said bureaucrats in her department would not face consequences arising from a probe into Home Affairs by former ASIO director-general Dennis Richardson, which found offshore detention contracts had gone to companies linked to suspected arms and drug smuggling, busting sanctions on Iran, corruption and bribery.

Questioned in a Senate estimates committee on Monday about her department’s failings, Foster also blamed the department’s previous bosses for the failings in letting the Paladin contract, saying “the processes were not adequate” and “we have absolutely learned from the past”. Foster replaced former Home Affairs secretary Michael Pezzullo last November after an independent inquiry found he had breached the government’s code of conduct by texting a Liberal Party operative.

The 2019 internal audit into the Paladin contract, which was tabled on Monday, found the department had been given just 29 days in late 2017 to find a new contractor to run Manus Island after the previous contractor pulled out and PNG public servants were belatedly told not to take over the running of the centre.

The audit found some aspects of the contracting process were up to standard, but that the department had never outlined the reasons for selecting Paladin – a small company with no previous experience in providing what are known as “garrison” services – to run the sensitive, multimillion-dollar PNG offshore-processing system.

Peter Dutton and Clare O’Neil cross paths during a division in the House of Representatives last year.Credit: AAP

“The nature of the procurement and operating environment in PNG heightens the potential for fraud and corruption,” the audit noted, adding “these risks should have been identified and documented with appropriate management actions also considered and documented”.

“Risks …, such as collusion, bribery and deliberate misinformation by a tenderer, have not been specifically identified and there are no documented strategies established to manage such risks,” the audit found.

It also revealed that the department’s financial strength assessment of Paladin, conducted by KPMG, had been into the wrong company: Paladin Solutions, not Paladin Holdings. These assessments are routinely carried out to know if the department is taking a financial risk by appointing a contractor. However, in Paladin’s case, the assessment was into the firm’s PNG construction arm and not its Singapore-based offshore-processing arm. The review was then never finalised.

“Therefore, the Draft Financial Strength Assessment report obtained by the department is not relevant,” the audit said.

Investigations by The Age and The Sydney Morning Herald have previously found that KPMG also conducted a financial strength assessment on the wrong company when assessing the contractor for Australia’s other offshore detention centre, on Nauru. The investigations have found credible allegations of corruption in both the Nauru and Manus contracts, and the Australian Federal Police has launched foreign bribery investigations into aspects of both contracts.

Labor senator Deborah O’Neill, who led the questioning of the department on the issue on Monday, said Dutton should have shown more interest than simply circling “noted” on a briefing document, saying: “His response was to note it … and the show rolled on and half-a-billion got spent”.

Dutton did not respond to questions about whether he should have done more to engage in the issue, but told reporters last year he had no involvement with contract negotiations or the execution of agreements.

Richardson’s report said the inquiry did not find any evidence of ministerial involvement in the regional processing contract or procurement decisions, “and the [former] secretary of Home Affairs said he never discussed such decisions with the minister of home affairs”. Dutton’s office referred to that excerpt when approached for comment.

Richardson’s report blamed senior officials for failing to use intelligence to prevent taxpayers from paying multiple companies linked to alleged serious crimes through contracts over 10 years to late 2022.

His findings, which were described as “extraordinary” by Home Affairs Minister Clare O’Neil, followed an investigation by this masthead and 60 Minutes about millions of dollars in suspect payments to allegedly corrupt firms and foreign officials as part of the Pacific Solution.

But Foster told a Senate estimates hearing on Monday that Richardson had said there was no “unfinished business” in the department she needed to address.

“I don’t think he would mind me quoting him when he said it would take the wisdom of two Solomons to identify, in the complex arrangements and over the length of time, which individual officers, and at what level, accountability should rest,” Foster said.

“I asked him explicitly, did he feel from his review – because he was the one who looked in detail at all other arrangements – that there was unfinished business, which as a new secretary, I needed to prosecute, and his response was: No.”

Foster relayed to the parliamentary committee that Richardson said there were many areas of the department involved, including procurement, intelligence and the regional processing team.

“So you know, identifying exactly which point of the process, or was it all of them, was challenging. I think the other thing on his mind was, at what level do you assign accountability? Is it the deputy secretaries who should have arguably been overseeing and joining those dots? Is it the individual officers prosecuting each piece?” she said.

“I don’t want to verbal him, but my understanding is that he did not feel that it was productive to go back in time and seek to unravel that.”

Greens immigration spokesman Nick McKim said it was an “egregious failure of process” inside Home Affairs if no one could find out who was responsible.

“What I’m getting today is no one’s going to be held accountable, people are going to skate,” he said.

But Coalition home affairs spokesperson James Paterson said during a press conference that Richardson’s and Foster’s comments merely reflected the complexity of the issue.

“It’s a challenging thing to maintain offshore processing, but it’s a very important part of our successful strategy, Operation Sovereign Borders, to prevent significant deaths at sea and significant arrivals on our shores,” he said.

Members of the Senate committee asked for details of investigations flowing from the revelations, including suggestions of criminal activity relating to a contract holder trying to circumvent United States sanctions against Iran, and another company with suspected links to drugs and arms smuggling.

Bureaucrats declined to disclose details, saying to do so could jeopardise investigations.

However, O’Neil said there were still questions for Dutton about what he knew of the rorting of the system.

“This is an extraordinary report that should have been commissioned years ago, under the former government,” she said.

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