Public authorities – Corruption allegations that staff from a number of local councils and other authorities accepted secret benefits from suppliers and that staff from two local councils facilitated payment of false invoices from suppliers (Operation Jarek)

Year: 2012 Status: Completed

The ICAC investigated allegations that staff from a number of local councils and other authorities engaged in corrupt conduct by accepting gift vouchers and other gifts from suppliers as an inducement to continue placing orders with their companies or as a reward for placing orders with the companies. The ICAC also investigated allegations that staff from two local councils engaged in corrupt conduct in relation to false invoices to those two councils.

In its report on the investigation, made public on 29 October 2012, the Commission finds that 22 employees or former employees of 14 local councils and another public authority in NSW engaged in corrupt conduct by accepting gift vouchers and other gifts from suppliers as an inducement to continue placing orders with their companies or as a reward for placing orders with the companies. Fifteen staff from four supplier companies were also found to have engaged in corrupt conduct through their involvement in offering these gifts.

The ICAC also finds that two former store people, Geoffrey Hadley of Bathurst Regional Council and Kerry Smith of Yass Valley Council, and three suppliers engaged in corrupt conduct in relation to false invoices issued to those two councils in return for cash kickbacks. Under this scheme, Mr Hadley and Mr Smith received combined corrupt payments in excess of $323,000.

The Commission has made 15 corruption recommendations to all councils in NSW, as it is evident that the conduct uncovered during this investigation is systemic and all councils should take action to mitigate these risks.

Findings of corrupt conduct

The ICAC found that the following people engaged in corrupt conduct by receiving gifts and benefits from supplier companies as an inducement to continue placing orders with these companies or as a reward for placing orders with these companies: Glen Lapham of Ballina Shire Council, Graham Gibbons of Bathurst Regional Council, Anthony Harman of Broken Hill City Council, Ronita Tompsett of Burwood Council, Robert Vagne of Byron Shire Council, Donald Harris of the Council of the City of Botany Bay, Jeffrey Duncum, Edwin Roger Martin, Christopher Myers and Robert Nies of the Council of the City of Sydney, Steven McMurtrie and Lee Warner of Lithgow City Council, Maxwell Bancroft and Amjad Maaya of Liverpool City Council, Mathew Kelly of Narrandera Shire Council, Peter Evans and Peter Lewis of Orange City Council, Phillip Burnie of the Roads and Traffic Authority, Mark Ward of Walgett Shire Council, Scott Ingwersen and Peter Naidoo of Waverley Council, and Kerry Smith of Yass Valley Council.

The ICAC found that the following people engaged in corrupt conduct through their involvement in offering gifts and benefits to public officials as an inducement for those officials to continue placing orders with their companies: Eron Fisher, Richard Pearce, Douglas Quinn and Martin Slade of Hilindi Pty Ltd, Ronald Butow, Paul Goldin, Ellis Kahn, Mark Moskow and Jody Parker of Momar Australia Pty Ltd, Gary Blackford, Robert Epps, Peter La-Vite, Sri Ramachandran and Jacqueline Verdeyen of NCH Australia Pty Ltd, and John Morgan of Universal Cartridges Pty Ltd.

The ICAC found that Geoffrey Hadley, Robin Newman, Kerry Smith, Michael Stokes and Paul Wright engaged in corrupt conduct in relation to false invoices issued to Bathurst Regional Council and/or Yass Valley Council.

Recommendations for prosecutions

Due to the large number of offences an aggregate sentence was imposed under section 53A Crimes (Sentencing Procedure) Act 1999 of 4 years imprisonment with a non parole period of 2 years.

The Commission must seek the advice of the Director of Public Prosecutions (DPP) on whether any prosecution should be commenced. The DPP determines whether any criminal charges can be laid, and conducts all prosecutions. The Commission provides information on this website in relation to the status of prosecution recommendations and outcomes as advised by the DPP. The progress of matters is generally within the hands of the DPP. Accordingly, the Commission does not directly notify persons affected of advice received from the DPP or the progress of their matters generally.

The ICAC is of the opinion that consideration should be given to obtaining the advice of the Director of Public Prosecutions with respect to the prosecution of nine people for various offences, as follows:

Phillip Burnie for the offence of giving false or misleading evidence at a hearing of the Commission under section 87(1) of the Independent Commission Against Corruption Act 1988 ("the ICAC Act")

Mathew Kelly for the offence of making a false statement to an officer of the Commission under section 80(c) of the ICAC Act, and the offence of giving false or misleading evidence at a hearing of the Commission under section 87(1) of the ICAC Act

Glen Lapham for the offence of wilfully obstructing or hindering the Commission's exercise of its functions under section 80(a) of the ICAC Act, the offence of making a false statement to an officer of the Commission under section 80(c) of the ICAC Act, and the offence of giving false or misleading evidence at a hearing of the Commission under section 87(1) of the ICAC Act

John Morgan for the offence of offering a corrupt benefit under section 249B(2) of the Crimes Act 1900 ("the Crimes Act"), and the offence of giving false or misleading evidence at a hearing of the Commission under section 87(1) of the ICAC Act

Richard Pearce for the offence of offering a corrupt benefit under section 249B(2) of the Crimes Act

Kerry Smith for the offence of receiving a corrupt benefit under section 249B(1) of the Crimes Act, the offence of obtaining financial advantage by deception under section 178BA of the Crimes Act, and the offence of obtaining financial advantage by false or misleading statements under section 178BB of the Crimes Act

Michael Stokes for the offence of offering a corrupt benefit under section 249B(2) of the Crimes Act, the offence of obtaining financial advantage by deception under section 178BA of the Crimes Act, and the offence of obtaining financial advantage by false or misleading statements under section 178BB of the Crimes Act

Jacqueline Verdeyen for the offence of giving false or misleading evidence at a hearing of the Commission under section 87(1) of the ICAC Act

Paul Wright for the offence of offering a corrupt benefit under section 249B(2) of the Crimes Act, the offence of obtaining financial advantage by deception under section 178BA of the Crimes Act, the offence of obtaining financial advantage by false or misleading statements under section 178BB of the Crimes Act, the offence of making a false statement to an officer of the Commission under section 80(c) of the ICAC Act, and the offence of giving false or misleading evidence at a hearing of the Commission under section 87(1) of the ICAC Act.

Updates

On 27 November 2013, Mr Burnie was convicted of one count of knowingly give false or misleading evidence contrary to section 87(1) of the ICAC Act. He was sentenced to 9 months imprisonment suspended pursuant to his entering into a good behaviour bond.

The DPP's advice not to proceed against Matthew Kelly, Richard Pearce or Michael Stokes has been accepted by the ICAC.

On 19 August 2014, Mr Morgan was convicted and sentenced to 9 months imprisonment for two offences of knowingly give false or misleading evidence contrary to section 87(1) of the ICAC Act. Both sentences were suspended under section 12 of the Crimes (Sentencing Procedure) Act 1999 on the condition that Mr Morgan enters into good behaviour bonds for the period. The sentences are to be served concurrently.

On 13 May 2014, Mr Smith pleaded guilty to seven counts of agent corruptly receive benefit pursuant to section 249B(1) of the Crimes Act (five counts of agent corruptly receive benefit less than $2,000, and two counts of agent corruptly receive benefit greater than $2,000 but less than $5,000). On 15 July 2014, Mr Smith was sentenced as follows:

1. Fine $1,000
2. Fine $1,500
3. Fine $1,500
4. 9 months imprisonment with a 6-month non-parole period
5. 9 months imprisonment with a 6-month non-parole period (4 and 5 to be served concurrently)
6. 14 months imprisonment with an 8-month non-parole period
7. 14 months imprisonment with an 8-month non-parole period (6 and 7 to be served concurrently but partially consecutive to 4 and 5).

On 26 August 2014, the court ordered that his sentences be served by way of home detention.

On 5 June 2014, Mr Wright pleaded guilty to: 19 charges of obtaining money by deception contrary to section 178BA of the Crimes Act; 4 charges of make false statement to an ICAC officer contrary to section 80(c) of the ICAC Act; and 5 charges of knowingly give false or misleading evidence contrary to section 87(1) of the ICAC Act. The matters were committed for sentence to the Sydney District Court. Sentence will be imposed on 21 August 2014. On 21 August 2014, Paul Wright was convicted and sentenced as follows:

1. 19 counts of obtain money by deception under section 178BA Crimes Act 1900. Sentenced to 9 months imprisonment on each count
2. 5 counts of knowingly give false or misleading evidence contrary to section 87(1) ICAC Act 1988. Sentenced to 12 months imprisonment and each council, and
3. 4 counts of make false statement to ICAC officer contrary to section 80 (c) of the ICAC Act 1988. No further penalty imposed (section 10A Crimes (Sentencing Procedure) Act 1999).

On 19 June 2014, Ms Verdeyan was convicted and sentenced to 6 months imprisonment, and a further 9 months imprisonment with a non-parole period of 3 months, for offences of give false evidence to the ICAC contrary to section 87 of the ICAC Act. The sentences are to be served consecutively. On 19 August 2014, the magistrate directed that the sentences be served by way of home detention. 

On 19 June 2014, Mr Lapham was convicted and sentenced to a section 9 good behaviour bond of 2 years for an offence of make false statement to a Commission officer under section 80(c) of the ICAC Act. He was also convicted and sentenced to 6 months imprisonment, and 9 months imprisonment with a 3-month non-parole period, for two counts of give false evidence to the Commission under section 87 of the ICAC Act. All sentences are to be served consecutively. An appeal against the latter two sentences was lodged. On 10 July 2014, at the Sydney District Court, the appeal lodged by Mr Lapham was dismissed and the convictions confirmed.

Recommendations for disciplinary action

The ICAC is of the opinion that consideration should be given by the Roads and Traffic Authority (now Roads and Maritime Services) to the taking of disciplinary action against Phillip Burnie in relation to his conduct in accepting gifts from a supplier and by the Council of the City of Sydney to the taking of disciplinary action against Edwin Roger Martin and Robert Nies in relation to their conduct in accepting gifts from a supplier.

Edwin Roger Martin

The Council of the City of Sydney has taken disciplinary action against Mr Martin which resulted in his being demoted. Mr Martin has subsequently resigned from the council.

Robert Nies

Mr Nies has resigned from the Council of the City of Sydney after disciplinary action was commenced against him by the council.

Phillip Burnie

Mr Burnie resigned from Roads and Maritime Services on 28 October 2011.

Recommendations for corruption prevention

The Commission has made 15 corruption prevention recommendations to all councils in NSW, as follows:

Recommendation 1

That councils communicate to suppliers a clear set of supplier behaviour expectations and the associated consequences for non-compliance.

Recommendation 2

That councils develop a proactive and comprehensive supplier engagement framework.

Recommendation 3

That councils review their codes and policies on gifts and benefits to ensure they effectively communicate expected behaviour in a way that the intended audience can easily grasp.

Recommendation 4

That councils ensure that their policy provides that all staff who hold financial delegations are prohibited from receiving gifts of any kind.

Recommendation 5

That councils ensure that staff training on gifts has a focus on the disciplinary consequences of accepting gifts.

Recommendation 6

That councils assess which of their staff members operate in an environment where relational selling is commonplace, and equip these staff members to recognise and respond to these sales tactics, including the offer of gifts.

Recommendation 7

That councils, if they have not already done so, analyse their procurement processes to identify points of corruption risk and take steps to improve the design of their procurement processes.

Recommendation 8

That councils, if they have not already done so, consider introducing e-procurement as an efficient method of controlling possible vulnerabilities in their system.

Recommendation 9

That councils, if they have not already done so, review which reports are available to the managers of stores and ensure they (councils) can generate a report showing the orders placed by any individual across all cost centres.

Recommendation 10

That councils, if they have not already done so, analyse inventory management systems with a view to improving controls and reducing waste.

Recommendation 11

That councils examine options for control of their pull-based inventory and implement an option that is suitable for their operations.

Recommendation 12

That councils, if they have not already done so, organise their stores so that all items are labelled clearly, stock is securely stored and movement of all goods in or out of the store is recorded on an integrated inventory management system.

Recommendation 13

That councils ensure stocktakes are conducted independently of store officers and by staff knowledgeable about the principles of stocktaking.

Recommendation 14

That council management assesses the residual risk in its store and, if appropriate for the organisation, conducts random spot checks or cycle counts of select aspects of inventory management.

Recommendation 15

That councils, if they have not already done so, consider the risks highlighted by this report, namely,

  • relational selling and gift giving

  • procurement processes

  • inventory management,

and, where they consider the council is at risk, add these topics to their internal audit programs.

Implementation Plans

The implementation plans posted below have been provided by various councils in response to the ICAC's corruption prevention recommendations. Their appearance here is for information only and does not constitute the approval or endorsement of the plan by the Commission.

Ballina Shire Council - Plan of action

Bathurst Regional Council - Plan of action

Broken Hill City Council - Plan of action

Burwood Council - Plan of action

Byron Shire Council - Plan of action

City of Botany Bay - Plan of action

City of Sydney - Plan of action

Lithgow City Council - Plan of action

Liverpool City Council - Plan of action

Narrandera Shire Council - Plan of action

Orange City Council - Plan of action

Walgett Shire Council - Plan of action

Waverley Council - Plan of action

Yass Valley Council - Plan of action

Progress reports

The progress reports posted below have been provided by various councils in response to the ICAC's corruption prevention recommendations. Their appearance here is for information only and does not constitute the approval or endorsement of the reports by the Commission. Please note that the Waverley Council 12 month report was the final report for that agency.

Ballina Shire Council - 12 month progress report

Bathurst Regional Council - 12 month progress report

Botany Bay City Council - 12 month progress report

Broken Hill City Council - 12 month progress report

Burwood Council - 12 month progress report

Byron Shire Council - 12 month progress report

City of Sydney - 12 month progress report

Lithgow City Council - 12 month progress report

Liverpool Council - 12 month progress report

Narrandera Shire Council - 12 month progress report

Orange City Council - 12 month progress report

Yass Valley Council - 12 month progress report

Walgett Shire Council - 12 month progress report

Waverley Council - 12 month progress report

Final reports

The final reports posted below have been provided by various councils in response to the ICAC's corruption prevention recommendations. Their appearance here is for information only and does not constitute the approval or endorsement of the reports by the Commission.

Ballina Shire Council - 24 month final report

Bathurst Regional Council - 24 month progress report

Broken Hill City Council - 24 month final report

Burwood Council - 24 month progress report

Byron Shire Council - 24 month progress report

City of Sydney - 24 month progress report

Lithgow City Council - 24 month progress report

Liverpool Council - 24 month progress report

Narranderra Shire Council - 24 month progress report

Orange City Council - 24 month progress report

Walget Shire Council - 24 month progress report

Yass Valley Council - 24 month progress report

Media Releases
Witness
Transcripts

View all transcripts associated with this investigation. The Commission makes every effort to post the daily transcripts of its public inquiries on its website by 8:00 pm each day when possible. If the Commission sits later than 4:00 pm, the daily transcripts, particularly the afternoon session, may not be available until the next working day.

 

Filename File Size KB Date pp. Time
Public_Authority_list_Operation_Jarek.pdf 262
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21-10-2011_Operation_Jarek_transcript_pp._01210-01266_from_10.10am_to_12.44pm.pdf 162 21/10/11 01210-01266 10.10am_to_12.44pm
Exhibits

All Exhibits

Public notices