WA’s Housing Authority lost about $30 million in a failed foray into a housing development on land in Perth, the states’ Crime and Corruption Commission has found.

The CCC said corruption and misconduct risks arising from the sub-par way the project was managed were linked to the department’s reliance on contractors rather than public officers.

The first stage of the development, in the City of Cockburn, was completed by private interests, but the second stage saw the involvement of the Housing Authority.

HA financed stage three in 2010 by buying shares in the beneficial owner of the land, Goldmaster Enterprises, in what turned out to be a disastrous investment decision, the report released on Thursday says.

“The investment was a disaster and the antithesis of good governance. The Commission estimates the Department of Communities (the successor to the Housing Authority) has incurred a loss of at least $30 million,” the CCC says.

“The project progressed in a manner that has exposed Western Australia to corruption risks, and tens of millions of dollars in losses.

“The decision to invest in Goldmaster exposed HA to significant risk. The way the Project was then managed by key executives in HA reduced the normal checks and balances and exacerbated the risk.”

Power devolved to consultants

The report makes a special mention of risks involving consultants, saying AH decreased its reliance on public officers in favour of contractors in the management of the development.

The government’s project owner for stage three was the then director general of HA Grahame Searle, however a significant role was played by consultant Ashley Kerfoot, who advised on financial arrangements, liaised with Goldmaster and contractors on behalf of HA, and prepared information for ministers.

It is concerning that a person not engaged as a public officer had such a significant and involved role in this project for such a long period.

WA CCC

Although Mr Kerfoot wasn’t a public officer he “used the support and resources of the public agency in a manner that gave him authority similar to a public officer”, the CCC says.

“A misconduct risk emerges when a consultant becomes in fact, though not in law, a public officer performing tasks usually undertaken by public servants.

“The engagement of a consultant to undertake a crucial role on a complex, large and unusually structured project is a misconduct risk especially when their duties go well beyond advice. Mr Kerfoot exercised considerable authority over managerial decisions.

“It is concerning that a person not engaged as a public officer had such a significant and involved role in this project for such a long period.”

Due diligence failure

The commission also found ministers were provided with incomplete information about risk, and the HA employee who was appointed a director of Goldmaster had little idea of the project or his duties, with concerns raised by Mr Searle that Mr Kerfoot was acting as a ‘shadow director’.

Goldmaster belonged to a group of companies, one of which had heavy tax debts, and Goldmaster itself was a in “parlous” financial situation, but HA failed to do any due diligence or probity checks before investment.

The then CFO, Lorne O’Mara, was unaware of the purchase of shares, or HA’s newly assumed liabilities, for “a considerable time”, the report says, and HA lawyers didn’t advise on the investment because they didn’t know about it.

“HA took part ownership in a proprietary limited company, entered into increasingly complex financial arrangements, devolved power to a consultant, and did not adequately inform successive Ministers,” the report concludes.

HA took part ownership in a proprietary limited company, entered into increasingly complex financial arrangements, devolved power to a consultant, and did not adequately inform successive Ministers.

WA CCC

The commission says ten years on from its investment in Goldmaster, the WA Department of communities still has an 87 per cent shareholding in the “worthless” company and has indicated it intends to buy out the other shareholders and wind the entity up.

To date Goldmaster has incurred net losses of around $38.5 million.

The final five stages of the 11-stage project were never completed and the land is for sale.  

No corruption findings

The CCC didn’t make serious misconduct findings in relation to the case, but said it  highlighted the serious misconduct and corruption risks that could arise when consultants act as public servants.

“(The commission) is satisfied that the persons involved in the project did not act corruptly,” the report says.

“They acted in good faith to support government policy and to provide affordable and social housing, but the way they went about it has exposed the state to risk and loss.

“The commission’s report demonstrates the need for vigilance by public officers to ensure decisions made in relation to the expenditure of state funds are properly considered, understood, transparent, documented and monitored.”