Key agencies failed to give frank and full advice to the government before its ill-fated decision to host the 2026 Commonwealth Games, costing the state hundreds of millions of dollars,  the auditor general has found.

A report released on Wednesday says the government could have avoided wasting almost $600 million dollars if agencies had worked together and provided better advice.

The Victorian Government signed the contract to host the Games in regional Victoria in April 2022 based on an expected gross cost of around $2.6 billion.

In July 2023 it withdrew, saying the Games no longer represented value for money and citing a cost blowout to more than $6 billion – a figure the report says was overstated and not transparent.

The failed Games bid ended up costing Victorians more than $589 million, including $380 million to settle the broken contract with the Games Federation, the report says.

“This waste would have been avoided if agencies had worked together better to give frank and full advice to the government before it decided to host the Games.”

Key findings:

• Victorians paid $589 million for the cancelled Commonwealth Games

• DJSIR’s business case for the Games was inadequate to support an informed decision by the government

• Agencies failed to give frank, full and timely advice to the government

• The original Games budget was unrealistically low, but the final estimated cost was overstated

The report says the Department of Jobs, Skills, Industry and Regions’ (DJSIR) business case on which the government relied underestimated the costs and overstated the benefits of hosting the Games.

The Department of Premier and Cabinet (DPC) and the Department of Treasury and Finance (DTF) knew this, the report says, but didn’t advise the government.

“The business case raised the risks associated with hosting the Games,” the report says.

“But it underestimated the costs and overstated the benefits.

“DJSIR, the Department of Premier and Cabinet (DPC) and the Department of Treasury and Finance (DTF) knew this but did not advise government to delay a decision on hosting until a fit-for-purpose business case could be provided.”

The audit says DPC and DTF consistently raised cost and other risks during 2022 and early 2023, but didn’t advise the government that hosting the Games might be unfeasible until June 2023.

Auditor General Andrew Greaves also slammed the government for fudging the figures on the cost blowout.

He said the figure added significant amounts for industrial relations and cost escalation risks, without disclosing that $1 billion in contingency allowances to cover cost risks had been budgeted for.

“The cost estimate for the Games that the government publicly released in August 2023 of $6.9 billion was overstated and not transparent,” Mr Greaves said.

The auditor’s report is one of a number of investigations into the failed bid.

A Victorian Select Committee is currently holding public hearings and is due to report by the end of April, while the Senate’s Standing Committees on Rural and Regional Affairs and Transport will hand down a report in October.