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Australia spent $7.1 billion (US$4.7 billion) to process asylum seekers in Nauru and Papua New Guinea in a programme that was largely managed well but failed to achieve value for money in relation to PNG, the Auditor-General has found.
In a report examining procurement practices for garrison and welfare services on Nauru and Manus Island, Auditor-General Grant Hehir found the Department of Home Affairs encountered more problems with its PNG-related contracts.
“The department did not demonstrate the achievement of value for money for the PNG procurements. Although the department had limited options for comparing tenderer costs, most of the benchmarks it used were not appropriate,” the report found.
Hehir said monitoring of the performance of contractors such as Paladin was “partly adequate”, with no reporting or monitoring occurring for more than eight months when contractors were operating under letters of intent.
He said Paladin was assessed as a “high risk” for the Commonwealth when it was approached in 2017 to submit a bid for garrison services on Manus Island after the collapse of a PNG-run tender process.
The initial $120 million (US$79 million) contract for Paladin was noted by Home Affairs officials as a “significant step up in size for Paladin” which had never reported revenue above $6 million (US$3.9 million) a year before.
Hehir's team also found due diligence on the four companies awarded contracts in PNG was limited to a financial strength assessment.
In Paladin's case, the department failed to assess the actual Paladin entity that signed the contract. Paladin ended up receiving more than $500 million (US$332 million) for its PNG-related work. Its requested profit margin of 40 per cent was negotiated down to 22.5 per cent.
It was slugged $5.8 million (US$3.8 million) in penalties between May 2019 and October 2019 for failing to meet service requirements.
The Auditor-General also confirmed Paladin reported a demand for payment from someone in PNG in December 2017 in relation to the provision of visas for its staff. The Age and Sydney Morning Herald have previously reported these demands which have been contested by Home Affairs secretary Mike Pezzulo at senate estimates hearings.
The Auditor-General referred to an internal audit of the Paladin procurement process which noted the heightened corruption risk in PNG.
“Among other findings, this audit noted that ‘the nature of the operating environment in PNG heightens the potential for fraud and corruption procurement risks’ and considered that such risks should have been identified and documented,” the report stated.
Hehir also found a conflict of interest involving a Home Affairs official sent to PNG to help with procurement for offshore detention services. The official chaired pricing and technical evaluation panels which made recommendations to Home Affairs. The conflict was not recognised or managed, Hehir said.
Another PNG contractor, NKW Holdings was forced to repay about $5 million (US$3.3 million) to Home Affairs after a review of its invoices in March 2018. NKW had an $82 million (US$54.4 million) contract to provide food to asylum seekers.
Filthy toilets, unclean water and a lack of medication were a few issues captured on camera by refugee advocates, as up to 370 men refuse to leave the former detention centre.
In March last year, The Age and The Herald revealed leaked emails from a major PNG bank which handled the NKW account in which a manager referred to allegedly inflated invoices being paid by Australia.
“Australian Department of Immigration and Border Protection are paying every invoice – I suspect there are some inflated quotations and invoices,” the Bank South Pacific manager wrote in November 2017.
The Department of Home Affairs welcomed the Auditor-General's finding that its management of procurement practices for garrison and welfare services in PNG and Nauru was “largely appropriate” .
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