As reflected in the findings of Auditor-General Report 9 (2020-21), Purchase of the ‘Leppington Triangle’ Land for the Future Development of Western Sydney Airport, and the Independent Review of the Leppington Triangle Acquisition (Sententia Consulting, May 2021), the Committee finds that the Department of Infrastructure, Transport, Regional Development and Communications (Infrastructure) did not demonstrate effective conduct of aspects of its activities relating to the Leppington Triangle transaction, consistent with the Public Governance, Performance and Accountability Act 2013 (PGPA Act) and the Public Service Act 1999 (PS Act).
The Committee notes Infrastructure’s progress in implementing the recommendations of the audit (and other commissioned reviews), including the establishment of an Assurance Taskforce, reporting directly to the departmental Secretary, to oversee this work. However, the Committee sees merit in Infrastructure undertaking further action to provide assurance that the department is ensuring efficient, effective, economical and ethical use of public funds, as required under the PGPA Act, including providing:
implementation plans in response to the Sententia and KPMG review recommendations, including implementation timeframes
additional information on conduct of conduct inquiries
details about non-compliance with legislative frameworks and/or other mandatory requirements, with reference to the Leppington Triangle transaction, and what action the department has taken, or will be taking, concerning any breaches
Recommendations are made to this effect at the end of the chapter, along with recommendations for possible future audits into Infrastructure’s procurement practices and procedures; and information governance framework, including records management.
Background and audit findings
Chapter 6 sets out the findings of the Committee’s inquiry into Governance in the Stewardship of Public Resources, based on Auditor-General Report 9 (2020-21). Infrastructure was the audited entity—the land acquisition process was undertaken by the then Western Sydney Unit (WSU) within the department. Infrastructure is a non-corporate Commonwealth entity under the PGPA Act.
The audit objective was to examine whether Infrastructure exercised appropriate due diligence in its acquisition of the Leppington Triangle land for the future development of the Western Sydney Airport. The Australian National Audit Office (ANAO) made three recommendations (agreed by Infrastructure) in response to the following audit findings:
Infrastructure did not exercise appropriate due diligence in its acquisition of the Leppington Triangle land. Aspects of the operations of the department fell short of ethical standards. An appropriate acquisition strategy was not developed. The valuation approach inflated the value of the land, which in turn led to the Australian Government paying more than was proper in the circumstances. Decision-makers were not appropriately advised on the land acquisition. Formal briefings omitted relevant information, such as: the purchase price; that the price exceeded all known market valuations of the land; and the method of acquisition.
On 31 July 2018, the Australian Government purchased the Leppington Triangle land from the Leppington Pastoral Company (LPC), for $29,839,026 (GST exclusive). For financial reporting purposes at 30 June 2019, Infrastructure valued the Leppington Triangle land at $3,065,000—a tenth of the price it had paid eleven months earlier. As required by Australian Auditing Standards, the Australian National Audit Office (ANAO) raised this with the department as a ‘significant and unusual transaction’.
On 27 July 2020, the Australian Federal Police (AFP) commenced an investigation into whether any criminal conduct had occurred in relation to the purchase of Leppington Triangle. On 29 September 2021, the AFP finalised its investigation, with ‘no evidence of criminal conduct identified’. (As discussed below, Infrastructure initiated other reviews and investigations into the Leppington Triangle purchase.)
Chapter 6 focuses on:
Implementation of audit recommendations
Land acquisition strategy
Advice to decision makers
ANAO financial statements audit and resultant performance audit
Other investigations and reviews
Implementation of audit recommendations
The audit made three recommendations to Infrastructure related to the Leppington Triangle acquisition. The Infrastructure Secretary stated: ‘my leadership team and I are committed to addressing all issues raised by the ANAO, with a comprehensive set of actions that goes beyond the recommendations of the report, to ensure that the Government and the public have full confidence in the integrity of the Department and its ability to deliver’. Infrastructure established an Assurance Taskforce, reporting directly to the departmental Secretary, to coordinate and oversee the department’s response to the audit.
Asked whether it was satisfied that the audit and other review processes, and the department’s revised procedures and practices, would ensure such issues did not happen again, Infrastructure responded: ‘we’ve undertaken a very thorough response to the issues that have been raised’—‘obviously we will wait to see what comes out of the other review processes to see if there’s anything else that we should be doing, and that’s why we’ve undertaken the culture and capability review and the detailed independent audit’. Infrastructure further observed:
we would note that this does seem to be an issue around a very unique, one-off type of transaction. We have had other areas of the department that have been audited where similar issues have not been identified. But that’s not meaning we are complacent about this at all. We will continue to work through anything that comes out of the existing reviews as well as continuing to implement the very sensible recommendations that came out of the ANAO audit.
As to steps being taken in the interim to ensure such issues do not happen again, Infrastructure stated that ‘all land acquisitions now, before anyone exercises the delegations, go to a departmental operations committee’:
The other thing that’s worth noting is that … a land acquisition of this type is an extremely unusual and rare transaction for this organisation … when you’re doing something for the first time—that you don’t usually do—there aren’t strong processes and systems around it. We haven’t done an acquisition like this for … 10 years, probably. We don’t have any further land transactions like this on our books. The rest of the land transactions in front of us are smallish easements, in the tens of thousands of dollars. There are a few that are a little bit more than that. But all of those are caught up by the new accountable authority instructions that require those to go to the operations committee before they progress—even when they’re in the tens of thousands of dollars.
Land acquisition strategy
The PGPA Act contains rules governing how departmental officials are to use public resources, including those relevant to the acquisition of land as a public resource. Section 15 of the PGPA Act outlines the duty of the accountable authority to govern a Commonwealth entity in a way that promotes the proper use and management of public resources—‘proper’ is defined as efficient, effective, economical and ethical. Under the PGPA Act, accountable authorities also need to establish and maintain systems relating to risk and control, with the Commonwealth Risk Management Policy requiring accountable authorities to maintain appropriate controls for the management of risk, including property management. As a land acquisition is a type of procurement, the Commonwealth Procurement Rules (CPRs) also apply to the acquisition of the Leppington Triangle. Achieving value for money is the core rule of the CPRs—documentation maintained on procurements should provide information on how value for money was considered and achieved. Similarly, the Commonwealth Property Management Framework requires that officials of non-corporate Commonwealth entities demonstrate value for money, to ensure the best outcome from property decisions. The Leppington Triangle acquisition was further subject to the Lands Acquisition Act 1989 (LAA).
Airport stage 1 and the Northern Road realignment
In February 1986, Badgerys Creek in Western Sydney was chosen as the location for a second major airport for Sydney, resulting in a series of land acquisitions for the airport site. The Australian Government sought to acquire the Leppington Triangle in 1989 as part of a larger parcel of land but, during a 10-year dispute with the landowner (LPC), the Australian Government agreed to exclude it from that acquisition process. The Western Sydney airport is being developed in stages to match demand, with the Airport Plan providing authorisation for the stage 1 development. The Leppington Triangle is ‘not needed for stage 1’ and is ‘not part’ of the airport lease granted to WSA Co Ltd for the purpose of constructing the new airport. The audit noted that the key impetus for starting work in 2016 on acquiring the Leppington Triangle was to ‘capitalise on goodwill’ Infrastructure considered had been created by concessions made to the landowner (LPC) on the route for the realignment of the Northern Road. The audit found that ‘due diligence and value for money’ for the Northern Road realignment were ‘not demonstrated in the department’s advice supporting the route adjustment’—it was ‘not demonstrated that the benefits to the Australian Government outweighed the costs and risks’, including ‘impacts/risks to the future planning and operations of the airport of a major road running adjacent to the southern runway’.
Benefits, costs and risks of the land acquisition
The LPC land acquisition strategy was finalised in October 2016. The audit noted that the acquisition strategy contained a package of transactions intended to ‘incentivise an unwilling seller’ to dispose of their land some 32 years in advance of when it was anticipated to be needed for the airport expansion, ‘which was at odds with the department’s advice that the early purchase was being pursued so as to capitalise on perceived goodwill from the landowner’. The ANAO observed that, ‘to us, there’s a contradiction there between saying we’re doing something which should generate goodwill, which will help them come to the table, but we also need to do various other things to incentivise them to come to the table’—and ‘at the same time there’s a process there that asks: what is the risk that is involved long term with that road now being located closer to the end of the second runway than well outside those zones?’
Infrastructure ultimately acquired the Leppington Triangle on 31 July 2018 and, on the date of purchase, the land was leased back to the seller for 10 years, with options to renew totalling a further 10 years. The ANAO examined the six benefits of an earlier acquisition of the Leppington Triangle presented in advice to decision makers and Ministers from October 2016 to November 2019, and concluded that ‘the benefits of early acquisition were overstated’:
There was no consideration of the costs associated with acquiring the land early outlined in the LPC Strategy or in other advice to decision-makers or Ministers. The departmental records did not demonstrate that the benefits outweighed the costs to the Australian Government. Accordingly, it was not demonstrated that the strategy of acquiring the land early represented value for money or the economic management of public resources.
The audit therefore recommended that Infrastructure prepare comprehensive and balanced written analysis on the benefits, costs and risks of proposals to spend public money. In response to the recommendation, Infrastructure noted that it was ‘bolstering existing processes and guidance for demonstrating value for money’, consistent with requirements under the PGPA Act—in particular:
The Department’s AAIs have been updated to increase controls and oversight of land acquisitions and disposals by the Department’s senior governance committee, prior to the exercise of applicable delegations under the LAA and the PGPA Act. As part of a broader Financial Framework Review, which will be finalised in the first half of this year, the Department is: updating existing guidance on requirements to spend money under the PGPA Act to highlight the need for additional consideration to be given to large and complex transactions, including valuations and land acquisitions, and rolling-out additional financial management and procurement training, which includes a case study incorporating lessons from the Leppington Triangle transaction.
Infrastructure explained that its additional training was focused on procurement best practice and value for money principles—the training is delivered face-to-face and is available to all departmental staff, with training sessions being conducted on a monthly basis. Infrastructure is also working with the Department of Finance (Finance) to develop more detailed guidance on land acquisitions, to ensure its approach is consistent with requirements under the LAA.
In terms of risk, Infrastructure advised that a designated SES-level Chief Risk Officer had been established, supported by a dedicated audit and risk branch, focused on building the department’s management capability in this area, and risk culture and awareness. The department’s risk appetite and tolerance statements have also been revised to identify where increased controls are required, and training and tools to support improved risk management capability across all levels in the department were to be rolled out to staff the first half of 2021. In addition, the department has issued a new AAI on risk management and implemented a new corporate requirement on fraud and risk in performance agreements—‘our first risk, appetite and tolerance statements were published in the department’s 2019-20 corporate plan, and risk planning became a critical element of the department’s business planning process’. As to how it is ensuring value for money is ‘front and centre’ in procurement, Infrastructure emphasised the update of AAIs ensures that ‘value for money is taken into account’, including updating templates to ensure staff consideration of value for money, with the department’s governance committee also focusing on ‘value for money in relation to those types of acquisitions or disposals’.
From compulsory acquisition to acquisition by agreement
Two methods of acquisition were available under the LAA—to acquire the Leppington Triangle by compulsory process or by agreement. Compulsory acquisitions do not need the agreement of the landowner and occur by the Minister for Finance using their powers under the LAA, based on the advice of the acquiring agency. The October 2016 LPC land acquisition strategy outlined that the method of acquisition for the Leppington Triangle would be by way of compulsory acquisition (but with agreement)—that is, the department would seek to reach agreement with the owner that the land be acquired via the LAA compulsory process. The department identified a risk that an acquisition by compulsory process would not be achieved by the target date of 31 July 2018 and, in late November 2017, ‘suggested to the landowner that the Leppington Triangle instead be acquired by agreement under the LAA’—there was ‘no record of a departmental decision-maker approving the change in the acquisition method employed’. As a result, the Leppington Triangle was acquired on 31 July 2018 under the acquisition by agreement provisions of the LAA.
The LAA contains prescribed principles for assessing the amount of compensation payable for land that is compulsorily acquired but not for land that is acquired via an agreement with the landowner. In its response to the audit, Finance noted that it was undertaking a review of the LAA, with the audit findings to be ‘considered as part of the review and subsequent guidance issued to entities’. Infrastructure similarly noted that ‘some of the lessons out of the Leppington evaluation process’ are being incorporated in Finance’s whole-of-government advice. Notwithstanding this point, the ANAO emphasised that:
One of the important things to note in all of this was the decision for the department to step outside the Lands Acquisition Act. Doing all of the work on the Lands Acquisition Act is great but the observation we’d also make is that it started there and it didn’t end under that framework. So it’s a watch point … in the future for departments involved in land acquisitions to make sure that their governance processes around decisions, to start one way and go another, are quite clear. We’ve talked about strong governance before—making clear decisions when you are changing course and making sure the right people are involved is important for any agency.
In the context of the Leppington Triangle acquisition, the audit found that there were ‘shortcomings in the department’s management of probity with its staff’. Under the PS Act, officials must take reasonable steps to avoid any conflict of interest in connection with their employment and disclose details of any material personal interest. Infrastructure’s corporate policies include the requirement that all Senior Executive Service (SES) and Executive Level (EL) 2 employees submit declarations of personal interests. The ANAO found that declarations by the five SES and EL2 officers then employed in Infrastructure’s WSU had been provided and that they complied with the department’s policy. The WSU probity policies required all staff and contracted advisors to complete a conflict of interest declaration on commencement, with staff and advisors needing to regularly update their declarations if circumstances change. The ANAO tested implementation of this policy and found that, while the declaration requirement for WSU officers and advisors was ‘largely met’, an SES officer ‘did not appropriately action probity instructions in relation to a declared conflict’ (unrelated to the land acquisition). Infrastructure provided details of its response to this audit finding, noting that ‘annual declarations from SES staff and identified non-SES staff, based on their responsibilities, must be provided to their SES managers to determine any actions needed to manage declared conflicts’. Any serious, real or apparent conflicts will be ‘brought to the secretary’s attention so that an appropriate management strategy can be put in place’. The importance of identifying and managing conflicts of interest is included in mandatory department-wide fraud and integrity training, to ensure that staff and managers are ‘fully aware of their responsibilities’.
The audit also identified probity risks in how some direct engagements with landowners had been conducted by Infrastructure staff. The audit noted ‘instances where meetings with landowners were held in coffee shops, with only one departmental officer present and where there was no record of the discussion’. At the public hearing, the ANAO provided further background on its concern about this matter, noting that ‘we don’t know in quite a number of instances why officers within the department were having meetings with stakeholders, what the purpose of them was and what was discussed and agreed as part of that’. As the ANAO further observed, ‘when you look in the context of any situation where you’re dealing with procurement, including in this case a land acquisition in Western Sydney, there are clear risks, including probity risks, which need to be managed. From our perspective, the unknowns give us cause for concern’. The ANAO confirmed that ‘most of those meetings we had concerns with’ involved the WSU ‘but weren’t related to the Leppington Triangle acquisition itself. This is why, for us, we were looking at how the Western Sydney Unit … was conducting its business’.
The audit therefore recommended that Infrastructure implement meeting and communication protocols for when staff engage directly with individual landowners, developers or similar parties with heightened probity risks. Infrastructure provided an update on its response to the audit recommendation, stating that its ‘existing protocols for meeting with interested parties’, developed specifically for the WSU, were being revised to ‘cover the full remit’ of the department’s activities, with the guidance to ‘address key issues raised by the ANAO including the need to document meeting location, presence of multiple officials and record-keeping requirements’. In addition, a new independent probity adviser had been appointed in the Major Transport and Infrastructure Projects Division, to ‘make sure that probity risks are appropriately managed across the Division’, with the department also requiring an SES-level internal probity adviser (from outside the relevant division) to be appointed for all procurement activities requiring a probity and risk management plan. Infrastructure further confirmed that it had commenced staff training on meetings with interested parties, to ‘make sure that we’ve got appropriate guidance in place for staff to engage … in a safe and consistent way with probity requirements’.
Infrastructure noted that the ‘two informal meetings’ were attended by ‘the one officer’—departmental records indicated that these meetings were arranged by email. Asked whether, given the absence of records, it had sought to establish what was discussed at these meetings, Infrastructure responded: ‘we’ve gone through our records and, obviously, as part of the various investigations underway, whatever extra material we can find … it’s a clear issue that we are working through to improve the way in which we record outcomes of meetings, whether they’re formal or informal’. In terms of whether coffee shops were the only places where departmental officers and landowners had met, the ANAO stated that, ‘in relation to Leppington in particular, there was a meeting at Leppington’s location. We think it was … in an office at the farm.’ Infrastructure stated that for this meeting, held on 27 November 2014, ‘there was actually a brief prepared beforehand and a record of the meeting provided afterwards … we made sure we interrogated our systems and found that there was some process around that meeting in particular’. As to when the department first became aware of these matters, Infrastructure responded that ‘the concerns in relation to the way in which those meetings were being held were as a result of the report preparation papers that were provided to us by the ANAO’. Infrastructure confirmed that it was ‘aware of only two informal meetings between departmental officials and Ms Waterhouse’ (a Western Sydney landholder).
The ANAO assessed the appropriateness of the valuation of the Leppington Triangle land in the context of the LAA, the CPRs and professional standards for property valuations. As the Committee later makes recommendations relating to the ANAO findings in this area, a summary of these findings is set out in Box 6.1.
Overall, the audit concluded that the approach taken by Infrastructure to valuing the Leppington Triangle was ‘not appropriate’ – the approach ‘inflated the value of the land, which in turn led to the Australian Government paying more than was proper in the circumstances’. As the ANAO noted, the department’s ‘own valuer had raised significant concerns with them about the [valuation] instructions they were giving … The valuer communicated to the department not once but on a number of occasions, including in writing, that the department’s instructions could achieve nothing other than to inflate the price that would be paid’. The recorded basis for Infrastructure accepting the draft valuation report on the Leppington Triangle, without edit, was ‘confirmation from the landowner that the report could be finalised’—the department ‘did not take up the suggestions offered by the NSW government on the draft valuation report nor take action in response to advice that the NSW government had valued the land substantially lower’.
Infrastructure noted that ‘the approach to the valuation was the key piece of missing information and a clearly articulated value-for-money assessment’, and therefore decision-makers did not have access to that information.
In response, the ANAO highlighted that one of the questions their audit looked into was why that information was neither given nor sought:
… not only why certain information wasn't provided to decision-makers but why decision-makers didn't ask for the information, because there's an expectation that these things aren't just one-way traffic. While it can be a matter of judgement as to whether someone carries out their function appropriately, with due diligence, in some of the briefing material asking for decisions, to our minds, there were gaps in the information which it would have been reasonable to expect a decision-maker to ask for.
Accordingly, the audit recommended that Infrastructure develop policies and procedures to govern its approach to obtaining purchase valuations. In response, Infrastructure noted that it was working with Finance to develop more detailed guidance on land valuations, to ensure its approach is consistent with requirements under the LAA, with ‘appropriate training provided’. Infrastructure further noted that it was ‘bolstering existing processes and guidance for demonstrating value for money, including around land valuations’, consistent with requirements under the PGPA Act.
Box 6.1: Land valuation: summary of audit findings
Procurement of the land valuation
A single valuation of the market value of the Leppington Triangle land was obtained by Infrastructure, jointly with the landowner. The audit noted that ‘it is not standard practice for government to jointly procure the land valuation’. The land valuation was procured by limited tender (sole sourcing), through a quote from one supplier, MJ Davis Valuations Pty Ltd (MJD)—the valuer was ‘one of those suggested by the landowner and was then agreed to by the department on the basis that there were no conflicts of interest between the parties’. Infrastructure subsequently entered into a contract with MJD on 5 June 2017 for the provision of the land valuation services. While the cost of the valuation was low ($3,850, GST inclusive, was spent on valuing the land), the importance of the valuation to informing a multi-million dollar purchase meant that an openly competitive procurement approach was warranted. The audit concluded that the sole sourcing approach taken was ‘not sufficiently robust given the level of procurement risk’.
Instructions on the valuation approach, and NSW government valuation
The audit found that Infrastructure gave the valuer ‘inappropriate instructions’ on the valuation approach to be used and the basis on which the current market value of the Leppington Triangle land was to be assessed. The department’s valuation instructions noted that the work was to be undertaken via ‘desktop valuation only’ (the valuer relies on documentation, does not inspect the property and produces an ‘indicative assessment’ of its value). It eventuated that the valuer viewed the land from the kerbside, with this raising the level of assurance to the second lowest in the hierarchy of four common valuation approaches (‘restricted assessment’). The ‘inherent risks to the Australian Government of relying on a valuation derived from a kerbside inspection and limited enquiries were highlighted by the valuer, MJD’. Infrastructure ‘did not record why it instructed the supplier to use a valuation approach inappropriate for the purposes of obtaining a market value assessment that could be relied upon’.
The audit further noted that Infrastructure ‘did not provide the ANAO with accurate answers when questions were first asked about the valuation approach, which was not ethical behaviour’. A ‘key question’ raised by the ANAO on the evaluation of the Leppington Triangle land was whether ‘any additional instructions’ had been issued, outside of those provided by the department in the brief for valuation services—the department’s response was: ‘no, instructions provided to MJD are as described in the brief for valuation services’. However, the ANAO established that ‘this advice was incorrect’—the instructions as to the basis on which the valuer was to assess the market value of the land were ‘subjected to important amendments’ and Infrastructure’s advice ‘did not outline the role the department’s instructions had played in the selection of comparator properties’. Ultimately, Infrastructure moved forward with the original brief for valuation services, sent to the valuer on 10 May 2017, which did not contain the revised instructions. However, the draft valuation report of 2 August 2017, which became the finalised valuation report (Infrastructure accepted the draft valuation report without change on 27 September 2017), stated the basis on which the firm had been ‘specifically instructed to provide a market valuation of the land’—a sales comparison method was used that, by instruction from the department, ‘assumed a highest and best use reflected in speculative industrial re-zoning potential’ that was ‘highly unlikely to occur given existing legal restrictions and the requirements associated with the future development of the airport’. The resulting ‘restricted valuation’ was that the value of the Leppington Triangle land would likely fall ‘within the range of $28.5 million-$32 million, should a fully researched valuation be undertaken (which did not happen)’ (pp. 10-11, pp. 42-54).
Advice to decision makers
The PGPA Act contains rules governing how departmental officials are to use public resources, including those relevant to the acquisition of land, with the accountable authority to govern an entity in a way that promotes the proper use and management of public resources (‘proper’ is defined as efficient, effective, economical and ethical). Public servants must also act in accordance with the PS Act, including the APS Commissioner’s Directions 2016 (as amended in July 2019), which among other things requires ‘acting in a way that is right and proper, as well as technically and legally correct or preferable’. The Code of Conduct set out in section 13 of the PS Act includes that an APS employee ‘must not provide false or misleading information in response to a request for information that is made for official purposes in connection with the employee’s APS employment’ and ‘must behave honestly and with integrity in connection with APS employment’.
With regards to the above matters, the ANAO examined the 10 written briefings on the Leppington Triangle acquisition submitted to the WSU head, senior officials elsewhere in the department (the ‘decision makers’) and/or portfolio Ministers (the briefings spanned a four-year period from November 2015 to November 2019). As the Committee later makes recommendations relating to the ANAO findings in this area, a summary of these findings is set out in Box 6.2.
Overall, the audit concluded that Infrastructure ‘did not exercise appropriate due diligence in its acquisition of the Leppington Triangle land’; ‘aspects of the operations of the department, both during and after the acquisition, fell short of ethical standards’; and ‘formal briefings omitted relevant information, such as: the purchase price; that the price exceeded all known market valuations of the land; and the method of acquisition’.
Box 6.2: Advice to decision makers: summary of audit findings
Method of acquisition and purchase price
The audit noted that the departmental decision-maker (the WSU SES Band 2) was provided with ‘appropriate advice’ on which to base their October 2016 decision to pursue an acquisition by a compulsory process, and the briefing package contained ‘sufficient, relevant and reliable information on which to base a decision on the acquisition method to employ’. However, Infrastructure identified a risk that an acquisition by compulsory process would not be achieved by the target date of 31 July 2018 and, in late November 2017, suggested to the landowner that the Leppington Triangle instead be acquired by agreement under the LAA. The audit found that ‘none’ of the seven briefings, following the October 2016 briefing package, ‘mentioned that the acquisition method had changed from that set out in the approved acquisition strategy’, and there was ‘no record of an approval’ by a departmental decision-maker to change the method.
In March 2018, the Infrastructure financial delegate (a Deputy Secretary) approved expenditure of up to $31.78 million to acquire a 12.26 hectare portion of the Leppington Triangle. Infrastructure had agreed that LPC would receive $30 million for the whole 13.62 hectares and then, if the NSW government paid at a lower per hectare rate for its portion—which eventuated—Infrastructure would ‘underwrite the difference by increasing the price of its 12.26 hectare portion’. The briefing to the financial delegate ‘did not explain that this was occurring, or set out the reasons why this was considered a proper use of public money’, and ‘did not provide adequate advice on why the valuation was so high’. On 23 June 2018, LPC provided the department with evidence that the price likely to be paid by the NSW government for the remaining 1.36 hectares of land was in the order of $162,168. Infrastructure had ‘overestimated the amount the NSW government would value the land at by 1,747 per cent’—the ‘significant difference in valuations of the Leppington Triangle land for purchase purposes was not included in any briefings to decision-makers’. The audit noted that ‘omitting reference to the NSW valuations of the land, in particular, was inconsistent with the conduct expected of departmental officers’. The audit concluded that the approach taken by Infrastructure of ‘omitting key information in the briefings to decision-makers and Ministers was inappropriate and inconsistent with acting ethically’. Decision-makers were ‘not appropriately advised as to the amount to be paid to the landowner’—while some briefings outlined the basis on which the market value of the land would be calculated, ‘all omitted to state that value’.
Land value—value for money
As a land acquisition is a type of procurement, the CPRs applied to the Leppington Triangle acquisition. Consistent with the CPRs, documentation maintained on procurements should therefore provide accurate information on how value for money was considered and achieved. The audit found that ‘only one of the 10 briefings to decision-makers and Ministers contained a reference to value for money in the context of the Leppington Triangle acquisition’. This reference was in the March 2018 departmental briefing to the financial delegate (a Deputy Secretary), obtaining their approval to acquire the land, with the briefing stating: ‘we consider [the purchase] figure reasonable and consistent with our own estimations … WSU is satisfied that, after these reasonable enquiries, this procurement achieves a value for money outcome’. However, the ANAO compared the $2,433,852 per hectare rate the Australian Government paid for the Leppington Triangle against the rates presented in other valuations of the same or similar properties, and the results ‘did not support the proposition that the price was reasonable’. The Australian Government paid ‘nearly five-times more per hectare than the highest rate outlined’. Overall, the audit found that ‘decision-makers were not advised, in any briefing or document examined’, that:
the valuer had been given specific instruction ‘not to carry out the usual enquiries and investigations associated with a market valuation’; the valuation report was ‘a Restricted Assessment—Desktop review’ and the department had accepted ‘the commercial risks inherent in relying upon a Restricted Assessment’; the valuer had been instructed by the department to assume a highest and best use reflected in ‘speculative industrial re-zoning potential’ that was highly unlikely to occur given existing legal restrictions … and $30 million was the approximate mid-point of an indicative ‘value range that the market value of the property is likely to fall within should a fully researched valuation assessment of the property be undertaken’. A copy of the valuation report was not attached to any briefing … While decision-makers were advised that the ‘figure’ for the land was consistent with the department’s own estimations, they were not provided any information about those estimations.
The audit concluded that decision makers were ‘not appropriately advised’ as to the value for money of the terms of the land acquisition, and briefings ‘lacked balance’—this approach was ‘misleading and did not support informed decision-making’ (p. 11, p. 36, pp. 58-68).
Advice to decision makers and decision makers ‘check and challenge’
The ANAO found that Infrastructure ‘decision-makers were not appropriately advised as to the value for money of the terms of the land acquisition’. Similarly, the Sententia review found that ‘briefings to decision makers to approve the spending of over $30 million on the Leppington Triangle were lacking in detail on why the expenditure represented value for money’. The ANAO also stated that ‘decision-makers need to ensure that they make sound and informed procurement decisions based on evidenced facts, taking into account all relevant benefits and possible risks, consistent with legal, administrative and policy frameworks’—‘if the material provided to them is incomplete then they should make reasonable and practical inquiries’. Similarly, the Sententia review stated that ‘decision makers did not request sufficient information to satisfy themselves that the expenditure did represent an efficient, effective, economical and ethical expenditure of public money’, and that ‘an absence of effective “check and challenge” mechanisms to provide effective assurance that the acquisition was managed effectively … contributed to the control weaknesses’.
On the matter of departmental advice, the Auditor-General noted ‘the question that we were asking was not only why certain information wasn’t provided to decision-makers but why decision-makers didn’t ask for the information, because there’s an expectation that these things aren’t just one-way traffic’. The Auditor-General further observed that, ‘while it can be a matter of judgement as to whether someone carries out their function appropriately, with due diligence, in some of the briefing material asking for decisions … there were gaps in the information which it would have been reasonable to expect a decision-maker to ask for’. The concept of ‘reasonable’ was derived from Commonwealth resource management and APS frameworks—‘the frameworks that we utilise are the PGPA Act, the Public Service Act, and the obligations they put on individuals on how to act, and defines issues there. It puts duties on officials in carrying out their function to carry out due diligence, to do things in a way that is reasonable’. As the Auditor-General explained, ‘the judgement that we applied was one based on our experience of auditing multiple transactions like these and what you would reasonably expect to have seen in these types of circumstances, and this was aberrant from that point of view’—‘it didn’t look like a normal transaction in terms of the level of information that was available and the gaps in it’. The ANAO confirmed that the briefings went through ‘an appropriate chain of command to appropriately senior individuals in the right positions in the department to make the decisions’:
when the decision was taken within the department to spend up to $31.78 million of public money to purchase the land … That briefing was directed to a deputy secretary in the department and the department’s chief operating officer, both very senior and experienced individuals. The briefing came up through a chain of command of other SES officers below them. The briefing was signed off at an appropriately senior level within the department.
The ANAO further stated that:
very senior people in the department approved the spending of $31.78 million in a transaction they were, at the same time, told would be at most $30 million. Where’s the questioning within the decision-making framework to say, ‘Why am I being asked to approve spending $1.78 million more than the very maximum you’re telling me we should have to pay?’
As to why departmental decision makers might not have sought additional information, Infrastructure pointed to ‘the [Sententia] review that we have underway to do a more detailed analysis of what happened around all of these things and to actually ask those questions as to why people did the things they did’:
The audit report has a good ‘what’, but what we’re trying to do is get the richer text version of ‘why’—why the things happened the way they did. There is a complex series of things that happen in any of these circumstances, and that’s why we’ve got the independent review going through—so that we can actually have that full picture, understand why things happened as well as what happened, so that we can make management choices, going forward.
The Infrastructure Secretary also stated: ‘the piece that I want to understand is what questions and conversations went with those briefs … … … I’ve asked Mr Harrison [Sententia] to review exactly what happened … to understand the conversations that went on, rather than just what was prepared in briefing material’:
If you’re going to go to someone’s understanding of an issue, it’s important to talk to those people and get their perspective as to why that happened. Mr Harrison’s audit has done that, and so we’ll have what I call a richer text version of what happened in all of these things so that we can get to the bottom of what we can do, going forward, beyond the recommendations in the audit, to make sure that we address these issues and make sure they don’t happen again.
The Sententia review subsequently made the following observations regarding such matters:
It is possible that there were discussions between the Branch responsible for the acquisition and relevant senior leadership, including the responsible First Assistant Secretary and responsible Deputy Secretary, as these various events and decisions took place. However … all discussions with those Executives identified that they had limited visibility or recollection of the Leppington Triangle Acquisition during their periods in the roles … … …
This Review found that the responsible Executive Director, Deputy Secretaries and COO were provided with the opportunity for engagement with relevant officers prior to the briefings requesting their sign-off of key steps to progress the acquisition. In most cases, the recipients represented to the Review that the discussions were useful, enlightening and assisted the recipients or decision makers in their oversight roles.
Infrastructure further noted that ‘one of the things that everybody can agree to with respect to what happened here is there was inadequate record keeping across a series of things here, and that makes it very difficult to understand elements of what fully happened’. The ANAO observed that:
when briefs do move up the line, in the due diligence that’s expected under the PGPA Act for officials to take, they may well have conversations, they may well seek additional information … However, it should be documented, because the factors that are taken into account by the decision-maker should be clear, not because an auditor’s coming along but because a good decision takes account of all relevant considerations. So if there were conversations and they weren’t documented, it’s as if they didn’t happen. From our perspective, we do talk to people. We don’t just go in and look at pieces of paper and records; we do talk to people. And, if they can elicit more information from, say, sending off an email asking for something, we’ll get it, but if there’s no record of the conversation there’s no record of the conversation. You cannot see what was taken into account.
Infrastructure responded that ‘there’s more to this than a simple question around record keeping’—‘the record keeping should have been better than it was, but we are talking about matters that are under review under the Public Service Code of Conduct, and, in determining whether or not there are breaches of the Public Service Code of Conduct, we actually have to go deeper than just the documentation’.
ANAO financial statements audit and resultant performance audit
In conducting the 2018-19 financial statements audit of Infrastructure, the ANAO identified a ‘significant decrement in the value of land held by the department’. The valuation decrement primarily related to a $26.7 million difference in the value of the Leppington Triangle—‘the land had been purchased for $29.8 million on 31 July 2018 and then, 11 months later, its “fair value” for financial reporting purposes was set at $3.1 million’. Infrastructure attributed the $26.7 million difference between the purchase price and the asset’s value to a ‘substantial premium paid to purchase the land based on an unwilling seller who had previously successfully challenged a compulsory acquisition declaration’. Given the quantum of the difference between the purchase price and the asset’s value, the ANAO identified it as a ‘significant and unusual transaction’ in the Closing Letter of August 2019 for the audit of the financial statements, and recommended that ‘Infrastructure undertake a review of the acquisition process to determine if integrity and probity were maintained during the process’.
The ANAO drew the Closing Letter, and its concerns regarding the ‘significant and unusual transaction’, to the attention of the department’s Audit and Risk Committee. The audit stated that, according to the meeting minutes of 29 August 2019, ‘the Audit and Risk Committee “noted” the Closing Letter and took no action in response to the “significant and unusual transaction” identified therein’. This matter was discussed at the public hearing, with the Infrastructure Secretary noting: ‘my recollection is that the ANAO’s letter said that there would be further correspondence from the ANAO on the issue’. The Secretary added that ‘the audit and risk committee considered these issues and, based on what was in front of them … I believe that they probably thought it was being properly reviewed and the Auditor-General would come back once there’d been correspondence back with the ANAO’. The Auditor-General explained the process, noting that the ANAO had raised ‘an issue in a closing letter. We’re saying that we’re going to write back to you on this issue depending on how things are going. That is the letter that the secretary referred to’—‘the processes went along, we got information, then we decided, “Rather than writing back, we’ll do a performance audit”’. As the Auditor-General further stated, ‘there were other courses of action that could have happened, and there are lessons for us out of this as well as lessons for the department’:
If we had … put this in as a clear finding in the closing letter rather than a recommendation outside of the finding issue, my guess is it would have gone onto an audit committee list, because that’s a normal process. But because it didn’t relate specifically to the signing off of the financial accounts, but was a recommendation related to the significant transaction, it may have fallen between the cracks in respect of that. That’s a lesson that I think we’ve taken away and thought: ‘Let’s make sure that, when we’re doing recommendations, everyone is clear that it’s a recommendation coming out of it’ … … …
Our audit sets out, pretty clearly, that we think taxpayers should have expected more from the due diligence of the department. We think this was a significant transaction, and I would have thought that when you’ve got things like that happening you would have an expectation within an organisation that they treat it seriously and that expectation would flow to an audit committee—not necessarily doing something—but wanting to be kept aware of the nature of it so that they can be informed in doing their job.
On 18 October 2019, Infrastructure advised the ANAO that ‘a review of the transaction process had been undertaken’, in response to the ANAO recommendation in its August 2019 Closing Letter that the department ‘undertake a review of the acquisition process to determine if integrity and probity were maintained during the process’. The review’s conclusion, as stated in a departmental minute, was that ‘we remain of the view that the transaction was settled appropriately and, that appropriate standards of probity and integrity were maintained’. The audit found that the departmental review of the acquisition process ‘did not adequately account for the difference between the purchase price of $29.8 million and the land asset value of $3.1 million’, and that the ‘review process lacked rigour in its approach and in terms of being conducted by officers directly involved with the transaction’. The ANAO was not assured by the information provided over the period July to October 2019 that ‘Infrastructure had exercised appropriate due diligence in its acquisition of the Leppington Triangle’, and the department was notified on 6 November 2019 that the Auditor-General had decided to conduct a performance audit. Infrastructure noted that ‘there was no explicit instruction … to dealing with reviews recommended by ANAO in their closing letters for the accounts as to exactly how they should be treated’, and confirmed that ‘we’ve now put a rule set around them to prevent this type of thing happening in future’. Infrastructure stated that it was ‘further strengthening audit and risk management frameworks to incorporate lessons from the Leppington transaction, including processes for conducting internal reviews’. AAIs have also been updated to ‘require that where the ANAO recommends an internal review it is undertaken by a reviewer from outside the affected work area’, with the review approach ‘endorsed by the department’s senior governance committee’.
Other investigations and reviews
On 13 July 2020, the AFP received correspondence from the Auditor-General in relation to the Commonwealth’s acquisition of Leppington Triangle. The Auditor-General requested the AFP consider the matter for criminal investigation, noting the ANAO audit had ‘found information that we cannot explain and is suggestive that the Commonwealth may have been defrauded’. On 27 July 2020, the AFP commenced its investigation into whether any criminal conduct had occurred in relation to the purchase of Leppington Triangle. The AFP finalised its investigation on 29 September 2021, with ‘no evidence of criminal conduct identified’.
At the time of the Committee’s public hearings, the AFP investigation was still ongoing. The AFP had advised Infrastructure that ‘any material that may prejudice this investigation should not be released while the investigation is underway’, with Infrastructure noting that ‘this advice was reconfirmed by the AFP in March of this year’:
Consistent with this advice, information has been and will continue to be withheld where the department is aware that it is part of the body of evidence being reviewed by the AFP under its investigation … Of course the department will provide much more detail once these processes are complete.
At the time of the Committee’s inquiry, three other investigation and review processes initiated by the department concerning the Leppington Triangle transaction were in train or had recently been completed:
an independent review of the conduct of the Leppington Triangle transaction, undertaken by Mr Mark Harrison, Sententia Consulting, to ‘identify further areas for improvement’—the Independent Review of the Leppington Triangle Acquisition, Sententia Consulting, was published in May 2021
a culture and capability review, undertaken by KPMG, to ‘examine any underlying cultural and environmental factors’ in the former WSU within the department that may have contributed to the audit findings—the Culture and Capability Insights Review: Western Sydney Unit, KPMG, was published in June 2021
a code of conduct investigation under the Public Service Act 1999, led by Dr Vivienne Thom, relating to an ‘allegation of unethical conduct’ by a departmental officer—at the time of finalising the inquiry, the final report of the investigation was with the independent breach decision makers for review.
Code of conduct inquiries
A number of matters related to code of conduct were discussed at the public hearing for the Committee’s inquiry. The ANAO indicated that six departmental officers were involved in the Leppington Triangle advising process:
There are people working within the [WSU], but the key thing that happens is that briefings go up internally within the department for decision and information as well as in two cases for information to ministers. So … in terms of that, there were six involved who either sent or were the contact officer for one of those relevant 10 briefings. You’re either a contact officer or you’re signing off on the briefings, and there were six people across those 10 briefings.
In terms of these six departmental officers, the ANAO further noted that:
Three of those officers were involved in one of those capacities on one briefing only—so not a large role. Two were involved with two of the briefings, and one was involved with seven of the briefings. The officer involved with seven of the briefings is one of the individuals whom we had particular concerns about, but that individual is not subject to code of conduct. One of those involved with two of the briefings, who was also the officer involved with some of the meetings with stakeholders about which we raised concerns, is subject to a code of conduct investigation.
As to whether the officer involved with seven of the briefings was still working in the APS, and their level, the Executive Director, ANAO, responded: ‘my understanding is that they’re still with the department’, at Executive Level 1 or 2 (not an SES officer). Infrastructure confirmed that, ‘from November 2015 to the acquisition of the Leppington Triangle in July 2018, a total of 13 departmental officers were involved in briefing processes about the acquisition as contact officers, clearance officers and/or decision makers’:
As at 14 April 2021, of those officers, five were still employed by the Department. The Department is aware of five officers who have gone on to work for other Commonwealth agencies, including permanent transfers and periods of secondment. Subsequent to the acquisition in July 2018, as at 14 April 2021 two officers had received promotions within the Department. The Department is not aware of any of the officers identified having gone on to work for a minister’s office or landholders.
At the time of the April public hearing, there was ‘a single code of conduct investigation underway in relation to the Leppington Triangle acquisition’ (the Dr Thom investigation)—however, Infrastructure noted that it was ‘aware of the ANAO’s concerns around which officers should be under investigation’:
The secretary has discussed this issue in detail with the Auditor-General. Under section 15(3) of the Public Service Act, the relevant department is responsible for establishing procedures to determine whether an APS employee has breached the code of conduct. If anything was to come forward that required us to revisit the decisions taken, we would.
In response, the ANAO observed that:
We accept that the department … the accountable authority, is the person who decides on what material to conduct investigations … the ANAO’s position is that there were a number of people involved in this transaction—more than one—whose behaviour may have raised eyebrows, the department have decided to proceed the way they have and that’s a matter for them … … …
I think it’s fair to say that the eyebrow raising that we do is against process, and there were processes, like the review undertaken by the officers who were involved in the transaction, that we called out … there were six people who were more deeply involved in the signing off of advice on the transaction. The department has chosen to pursue a code of conduct process in relation to one of those six.
The Auditor-General stated:
I’ve had a couple of conversations with the secretary, as the department indicated. The secretary has pointed out to me what he’s doing and why. It’s not our job to make those decisions for people … … … In the conversations I’ve had with him I haven’t raised issues of concern to me about the process they’re undertaking. As I said, the secretary has talked to me about it, and what they’re doing hasn’t raised concerns with me specifically. I feel that they are dealing with things appropriately.
By way of further background on this matter, the ANAO explained that an appendix had been attached to the audit report preparation papers, and the ‘clear and stated’ purpose of that appendix was to say: ‘we have some issues concerning the way the department’s addressed probity in this transaction. Here are some examples of the sorts of things we’re concerned about.’ The department ‘used that appendix to the report preparation papers to decide who it would subject to code of conduct investigations’, but ‘that wasn’t the purpose of the appendix; it was for a different purpose’. Infrastructure responded to this point, stating that, ‘while the report preparation papers were important, the management action was based on a broader set of materials, not solely on the RPPs’.
Culture and Capability Insights: Western Sydney Unit, KPMG
The Culture and Capability review of the WSU, undertaken by KPMG, was completed in June 2021—Infrastructure noted it would ‘embed and build on’ the review findings, ‘as part of its overall response to the ANAO’s findings’. The KPMG review found that the extent to which the culture and capability of the WSU impacted the ANAO findings is ‘difficult to truly gauge … Most likely … the most significant and influencing factors related to the destabilising effect of leadership churn, a lack of focus on important routine tasks … and the effective management of operational risks’. KPMG made suggestions for future projects, centred around five key themes: fit for purpose leadership for complex settings, establishing ways of working to reflect complex environments, fostering high performance, actively managing transitions of projects, and establishing the right project structures, operating practices, systems and assurance mechanisms.
Independent review of the Leppington Triangle Acquisition, Sententia Consulting
The independent review of the conduct of the Leppington Triangle transaction, undertaken by Mr Mark Harrison, Sententia Consulting, was completed in May 2021—Infrastructure agreed to the report’s recommendations. The Sententia review stated it was ‘clear that the Department did not undertake all reasonable steps to determine what a suitable cost would be for the Government to acquire the property, to demonstrate that the price paid for the property represented an efficient, effective, economical and ethical use of public funds’, but the review ‘identified no evidence to suggest poor integrity, criminal activity or personal benefit for officers involved in the transaction’. See Box 6.3 for a list of the Sententia review recommendations.
Box 6.3: Independent Review of the Leppington Triangle Acquisition, Sententia Consulting, May 2021—recommendations
The Review recommends that the Department:
1. … strengthen its capability in managing land acquisitions, in particular where the strategy involves agreement with private landowners … [including through] … land acquisition guidance material …
2. … require all material, high-risk (or sensitive) land acquisitions and procurements to be considered by the Operations Committee as a form of quality assurance and peer review of process and outcome …
3. … should strengthen its guidance on the achievement and demonstration of value for money … The guidance would include how to identify and analyse benefits, costs and risks of proposals to spend public money …
4. … consider the lessons from this transaction in future strengthening of its program and project governance arrangements … [including] stronger governance arrangements; … management processes (potentially including standards and procedures); consistent reporting and oversight; … and assurance arrangements.
5. … consider the lessons from this transaction in future improvement to its risk, control and assurance framework to support decision-making and the achievement of objectives …
6. … continue to reinforce values and behaviours in connection with probity, quality, teamwork and risk management, in order to ensure that such behaviours are more reliably built into all endeavours of the Department …
7. … establish thresholds (based on risk and value) for the requirement for appointment of a probity adviser and/or probity auditor for major land acquisitions and procurements …
8. … improve its record keeping practices, in particular to ensure that there is sufficient transparency over key decisions, including the use and availability of contemporaneous notes and other supporting evidence … (pp. 7-8).
The Committee finds that Infrastructure did not demonstrate effective conduct of its activities relating to the Leppington Triangle transaction, consistent with the PGPA Act and PS Act. The Committee concurs with the findings of Auditor-General’s Report 9 (2020-21) and the Sententia review that the department ‘did not exercise appropriate due diligence’ in its land acquisition and aspects of its operations ‘fell short of ethical standards’. It also agrees that the department ‘did not undertake all reasonable steps to determine what a suitable cost would be for the Government to acquire the property, to demonstrate that the price paid for the property represented an efficient, effective, economical and ethical use of public funds’.
The Committee notes Infrastructure’s progress in implementing the audit recommendations, including the establishment of an Assurance Taskforce, reporting directly to the departmental Secretary, to oversee this work. In particular, the Committee acknowledges the following measures implemented by Infrastructure: updated AAIs to increase controls around land acquisitions, including approvals prior to the exercise of applicable delegations under the LAA and the PGPA Act; updated processes and guidance to emphasise value for money around land acquisitions and valuations, consistent with requirements under the PGPA Act; additional procurement training, focused on value for money principles; establishment of a designated SES-level Chief Risk Officer and additional risk training; revised protocols for meeting with interested parties; and appointment of a new independent probity adviser. The Committee notes Infrastructure’s focus on staff procurement training and improving procurement guidance. The department should maintain this focus and ensure arrangements are in place to monitor the effectiveness of its training and guidance.
The Committee acknowledges Infrastructure’s additional response to the ANAO findings, by initiating further investigations into the Leppington Triangle acquisition, including the Sententia Consulting review and the KPMG culture and capability review. The Committee considers it would be useful to receive an update from the department on its implementation of the recommendations of these reviews.
The Committee recommends that the Department of Infrastructure, Transport, Regional Development and Communication provide details of:
its implementation plan in response to the Sententia and KPMG review recommendations, including implementation timeframes; and
how the department will drive any necessary organisational cultural change, based on findings of the KPMG review
As part of its response to the ANAO findings, the Committee understands that Infrastructure was working with Finance to develop more detailed guidance on land acquisitions and valuations, to ensure the department’s approach is consistent with LAA requirements. At the time of finalising the inquiry, Finance was undertaking a review of the LAA and had indicated to the ANAO that the audit findings would be considered as part of the review, with subsequent guidance issued to entities. It would be useful for Finance to provide an update on this matter. The Committee understands that the LAA contains prescribed principles for assessing the amount of compensation payable for land that is compulsorily acquired, but not for land that is acquired via an agreement with the landowner. The Committee will seek information from Finance on whether the LAA and CPRs require amendment to provide further guidance on land acquired by agreement with a landowner, the use of desktop and restricted assessments for conducting valuations, joint procurements of land valuations with landowners and other matters raised in the ANAO audit and the Sententia review.
Pending the review of the Act and guidance, the Committee considers it preferable that the department in future should, by default, utilise the established and transparent compulsory acquisition process. Compulsory acquisition ensures transparency, probity and fairness for the private landowner and the taxpayer. Pending updated guidance, the Committee considers that the benchmark price that would be expected to be paid for land acquired via the compulsory acquisition process would serve as a reasonable reference point against which voluntary arrangements may be measured. Any decision to undertake a voluntary arrangement must be carefully and thoroughly justified and documented.
The Committee recommends that the Department of Finance (Finance):
provide an update on its review of the Lands Acquisitions Act 1989 and how the findings of Auditor-General Report 9 (2020-21) and the Independent Review of the Leppington Triangle Acquisition (Sententia Consulting, May 2021) have informed Finance’s review, and subsequent guidance issued to Commonwealth entities;
pending any systemic changes, adopt a clear default presumption that compulsory acquisition powers shall be used for land acquisition; and
only permit ‘off-market’ voluntary acquisitions when carefully justified and thoroughly documented, in which case compulsory acquisition methodology should be used as a benchmark to help ensure that a situation like the Leppington Triangle purchase does not happen again.
Lucy Wicks MP
7 April 2022