WATSON, Mr Geoffrey, SC, Director, Centre for Public Integrity

[11:03]

CHAIR: I welcome Mr Watson from the Centre for Public Integrity.

Mr Watson : Chair, the Centre for Public Integrity made a submission to this committee in relation to a couple of limited issues, not covering the full range of your terms of reference.

CHAIR: Yes, thank you. Mr Watson, would you make an opening statement?

Mr Watson : If I may. On a fairly regular basis I'm asked to speak on the subject of public administration, including transparency and accountability. Since Leppington Triangle became public in September 2020, I have invariably—and by 'invariably' I mean 'every time'—been asked questions regarding what went wrong regarding the sale of land for 10 times its commercial value. The repeated questioning is the clearest indication that this is a matter of disquiet to the community at large.

It's true that the groups to whom I speak are sometimes law students, often lawyers, but they include general members of the public. My problem is that whenever that question is asked I am unable to quell the concern, because my answer is always the same. It is that the money used to make the purchase was public money and the fund from which it was drawn is administered by public officials, that, given processes were readily available to resume the land at market value, it would be impossible in the circumstances to justify a payment that is more than market value of the land, and that a purchase at 10 times the market value of the land must show the decision was one of two things. It had to be the product of a gross act of incompetence on the part of the public officials concerned, or it had to be the product of corruption.

Now, that conclusion is inevitable; it's either incompetence or corruption. It can't be anything else. Then, when I'm asked that question, I draw attention to three other equally disturbing features. The first is this: except for the good work of the Australian National Audit Office in identifying this issue, we wouldn't know anything about it. But, given the Audit Office conducts random audits, we do not know how many Leppington Triangles are out there that we haven't heard about. Secondly, the Audit Office has been subject to funding cutbacks, which have had the effect of reducing the number of audits it can undertake. Thirdly, there remains no federal integrity agency which can investigate the issue to determine whether or not it is the product of incompetence or corruption.

This committee actually has the best chance so far to get to the bottom of this. But I fear you're not getting the support you need from the Department of Infrastructure, Transport, Regional Development and Communications or the Department of Finance. In its submission to this Senate inquiry, the only reference made to this issue by the department of infrastructure—that is the body that was singled out by the Auditor-General—is as follows:

The Department has accepted the report's recommendations and is taking action to address shortcomings in processes and decision-making identified by the ANAO.

Check for yourself. Its submission 18. It figures on page 4. That's all you've got. If that's the best that you can be told by the body responsible for this—well, I don't accept it. I'm afraid the department of infrastructure is having a lend of you. There is no explanation offered as to what happened, why it happened or who was even involved. There's not even the hint of an apology.

Senators, I'm asking you to take on the burden so as not to let this opportunity slip away but to try to get to the bottom of this mess. Maybe it can be undone, maybe it can't be undone, but we should all work together to try to prevent it occurring again. Thank you.

CHAIR: Thanks, Mr Watson. I've some questions for you, and I'm sure that Senator Chandler does too. If I can put you in the position of giving this committee some free advice, what steps do you think should be undertaken? As you say, the Audit Office has investigated one purchase. There's nothing that would make you think that there may not be others and that it's not worth investigating. Firstly, perhaps put aside this committee's work; what steps do you advise should be undertaken so that the public can be assured there aren't other Leppington Triangles?

Mr Watson : There are three things. The first is to take a better and closer look at what the Audit Office is doing. The Audit Office is a wonderful organisation. It's also now become the key accountability transparency organisation in the federal sphere. It should be more fully funded so that it can undertake more random audits that could pick up other problems. Also, this comes into the second point I'll make about the Commonwealth Procurement Rules. Imagine if you could get the advice of the people in the Audit Office to tell you how to recraft, redraw and enforce the Commonwealth Procurement Rules. That would be a great advantage. But, at the moment, they don't have the funds to do that. Every cent that they're getting is being spent on their auditing processes, but it could take on a fantastic role in terms of advising, consultation and redrafting them.

That second point that I was going to make was about the Commonwealth Procurement Rules. They're obviously not working. In an instance like this, they don't even apply to purchase of land, so they wouldn't capture it. But, even so, if you have a look at them—and we've set out one or two in our submission—they're insufficiently prescriptive. Instead, they're just offering ill-defined motherhood statements or aspirational statements, such as, 'You should do this with transparency and fairness.' Looking at Rule 7.1, we set out that this is what it does. This is a rule: 'A commitment to ensuring accountability and transparency.' You can't apply that rule because it's just simply aspirational. Obviously, they're not working. I cite Leppington Triangle as the example. It's not as though this is unimportant. The department of infrastructure is sitting on a budget which is in excess of $8 billion for this single project alone in the west. Some $5½ billion is attributable to the airport and the remainder to broader development in the western part of Sydney. This was one small part of that: $3 million versus $30 million. That's a lot of money to me, but not in the context of $8 billion. And, again, it's an important consideration: how many other Leppington triangles are sitting in that $8 billion budget?

The third point I'd make about what can be done from here is one which I understand has actually achieved a type of bipartisan agreement: we need a federal integrity agency. I know that there's still a dispute over the terms that would take, but we need one. It's something which is overlooked because most of the glamorous ICAC inquiries in New South Wales have involved politicians. That's not the usual work of that kind of agency. On that side, it's mainly dealing with public administration. It's either where there have been, sadly, corrupt public officials or, even more commonly, where public officials have been duped by crooked businessmen. That's an important part of its job. It's less flamboyant than bringing in politicians and questioning them. But here's one that's forgotten altogether. Fifty per cent of the work of the New South Wales ICAC is in education and corruption prevention through good design and an advisory role, and a federal integrity agency could achieve that and bring it about. As I say, I understand that virtually everybody in both houses says, 'Great, we certainly need one.' Both of the major parties went to the last election on the promise of bringing one in. We still don't have one. That's the third thing that we should do. I'm sorry, I've gone on a little bit there.

CHAIR: I appreciate you taking the time to go through that. If I just go back before Leppington Triangle, what is it about a project of this scale that creates special kinds of risks? Putting aside what you've said about what should happen prospectively, what should have happened to develop assurance about dealing with those kinds of risks?

Mr Watson : Putting aside Leppington Triangle, as soon as you're talking about a big dollar budget, you're talking about risks of corruption and you're talking about very dangerous risks which might fall short of corruption but are a certain form of manipulation by contractors to extract the maximum dollar for services that are provided or, in this instance, land which is sold. The thing is that it's always going to happen. If you have a look at the history, major projects of this kind nearly inevitably run over budget and there are always problems at the edges about abuse of the contracting systems. It's the size of the project. There's nothing you can do about that. You can't reduce the overall size of the project. so you've got to work out how we protect against this at the other end. Do we have external probity features appointed under the Commonwealth Procurement Rules which are compulsory and which would provide independent reporting? Sure, that's going to add another layer of expense. It's going to add another layer of detail. But perhaps we could have used some of the $27 million left over after the Leppington Triangle purchase to pay for it, because it would be tiny amounts of money compared to what is at stake.

CHAIR: One element I'm interested in is that you sat through 20 minutes or so of the evidence from small landholders in the area—

Mr Watson : That was a very, very good experience for me because I tend to look at this as numbers on a page. It's really quite good, actually, to sit in the room and see human beings who are adversely affected.

CHAIR: Yes. And put aside, if you can for a moment, the sharp examples of Leppington Triangle or other anticipated purchases where, as you say, it's either gross incompetence or corruption—they are the only explanations for that kind of purchase. I think you were alluding in your previous answer to a different kind of problem, and that is a differential treatment for ordinary landholders and large landholders. What kinds of measures could you take to even up the score in terms of the way that a project like this treats people?

Mr Watson : I'm no expert in the area of contractual procurement, but I can tell you this much: what you could do is control that at that kind of level and also have an independent probity auditor who circles any of those sorts of transactions—which are certain, incidentally, to arise—so that there is a degree of fairness. The fact is that it's possible now to look at a large landholder getting an advantage over a small landholder. It's also possible to look at people who are literally, as Mrs Zucco described, on one side of a line on a map. Those sorts of things are always going to happen, but the nasty side effect of them can be ameliorated. And I would have thought that an independent probity auditor who was constantly engaged in looking over the shoulders of those who are in charge of procurement would be a good idea, and that's the sort of advice which I imagine you'd get from the Audit Office or a federal integrity agency, if you had one.

CHAIR: And, without making a judgement about the probity of the kind of engagement that large landholders were having with departmental officials—and I think I'd describe them in one of the questions coming out of Senate estimates, and the Audit Office's evidence here and the Audit Office's report on Leppington—the kind of access that large landholders had included coffee shop meetings without minutes being taken, visits to large landholders' family homes, and visits to Parliament House to conduct meetings. Presumably, you don't go to Parliament House for the coffee, although it's very good coffee; you go there to meet with politicians and ministerial staff. The difference between that kind of access and being invited to send a submission to, presumably, a departmental portal is quite stark, isn't it?

Mr Watson : It's obvious. Somebody with a three-bedroom fibro house probably doesn't have the money lying around to retain a lobbyist, yet some of the big landholders have had lobbyists. Call me old fashioned, but my flesh crawls immediately at the thought. There are people who should be regarded equally. They are all members of one class: landholders in the area. The idea that any of them would be gaining access to the politicians here is wrong and the idea that they could gain the ear of any of the senior bureaucrats is wrong, unless it was something which was given to all of them as individual members of the same class.

CHAIR: Thanks, Mr Watson. Senator Chandler.

Senator CHANDLER: Thank you for coming along today, Mr Watson. I note that we have met via teleconference before through the Joint Committee of Public Accounts and Audit. The submission that you provided, which was relevant to our review of the Auditor-General Act, touches on some of those risks—

Mr Watson : It does. It intersects with it. You must be seriously sick of hearing from me!

Senator CHANDLER: I could never get sick of hearing about these issues, absolutely not. I was thinking about some of the things that you've spoken about today—issues you perceived with the Commonwealth Procurement Rules and that you think we need more funding for the ANAO and a federal integrity agency to ensure that these things don't happen again. Do you see any of the issues you perceive impacting on the culture within individual departments? To me, you can have as many procurement rules and as many checklists in the world, but you also need to have a culture of compliance with those processes. What's the gap there?

Mr Watson : It's kind of odd, because you wouldn't want to terrorise people into doing the right thing—

Senator CHANDLER: Absolutely not.

Mr Watson : nor, whether through religious or ethical argument, you're never going to root out all of the bad people. I think the best way is by encouragement. You might remember when I gave evidence about the Auditor-General that one of the really important parts of their job is this. I heard the Auditor-General himself give this evidence. We found so many places where they were doing it well. You can change the culture if you can work out what works and where something's going wrong. It's my experience, which by now is fairly considerable, that the problems with public sector administration of public funds and where it goes awry is not because of any problem with the actual public officials; it's because they're being manipulated by crooked businessmen, often, or by businessmen being businessmen—that is, trying to maximise their profit. Given the right set of rules and the right encouragement to follow them, yes, you can change the culture. You're never going to root out the problem. That's human nature, I'm afraid. I don't know whether that's going back to original sin.

Senator CHANDLER: We could get very deep and philosophical here, couldn't we! But, on the issue that you just identified around officials being taken for a ride by third parties trying to do the wrong thing, that's a cultural issue—that public servants perhaps don't know the red flags that they should be looking out for when they're interacting with these third parties.

Mr Watson : Exactly. That's where the educative role comes in. It could be taken on by the Audit Office—it hasn't the money to do it at the moment—or it could be taken up by a federal integrity agency as well. That's where it could step in and possibly provide to the people that kind of guidance. I said earlier to Senator Ayres that you could have a probity auditor constantly hovering around procurement processes. That's a very heavy-handed way of achieving the same thing.

Senator CHANDLER: Yes. Again, going to your comment earlier, you wouldn't want to see the terrorising of public servants.

Mr Watson : No. These things should be positive rather than negative.

Senator CHANDLER: Yes, absolutely. Setting aside the idea of a federal integrity agency, is it your view that the reason we perhaps have this gap here currently is that the Auditor-General doesn't have the time and capacity to perform that function—that educative role?

Mr Watson : I went to a little bit of trouble before I gave evidence before the other committee. As part of that, I looked at what the Australian National Audit Office produced. That was my feeling then. When I heard the evidence of the Auditor-General himself, certainly the strong impression I got from it was that there was no money left over in the budget to do these things.

Senator CHANDLER: But at the same time, I mean, regardless of the workload of the Auditor-General from year to year, departmental officials know that he has the capacity at any time to look into what they might be doing.

Mr Watson : That's the terror aspect!

Senator CHANDLER: I guess what I'm trying to say is: why aren't we seeing the change with the function that he has now?

Mr Watson : One of the problems with this is—Senator Ayres, you put your finger on it—it's the size of the project; it's actually so large that it's difficult to control. When you're talking about infrastructure projects of this size and type, bear in mind it isn't one simple thing. The cliche says 'moving parts'; well, this has got billions of moving parts. The thing is that nobody can draw on an experience which enables them to take an overall control of this. It's very, very hard, but Leppington Triangle demonstrates we have to put in place some better controls or some better system or methods.

CHAIR: One of the questions I said I wanted to go to before was about the risks of this kind of project. One of the problems is, isn't it, that you have multiple levels of government engaged in the process? One of the witnesses before told me that when the airport decision zoning decision was made, presumably by the state government, her property changed in value and whether or not she could exit it. She doesn't know whether the purchasing entity will be the Commonwealth or the state government or when a purchase will happen. So the capacity for different decisions that impact on landholders to be made by different levels of government creates its own special risks and accountability challenges as well. As we consider how this committee might proceed, it creates special difficulties for us as well.

Mr Watson : Well, of course it does. But you should have been around to raise all of that just before 1901. The thing is, the distribution of those powers in that way—

CHAIR: My balding head doesn't indicate —

Mr Watson : On the way here, I saw there was a controversial mining project rejected by the Queensland government off the Great Barrier Reef and now it will come to the federal government for some sort of approval. You look at that sort of duplication and it just makes you wonder why is there the duplication? It's certainly not a safety net; it works in the opposite way to a safety net.

CHAIR: Presumably we can't fix that retrospectively but that does require special steps being undertaken when developing a project of this kind to manage the probity risks that arise from multiple levels of government.

Mr Watson : A really good example of this would be one of the largest infrastructure projects—I think it might have been the largest—the building of the new Parliament House. But the fact is, it happened wholly within the ACT and was able to be controlled under the federal government, which simplified that to a much greater degree. The minute you cross that border into New South Wales, you're talking about a mixture of governments and that's been the eternal federation problem. I don't think you're going to find the solution there, at least quickly, because it's been common experience that state governments do not cede powers to the federal government readily or speedily. And the thing is, I just don't anticipate them giving up their power—well, maybe one day.

CHAIR: But the Commonwealth government is writing the cheque—

Mr Watson : Yes.

CHAIR: and it can demand particular risk mitigation measures. It does have the capacity—not necessarily, as you say, that are undermined by the different heads of power—to demand compliance with a particular regime.

Mr Watson : Subject only to its constitutional powers to do so, I might say.

CHAIR: Yes.

Mr Watson : They are pretty ample. Of course, it writes the cheque, it can pass the laws and it can override the state. It's a larger question about state-federal relations about which I have got personal opinions but they're not only inexpert; they're kind of ranty—so you would want to watch out.

Senator CHANDLER: As do we all.

CHAIR: We might save that for another proceedings. Mr Watson, thank you for your evidence today and for your submission.

Mr Watson : Do you know what? I'd like to reverse it and say thank you for listening. I might have been speaking on behalf of not just the Centre for Public Integrity, but there are a lot of other people out there in the public who would like to get to the bottom of Leppington Triangle.

CHAIR: Absolutely.

Proceedings suspended from 11:30 to 11:47