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CSG Services, Oracle named in Victoria’s Ultranet corruption probe

Investigation leads to allegations of corruption in Victoria’s Ultranet procurement process

Victoria’s anti-corruption agency has alleged that the state government’s procurement of services from Oracle and CSG Services for its failed Ultranet project was subject to process corruption, improper diversion of funds, conflict of interest, and mismanagement at senior levels.

The Operation Dunham investigation, carried out by Victoria’s Independent Broad-based Anti-Corruption Commission (IBAC), alleges that the tender process for Ultranet was improperly influenced and “therefore corrupted”.

Operation Dunham, which was launched in 2014, was set up to investigate the allegations that the tendering process in relation to the Ultranet project – in particular, the awarding of a contract CSG Services (CSG), which was at the time owned by CSG Limited – may have been compromised.

A report resulting from the investigation, tabled in Victorian parliament on January 27, alleges that improper relationships that certain senior departmental officers had with Oracle, and then with CSG, “effectively corrupted” the project’s tender process.

This corruption, the report claims, ultimately led to the “waste of millions of dollars of taxpayers’ money”.

The Ultranet project, which came under the jurisdiction of Victoria’s Department of Education and Training, was first announced in 2006. At the time, the state government made a commitment to “revolutionise learning” through the development and implementation of an online teaching and learning system for all Victorian government schools.

The online platform was to be a virtual learning portal through which schools, students and parents could access and deliver curriculum content, student reports and other information.

However, the Ultranet project was closed down seven years later, in 2013. It was described during the investigation as “a shambles in every sense of the word,” according to IBAC.

“While the exact cost is unknown, IBAC heard evidence that the Ultranet was likely to have cost somewhere between $127 million and $240 million,” the report said.

The report said that Darrell Fraser, former Deputy Secretary of the Department’s Office for School Education, is central to many of the allegations examined in the investigation.

IBAC alleges that Fraser, as a former principal at Glen Waverley Secondary College (GWSC), had played a critical role in promoting the project that would evolve into the Ultranet.

“GWSC is significant in this history as the Ultranet had its origins in the GWSC Intranet, a system developed on-site by teachers and staff at the school,” the report stated.

Later, as Deputy Secretary of the Department, Fraser had a central role in relation to the tender process for the Ultranet project, IBAC alleges.

The anti-corruption agency goes on to claim that, in July 2011, Fraser resigned from the Department to take up employment with CSG. It is understood he is no longer employed by the company.

“From the outset, and while a school principal at Glen Waverley Secondary College (GWSC), Fraser sought to exploit the commercial potential of the technology that would become known as the Ultranet; he did so in a way that was not in keeping with the standards of conduct expected of a public servant,” the report stated.

“This investigation found that, from a position of power as a senior executive responsible for the allocation of significant funds, Fraser was instrumental in manipulating procurement processes to ensure the Ultranet contract was awarded to the CSG/Oracle consortium – companies with whom he had a longstanding relationship,” it said.

Along with CSG, IBAC alleges that Oracle was “greatly advantaged” by its participation in an earlier project called, Students@Centre, which is considered a precursor to the Ultranet project.

“Having been given what an Oracle executive regarded as the ‘box seat’, Oracle was able to identify, develop and strengthen relationships with key people in the department who were in a position to influence the future tender process, particularly including Fraser,” the report said.

Meanwhile, IBAC claims it was alleged that a payment to procure Alliance Recruitment in 2011 to conduct an evaluation of the Ultranet project was a mechanism contrived by Fraser and senior CSG executives to “corruptly” inject funds into CSG to ensure it remained economically viable.

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Ultimately, IBAC claims that Operation Dunham exposed a range of alleged improper actions and behaviours by senior departmental staff, including Fraser, that effectively corrupted the tender process.

“These included the receipt of gifts and travel; improper communications during the tender process intended to influence the tender process; and a likely attempt to influence the tender evaluation outcome by ‘stacking’ an assessment team with like-minded colleagues,” the report said.

Additionally, IBAC said it found that decisions were made contrary to proper procurement process, in particular, the “unreasoned and inexplicable decision to give singular preference to CSG, despite serious concerns about its commercial credentials in the relevant area”.

“Of particular concern was the fact that these decisions were made in the face of strong expert advice to do otherwise,” the report stated.

Further, IBAC alleges that, after experiencing difficulties with the Ultranet project, Fraser set up the Learning Technologies Quality Assurance Project (LTQAP), which he described as “the little project”.

“In fact, Operation Dunham found evidence to suggest the 'little project' was a one million dollar sham,” the report said. “Payments were made to Alliance Recruitment from departmental funds to corruptly inject funds into CSG to ensure it had sufficient cash flow to properly deliver the Ultranet project.

“The process used to appoint Alliance Recruitment was in clear breach of departmental protocols and was intended to mask CSG’s involvement,” it said.

IBAC also claims that, during the course of Operation Dunham, it found evidence that some senior departmental officers allegedly used confidential information about CSG’s appointment as contractor on the Ultranet project, obtained as a result of their positions, to gain personal advantage through the purchase of CSG shares.

“Some did not declare their shares to the department at all or in a timely way, as they were obliged to do as senior departmental officers,” the report stated. “Nor were some fully truthful with the department and its investigators when questioned about their shareholdings.”

CSG denies any wrongdoing on its part in relation to the findings of the investigation and the procurement of services for the Ultranet project.

“These works commenced in excess of seven years ago. The Ultranet agreement was signed in June 2009," the company, which is publicly-listed on the Australian Securities Exchange (ASX), said in a statement. "Services under the consulting project were provided in 2011.

"After reviewing the IBAC report, CSG denies that it and its officers have done anything wrong. CSG responded to the adverse statements against it and CSG Services through the appropriate channels.

“CSG understands that shareholders and the broader community have particular expectations about the way in which CSG operates. In accordance with its code of conduct, in all its dealings, CSG and its officers will act in compliance with the law and the company continues to commit to continuous compliance training,” it said.

The company also pointed out that the business examined in the investigation, CSG Services, was owned by CSG until 2012, and is no longer associated with the publicly-listed entity.

Now that IBAC has released its report of the investigation, it is in the process of compiling a brief of evidence for advice by the Office of Public Prosecutions. It has not yet disclosed any further details about potential prosecutions arising from the investigation.

However, IBAC has since made a number of recommendations directed at addressing the vulnerabilities identified during the investigation.

“These recommendations are designed to strengthen the culture and systems not just within the Department but across the Victorian public sector to prevent corruption,” IBAC said.

IBAC has recommended that the Victorian Department of Education and Training review current arrangements governing how schools and other work areas pursue and respond to commercial opportunities; and strengthen internal procurement and governance arrangements for major projects.

The Department has advised it supports these recommendations, IBAC indicated.

Additionally, IBAC recommended the Victorian Public Sector Commission consider banning public sector employees receiving any gift, benefit or hospitality from a current or prospective supplier.

“IBAC has also recommended the Department of Treasury and Finance consider improvements to reviews of high value and/or high risk projects,” IBAC said.

Oracle had not responded to ARN's queries at the time of writing.