‘Let it die’: Whistleblower alleges agency boss didn’t act on $20m ‘rort’

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The head of a NSW government agency allegedly told a whistleblower not to act after he uncovered a major rort in the building industry bleeding up to $20 million a year in public money because it would make her "look bad" to the minister.

The whistleblower accused a string of high-profile developers and projects of underpaying government levies, including Meriton, the Opal Tower, colourful developer Antoine Bechara and developments owned by a "large and known criminal in NSW".

Kathy Skuta, Director of the Long Service Corporation, a whistleblower alleging she turned a blind eye to massive rorting at the corporation.

The senior bureaucrat who is the target of the allegations is Director of the NSW Long Service Corporation Kathy Skuta. The whistleblower claims Ms Skuta told him to "let the issue die naturally" after he raised the rort with her in a 2018 meeting.

A spokesperson for the Long Service Corporation said the matters had been the subject of an investigation and none of the reviews found any evidence of misconduct.

An audit of the corporation's compliance and enforcement activities – which would address revenue leakage – was scheduled for this financial year, the spokesperson said.

However the Herald has obtained internal emails showing Ms Skuta scrambling to find out if her team had taken action to address the rort after fielding a question from a journalist, years after the whistleblower raised the matter with her.

The developers have also vehemently denied the whistleblower's allegations.

They are named in a trove of internal Long Service Corporation documents tabled to NSW parliament this month and obtained by the Sydney Morning Herald, lifting the lid on an internal storm within the little known agency.

The corporation collects levies from developers and uses them to pay construction workers their long service leave entitlements.

A levy must be paid on every construction project in NSW, calculated as a percentage of the project's value.

The issues began when the corporation recruited two former police officers to work in its compliance unit, including the whistleblower, who'd cut his teeth as a detective.

The whistleblower, whose name is redacted, said the pair were alarmed to discover an "absolutely huge" amount of fraud perpetrated by claimants.

Developers were also rorting the system by deliberately undervaluing projects to cut the size of the levy owed to the corporation, causing "incredible" losses of public revenue.

An industry informant told them unscrupulous quantity surveyors would produce two sets of valuations.

A legitimate one went to the bank to secure financing and a "grossly undervalued" one would be provided to the Long Service Corporation and the councils, which also collect fees based on a project's cost.

The two compliance officers briefed their manager, Craig Duncombe, about their findings.

Of the first eight projects they examined, five had been undervalued by a collective total of $19 million, meaning the corporation had missed out on $66,000 in revenue.

Mr Duncombe prepared a report and sent it up the line to Ms Skuta, the head of the corporation, in June 2017.

At the time the corporation was part of the NSW Treasury, overseen by Treasurer Dominic Perrottet. It was later moved into the Finance department and then to the Department of Customer Service.

A spreadsheet identified a further 35 undervalued projects. With thousands of development projects in NSW every year the whistleblower extrapolated the likely loss of revenue at at least $20 million annually.

He alleged the Opal Tower was one undervalued project and that City of Sydney council had concerns over a project by Meriton, who were suggested to be "habitual under-valuers".

Another company named in the documents was Al Maha and Omaya Pty Ltd, run by Antoine Bechara, the colourful developer of the Strathfield triangle.

Meriton strenuously denied the allegations and labelled them "patently ridiculous". A Meriton spokesperson said its cost estimates were generally independently verified by the council's quantity surveyors.

"Cost estimates can vary widely because they reflect the level of uncertainty," the spokesperson said.

"An estimate, whilst reasonable at a given point in time based upon certain assumptions, is subject to change when a building concept evolves in the design and development process."

A spokesperson for the Al Maha and Omaya group said it had never been involved in project undervaluation, nor had they ever been contacted by Long Service Corporation about the issue.

The group used reputable firms to accurately estimate its costs, he said, adding that the banks independently assessed construction costs and cross checked to ensure appropriate levies were paid.

The whistleblower said his team's efforts to track down the developers responsible for the undervaluations turned up "grocery stores [that] have got $300 million developments running out of them."

The whistleblower identified how claimants were also rorting payments as checking processes were "so loose" it was "almost an honesty based system."

"They're people residing in Cairns who said they are working in NSW every day. That's obviously not true, but embarrassingly we've never addressed this issue," he said.

In another instance a man registered as a builder was running a computer shop.

The whistleblower alleged the compliance unit was unable to address the rorting properly because it was severely under resourced, after staff numbers were slashed by 40 per cent.

In January 2018 the whistleblower arranged a meeting with Ms Skuta and one of her subordinates to voice his concerns at the lack of action about the undervalued developments, according to the document trove.

He allegedly raised the need for legislative change so the corporation could claw back lost revenue and to alert other government agencies.

The whistleblower claims Ms Skuta told him not to tell anyone else and that she was not going to bring it to the attention of the Secretary of NSW Treasury because "it was going to make her look bad".

The whistleblower alleged Ms Skuta preferred resolving issues verbally to avoid a paper trail and she told him they should promote a few investigations on their website so "we don't have to worry about doing any of that sort of investigation stuff anymore."

After the meeting the whistleblower made a formal complaint, referred to a departmental audit team for investigation. The audit team found the spreadsheet of the 35 undervalued developments was not enough to show "systemic and ongoing loss of revenue".

While the meeting with Ms Skuta had occurred, there was no proof of what she said to the whistleblower, the audit team found.

The whistleblower then complained to the NSW Ombudsman who challenged the audit team's findings, warning its "narrow focus" on what was said at the meeting caused it to potentially overlook serious systemic problems at the Long Service Corporation.

The spokesperson for the Long Service Corporation said the scheme is in a healthy position with assets of $1.8 billion and liabilities of $1.6 billion.

The spokesperson said there was "high compliance" in levy collection and it mitigated its risks of revenue leakage with targeted compliance programs, taking "into consideration the resources available to the Corporation."

By mid 2019 Ms Skuta noted in emails that the whistleblower and another investigator had both left the compliance unit and it was "severely underesourced".

She emailed compliance manager Craig Duncombe to ask "what progress has been made into investigation of systematic undervaluation of projects".

He replied that they planned to commence contacting developers the following month.

However six months later, when a journalist from the Australian asked about the issue, no progress had been made.

"Please call me ASAP," Ms Skuta emailed Mr Duncombe after receiving the query.

Ms Skuta questioned if they had recovered any revenue from undervalued developments or referred any matters to the police.

Mr Duncombe wrote no revenue had been recovered because the program "didn't go any further".

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