Victoria’s Independent Broad-based Anti-corruption Commission found that senior public servants in the Andrews Labor Government hid the wrongful payment of $257 million of pandemic support to more than 9000 ineligible businesses.

The investigation concluded that the associate secretary and deputy secretary of the then-Department of Jobs, Precincts and Regions withheld information about the wrong payments in 2021 and 2022 from the department’s secretary, Simon Phemister, and the minister for industry support and recovery, Martin Pakula.

While Mr Pakula was not told about the problem, his aggressive personality may have discouraged public servants from giving him the bad news, the IBAC report said.

With Victoria holding an election next month, the report is a blow to Ben Carroll’s Labor Government, which opinion polls show is behind the Coalition.

IBAC’s Operation Harmonia, an investigation that began in August 2022 following corruption allegations by public servants, found that thousands of businesses backdated GST registrations to qualify for COVID-19 support payments.

Some $100m was paid to businesses that reported no sales in the required period between July 2019 and July 2022, suggesting they were dormant companies not entitled to compensation for one of the longest pandemic lockdowns in the world.

Even after the department found out what was happening, it failed to act, meaning fraudulent businesses continued to be paid money they weren’t entitled to, IBAC said.

A report prepared for Mr Pakula and the Auditor General’s Office revealing the mistake was altered by the department’s deputy secretary to remove information after the suspected loss was estimated to be more than $285m, IBAC said.

In 2021, another senior public servant told the Victorian Ombudsman that the GST was accurately assessed without disclosing the department could not work out when the payments had been backdated.

When the State’s auditor-general reviewed the grants in 2022, the department’s deputy secretary misled the new minister, Mr Carroll, who became Premier this year, by wrongly stating that no incorrect payments were made and Mr Pakula had approved of the department’s approach to assessing grants, the report said.

Explosive temper

Information was also withheld from the Victorian Ombudsman and false information was provided to Mr Pakula, who is now the chairman of Crown Melbourne, the city’s casino and hotel resort.

The commission criticised key public servants, who it did not name, for failing to provide honest advice to ministers. But it also cited evidence, including from Mr Pakula, that his strong personality might have intimidated public servants.

“IBAC found that information on the suspected loss was withheld in circumstances where it was understood the information would not be welcomed by the Minister or would otherwise reflect poorly on the department,” a summary of the report said.

“IBAC also found that Secretary Phemister was known to be close with the Associate Secretary and Deputy Secretary. This perception may have deterred others from bringing concerns directly to his attention.”

Asked by IBAC’s investigators if Mr Pakula could be “quite explosive”, Mr Phemister said: “I think you’d struggle to find somebody who disagreed with that.”

Mr Pakula told the commission: “Perhaps there was a ... they were worried about my temper. Not that my temper was particularly explosive, but they might’ve just not, you know, not wanted to tell me.”

Crown did not respond to a request for comment on behalf of Mr Pakula.

Mr Carroll said he was disappointed by the findings and had ordered his top public servant to “act on these reports”. “I’ve never yelled at a public servant in my life, and I never will,” he said. “I respect them.”

Liberal leader Jess Wilson said: “I think it’s just more evidence of a government that has mismanaged taxpayer money. Corruption is in Labor’s DNA.”

No charges

IBAC said it would not pursue criminal charges over the failures, but said ministers “must be mindful that their conduct impacts culture and can deter public servants from providing frank and fearless advice”.

“What Operation Harmonia has uncovered is behaviour contrary to the Victorian Public Sector code of conduct, professional obligations and a clear failure to act in line with the high integrity standards expected of Victoria’s public officers,” IBAC Commissioner Victoria Elliott said.

“An absence of a positive risk culture and failure to provide frank and fearless advice, no matter how uncomfortable, ultimately left the department vulnerable to an even greater risk of fraud and corruption.

“While officers within the department spoke up, their leaders failed to act, meaning the government was left uninformed and unable to move quickly to address this suspected significant loss of public funds.

“This special report exposes serious failures by senior public officers, and informing Victorians of these findings is crucial in promoting transparency and accountability in the public sector. “

The Business Costs Assistance Program was created to help small and mid-sized businesses through the pandemic. Launched in early 2021, it initial paid $2000 to hospitality, tourism, events, food wholesaling, and some retailers hit by a lockdown in February and March.

By the middle of the year it was increased to $2500, then $4800, and expanded across the economy. About $8m of the misallocated money has been retrieved and a further $5m is being repaid over time.

In a separate development, both main parties said they would cover costs for abortions up to 16 weeks’ gestation that are not already paid for by Medicare and other government programs.