The New South Wales government has been sharply criticised for paying a property developer $53.5m for a contaminated block of land in Sydney seven months after it sold for $38m, without bothering to obtain a valuation or an estimate of the clean-up costs.
In 2016 the state government bought a 6.3-hectare block at Camellia from the property developer Grand 4 Investments Pty Ltd to build a depot for its Parramatta light rail project.
In a scathing report on the deal, the NSW audit office said on Tuesday that it was “unable to exclude the possibility that the transaction was affected by misconduct or corruption”.
The site was not only heavily contaminated, it had been purchased just seven months earlier by Grand 4 at a fraction of the price through a process that Transport for NSW (TfNSW) has also participated in.
Despite this, the audit report found the government had failed to get a valuation of the site and had accepted liability for cleaning up the contamination, despite having no estimate on how much it would cost.
It has now spent $106.9m on clean-up costs.
“TfNSW was not able to supply any evidence to justify why it accepted unconditional liability for contamination costs and risks,” the audit report found.
When it did order a valuation of the land on the day of settlement, the government specifically told the valuer to exclude the cost of cleaning up the contamination.
The audit found the government failed to use proper probity controls, relied on “rushed” and “poorly informed” decision-making and could not demonstrate its $53m purchase was value for money.
Only one staff member filled out a conflict-of-interest declaration, and TfNSW did not have a comprehensive probity management policy or plan, a documented negotiation strategy, or engage an independent specialist for probity advice. It also failed to keep complete or comprehensive record of negotiations or its decisions.
The inadequate probity controls exposed TfNSW to “a greater risk of corruption, misconduct and maladministration”.
The report found the “lack of analysis and due diligence” behind the offer and the environmental contamination “constitutes poor governance and ineffective administration”.
The staff who made the $53.5m offer did not have the authority to do so and the acting deputy secretary who approved did not have the required delegation.
The report found that following inquiries by the Guardian about the deal in February 2019, TfNSW became “aware of the potential for probity or integrity issues with the transaction”. It then identified “several potential fraud and corruption risks” and decided to conduct an internal audit.
“The internal audit identified a high-risk deficiency in the control framework for commercial land acquisitions that exposed TfNSW to an increased risk of fraudulent activity and high probability of financial loss,” the audit report found.
“Notwithstanding the internal audit’s findings, TfNSW has not conducted any other investigation or review to assess whether those risks were realised in the acquisition of 4–6 Grand Avenue.”
The auditor has called on TfNSW to “ensure that an independent investigation is conducted to identify whether the acquisition of 4–6 Grand Avenue was affected by maladministration, fraudulent activity or misconduct”.
Briefing papers have previously shown that the transport minister, Andrew Constance, was informed the site was contaminated.
Constance said on Tuesday he was “furious and disgusted” with the findings. He said it justified his referral to the auditor general and the Independent Commission Against Corruption.
“What’s gone on here is bloody unacceptable and there is no doubt that there is an expectation from the community that ... we should get the best value for money.”
He said the new TfNSW secretary would conduct a “deep dive” into it.
Asked why he should keep his job, Constance responded: “If I hadn’t taken the actions I did … the reality was that I jumped on it as soon as I learned of the findings of that internal audit.