Forensic Review of Resolve FM S Financial Management Under the Hunter Region Integrated

Forensic Review of Resolve FM’s Financial Management Under the Hunter Region Integrated Humanitarian Settlement Services (IHSS) Contract

Department of Immigration and Citizenship

Prepared by: Protiviti
Date: 28 September 2011

1.ExecutiveSummary

1.1 Context

On20May2011,ErnstandYoungproducedareportfortheDepartmentofImmigrationand Citizenship(thedepartment)titledProvisionofHumanitarianSupportServicesintheHunter Region1.Thisreportcontainedfindingswithrespecttothemanagementanddeliveryofthe IntegratedHumanitarianSettlementStrategy(IHSS)contractintheHunterValleyregionin NewSouthWales.Recommendation4ofthatreportproposedthat:

“TheDepartmentshouldundertakeadetailedforensicreviewofResolveFM’s financialmanagementundertheHunterRegionIHSScontract.Thisexamination shouldidentifyiftherehasbeenanydoublechargingofrefugeefamiliesrelatedtorent,utilitiesanddamages.”2

SubsequentlythedepartmentengagedProtivititoconducttheforensicreviewofthefinancial managementrecordsofResolveFMandtoassessthecommunicationprocessesbetween servicerecipients,serviceprovidersandthedepartment.Thisreviewwasconductedbased ontheIHSScontract“AgreementfortheprovisionofServicesfortheIntegrated

HumanitarianSettlementStrategyandrelatedServicesintheNorthernMetropolitanContact RegionofNSW”(theAgreement),theobjectivesandserviceprinciplesofwhichare reproducedinAppendixA.ThescopeofworkforthisreviewisoutlinedinAppendixB.

Eachofthestepsoutlinedinthescopewascompletedandthekeypointsaredocumented inthisreport.

1.2 Findings

ProtiviticonductedinterviewswithResolveFMpersonnel(refertoAppendixCforafulllistof consultations)andreviewedfinancialandoperationalrecordsofResolveFMtounderstand thebusinessprocessesandtoassesstheaccuracyandtransparencyofthefinancial transactionsforhumanitarianentrants(clientsofResolveFMandtheIHSSprogramwhich includerefugees,PermanentProtectionVisa(PPV),TemporaryHumanitarianVisa(TPV) holdersandSpecialHumanitarianProgram(SHP)entrants).

OurreviewwasfocusedonthefinancialtransactionswithhumanitarianentrantsinShort TermAccommodation(STA),andthecontractingprocessusedbyResolveFMtosource LongTermAccommodation(LTA)propertiesforhumanitarianentrantstorentintheirown right.

ProtivitiobservedthatResolveFMhassystems,proceduresandanevidencebaseinplace tosupportitsfinancialtransactions.Thereviewwasabletoconfirmtransactionstosource documentation,includingrentalpropertyagreements,utilitiesinvoicesfromrecognised suppliersofelectricity,gas,waterandtelephoneservices,bankstatementsandduly authoriseddocumentsbetweenthehumanitarianentrantandResolveFM.

Whileconcernhaspreviouslybeenraisedregardingtheapproachtochargingclientsfor accommodation,evidencewasnotidentifiedthatResolveFMappliedaflatrateof50%of householdincometoallhumanitarianentrantsthatitserviced,nordiditexceed50%ofthe householdincomeforrentpaymentsatanytime.ResolveFMhaspresentedevidenceto demonstratethemethodologybehinditschargesforrentalaccommodationtohumanitarian entrants.Thisshowsthattherentalchargeisbeloworat50%ofhouseholdincomeduring

1Ernst & Young, “Independent Review: Provision of Humanitarian Support Services in theHunter region”, 20

May2011

2Ernst & Young, “Independent Review: Provision of Humanitarian Support Services in theHunter region”, 20

May2011, page 20.

theperiodconsideredwithinthisreview(rangesfrom37%-50%).The50%ofhousehold incometestisbasedonadvicefromNSWHousing3.

ResolveFMhasadvisedthattheNSWHousingincometestof50%wasknowntothe departmentandACLPtyLtd(leadagencyintheconsortiumdeliveringservicesunderthe Agreement),andthatitwasbeingappliedbyResolveFMtosourcingLTAsince2008. ResolveFMassumedthatthedepartmentandACLPtyLtdwereawarethatthissametest wasbeingappliedforSTA.ThedepartmentandACLPtyLtdadvisedthattheyonlybecame awareoftheuseofthe50%incometestbyResolveFMforSTAasaresultoftheErnst& Youngreport,andhadpreviouslyassumedthatResolveFMusedthe30%incometestfor STAthatwasrequiredinanearlierversionoftheAgreement.AchangetotheAgreementin early2009changedthe30%referenceto“FairMarketRent”.Itislikelythatpoor communicationbetweenthepartiestotheAgreement,andafocusbyeachontheirown obligations,contributedtotheseerroneousassumptions.

ThereviewfoundthatResolveFMischargingabovetheleaseexpenditurebeingpaidby ResolveFMintheheadleaseforrentalproperties(between11%-30%oftheunfurnished costtoResolveFM),andthishasbeenexplainedasbeingduetoResolveFMfurnishingthe homesandamortisingcostssuchassetupoftheSTAaccommodation,utilitiesconnection fees,andotherancillarycostsandservices,assetoutinSection2.2andAppendixDofthis review.

ThereviewfoundthattheAgreementtransferstheriskofcostontotheserviceprovidersand protectsthedepartmentfromunexpectedcosts.Thismethodofcontractinghasthepotentialtoencourageserviceproviderstocutcoststomaximisetheirprofitopportunity. RecordsindicatethatResolveFMisoperatingatasignificantfinancialdeficitonthe propertiesexaminedinthisreview.Tomanagethis,ResolveFMhastriedanumberof differentoptionsforbothSTAandLTAtoensurethathumanitarianentrantsare appropriately accommodatedonarrivaltotheHunterValleyregion.Afurtherexampleof costminimisationwasevidentwhereResolveFMprovidedtheminimumleveloffurnishingsasrequiredundertheAgreementforeachproperty.ThedepartmentandACLPtyLtdhadbothraisedthequalityoftheHouseholdGoodsAssistance(HGA)packagewithResolveFM duringthetermoftheAgreement,howeverbothnotethatasResolveFMwasprovidingthe servicesspecifiedintheAgreement,theyfeltunabletoenforcecontractualtermstoimprove thelevelofHGAprovided.

ThereviewdidnotobserveanyactivitybyResolveFMthatwouldbeconsideredillegalor fraudulent,inbreachofthetermsoftheAgreement,orwhichwouldpreventResolveFM fromchargingafairmarketpriceforpropertyrentalandobtainingfullrecoveryofutilities. NorwasanyevidenceidentifiedinthisreviewofimproperpracticesbyResolveFMin relationtothemanagementofrepairs,maintenanceanddamagestoSTAproperties.

Inconductingthisreviewwenotethatarelativeshortageofrentalaccommodation,high rentalcostsandthelongtermusageofSTApremisesbyhumanitarianentrantshavebeen raisedbyResolveFMtoACLPtyLtd.Thishasbeencommunicatedatquarterlycontract meetingsandviaemailtothedepartment.Departmentstaffacknowledgedthattheywere awareoftheissuesofaffordabilityandavailabilityofpropertiesgenerallyforthedurationof theAgreement,throughforumssuchasthequarterlycontractmeetingsandannualservice providerconferences.Weunderstandthattheseissueshavebeenraisedbyservice providersacrossthecountry,andwerethereasonthatthedepartmentundertookan accommodationservicesreviewin2008/09,resultinginchangestotheAgreementwiththe ACLConsortiumandotherserviceprovidersnationally.Withregardtocommunicationbetweenparties,thereviewidentifiedthatthecontracting parties,thedepartment,ACLPtyLtdandResolveFM,appearedtohaveapplieda

3Housing Pathways RentstartSupplement, publication DH3004, 03/2013

mechanisticapproachtocontractmanagement,focusedontheoutputoftheirown componentofthecontract,andnotalwaysontheoveralloutcomesoftheIHSSProgram (outlinedinAppendixB).Itisevidentthroughtheactionsoftheorganisationsand

commentsduringinterviews,thatallpartieswereinterestedinsettlinghumanitarianentrants. Howeverindoingso,theyfailedtoeffectivelyexchangeoractuponcriticalinformationand agreeonproposedresponsesregardingfundingofaccommodationservices.