“Nepotism”: Audit blasts CenITex culture


news Victoria’s Ombudsman today published a damning report into procurement practices and the engagement of contractors at the state’s IT shared services agency CenITex, finding examples of “nepotism and favouritism” in the company, as well as more serious improper conduct and poor procedures for handling CenITex’s large contractor workforce.

The Ombudsman kicked off the investigation into the troubled agency in September 2011, after it was approached by a whistleblower alleging improper conduct at CenITex with respect to the company’s contracting processes. Around the same time, The Age newspaper in Melbourne reported that Victoria Police had been asked to investigate similar allegations at the agency. CenITex was established in 2008 to provide IT shared services to various departments and agencies within the Victorian State Government.

After conducting a year-long inquiry into CenITex’s practices (the report in full is available online in PDF format), the Ombudsman, George Brouwer, wrote that his office had discovered “numerous breaches” of government procurement guidelines at CenITex. In total, he wrote, companies and their contractors were awarded significant contracts totalling up to $4 million without competitive processes to evaluate different suppliers. “In one instance,” the report states, “a competitive process was ostensibly conducted, but in reality it was a sham.”

“In some instances, nepotism and favouritism influenced procurement and recruitment practices. Often, the companies or contractors were chosen because they were associates or friends of other contractors already working at CenITex. Some appointments were made on the basis of fabricated or false documentation. Some engagements were initiated or overseen by individuals within CenITex who had a clear conflict of interest and stood to gain financially from the transactions. Such conflicts were often not declared, or declared late, inadequately or misleadingly. Even conflicts that were declared were ill-managed by CenITex. This led to opportunities for improper conduct.”

And, the Ombudsman wrote, serious improper conduct at CenITex did occur over the past several years.

In one example, a CenITex officer misused his position over a number of years, and earlier “in another department”, to engage and approve invoices from a company in which he had a financial interest (including over $30,000 for services that were not provided). “All the while, the officer was receiving substantial financial benefits from the company,” the report stated.

“Contractors were also engaged at excessive rates, without any evidence that these were negotiated. Unknown to CenITex office holders, CenITex also paid high fees to companies that were providing contractors to CenITex through recruitment agencies. The companies’ roles were not disclosed to CenITex. In one case, the fee paid to a company was 50 per cent of the contractor’s $1,600 daily rate.”

The Ombudsman wrote that most of the issues identified in the report took place in CenITex’s so-called Efficient Technology Services (ETS) program, which was set up to deliver complex, high-level projects, such as developing a whole of government network, helpdesk and hosting environment for the Victorian public sector. The ETS division was separated from CenITex’s ‘business as usual’ segment, whose job was to provide and maintain an ICT infrastructure for CenITex’s existing customers – being other departments within the Victorian Government.

The Ombudsman’s report noted that ETC was “staffed predominantly by contractors”, who had limited knowledge of, or experience in, the Victorian public sector. These contractors were able to engage other contractors. “Unsurprisingly, poor practices developed as a result,” the report states.

At the heart of the issue, according to the Ombudsman, was the fact that in the ETS program, a ‘can do’ mentality had arisen, “unchecked by the usual restraints and procedures relating to government purchasing practices”. In addition, a lack of accountability arose because the ETS staff saw their mission as highly specialised and urgent. “This created an environment where there was an increased risk of cutting corners and improper conduct,” the report found. And earlier: “Inadequate procurement controls and checks created an environment where avoiding the guidelines became the norm”.

There are a number of examples given in the report of the kind of improper behaviour which it highlights. For example:

  • One individual received financial incentives from a company to create business opportunities for that company at CenITex and another department. This individual was employed by CenITex and the other department at the time.
  • One CenITex contractor raised a Request for Quotation and had the RFQ sent to three organisations, including a company he was associated with
  • A CenITex IT architect was a director of a company engaged by CenITex, and successfully recommended to senior CenITex officers that the company receive more work, without disclosing the conflict of interest

Eventually, the Ombudsman wrote, the ETS program was wound down in June 2012, and a number of the individuals mentioned in the report (not by name) were dismissed, had their contracts terminated or resigned. CenITex appointed a new chief executive officer in July 2011 – Michael Vanderheide, the former chief information officer of the Victorian Police and a senior IT executive in the ACT Government’s shared services unit.

The Ombudsman wrote of Vanderheide: “Mr Michael Vanderheide was appointed as CEO of CenITex in July 2011. I acknowledge that he is taking steps to improve CenITex. He has provided my investigation with documentation regarding new policies, procedures and initiatives which I consider will go some way to addressing the issues that I have raised. These processes, however, must be coupled with changed attitudes and practices and a stronger focus on compliance if the organisation is to be better positioned to address the issues identified in this report.”

In a response to the Ombudsman’s draft report contained in the final report, Vanderheide wrote that he offered his in-principle acceptance of the recommendations made by the Ombudsman to reform CenITex’s internal culture, but also sought down to play down the issues raised somewhat.

“Bearing in mind that we have well over 700 active vendors, it is worth noting that this investigation ultimately relates to the alleged serious impropriety of some individuals associated with only a few companies, some of which were or are interrelated,” he wrote. “The vast majority of our vendors are responsible corporate citizens and conduct their business accordingly.”

“As I indicated when I met with your officers during the course of your investigation, identifying and dealing with instances of impropriety, strengthening our control environment and shifting the organisation’s culture to one of greater awareness of probity has been a key focus over the past 12 months. I am pleased your Report acknowledges some of the changes that have been made.” Vanderheide included a list of actions CenITex had taken to rectify the issues, such as the launch of a new conflict of interest policy, a quarterly external review of a broad sample of procurement activities, and formal conflict of interest training for more than 250 staff.

The issues raised in the Ombudsman’s report are not the first to be raised about CenITex over the past few years. In October 2011, for example, The Age reported that a blunder at the agency had left thousands of government staffers without email and other IT systems for up to a week, and in April 2012 the Victorian Government removed CenITex’s board as it changed its formal status. In May the organisation revealed a round of some 200 redundancies.

I’m not really sure what to say here, but I don’t think the details revealed in this report would come as a surprise to anyone who’s been following CenITex for a while. The agency has had systemic problems for a while; I honestly wouldn’t be surprised at all to see the Victorian Government take actions to split it up drastically. Having said that, I do still have a fair degree of confidence in its current chief executive, Michael Vanderheide, partly stemming from an interview I conducted with him in mid-2010; from what I can see, he has a solid grasp of the issues involved and has the organisation at least headed in the right direction. Stay tuned as I publish his letter to staff on the Ombudsman’s report later on this afternoon.


  1. Hopefully this is just the beginning and as it’s realy only the tip of the Iceburg with state IT and our Centre of IT EXcellance

    • Huh?

      You hope there’s more rorting of public funds?

      If you read the report, this happened in only one arm of CenITex, and that those accused have all either been dismissed, have resigned, or didn’t have contracts renewed.

      As a Victorian taxpayer, I for one hope this is all that there is.

  2. CenITex was doomed from the beginning. Whilst the objective of centralising IT offers the best opportunity to drive lower cost, the project was too large (consolidate 14 IT departments into 1). The leadership within CenITex did not see the risk and seemed more intent on showing activity at any cost. I watched over a couple of years (2008 – 2010) as projects were launched and then plodded along missing milestones and not even getting near to achieving the original business case. Despite the highly paid people leading these projects there did not appear to be any accountability worse their decisions were often tied to their relationships in the industry. The most notable blunder, from where I sat was watching, was a storage tender being awarded to NetApp and replacing existing perfectly good storage equipment in many government departments. There was no thought about using the existing equipment – rather just scrap it and waste taxpayers’ money and buy new equipment that does basically the same thing for tens of millions of dollars. I am not even sure there is anything worth saving from 4 years of spending.

    • Spot on ITveteran. Over the years that I have spent on both sides of the fence in Govt projects (on the inside and out as a supplier), it is the lack of accountability that you mention that throws most large projects off the rails.
      The leaked email from the CEO that Renai has posted separately reflects this. A lot of “our”, “we”, “leadership team” language. Not much “I” or “me” language demonstrating leadership and accountability. Reads like it is all someone else fault.
      My 2 bob.

  3. Sounds like Queensland Gov IT and in particular Queensland Health IT – are we then not surprised by the failure at taxpayers expense?

  4. Ombudsman’s Report and media coverage overshadows challenges and good work

    The Victorian Ombudsman’s Report on CenITex has been released and I felt that I should try to put things into perspective given that I worked at CenITex from its foundation until around July 2011.

    My first comment is that apparently there were a few greedy individuals employed or contracted by CenITex who rorted the system for their own individual gain. I despise this type of behaviour and those people involved should be dealt with in accordance with the law.

    The press has been very active in highlighting these issues and other inefficiencies at CenITex, but it is usually old news just being recycled in another format.

    I thought it was time to put things into perspective given that these few “bad apples” are, in my view, overshadowing some of the significant good work of CenITex during the time I was there.

    Firstly, the establishment of CenITex was a very courageous and ambitious undertaking by the Victorian Government. It was established to remove ICT duplication, reduce costs and streamline services to Government Departments and the community. There was a recognition that centralising the ICT function would require massive infrastructure and service delivery transformation in parallel to transitioning a huge number of people (VPS and contractors) into the centralised Agency (CenITex).

    There were also very tight timeframes imposed on the Program by the Department of Treasury and Finance DTF (GSD) who were funding the transformation activities. This transformation was to be named the ETS Program (Efficient Technology Services).

    The scale of change required very strong leadership, and strong support from DTF. We had very strong leadership from our CEO Peter Blades, but sadly CenITex did not receive strong backing from DTF.

    As each Government Department or Agency was approached to commence the Due Diligence activity before transitioning into CenITex, we encountered significant resistance from most of the Departments. This caused the ETS Transition Team to waste an enormous amount of time (and money) trying to convince the Departments to co-operate and to deliver critical information so that costs and risk could be effectively determined. During these roadblocks DTF rarely intervened.

    After much wasted time, several of the Departments’ IT functions did move across to CenITex, but in most cases the in-coming costs of the infrastructure and services that CenITex was going to take over could still not be accurately determined by the transitioning Departments. (They did not know their own costs). As a consequence of this CenITex found some big surprises when they started paying their salaries and other expenses.

    During the time of transitioning the Departments into CenITex, CenITex was also transforming and uplifting its own Service Management environment with the replacement of tools, processes and business model as well as designing and developing a Whole of Victorian Government (WoVG) platform for infrastructure.

    In addition, because CenITex was a fairly new entity, it was establishing its own internal processes, based on a hybrid VPS/Commercial model. All of this activity was being overseen by DTF. It was inevitable that, particularly in the early days and because of the massive amount of change that was going on, some things were going to “slip through the cracks”.

    Everyone that I worked with at CenITex (remember there are around 600 people there now) were consummate, highly committed professionals, whose sole interest was to ensure that the ambitious agenda set out by DTF was achieved.

    It is annoying therefore when I read the recent press headlines that do not recognise the hard work and professionalism of all but a small number of CenITex people who are now charged with running and maintaining the majority of Government ICT infrastructure in the state of Victoria.

    CenITex should be supported, not denigrated. Its achievements to date have exceeded just about any other Government Shared Services function in Australia. A massive undertaking that has made considerable ground despite the lack of co-operation from the Government Departments and the lack of Governance and support from DTF.

    The Government should accelerate (not stall) the Agenda for ICT centralisation by investing in new technology and processes as the ultimate cost savings are enormous.

    For the record:

    (I do not work for CenITex, nor do I have any affiliations with any vendor or individual currently doing business there).

    • I’m a bit surprised to see you saying that Cenitex was setup WITHOUT a business model? And it was trying to create a business model with processes while it was taking on business?

      Sounds more like a startup than a business…

      • I said CenITex was transforming, uplifting and replacing its business model. The business model had been defined and agreed prior to the establishment of the State Owned Enterprise.

        • Tom I was prepared to give you the benefit of the doubt and read your comments with a grain of salt – that was until a) you felt the need to actively provide a statement that you dont work for nor have affilliations with interested parties. And b) you use of the words “transforming, uplifting and replacing its business model”. which just makes you sound like a paid comms/marketing consulting suit that would happly sell anything to anyone passing by – or if you asked me what the time was I would be very wary that you might take my watch!
          So thank for those comments…but i am now ever more cautious of them.

          • Thanks for your comment, but it would add a lot more value if you could comment on the topic instead of making totally incorrect assertions about my motives for writing the article. Do you have a view on the topic?

          • Hello Renai, my public profile is on Linkedin. I assume you are the editor so you can see my email address containing my name.

    • Tom, that was an interesting insight. I’m glad you contributed.

      You other guys, what’s with the cynicism? Tom is clearly expressing a professional analysis based on personal experience. This is exactly the sort of expert opinion the IT industry needs.

  5. Having worked with CenITex from it’s original days as SSC. The promise of IT cost reduction has never occurred in fact cost are extremely high comparable to market costs. The main issue with CenItex is the same with any monopoly. A significant cost to projects comes from trying to shoe horn them into the CenItex supported product range.

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