report on an investigation into corrupt conduct associated with railcorp … · 2019. 2. 22. ·...

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I C A C R E p o R t

Report on an investigation into corrupt conduct associated with RailCorp air-conditioning contracts

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Report on an investigation into corrupt conduct associated with RailCorp air-conditioning contracts I C A C R E p o R t

� i c a c r e p o r t : ReportonaninvestigationintocorruptconductassociatedwithRailCorpair-conditioningcontracts

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ISBN 1 920726 16 0

© June 2007 _ Copyright in this work is held by the Independent Commission Against Corruption. Division 3 of the Copyright Act 1968 (Cwlth) recognises that limited further use of this material can occur for the purposes of ‘fair dealing’, for example study, research or criticism, etc. However, if you wish to make use of this material other than as permitted by the Copyright Act, please write to the Commission at GPO Box 500 Sydney NSW 2001.

Independent Commission Against Corruption

address Level 21, 133 Castlereagh Street, Sydney, New South Wales, Australia 2000

postal address GPO Box 500, Sydney, New South Wales, Australia 2001

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The Hon Peter Primrose MLC The Hon Richard Torbay MP President Speaker Legislative Council Legislative Assembly Parliament House Parliament House SYDNEY NSW 2000 SYDNEY NSW 2000

Mr President Mr Speaker

In accordance with section 74 of the Independent Commission Against Corruption Act 1988 I am pleased to present the Commission’s report on its investigation into corrupt conduct associated with RailCorp air-conditioning contracts.

This report arises from allegations made in 2005 that a RailCorp air-conditioning maintenance engineer received improper payments from two RailCorp contractors.

I presided at the public inquiry held in aid of this investigation. The Commission’s findings and recommendations are contained in the report.

I draw your attention to the recommendation that the report be made public forthwith pursuant to section 78(2) of the Independent Commission Against Corruption Act 1988.

Yours sincerely

The Hon Jerrold Cripps QCCommissioner

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Contents

Executive summary 5

Chapter 1: Introduction 9

What this report is about 9

Background 9

How the matter came to the Commission 9

Why the Commission investigated 10

Conduct of the investigation 10

The public inquiry 10

Investigation outcomes 11

Implementation of corruption prevention recommendations 11

Recommendation that this report be made public 11

Chapter 2: Dealings with Mr Mourched 12

The “1999 contract” 12

The “2002 contract” 13

Commencement of the arrangement 13

Payments 14

Extra services 14

Water treatment and filter cleaning work 16

Conflict of interest 16

Secondary employment 17

Mr Marcos’s evidence 17

Attempting to mislead the Commission 19

Attempts to influence Mr Mourched 19

Mr Marcos as a witness 20

Findings of fact 21

Corrupt conduct 21

Mr Marcos 22

Mr Mourched 22

Section 74A(2) statements 23

Mr Marcos 23

Mr Mourched 24

Mr Benjamin Marcos 24

Chapter 3: Dealings with Mr Mikhail 25

The work done by Mr Mikhail’s businesses 25

Was the profit-sharing scheme a bribe? 25

Procurement policy 27

Payments to Isis 27

Conflicts of interest and secondary employment 28

Findings of fact 28

Corrupt conduct 29

Mr Marcos 29

Mr Mikhail 29

Section 74A(2) statement 30

Chapter 4: Corruption prevention 31

Corruption prevention analysis of corrupt conduct 31

Summary of corruption risk areas 32

Workplace systems 32

Classification of maintenance work as routine, nominated or emergency work 33

Contract administration via the Superintendent (Principal’s Representative) 33

Allocation and recording of required maintenance using Station Maintenance Requests 34

Minor procurement involving Local Purchase Orders 35

Recommendations to address corruption risk areas 36

Discretion and accountability 36

Contract monitoring and record-keeping 37

Policies and procedures 45

Conflicts of interest 49

Secondary employment 52

Appendix 1: the role of the Commission 54

Appendix 2: Corrupt conduct defined and the relevant standard of proof 55

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Executivesummary �

Executive summary

the investigation

The Commission’s investigation concerned the conduct of Mr Said Marcos, a RailCorp Air-Conditioning Maintenance Engineer. The investigation focused on Mr Marcos’s receipt of monies from RailCorp contractors Mr Tony Mourched and Mr Sami Mikhail. From about mid-1999 until November 2005 two businesses controlled by Mr Marcos received over $710,000 from businesses controlled by Mr Mourched and Mr Mikhail.

The principal matters for investigation were:

n whether Mr Marcos corruptly received monies from businesses associated with Mr Mikhail or Mr Mourched in return for Mr Marcos using his position within RailCorp to favour those businesses;

n whether Mr Marcos deliberately concealed conflicts of interest from RailCorp and/or breached RailCorp’s secondary employment policy and if so his motivation for so doing;

n whether Mr Marcos and/or his son Benjamin Marcos attempted to mislead the Commission by producing false invoices; and

n whether there were any systems deficiencies within RailCorp which contributed to any corrupt conduct.

This investigation arose from a report from RailCorp to the Commission in February 2005 that RailCorp was investigating allegations that Mr Marcos was improperly favouring a number of businesses carrying out RailCorp maintenance work. The Commission also received an anonymous complaint in August 2005 regarding Mr Marcos which alleged that Mr Marcos had received substantial payments from, and was directly or indirectly associated with, businesses carrying out RailCorp maintenance work.

In determining to undertake an investigation, the Commission took into account the seriousness of the allegations and the fact that, without statutory powers such as those of the Commission, the investigation could not be effectively pursued. The Commission also took into account that, in the event evidence indicated any inadequate systems and processes relating to administration of the relevant RailCorp contracts, an investigation would provide a sound basis for identifying areas of reform to those systems and processes.

The Commission analysed relevant documents, including RailCorp files; served 35 notices under section 22 of the ICAC Act and lawfully executed three search warrants to obtain additional documentation; took statements and records of interview from 15 witnesses; and conducted five compulsory examinations of witnesses to further clarify matters. Given the serious nature of the allegations and the need to take further evidence from a number of witnesses, a public inquiry was held over six days in December 2006. Nine persons gave evidence at the public inquiry and the Hon Jerrold Cripps QC, Commissioner, presided.

the Commission’s findings

The Commission’s findings of fact are set out in Chapters 2 and 3 of this report.

Chapter 2 of the report examines the conduct of Mr Marcos and Mr Mourched in relation to the administration of air-conditioning contracts awarded to Mr Mourched’s company NBR and the subcontracting of some of that work to two businesses associated with Mr Marcos. Between August 1999 and November 2005, those two businesses received in excess of $655,000 from NBR. The chapter also deals with attempts by Mr Marcos and his son, Mr Benjamin Marcos, to mislead the Commission by submitting false invoices to the Commission.

Chapter 3 examines the profit-sharing arrangement between Mr Mikhail and Mr Marcos relating to RailCorp work. Mr Mikhail’s businesses, Sami Industrial & Domestic Cleaners and Atsan, were engaged by Mr Marcos to carry out a variety of tasks, including the supply and installation of grilles into doors at railway stations to facilitate the flow of air at particular sites. In return for being given this work, Mr Mikhail agreed to pay Isis, a business controlled by Mr Marcos, half of the profits derived from these jobs. Between 2000 and 2005 Isis received over $56,000 under this arrangement.

Findings of corrupt conduct are made against Mr Marcos, Mr Mourched and Mr Mikhail.

The report contains statements pursuant to section 74A(2) of the ICAC Act that the Commission is of the opinion that the advice of the Director of Public Prosecutions should be obtained with respect to the prosecution of Mr Marcos, Mr Benjamin Marcos, Mr Mourched and Mr Mikhail for various criminal offences.


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A section 74A(2) statement is also made that the Commission is of the opinion that RailCorp should give consideration to taking disciplinary action against Mr Marcos. The Commission notes Mr Marcos was suspended from duty as of 16 December 2006.

Corruption prevention issues and recommendations

In Chapter 4 the Commission reports on its investigation of the systemic factors that allowed Mr Marcos to corruptly obtain over $710,000 in relation to air-conditioning maintenance work conducted at RailCorp over a period of about six years.

The chapter examines the relevant systems and processes within RailCorp’s Building and Sidings Unit, some of which were deliberately breached by Mr Marcos while others were not sufficiently robust to prevent or detect his corrupt conduct, or were not implemented in the ways they were intended, thereby allowing the corrupt conduct to occur.

The Commission’s review of the relevant systems and processes has identified five main risk areas where systems failures and inadequacies allowed the corrupt relationships and corrupt conduct to occur and continue:

n high discretion regarding, and low accountability for, work performed;

n inadequate contract monitoring and record-keeping;

n poor and poorly-implemented policies and procedures;

n conflicts of interest between private interests and public duty;

n secondary employment.

Each of these risk areas is considered in detail in Chapter 4 and a total of 27 corruption prevention recommendations are made to RailCorp to assist the organisation in managing these risk areas and avoiding a recurrence of similar conduct in the future.

RECoMMENDAtIoN 1

It is recommended that RailCorp establishes a formal accountability framework for the management of contracts that includes (i) mandatory reporting requirements and key performance indicators for all important contract administration functions, (ii) a process for reviewing the information reported under (i), and (iii) a process for acting on anomalies identified as a result of this review process.

RECoMMENDAtIoN 2

It is recommended that RailCorp implements an audit program to assess the quality and scope of records kept for activities across the spectrum of organisational functions, especially relating to procurement.

RECoMMENDAtIoN 3

It is recommended that RailCorp reviews its induction and refresher training in records management and thereafter provides such training as is relevant.

RECoMMENDAtIoN 4

It is recommended that RailCorp (i) expands its database of contract details to include all information about the administration of a contract and delegation of powers to a representative and (ii) makes this database available to relevant employees outside the central Contracts and Procurement Unit.

RECoMMENDAtIoN 5

It is recommended that RailCorp establishes formal, explicit criteria for the exercise of each of the powers of a Principal’s Representative and that these be formally considered when appointing Principal’s Representatives or their delegated representatives.

RECoMMENDAtIoN 6

It is recommended that RailCorp revises its Contract Administration Guidelines for Service Contracts to (i) identify key contract administration functions that should remain the responsibility of the Principal’s Representative and (ii) explicitly state that the Principal’s Representative cannot delegate these functions.

RECoMMENDAtIoN 7

It is recommended that RailCorp revises its Contract Administration Guidelines for Service Contracts to explicitly state that the Principal’s Representative maintains ultimate responsibility for contract management, even if his or her powers have been delegated.

RECoMMENDAtIoN 8

It is recommended that Principal’s Representatives be required to develop and administer performance management plans in relation to the execution of delegated powers.

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RECoMMENDAtIoN 9

It is recommended that RailCorp specifies its financial monitoring and record-keeping requirements for Principal’s Representatives and delegated representatives and ensures that employees who fulfil these roles are appropriately qualified and skilled for associated tasks.

RECoMMENDAtIoN 10

It is recommended that RailCorp develops a comprehensive program of audit and review for supplier payments.

RECoMMENDAtIoN 11

It is recommended that RailCorp modifies its electronic payment processing system to include categories defining the work as routine, nominated or emergency.

RECoMMENDAtIoN 12

It is recommended that RailCorp develops comprehensive complaint handling and review procedures relating to complaints about the performance of contracts.

RECoMMENDAtIoN 13

It is recommended that RailCorp (i) enforces the requirement that statutory declarations regarding subcontractors are submitted by contractors with pay claims and (ii) that these declarations are retained as a record together with the original pay claims.

RECoMMENDAtIoN 14

It is recommended that RailCorp requires specific identity verification details to be produced before issuing access cards to contractors and subcontractors.

RECoMMENDAtIoN 15

It is recommended that RailCorp’s databases of access cards include identity verification details of card holders.

RECoMMENDAtIoN 16

It is recommended that RailCorp reviews its procedures in relation to paper-based and electronic sign-in and sign-out records and that the resulting system is subject to regular audit.

RECoMMENDAtIoN 17

It is recommended that RailCorp develops specific procedures for managing emergency maintenance requests.

RECoMMENDAtIoN 18

It is recommended that RailCorp integrates its maintenance request system(s) with its accounts payable systems.

RECoMMENDAtIoN 19

It is recommended that RailCorp reviews and amends the Station Maintenance Requests Operating Procedures to ensure they are adequate, efficient and appropriate for dealing with maintenance requests.

RECoMMENDAtIoN 20

It is recommended that RailCorp provides information and/or training about Station Maintenance Requests to all staff involved in requesting or processing maintenance work.

RECoMMENDAtIoN 21

It is recommended that RailCorp establishes an audit or review process to monitor compliance with the Station Maintenance Requests Operating Procedures.

RECoMMENDAtIoN 22

It is recommended that RailCorp (i) determines the circumstances when an individual employee needs to fulfil two of the roles of Requesting Officer, Approving Officer and Receiving Officer, and (ii) develops probity checks to prevent individuals abusing these circumstances.

RECoMMENDAtIoN 23

It is recommended that RailCorp reviews its Contract Administration Guidelines for Service Contracts to ensure that no confusion exists regarding a Principal’s Representative’s delegation.

RECoMMENDAtIoN 24

It is recommended that RailCorp requires staff to sign a declaration stating they have read, understood and will comply with the Code of Conduct.


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RECoMMENDAtIoN 25

It is recommended that RailCorp reviews its declaration of conflict of interest for tenderers to ensure that it is sufficiently broad and consistent with the equivalent Tender Evaluation Committee declaration.

RECoMMENDAtIoN 26

It is recommended that certifying statements in relation to RailCorp procurements explicitly state that the procurement has been completed in accordance with RailCorp’s conflict of interest policies and procedures.

RECoMMENDAtIoN 27

It is recommended that RailCorp establishes a risk management strategy specifically in relation to secondary employment.

As part of the performance of its statutory functions the Commission will monitor the implementation of these recommendations.

The recommendations will be communicated to RailCorp, with a request that implementation plans for the recommendations be provided to the Commissionwithin three months of the publication of this report. The Commission will also request progress reports on the implementation of recommendations at intervals of 12 and 24 months after the publication of this report.

These reports will be posted on the Commission’s website, www.icac.nsw.gov.au, for public viewing.

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Chapter1:Introduction �

What this report is about

This is the report on an investigation by the Independent Commission Against Corruption (the Commission) concerning the conduct of Mr Said Marcos, a RailCorp Air-Conditioning Maintenance Engineer. The investigation focused on Mr Marcos’s receipt of monies from RailCorp contractors Mr Tony Mourched and Mr Sami Mikhail. From about mid 1999 until November 2005 two businesses controlled by Mr Marcos received over $710,000 from businesses controlled by Mr Mourched and Mr Mikhail.

The principal matters for investigation were:

n whether Mr Marcos corruptly received monies from businesses associated with Mr Mikhail or Mr Mourched in return for Mr Marcos using his position within RailCorp to favour those businesses;

n whether Mr Marcos deliberately concealed conflicts of interest from RailCorp and/or breached RailCorp’s secondary employment policy and if so his motivation for so doing;

n whether Mr Marcos and/or his son Benjamin Marcos attempted to mislead the Commission by producing false invoices; and

n whether there were any systems deficiencies within RailCorp which contributed to any corrupt conduct.

The conduct which is the subject of this report occurred between 1999 and 2005. Between 1999 and 1 January 2004 the relevant public authority was the State Rail Authority (SRA). On 1 January 2004 the SRA was merged with the Rail Infrastructure Corporation to become Rail Corporation New South Wales (RailCorp). For simplicity this report refers to the organisation as RailCorp throughout.

Background

Mr Marcos commenced employment with RailCorp in 1985 as an Engineering Assistant. He was subsequently appointed as Air-Conditioning Maintenance Engineer with responsibility for oversight of air-conditioning maintenance work in the Sydney metropolitan area. He performed this role for 18 years. Apart from his responsibilities with RailCorp Mr Marcos also had a number of family businesses, two of which were relevant to the Commission’s investigation.

Isis Australia Pty Ltd (Isis) was established in September 1992. From then until August 2005 Mr Marcos was a director of this company. His son, Mr Benjamin Marcos, a qualified accountant, replaced him as a director on 18 August 2005, some time after the commencement of RailCorp’s investigation into the complaints against Mr Marcos.

B&S Mechanical Services (B&S) was registered as a business name by Mr Benjamin Marcos on 14 May 1999. The business name was used until 30 July 2002.

Mr Mourched is a director of NBR Mechanical Services Pty Ltd (NBR). NBR undertakes work relating to design and maintenance of air-conditioners. It was awarded contracts with RailCorp in 1999 and 2002. Both contracts were for a two-year period with an option of a one-year extension. In each case this option was exercised by RailCorp.

NBR subcontracted some of its RailCorp work to B&S and Isis.

Mr Mikhail is a self-employed architect and long-term associate of Mr Marcos. Mr Mikhail is a registered proprietor of Sami Industrial & Domestic Cleaners and a director of Atsan Pty Ltd (Atsan). Mr Marcos was responsible for assigning RailCorp work to both these businesses.

How the matter came to the Commission

The Commission received a report from RailCorp pursuant to section 11 of the Independent Commission Against Corruption Act 1988 (the ICAC Act) in February 2005. This section places a duty on the principal officer of a public authority to report to the Commission any matter that the principal officer suspects on reasonable grounds concerns or may concern corrupt conduct. The report stated that RailCorp was investigating allegations that Mr Marcos was improperly favouring a number of businesses carrying out RailCorp maintenance work.

The RailCorp investigation had established Mr Marcos’s link with Isis but NBR had refused to provide to RailCorp details of any business dealings it had with Isis. RailCorp requested the Commission’s assistance to obtain the necessary records from NBR. The Commission also received an anonymous complaint regarding Mr Marcos on 23 August 2005. The complaint alleged that businesses associated

Chapter 1: Introduction

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with Mr Marcos had received substantial payments from NBR and that Mr Marcos had been directly or indirectly associated with Atsan.

Why the Commission investigated

One of the Commission’s principal functions (section 13(1)(a) of the ICAC Act) is to investigate any allegation or complaint that, or any circumstances which in the Commission’s opinion imply that:

(i) corrupt conduct,

(ii) conduct liable to allow, encourage or cause the occurrence of corrupt conduct, or

(iii) conduct connected with corrupt conduct,

may have occurred, may be occurring or may be about to occur ...

The Commission’s role is set out in more detail in Appendix 1, while Appendix 2 sets out the definition of corrupt conduct under the ICAC Act.

This matter involved serious allegations that improper financial benefits had been obtained by Mr Marcos through misuse of his official position. Given the lack of cooperation by NBR, RailCorp was unable to effectively pursue its investigation. However, the Commission has statutory powers which, if exercised, would require NBR to divulge details of its dealings with Mr Marcos. In these circumstances the Commission determined to investigate the allegations.

The Commission also took into account that, in the event evidence indicated any inadequate systems and processes relating to administration of the relevant RailCorp contracts, an investigation would provide a sound basis for identifying areas of reform to those systems and processes.

Conduct of the investigation

The Commission initially analysed an extensive number of relevant documents, including RailCorp files, to ascertain whether there was any evidence to support the allegations against Mr Marcos. As the investigation progressed, the Commission used its powers under section 22 of the ICAC Act to issue notices to obtain additional documentation. Thirty-five such notices were issued during the course of the investigation. Statements and records of interview were also obtained from 15 witnesses.

Commission officers also lawfully executed three search warrants as a result of which further documentation was obtained and analysed.

The Commission conducted five compulsory examinations of witnesses to further clarify matters. Compulsory examinations were held between 7 September and 1 November 2006. Mr Marcos made no admission of any wrongdoing. Mr Mourched and Mr Mikhail made partial admissions of wrongdoing. Their evidence and other material available to the Commission indicated a clear likelihood that Mr Marcos had misused his position as a RailCorp employee to obtain financial gain through dealings with Mr Mourched and Mr Mikhail. There was also evidence that Mr Marcos and his son Benjamin had sought to mislead the Commission through the creation of false invoices which Mr Benjamin Marcos had provided to the Commission.

Given the serious nature of the allegations and the need to take further evidence from a number of witnesses, including Mr Marcos, Mr Mourched and Mr Mikhail, to establish the facts and evaluate conduct and to identify any systems weaknesses, the Commission determined it was in the public interest to conduct a public inquiry.

the public inquiry

The ICAC Act provides that the Commission may conduct a public inquiry for the purposes of an investigation if it is in the public interest to do so.

In making a determination to hold a public inquiry the matters set out in section 31(2) of the ICAC Act were taken into account. The section provides that:

(2) Without limiting the factors that it may take into account in determining whether or not it is in the public interest to conduct a public inquiry, the Commission is to consider the following:

(a) the benefit of exposing to the public, and making it aware, of corrupt conduct,

(b) the seriousness of the allegation or complaint being investigated,

(c) any risk of undue prejudice to a person’s reputation (including prejudice that might arise from not holding an inquiry),

(d) whether the public interest in exposing the matter is outweighed by the public interest in preserving the privacy of the persons concerned.

The public inquiry commenced on 4 December 2006 and concluded on 21 December 2006. Nine persons gave evidence over six days.

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Chapter1:Introduction 11

The Hon Jerrold Cripps QC, Commissioner, presided over the public inquiry. Mr Gregory Farmer was Counsel Assisting the inquiry.

In accordance with the usual practice of the Commission and the requirements of procedural fairness, submissions on possible findings were made by Counsel Assisting and an opportunity to respond given to those who may be the subject of adverse findings. Submissions received in response were considered in preparing this report.

Investigation outcomes

The Commission’s findings of fact are set out in Chapters 2 and 3 of this report.

Chapter 2 of the report examines the conduct of Mr Marcos and Mr Mourched in relation to the administration of air-conditioning contracts awarded to NBR and subcontracting of some of that work to two businesses associated with Mr Marcos, B&S and Isis. Between August 1999 and November 2005, those two businesses received in excess of $655,000 from NBR. The chapter also deals with attempts by Mr Marcos and his son, Mr Benjamin Marcos, to mislead the Commission by submitting false invoices to the Commission.

Chapter 3 examines the profit-sharing arrangement between Mr Mikhail and Mr Marcos relating to RailCorp work. Mr Mikhail’s businesses, Sami Industrial & Domestic Cleaners and Atsan, were engaged by Mr Marcos to carry out a variety of tasks, including the supply and installation of grilles into doors at railway stations to facilitate the flow of air at particular sites. In return for being given this work, Mr Mikhail agreed to pay Isis half of the profits derived from these jobs. Between 2000 and 2005 Isis received over $56,000 under this arrangement.

Findings of corrupt conduct are made against Mr Marcos, Mr Mourched and Mr Mikhail.

The report contains statements pursuant to section 74A(2) of the ICAC Act that the Commission is of the opinion that the advice of the Director of Public Prosecutions should be obtained with respect to the prosecution of Mr Marcos, Mr Benjamin Marcos, Mr Mourched and Mr Mikhail for various criminal offences.

A section 74A(2) statement is also made that the Commission is of the opinion that RailCorp should give consideration to taking disciplinary action against Mr Marcos. The Commission notes Mr Marcos was suspended from duty as of 16 December 2006.

Chapter 4 examines a number of corruption prevention issues relating to RailCorp’s systems and procedures which may have facilitated or failed to deter corrupt conduct. It makes a number of recommendations for RailCorp to reform their systems and mitigate or prevent similar misconduct in the future. These include issues relating to conflicts of interest, secondary employment, low accountability, poor record-keeping and inadequate policies and procedures. Consequently, the Commission makes 27 recommendations addressing these areas to help RailCorp prevent similar corrupt conduct from recurring.

Implementation of corruption prevention recommendations

As part of the performance of its statutory functions the Commission will monitor the implementation of the recommendations made as a result of this investigation.

The recommendations will be communicated to RailCorp, with a request that an implementation plan for the recommendations be provided to the Commission within three months of the publication of this report. The Commission will also request progress reports on the implementation of recommendations at intervals of 12 and 24 months after the publication of this report.

These reports will be posted on the Commission’s website, www.icac.nsw.gov.au, for public viewing.

Unless implementation has not been adequately addressed or the Commission determines to take a more detailed examination of the implementation of recommendations, the Commission will not request progress reports after the 24-month follow-up. It will be the responsibility of those who are the subject of the recommendations to advise the Commission of any subsequent changes to the status of implementation. These changes will then be posted on the Commission’s website.

Recommendation that this report be made public

Pursuant to section 78(2) of the ICAC Act, the Commission recommends that this report be made public immediately. This recommendation allows either Presiding Officer of the Houses of Parliament to make the report public, whether or not Parliament is in session.

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This chapter primarily examines the corrupt dealings between Mr Marcos and Mr Mourched.

Between 1999 and 2005 air-conditioning maintenance work at a number of railway stations was undertaken by Mr Mourched’s company, NBR Mechanical Services Pty Ltd (NBR). Between about mid-1999 and November 2005 over $655,000 of the monies paid by RailCorp to NBR ended up with Mr Marcos’s businesses B&S Mechanical Services (B&S) and Isis Australia Pty Ltd (Isis).

This aspect of the Commission’s investigation was primarily focused on the following issues:

n whether Mr Marcos corruptly received monies from Mr Mourched through NBR in return for Mr Marcos using his position in RailCorp to favour NBR;

n whether Isis and B&S in fact carried out the work for which they were paid by NBR;

n whether Mr Marcos and/or Mr Mourched willfully failed to make appropriate disclosures about their relationship which they ought to have made; and

n whether Mr Marcos deliberately concealed his secondary employment in breach of the applicable secondary employment policy.

This chapter also examines attempts by Mr Marcos and his son Benjamin to mislead the Commission and to influence Mr Mourched to do likewise.

the “1999 contract”

The amount of brake dust and dirt generated in the underground environment and accumulation of dirt mean that air-conditioning machinery requires regular and intensive maintenance work.

Prior to 1999, air-conditioning maintenance work had been carried out by RailCorp employees. In July 1998 approval was given to invite public tenders to outsource air-conditioning maintenance work at underground railway stations at Central, Sydney Terminal Building, Wynyard, Circular Quay, Town Hall, St James, Museum, Martin Place, Kings Cross and Edgecliff.

Tenders for air-conditioning maintenance services were first called for in 1999.

The 1999 tender specification required the tenderer to nominate any subcontractor responsible for any work

valued at more than five per cent of the contract price. It provided that if the contractor sublet the whole or any part of the contract without the consent in writing of RailCorp the latter could terminate the contract.

NBR submitted its tender on 20 January 1999. The lump sum tender price submitted by NBR was $292,000. NBR nominated Air Filter Maintenance as its subcontractor for filter cleaning.

Two other companies also submitted tenders. All three tenders were evaluated by a three-member committee comprising Mr Blake Biggam, Mr Marcos, and Mr Paul Kucia, Senior Contract Officer. NBR’s price was $125,795 lower than the next lowest tender. The committee recommended in April 1999 that the contract be awarded to NBR.

Both Mr Marcos and Mr Mourched have claimed that at this time they had no personal relationship and only slight professional contact through Mr Mourched having submitted a couple of quotes to RailCorp.

By letter dated 28 April 1999 RailCorp advised NBR it had been successful in gaining the contract for the air-conditioning maintenance work. The letter provided that the contract would commence on 2 May 1999 (“the 1999 contract”). Within weeks of the contract being awarded to NBR it subcontracted filter cleaning work to B&S.

Mr Stephen Barnett, Asset Maintenance Manager, was nominated as Contract Superintendent. Although there was no written delegation, in practice, Mr Marcos performed the functions of the Superintendent.

An agreement was reached between Mr Mourched and Mr Marcos whereby the latter would provide workers to perform filter cleaning work. Mr Marcos utilised B&S between 1999 and January 2003 and Isis between November 2000 and November 2005 to provide cleaners and other services. Despite this, no businesses associated with Mr Marcos were nominated as subcontractors by NBR as required under the contract.

The 1999 contract was due to expire in May 2001 unless an extension was granted.

In May 2001, Mr Marcos prepared a submission to the RailCorp Expenditure Review Committee recommending approval be given to extending the contract with NBR for another year. He did so knowing that Isis and B&S would benefit from the extension of contract. Mr Marcos estimated that

Chapter 2: Dealings with Mr Mourched

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Chapter�:DealingswithMrMourched 1�

the cost for the extension would be $223,630, being $168,630 for routine maintenance and $55,000 for emergency repairs.

At no time prior to or during the negotiations for an extension of the 1999 contract did either Mr Marcos or Mr Mourched inform RailCorp that businesses associated with Mr Marcos were providing services for NBR and had received $89,811.44 under that arrangement. Mr Marcos’s manager, Mr Clayton Small, approved Mr Marcos’s recommendation for extension of the contract. Mr Small told the Commission he would not have done so if he had known that NBR was subcontracting work to Mr Marcos’s businesses.

the “2002 contract”

In February and March 2002 Mr Marcos attended RailCorp meetings to discuss seeking new contracts for air-conditioning maintenance. The minutes of these meetings show that Mr Marcos did not disclose that the businesses associated with him had been receiving payments, which by then totalled $134,481.44 from NBR since 1999. It was determined to award a contract for a two-year period with an option for a one-year extension. RailCorp again called for public tenders. RailCorp estimated the total cost for the work under the contract would be approximately $1.3 million.

The tender specification was similar to the tender specification for the 1999 contract. In particular there were similar terms requiring the tenderer to nominate all subcontractors responsible for work valued at over five per cent of the contract value and requiring RailCorp’s consent to subcontracting.

NBR submitted its tender on 5 September 2002. The form of tender completed and signed by Mr Mourched included a schedule, also signed by him, requiring disclosure of “major suppliers, subcontractors and consultants to be utilized on this contract. Any supplier, subcontractor and/or consultant responsible for any item of more than five per cent of the fixed lump sum tender price must be listed.” No mention was made in the schedule of any business associated with Mr Marcos being subcontracted by NBR. Mr Mourched told the Commission that it was his intention to continue to use B&S if his tender was successful. He withheld this information from RailCorp as he wanted to get the contract.

Ten companies submitted tenders for the contract. Again, Mr Marcos and Mr Biggam were on the tender evaluation committee to oversee the submissions from the tenderers and to evaluate the technical merits of their bids. Four other persons were also on the committee. Mr Marcos did not disclose his dealings with NBR. He was aware that if NBR was awarded

the contract he would continue to benefit financially through the continuation of payments from NBR to B&S and Isis.

The tender evaluation committee recommended the contract be awarded to NBR.

Mr Clayton Small was the nominated Superintendent under the 2002 contract. The Superintendent’s functions were again delegated to Mr Marcos.

On 16 July 2004 Mr Marcos forwarded a minute to Mr Vince Graham, the Chief Executive Officer of RailCorp, recommending approval to extend the 2002 contract by 12 months. He did not disclose his previous or anticipated dealings with NBR. By this time Isis and B&S had received $425,963.44 from NBR. Mr Marcos was aware that an extension of the contract term would continue to benefit himself financially. On 1 October 2004 the extension of the contract was approved by Mr Graham.

The final RailCorp payment to NBR was made in November 2005 when the contract expired.

Commencement of the arrangement

One of the issues examined in the Commission’s investigation was whether there was any agreement between Mr Marcos and Mr Mourched prior to Mr Marcos participating on the tender evaluation committee for the 1999 contract and if so whether that arrangement affected his conduct on that committee.

Both Mr Mourched and Mr Marcos say that Mr Mourched had difficulty finding workers to undertake the filter cleaning work. Mr Marcos offered to provide the workers. They say the agreement was made shortly after the 1999 contract was awarded.

A letter on B&S letterhead dated 29 May 1999 records an agreement between B&S and NBR for the cleaning work and notes that B&S would charge $2,650 per month.

NBR initially subcontracted RailCorp work to B&S. This business was registered on 14 May 1999, about four weeks after Mr Marcos had signed off on the tender evaluation report and a little over two weeks after NBR was officially advised on 28 April 1999 that it was awarded the RailCorp contract.

The Commission does not accept the evidence of Mr Marcos and Mr Mourched that their arrangement came about because Mr Mourched could not find suitable workers. There is not, however, sufficient evidence to conclude that the agreement between Mr


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Marcos and Mr Mourched was reached prior to Mr Marcos signing-off on the tender evaluation report. However, as will be seen later in this chapter, there is evidence from which it can be concluded that Mr Marcos awarded additional work to NBR under the 1999 contract knowing that in doing so he would benefit through some of that work being subcontracted to his businesses.

payments

Mr Marcos said Mr Mourched sent monthly invoices. Mr Marcos approved the invoices for payment by RailCorp.

Between August 1999 and November 2005, NBR received in excess of $4 million for work carried out under the contracts. Over that period B&S and Isis invoiced and received $655,884.44 from NBR.

From approximately December 2002 invoices submitted by B&S and Isis to NBR for the regular monthly work were in the vicinity of $8,000. This remained the situation until about May 2003. From that point in time onwards, the invoices to NBR from Isis were for approximately $12,000, increasing to regular monthly invoices for approximately $14,000 which remained the situation until November 2005 when the contract came to an end.

Mr Marcos said the cleaners were paid between $400 and $500 per week. They were usually paid in cash. Over the period of the two contracts the amount of ‘profit’ derived by Mr Marcos, through B&S and Isis, increased from about $1,000 per month to about $10,000 per month.

Extra services

Apart from the standard routine work which was termed as “normal services” NBR was also required under the 1999 and 2002 contracts to undertake “extra services” for which it was entitled to additional payment.

The extra services included nominated and emergency work. Nominated work is work that is identified in inspections as being necessary. Emergency work is work arising out of requests relating to a specific component failure. A written order from the Contract Superintendent was required for any extra services. In addition to this work NBR also received additional air-conditioning work by way of Local Purchase Orders. Work performed in response to Local Purchase Orders was not subject to the budgeted limits.

Mr Marcos was generally responsible for giving approval for NBR to undertake extra services work including additional air-conditioning work.

As the Contract Superintendent, Mr Marcos determined if work assigned to NBR required additional payment. If the additional work was similar to the routine work required to be performed under the contract it attracted the same rate of pay as routine work. If it was different from the regular work it attracted a higher rate of pay.

The actual amount of emergency and nominated work received by NBR, including work allocated by way of Local Purchase Orders, during the three-year 1999 contract period was more than $820,000. This was over five times the allocated budget amount.

When NBR was recommended as the successful tenderer for the 2002 contract, the budget for “emergency call-outs and emergency repairs”, which included nominated work, was raised substantially. When the contract was extended for another year, the portion of additional emergency repairs increased further. The following table illustrates the budget for the 2002 contract and the extended year:

period Routine maintenance

Emergency repairs total

2002 contract budget: $776,974.00 $528,000.00 $1,304,974.00

Actual payments: $790,121.84 $1,106,528.20 $1,896,650.04

2002 extension budget: $405,411.60 $597,788.40 $1,003,200.00

Actual payments: $431,544.23 $ 805,257.15 $1,236,801.38

The submission recommending an extension of the 2002 contract, dated 16 July 2004 and signed by Mr Marcos as the “proposer”, noted that the Rail Management Centre (RMC) had been taken on as an additional asset on 4 September 2003 and the Bondi Junction Bus Interchange was to be taken on as an additional asset on 1 August 2004. The submission recommended that work at both sites be treated as emergency and nominated work.

A significant proportion of the emergency and nominated work performed by NBR under the 2002 contract, including cleaning of the RMC and Bondi Junction Bus Interchange, was subcontracted to Isis.

Mr Marcos was asked why he budgeted the RMC work as emergency and nominated work instead of routine work. He claimed that as the RMC work was

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vital to railway operations, he considered it warranted different treatment. In relation to Bondi Junction Bus Interchange work, Mr Marcos claimed that he assigned a higher rate because the bus interchange was very dirty and he was uncertain about a number of matters including how many buses went there, whether the work could be carried out during normal working hours and how much work was involved.

Mr Marcos denied that he was motivated by the possibility of Isis being able to charge NBR a higher fee for doing this work. He admitted that costing the work at a higher rate resulted in more profit to Isis. Neither Mr Marcos nor Mr Mourched was able to identify how they were able to ascertain the cost of the additional work arising as a result of the inclusion of the cleaning work undertaken at the RMC and the Bondi Junction Bus Interchange as emergency and nominated work.

Mr Mourched told the Commission that when he received an invoice from B&S and/or Isis for emergency and nominated work he would pass that cost on in the NBR invoices. The evidence before the Commission indicates that in addition to what was claimed by Isis, NBR included a significant profit margin in its invoices. Mr Mourched gave the following evidence to the Commission in relation to the cleaning of the RMC in January 2005:

[Counsel Assisting]

Q: Why did you quote them 2,800 [dollars] when you knew that Isis would do the work for 1,442?

[Mr Mourched]

A: Maybe there could have been – there might have been additional charges. I don’t remember. If someone had a problem with that, they could have come back to me.

During his compulsory examination Mr Marcos denied B&S or Isis invoiced NBR for work not performed. He gave the following evidence:

[Counsel Assisting]

Q: Do you say that the invoices accurately describe the work that was undertaken by either B&S or Isis?

[Mr Marcos]

A: Roughly, with discussion was Tony. Sometime he tell me, “Put this, put that”. Even if different as long as I gain – I gain the description – it wasn’t very important for me as long as the figure of the cheque is correct, it’s fine.

Q: As long as the amount you were charging him was correct?

A: Yeah, what I believe is correct.

Q: You would charge him whatever he told you to charge?

A: Yes, yes.

When giving evidence at the public inquiry Mr Marcos admitted that throughout 2004 Isis had an overdraft of $40,000 but denied that there was any connection between the need to repay the overdraft and the increase in the amount charged to NBR. He claimed the increase was due to ascertaining the correct market price for the work performed.

In light of the poor state of RailCorp records it is not possible to determine whether, in some instances, NBR had submitted claims for additional work without actually carrying out such work. Nor is it possible to conclude, on the available evidence, whether or not B&S or Isis invoiced NBR for additional work they did not perform.

Mr Marcos was unable to identify any justifiable basis for recommending that work at the RMC or Bondi Junction Bus Interchange be treated as emergency and nominated work rather than routine work. RailCorp was not able to provide an explanation as to why work carried out at RMC and Bondi Junction Bus Interchange was costed as emergency and nominated work rather than routine maintenance work. In considering this matter it is also relevant to take into account that from 2004 Isis had a significant overdraft which was reduced through the higher payments it received from NBR. The awarding of additional work to NBR meant that Isis also financially benefited not only by being able to undertake more work on behalf of NBR but also by being able to charge NBR more for that work. Mr Marcos had a clear motive for recommending work at the RMC or Bondi Junction Bus Interchange be treated as emergency and nominated work rather than routine work. In these circumstances the inference available to be drawn on the evidence is that Mr Marcos made the recommendation to classify the work as emergency and nominated work in order to financially benefit through being able to obtain increased payments from NBR for the work it subcontracted to Isis.

Mr Mourched denied he had any agreement with Mr Marcos whereby Mr Marcos would seek approval to charge RMC and Bondi Junction Bus Interchange work as emergency and nominated work rather than routine work. He also denied that he had agreed with Mr Marcos that Isis would charge higher amounts for emergency and nominated work subcontracted to it by NBR. The Commission rejects these denials. Both NBR and Isis received substantially higher income as


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a result of Mr Marcos approving NBR to undertake emergency and nominated work. Neither Mr Marcos nor Mr Mourched was able to provide a satisfactory explanation as to how they estimated how much Isis and NBR should charge for this work. Mr Mourched initially claimed that he had not estimated how much NBR would receive from this work. However, he later admitted having discussed the amount with Mr Marcos. He denied this discussion amounted to price-fixing or collusion. The Commission rejects this denial.

By agreeing to subcontract work to Isis Mr Mourched ensured that Mr Marcos would continue to approve NBR to undertake additional work, thereby ensuring they both shared in a highly lucrative arrangement at RailCorp’s expense.

Water treatment and filter cleaning work

The Commission also investigated whether B&S and Isis actually performed any water treatment and filter cleaning work for which they billed and were paid by NBR.

The maintenance schedule for air-conditioning contracts required inspection, testing and “water treatment” of the cooling towers at a number of railway sites on a monthly basis. “Water treatment” involved chemical testing, analysis of water and adding chemicals (oxidants and inhibitors).

On 12 August 2004 Mr Marcos wrote a letter to NBR requesting it to take over “water service treatment” of a number of stations. As a result, NBR charged about $7,500 per month for this work. Included in this amount was a component of $1,500 to be paid to Isis for “water treatment”.

According to Mr Mourched, Isis did not undertake any cleaning inside the cooling towers. He engaged the services of Cooling Tower Cleaning Services to do the cleaning of the towers. Mr Mourched attributed the payment of $1,500 to Isis as being for delivering chemicals to various sites from Central Station.

The Commission does not accept Mr Marcos’s assertion that Isis carried out any additional cleaning work on the cooling towers. Mr Marcos’s evidence on this issue is scarcely comprehensible and raises a strong suspicion that he was trying to obfuscate rather than telling the truth. Mr Marcos is not a credible witness and his evidence is not accepted unless it is supported by other reliable evidence.

Notwithstanding the Commission’s opinion that Isis did not carry out cleaning work on the cooling towers, it would still be entitled to some payment if, as indicated by the evidence, its employees undertook delivery of chemicals to various sites. It is not possible to estimate

the number of such deliveries nor is it possible to identify when those deliveries were made. There is insufficient evidence to determine whether Isis was entitled to the $1,500 monthly payment.

B&S and later Isis were meant to undertake air-conditioning filter cleaning work for NBR. Neither Mr Marcos nor Mr Mourched gave clear evidence identifying who undertook the cleaning work or when the work was performed. Mr Mourched and an NBR employee, Mr Lionel Castro, said that at least one filter cleaner was employed to do work under the 1999 contract. Their evidence is that under the 2002 contract two full-time cleaners were available. Mr Marcos did not challenge these statements. There are no records available from B&S, Isis or elsewhere to show how many hours of work were actually performed by these cleaners. Throughout the period covered by the two contracts several complaints were made about the apparent non-cleaning of filters. However, given the length of time over which the contracts ran and the relatively small number of recorded complaints there is insufficient evidence to conclude that invoices were submitted for filter cleaning work that was not done.

Conflict of interest

As the RailCorp officer with responsibility for air-conditioning maintenance, Mr Marcos took an active role in the administration of the 1999 and 2002 contracts. He had input into the technical information contained in the tender documents and was a member of the tender evaluation committees assessing the relative merits of the tenders and making recommendations to award the contracts. He was responsible for overseeing performance of the work by NBR and for authorising payments of invoices for the work performed by NBR. He agreed that in approving the NBR invoices for payment he was not only representing that NBR had done the work but that the work done by B&S and Isis had been properly done.

As with other members of the tender evaluation committees, Mr Marcos signed conflict of interest declarations relating to the 1999 and 2002 tenders.

Mr Marcos’s 1999 tender declaration stated that he had no financial interest or other conflict of interest in the evaluation of tenders. There is no evidence that at that time there was any financial relationship between NBR and Mr Marcos.

By the time of the 2002 tender Mr Marcos had a clear conflict of interest. Nevertheless, Mr Marcos signed a declaration of interest document on 12 September 2002 declaring that he did not have any actual or potential conflict of interest. The declaration he signed noted that conflicts of interest required to be disclosed included:

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(a) Directorships in companies or financial interest by way of shares remunerations or similar, in any organisation or its associations tendering [sic]; or,

(b) Personal relationships with any persons within the various Organisations tendering.

Mr Marcos signed the evaluation report on 4 November 2002. That document included the following provision:

The Evaluation Committee, whose members are listed below, declare that there has been no financial interest or conflict of interest in the evaluation and selection of Tenders ….

At that time RailCorp’s policies and procedures for declaring conflicts of interest were set out in its Code of Workplace Standards which was adopted in June 2000. The Code stated that conflicts of interest exist when it is likely that an employee could be influenced or perceived to be influenced by a personal interest in the way the employee acts. In particular, it stated that a conflict of interest could occur when an employee has:

n financial interests in a matter that [RailCorp] deals with or you have friends or relatives with a financial interest that you are aware of; and

n outside employment that compromises your integrity and that of [RailCorp].

The Code specifically stated that it is the employee’s responsibility to notify his or her manager if the employee thinks there might be a conflict of interest.

Secondary employment

As an employee of RailCorp Mr Marcos was not allowed to engage in employment outside his official duties without first obtaining permission. The Transport Administration (Staff) Regulations which were made on 1 September 1995 and subsequently re-made on 1 September 2000 and 1 September 2005 provide:

(1) A [RailCorp] officer must not, except with the permission of [RailCorp]:

(a) hold any paid office or engage in any paid employment; or,

(b) carry on any business or engage in the private practice of any profession, outside the duties of the officer’s position.

The Regulations provide that an officer who contravenes these provisions is taken to be guilty of misconduct for the purposes of disciplinary proceedings.

Given these clear policies and the declarations he had signed, the Commission was required to ascertain if Mr Marcos had deliberately concealed his conflict of interest and secondary employment in order to benefit financially.

Mr Marcos’s evidence

When Commission officers executed a search warrant at Mr Marcos’s home on 5 May 2006, Mr Marcos admitted that Isis had done some work for NBR at railway sites. He said that the day-to-day operation of Isis was controlled by his sons Stephen and Benjamin. He denied personally receiving any profits from Isis except for the purpose of fixing his car. He maintained that until recently he had not been told anything about conflicts of interest.

Mr Marcos subsequently admitted to the Commission that between 1999 and 2005 B&S and Isis had received payments from NBR for RailCorp work which NBR had subcontracted to these businesses. He also conceded that the B&S and Isis bank accounts into which these payments were made were controlled by him.

Mr Marcos claimed, however, that he had not been aware of the Code provisions dealing with conflicts of interest and had only recently read the Code after it had been brought to his attention by the Commission. He also claimed to have been unaware of the policy on secondary employment. In any event Mr Marcos claimed that he had not contravened these policies as he did not do any of the actual work for NBR. He was of the view that being in a managerial position was different from actually doing the physical work. He told the Commission he was not subcontracting to do any work but subcontracting to provide personnel.

Mr Marcos also claimed he was not aware that his businesses could not accept subcontract work from NBR because Mr Small once told him that he did not care who NBR got to work on the contract as long as RailCorp received value for money. Mr Marcos also said at one time he was told by Ms Judith Birkett, Mr Small’s assistant, that he was not doing anything incorrect or illegal by engaging his son Stephen to do cleaning work.

Mr Small could not recall any such conversation. Ms Birkett denied Mr Marcos ever told her that any of his family members were involved in supplying services to RailCorp. The Commission accepts their evidence.

Mr Marcos claimed that the thought of informing anyone about his involvement with B&S never crossed his mind.


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The Commission does not accept Mr Marcos’s claims that he was unaware of the RailCorp policies on conflicts of interest and secondary employment or that he believed that, in any event, he had not breached those policies. In the Commission’s opinion, the evidence outlined below supports an inference that Mr Marcos deliberately ignored those policies in order to secure financial gain.

Mr Mourched was aware that the terms of the contracts required NBR to notify RailCorp of the names of NBR’s subcontractors. He did not inform RailCorp that NBR had subcontracted cleaning work to B&S or Isis. He told the Commission he had not done so as he feared losing the 1999 contract and not getting the 2002 contract if RailCorp became aware of the connection with Mr Marcos. Mr Mourched said that he asked Mr Marcos whether they should inform RailCorp about the engagement of B&S. He said Mr Marcos told him there was, “no need … No, they won’t allow it … If we’re doing the work, it’s fine. If the work is getting done, that’s fine.” The Commission accepts Mr Mourched’s evidence on this point.

On 22 March 1999 Mr Barnett sent an internal memo addressed to all staff in his section, including Mr Marcos, attaching a copy of the Code.

On 12 April 2001 the then Chief Executive Officer of RailCorp sent a memo to all staff alerting them to the recent problems with some staff ’s private business interests conflicting with RailCorp’s interests. The memo stated:

There is a conflict of interest between the employee’s private business interest and the obligations to [RailCorp] to obtain value for money. In addition, the [RailCorp] employee is privy to confidential, commercially sensitive information, which is not available to non-[RailCorp] employees.

All staff should also ensure they comply with the guidelines set out in the Code of Workplace Standards in relation to:

1. conflict of interest;

2. outside employment;

3. use of official information;

4. use of official facilities and equipment.

A copy of the Code of Workplace Standards was forwarded to all staff in July 1999. If you do not have a copy of the Code, contact should be made with your Human Resources Manager.

On 19 July 2002 Mr Small sent a memo to all staff members in his section, including Mr Marcos, attaching the new secondary employment policy which had been effective since 3 July 2002. The memo urged staff to read the policy, provide details of secondary employment and sign the memo even if the staff had no secondary employment. Mr Marcos wrote “N/A” under the section of the memo which required the details of any secondary employment to be spelled out.

It is clear from the evidence that Mr Marcos took steps to conceal his name from being connected with the work being performed by NBR. The arrangements entered into with NBR were made through B&S and, later, Isis rather than directly with Mr Marcos. B&S was registered in his son’s name. At that time Mr Benjamin Marcos was aged 17 and took no active part in the management of the business. Other attempts were also made to disguise the involvement of the Marcos family with the work being performed by NBR.

The letter of agreement between B&S and NBR of 29 May 1999, referred to above, is signed “Benjamin B” rather than “Benjamin Marcos”. Mr Benjamin Marcos told the Commission he could not recall why he signed the letter in that manner. He denied having done so on his father’s instructions. The probability is that the letter was signed this way to avoid connecting the business with Mr Marcos.

Another of Mr Marcos’s sons, Stephen, performed some of the subcontracted cleaning work. When doing that work he used the surname “Pappas” rather than “Marcos”. He denied his use of this surname had anything to do with concealing his connection with Mr Marcos. The Commission rejects this claim.

The most telling evidence, however, is Mr Marcos’s attempt to mislead RailCorp and the Commission. In his 2005 RailCorp disciplinary interview Mr Marcos denied that Isis did any RailCorp work for NBR. He claimed that Isis did financial planning, accounting and some childcare work. When giving evidence at the Commission he denied this was a lie and claimed it was only a “mistake”. The Commission does not accept this explanation. As will be explained later in this report, Mr Marcos was involved in preparing false invoices in an attempt to demonstrate that the work performed by Isis for NBR had nothing to do with RailCorp work.

As set out later in this chapter, the Commission found Mr Marcos not to be a credible witness. In particular it rejects his evidence that he was unaware of the applicable policies on conflicts of interest and secondary employment or that he ever believed that he was not in breach of those policies. The Commission is satisfied that Mr Marcos was aware that he had a conflict of interest and was acting contrary to the secondary

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employment policy and that for these reasons and in order to continue to financially benefit through his arrangement with NBR, he took active steps to disguise his involvement with NBR. The Commission is satisfied that he was aware of at least his general obligations in these respects and the seriousness of being in breach of those obligations.

Attempting to mislead the Commission

On 22 December 2005, as part of the Commission’s investigation, Mr Benjamin Marcos was served with a notice to attend and produce documents pursuant to section 22 of the ICAC Act. The notice made reference to the fact that a failure to comply with the notice, without reasonable excuse, or to knowingly furnish information which was false or misleading in a material particular, is a criminal offence. The notice required Mr Benjamin Marcos to produce “all files, documents and other records relating to work conducted by Isis Australia Pty Limited for NBR Mechanical Services Pty Limited … including, but not limited to, quotes, file notes, correspondence and invoices from 1 January 2000 to date”.

Mr Marcos and Mr Benjamin Marcos gave evidence that the invoices sent to NBR by Isis were no longer stored on their computer. According to each of them, this was as a result of some problem with the computer. They made a joint decision to prepare a replacement set of invoices. However, as will be seen, these invoices were false. The false invoices were produced to the Commission on 4 January 2006, under cover of a letter dated 29 December 2005 and signed by Mr Benjamin Marcos. The letter stated:

Please find enclosed the invoices relating to NBR Mechanical Services Pty Limited. This is the records relating to the relationship between Isis Australia Pty Limited and NBR Mechanical Services Pty Limited.

In general terms, the invoices provided the following work description:

Accounting and financial duties ad hoc (industrial cleaning, painting, etc,) including expenses as requested.

Other documents included the description “for the technical support and service at Northern Beaches areas”. They made no reference to any work relating to SRA or RailCorp sites.

Mr Benjamin Marcos admitted that he typed these invoices on the computer with his father’s assistance. He conceded it was a mistake not to tell the Commission that the original invoices had been

lost. He said the object in preparing and submitting the invoices was to “get rid of this inquiry”. He conceded that creating invoices containing incorrect information was the wrong thing to do. He asserted, however, that he did not know that the purpose of preparing the documents was to distance Isis from NBR’s contract with RailCorp. The Commission rejects this assertion. He agreed that Isis had not done any accounting or financial planning and he knew that any representation in the invoices to that effect was wrong. The Commission is satisfied that Mr Benjamin Marcos was involved in the creation of invoices that he knew contained false information and that he produced those invoices to the Commission.

Mr Marcos agreed that he worked on the invoices with his son Benjamin. He agreed that he told him what to include by way of a description of work done. Mr Marcos conceded that he knew that the information was incorrect and that he did it because he was “very scared”.

Attempts to influence Mr Mourched

On 22 December 2005 Mr Mourched also received a notice to attend and produce documents pursuant to section 22 of the ICAC Act. This notice required him to produce invoices relating to work conducted for NBR by Isis from 1 January 2000 to the date of the notice.

Mr Mourched told the Commission that just after Christmas 2005 and before he went on holidays, Mr Marcos visited him and gave him a bundle of invoices containing incorrect descriptions of work carried out by B&S and Isis. Mr Mourched said Mr Marcos asked him to submit these to the Commission. Mr Mourched refused to comply with this request. Mr Mourched said he told Mr Marcos to provide the proper invoices and see what happened. Mr Mourched said Mr Marcos then said “They will ask you for all the money back”.

On his return from holidays Mr Mourched found another set of false invoices, with a handwritten note from Mr Marcos, left at his home. The second set of invoices was basically no different from the first set except that they had ABN numbers and references to GST included on them.

Mr Marcos admitted providing Mr Mourched with two sets of inaccurate invoices. He said the creation of these invoices was a random idea that he came up with without thinking it through. He maintained that he had no intention of misleading the Commission. The Commission does not accept this explanation.

Mr Marcos conceded it was his handwriting on documents which accompanied the invoices. One of

�0 i c a c r e p o r t : ReportonaninvestigationintocorruptconductassociatedwithRailCorpair-conditioningcontracts

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those documents, headed “Please Note:”, lists a number of points which indicate that the intention of Mr Marcos was to mislead the Commission. The entries on that document include:

This action is requested to close the file, so, we have to be confident and cool … God bless all of us.

You knew Isis Australia, when you was looking for a trust accountant to control day-to-day financial work in your building work, since you have been building at Merrylands (your house) and other building sites which belong to you with your relatives in more than site. So, someone introduced Ben Marcos to you, and it was a good and trust relationship, that you was relying on him in many businesses … All work done, either in building sites or in some hotels … the railway work did not interfere with any of that work. … All these invoices is straight from my check [sic] book from 2001 – so delete any others.

This was a clear attempt to persuade Mr Mourched to distance Isis from NBR’s work for RailCorp.

In addition to Mr Marcos attending upon Mr Mourched, evidence was also given at the public inquiry that his sons Mr Benjamin Marcos and Mr Stephen Marcos attended a meeting with Mr Mourched and the co-director of NBR, Mr Marc Boin.

It was a short meeting. According to Mr Mourched, Benjamin and Stephen Marcos pleaded with him not to submit the original invoices. He recalled that one or both of them said words to the effect, “That’s going to cause a lot of trouble for all of us” to which Mr Mourched replied: “So be it.”

Mr Benjamin Marcos said that one of the purposes of meeting with Mr Mourched on this occasion was to attempt to convince him that he should send the invoices which had been created to the Commission. He gave the false invoices to Mr Mourched “for consistency” so that he and Mr Mourched could provide the same documents to the Commission. He gave his brother “vague” details about why they were approaching Mr Mourched.

Mr Stephen Marcos told the Commission that he had no discussions with his father about the meeting but his brother Benjamin told him that the Commission was after some invoices because it was interested in finding out whether there was any connection between Isis, NBR and the RailCorp work. There is insufficient evidence to show that Mr Stephen Marcos tried to persuade Mr Mourched to provide false invoices to the Commission.

Mr Marcos as a witness

Mr Marcos is clearly an intelligent man who held a responsible position at RailCorp for more than 20 years. Despite this background his oral evidence to the Commission was often evasive, rambling and at times defied credibility. The Commission does not regard him as a credible witness.

A clear demonstration of Mr Marcos’s lack of credibility is his evidence concerning his understanding of whether he had any conflict of interest or whether he had contravened the secondary employment policy. Particularly unconvincing was his assertion that he was not engaged in secondary employment unless he undertook actual physical work himself. Mr Marcos clearly demonstrated that he was a witness prepared to maintain that he had done no wrong irrespective of the evidence.

A further demonstration of his lack of credibility emerges from his evidence about his understanding of the words “agreement to work as a subcontractor” which he wrote in a letter to Mr Mourched. His evidence was, “Honestly, no idea, I could write you anything. I focus on work.”

Mr Marcos also clearly misled RailCorp investigators when they interviewed him in 2005 as to the nature of the work done by Isis. He admitted as much to the Commission.

The creation of false invoices for the purpose of submitting them to the Commission was clearly not a mistake, as claimed by Mr Marcos. It was designed to conceal the fact that businesses associated with Mr Marcos had done RailCorp work. The description of the work on the false invoices had no resemblance to the actual work carried out by the businesses. The creation of false invoices and the attempts to urge Mr Mourched to submit false invoices to the Commission and to disguise the involvement of Isis with NBR’s RailCorp work is indicative of the deliberate attempts by Mr Marcos to disguise the true nature of the connection between himself and Mr Mourched.

Taken as a whole, Mr Marcos’s conduct supports the conclusion that he took various deliberate steps to hide the connection between his businesses and NBR and when these attempts failed he then attempted to disguise the true nature of that connection. Clearly his purpose in doing so was to protect what was a lucrative arrangement between himself and Mr Mourched from being interfered with or stopped by RailCorp.

Given the unsatisfactory nature of Mr Marcos’s evidence, where it is in conflict with that of other more credible witnesses the Commission accepts the latter.

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Chapter�:DealingswithMrMourched �1

Findings of fact

Based on the evidence set out above, the Commission is satisfied that the following facts have been established.

1. At all relevant times, Mr Marcos was responsible for the supervision of the NBR contracts for air-conditioning maintenance work, including allocation of emergency and nominated work.

2. Shortly after NBR was awarded the RailCorp contract in 1999 Mr Marcos entered into an agreement with Mr Mourched of NBR to provide workers to carry out air-conditioning filter cleaning work on behalf of NBR. This arrangement was initially made through B&S Mechanical Services and later Isis Australia Pty Ltd, businesses through which Mr Marcos benefited financially.

3. Between August 1999 and November 2005 B&S and Isis received in excess of $655,000 from NBR for RailCorp work subcontracted to those businesses by NBR. The payments were received in return for Mr Marcos using his official position within RailCorp to generally show favour to NBR.

4. Mr Marcos arranged for NBR to undertake extra services in order to financially benefit through being able to obtain further payments from NBR for the work it subcontracted to B&S and Isis.

5. On 16 July 2004 Mr Marcos recommended to RailCorp’s senior management that the Rail Management Centre and Bondi Junction Bus Interchange work should be treated as emergency and nominated work rather than as routine maintenance. He did so in order to financially benefit through being able to obtain further payments from NBR for the work it subcontracted to Isis for these sites.

6. Mr Marcos recommended the contract awarded to NBR in 1999 be extended for a 12-month period, recommended the contract be awarded to NBR when a member of the tender evaluation committee for the 2002 contract, and recommended the contract awarded to NBR in 2002 be extended for a 12-month period in order to financially benefit through being able to obtain further payments from NBR for the work it subcontracted to B&S and Isis.

7. Mr Marcos deliberately failed to declare to RailCorp his conflict of interest arising out of his interests in B&S and Isis and their relationship with NBR. In particular, on 4 November 2002 he

falsely declared that he had no conflict of interest in relation to his membership of the 2002 tender evaluation committee.

8. At all relevant times Mr Marcos directly benefited from monies paid to Isis and B&S by NBR. As such Mr Marcos carried on a business without obtaining the consent of RailCorp.

9. Mr Marcos deliberately provided a false response of “N/A” to Mr Small’s memo of 19 July 2002 which required Mr Marcos to provide the details of any secondary employment.

10. Mr Marcos deliberately concealed his conflict of interest and secondary employment in order to continue to benefit financially from the subcontracting of work by NBR to B&S and Isis.

11. Mr Mourched subcontracted NBR RailCorp work to B&S and Isis in return for Mr Marcos generally showing favour to NBR. That favour included:

n arranging for NBR to undertake extra services for which NBR would be entitled to additional payments;

n treating work at the Rail Management Centre and Bondi Junction Bus Interchange as emergency and nominated work thereby entitling NBR to additional payments;

n recommending the contract awarded to NBR in 1999 be extended for a 12-month period;

n recommending NBR be awarded the 2002 contract; and

n recommending that contract be extended for a 12-month period.

12. Although required to do so, Mr Mourched deliberately failed to advise RailCorp of the subcontracting of work by NBR to B&S or Isis and deliberately failed to identify B&S or Isis as subcontractors in his September 2002 tender documents for the 2002 contract. These failures were motivated by his belief that if he made these disclosures NBR would lose or not be awarded contracts with RailCorp.

Corrupt conduct

In determining findings of corrupt conduct, the Commission has applied the approach set out in Appendix 2 to this report.

For the purposes of the ICAC Act, “conduct” is defined as including “neglect, failure and inaction”. It would therefore include the conduct of Mr Marcos in failing

�� i c a c r e p o r t : ReportonaninvestigationintocorruptconductassociatedwithRailCorpair-conditioningcontracts

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to declare conflicts of interest and failing to obtain permission to engage in secondary employment.

Mr Marcos

Mr Marcos’s conduct in receiving payments from NBR in return for using his official position within RailCorp to show favour to NBR, and in arranging for NBR to undertake extra services and recommending that the Rail Management Centre and Bondi Junction Bus Interchange work should be treated as emergency and nominated work rather than as routine maintenance in order to financially benefit through being able to obtain further payments from NBR for the work it subcontracted to B&S and Isis is conduct which involved the dishonest and partial exercise of his official functions and is conduct which comes within section 8(1)(b) of the ICAC Act.

This conduct could also constitute or involve a criminal offence of corrupt receipt of a benefit under section 249B of the Crimes Act 1900 (NSW)(corrupt commissions or rewards) and the common law offence of misconduct in public office and therefore come within section 9(1)(a) of the ICAC Act. Such conduct could also involve a disciplinary offence or grounds for dismissal for the purpose of sections 9(1)(b) and (c) of the ICAC Act.

Mr Marcos’s conduct in recommending the 1999 contract be extended for a 12-month period, recommending that NBR be awarded the 2002 contract and subsequently recommending that contract be extended for a 12-month period in order to continue to benefit financially from the subcontracting of work by NBR to his businesses is conduct which involved the dishonest and partial exercise of his official functions. Such conduct comes within section 8(1)(b) of the ICAC Act.

This conduct could also constitute or involve a criminal offence of corrupt receipt of a benefit under section 249B of the Crimes Act 1900 (corrupt commissions or rewards) and the common law offence of misconduct in public office and therefore come within section 9(1)(a) of the ICAC Act. Such conduct could also involve a disciplinary offence or grounds for dismissal for the purpose of sections 9(1)(b) and (c) of the ICAC Act.

Mr Marcos’s conduct in making the false declaration on 4 November 2002 that he had no conflict of interest and in falsely responding to Mr Small’s memo of 19 July 2002 requesting details of any secondary employment was dishonest and, as such, adversely affected the honest exercise of his official functions within the meaning of section 8(1)(a) of the ICAC Act. It is also conduct which could adversely affect the exercise of official functions by other RailCorp officials, who would have taken action against NBR and/or

Mr Marcos if they had known the true state of affairs, and which could involve official misconduct. In these circumstances the conduct also comes within section 8(2) of the ICAC Act.

Such conduct could also constitute or involve criminal offences under section 178BB of the Crimes Act 1900 of obtaining a financial advantage by making or publishing false or misleading statements and the common law offence of misconduct in public office and therefore come within section 9(1)(a) of the ICAC Act. Such conduct could also involve a disciplinary offence or grounds for dismissal for the purpose of sections 9(1)(b) and (c) of the ICAC Act.

The Commission accordingly finds that Mr Marcos engaged in corrupt conduct in relation to:

(a) receiving payments from NBR in return for using his official position within RailCorp to show favour to NBR;

(b) arranging for NBR to undertake extra services and recommending that the Rail Management Centre and Bondi Junction Bus Interchange work should be treated as emergency and nominated work rather than as routine maintenance in order to financially benefit through being able to obtain further payments from NBR for the work it subcontracted to B&S and Isis;

(c) recommending the 1999 contract be extended for a 12-month period, recommending that NBR be awarded the 2002 contract and subsequently recommending that the 2002 contract be extended for a 12-month period in order to continue to benefit financially from the subcontracting of work by NBR to B&S and Isis; and

(d) making the false declaration on 4 November 2002 that he had no conflict of interest and in falsely responding “N/A” to Mr Small’s memo of 19 July 2002 requesting details of any secondary employment.

Mr Mourched

Mr Mourched’s conduct in subcontracting NBR RailCorp work to B&S and Isis in return for Mr Marcos generally showing favour to NBR, as set out in finding of fact 11 above, is conduct which could adversely affect the honest or impartial exercise of official functions by Mr Marcos and therefore comes within section 8(1)(a) of the ICAC Act.

This conduct could also constitute or involve a criminal offence of corrupt giving of a benefit under section 249B of the Crimes Act 1900 (corrupt commissions or rewards) and therefore come within section 9(1)(a)

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Chapter�:DealingswithMrMourched ��

of the ICAC Act. Such conduct could also involve a disciplinary offence or grounds for dismissal in relation to Mr Marcos for the purpose of sections 9(1)(b) and (c) of the ICAC Act.

Mr Mourched’s deliberate failure to identify B&S or Isis as subcontractors in his September 2002 tender documents for the 2002 contract, is conduct which could adversely affect, either directly or indirectly, the exercise of official functions by public officials who would have taken action against NBR and/or Mr Marcos if they had known the true state of affairs. Such conduct could involve fraud or matters of the same or similar nature for the purpose of section 8(2) of the ICAC Act.

Such conduct could constitute or involve a criminal offence under section 178BB of the Crimes Act 1900 of obtaining a valuable thing (the 2002 contract with RailCorp) through the making of a false or misleading statement (the tender submission). The falsity of a statement may arise, not only because a fact therein alleged is falsely alleged, but because the statement, by omitting material facts, creates a false impression (see R v. M (1980) 2 NSWLR 195 at 204). Such conduct therefore comes within section 9(1)(a) of the ICAC Act.

The Commission accordingly finds that Mr Mourched engaged in corrupt conduct in relation to:

(a) him subcontracting NBR RailCorp work to B&S and Isis in return for Mr Marcos generally showing favour to NBR, such favour including:

n arranging for NBR to undertake extra services for which NBR would be entitled to additional payments;

n treating work at the Rail Management Centre and Bondi Junction Bus Interchange as emergency and nominated work thereby entitling NBR to additional payments;

n recommending the contract awarded to NBR in 1999 be extended for a 12-month period;

n recommending NBR be awarded the 2002 contract; and

n recommending that the 2002 contract be extended for a 12-month period.

(b) his deliberate failure to identify B&S or Isis as subcontractors in his September 2002 tender documents for the 2002 contract, that failure arising from his belief that if he had done so he would not have been awarded the contract.

Section 74A(2) statements

Section 74A(2) of the ICAC Act, provides that the report must include in respect of each “affected” person, a statement as to whether or not in all the circumstances the Commission is of the opinion that consideration should be given to the following:

a) obtaining the advice of the Director of Public Prosecutions with respect to the prosecution of the person for a specified criminal offence,

b) the taking of action against the person for a specified disciplinary offence,

c) the taking of action against the person as a public official on specified grounds, with a view to dismissing, dispensing with the services of or otherwise terminating the services of the public official.

An “affected” person is defined, in section 74A(3) of the ICAC Act, as including a person “against whom in the Commission’s opinion, substantial allegations have been made in the course of or in connection with the investigation concerned”.

For the purposes of this chapter the Commission regards Mr Marcos, Mr Mourched and Mr Benjamin Marcos as affected persons.

Although both Mr Marcos and Mr Mourched gave evidence subject to a declaration under section 38 of the ICAC Act, which means their evidence cannot be used against them in any criminal prosecution (except for a prosecution for an offence under the ICAC Act), there is other evidence which would be available to a prosecuting authority. This includes evidence in the form of signed declarations, bank and RailCorp records and evidence from other witnesses.

Mr Benjamin Marcos also gave his evidence subject to a declaration made pursuant to section 38 of the ICAC Act. However, his evidence is admissible against him for a prosecution for an offence under the ICAC Act.

Mr Marcos

The Commission states that pursuant to section 74A(2)(a) of the ICAC Act it is of the opinion that consideration should be given to obtaining the advice of the Director of Public Prosecutions with respect to the prosecution of Mr Marcos for the following offences:

1. Receiving corrupt benefits from Mr Mourched, the receipt and expectation of which would tend to influence him to show favour to Mr Mourched


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in relation to the affairs or business of RailCorp, contrary to section 249B of the Crimes Act 1900.

2. Obtaining a financial advantage by making or publishing a false statement contrary to section 178BB of the Crimes Act 1900 or the common law offence of misconduct in public office, in relation to:

n his declaration on 4 November 2002 that he had no conflict of interest in relation to his membership of the 2002 RailCorp Tender Evaluation Committee;

n his response of “N/A” to Mr Small’s memo of 19 July 2002.

3. Offences of fabricating documents with intent to mislead the Commission under section 88(3) of the ICAC Act.

The Commission is of the opinion that RailCorp should give consideration to taking disciplinary action against Mr Marcos with a view to his dismissal. The Commission understands that Mr Marcos was suspended from duty as of 16 December 2006.

Mr Mourched

The Commission states that pursuant to section 74A(2)(a) of the ICAC Act it is of the opinion that consideration should be given to obtaining the advice of the Director of Public Prosecutions with respect to the prosecution of Mr Mourched for the following offences:

1. Giving corrupt benefits to Mr Marcos the receipt and expectation of which would tend to influence Mr Marcos to show favour to Mr Mourched in relation to the affairs or business of RailCorp, contrary to section 249B of the Crimes Act 1900.

2. An offence under section 178BB of the Crimes Act 1900 of obtaining a financial advantage by making or publishing a false statement in the September 2002 tender documents by failing to identify B&S or Isis as subcontractors.

Mr Benjamin Marcos

The Commission states that pursuant to section 74A(2)(a) of the ICAC Act it is of the opinion that consideration should be given to obtaining the advice of the Director of Public Prosecutions with respect to the prosecution of Mr Benjamin Marcos for an offence under section 88(3) of the ICAC Act of fabricating documents with intent to mislead the Commission.

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Chapter�:DealingswithMrMikhail ��

Between February 2000 and August 2005 Mr Sami Mikhail carried out various work for RailCorp. The work was conducted by Sami Industrial & Domestic Cleaners and Atsan Pty Ltd, two businesses controlled by Mr Mikhail. Mr Mikhail agreed to pay Mr Marcos half the profits from this work. The amounts paid totalled over $56,000.

the work done by Mr Mikhail’s businesses

Between 1 February 2000 and 2 February 2001 Sami Industrial & Domestic Cleaners paid Isis approximately $30,000 for engineering consultancy relating to RailCorp work. Mr Marcos is the only engineer who worked for or was associated with Isis.

Mr Mikhail said that Sami Industrial & Domestic Cleaners carried out “grease trap work”, “tank installation work” and the cleaning of ventilation ducts at the request of Mr Marcos.

Grease trap work involved the use of hydraulic, mechanical and electrical systems. Mr Mikhail said he needed Mr Marcos’s assistance for that work. Mr Mikhail conceded that water tank installation did not require any specialised assistance. However, he claimed that Mr Marcos supervised the work to ensure it was properly done. Mr Mikhail said that he agreed to pay Mr Marcos half the profits from the grease trap and water tank installation work.

Atsan was engaged to provide and install air-conditioning grilles.

Following the receipt of a number of complaints about the smell and heat generated in confined spaces due to lack of ventilation RailCorp decided to replace the existing air-conditioning grilles at railway stations to facilitate greater air flow. The new grilles had to be specially designed and powder coated to prevent problems of vandalism that had affected the previous type of grilles.

The initial order was to install two grilles on the public toilet doors at the Town Hall station. The program was subsequently expanded to include a number of locations mainly in Central and Town Hall stations, as and when the need arose. The grilles varied in size from 600 mm x 600 mm to 1,200 mm x 1,200 mm.

Mr Marcos was asked to locate someone who could provide the grilles. He made enquiries with NBR,

Atsan and two other businesses about their willingness to manufacture and install the grilles. Only NBR and Atsan provided quotes and NBR indicated it was not interested in undertaking the work. Mr Marcos recommended Atsan be given the work.

Mr Mikhail said he engaged Isis to provide consultancy services. Mr Marcos provided the consultancy services on behalf of Isis. Mr Mikhail agreed to pay Isis half of Atsan’s profits on the jobs. Between September 2003 and late 2005 Isis received over $26,000 from Atsan.

The profits from the work undertaken by Atsan were not inconsiderable. The cost of the production of the smaller grilles ranged between $250 and $350. The cost of their installation ranged between $50 and $100. Atsan billed RailCorp between $990 and $1,200 for the supply and installation of the smaller grilles resulting in a minimum profit of between $540 and $750 for each grille.

The bulk of the grilles supplied were of a smaller variety. When additional work was required or a larger grille had to be installed higher amounts were charged.

Was the profit-sharing scheme a bribe?

An important issue to determine was whether the profit-sharing scheme between Mr Marcos and Mr Mikhail was a pre-condition for Mr Marcos assigning RailCorp work to Mr Mikhail’s businesses. A closely related question was whether any work was actually performed by Isis.

Both in his compulsory examination and at the public inquiry Mr Mikhail said that Mr Marcos asked to be paid half the profits made by Sami Industrial & Domestic Cleaners and Atsan. He said he understood that his businesses would not have been given the work by Mr Marcos if he had not agreed to the profit-sharing arrangement. He said the profit-sharing proposition, at least insofar as it related to the grille work, was put to him prior to any work being undertaken. He eventually admitted that he knew at the time he struck the profit-sharing agreement that Mr Marcos had no right to make such a claim.

Mr Mikhail maintained that Mr Marcos did provide some services. He said that Mr Marcos was present at the site when the grilles were installed and provided advice on the type of grilles required. He also maintained that Mr Marcos provided a consultancy service relating to the design of the grilles and provided

Chapter 3: Dealings with Mr Mikhail


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technical advice relating to the calculation of the appropriate air flow through the grilles. He was not able to provide a satisfactory account of the precise work undertaken by Isis or why it was necessary for Isis, as opposed to Mr Marcos acting in his capacity as a RailCorp employee, to undertake the work.

Mr Mikhail denied inflating his invoices to RailCorp to take into account the monies he had to pay Isis.

Mr Marcos agreed that there was a profit-sharing agreement. He claimed the suggestion to split the profits came from Mr Mikhail. He said the payments to Isis were for consulting fees, providing some supervision for the installation of the grilles and his involvement in their design. He denied making the profit-sharing a condition of Mr Mikhail’s businesses receiving RailCorp work.

It was put to Mr Marcos that the provision of technical advice, supervision and checking whether the work was properly done was work which came within the terms of his employment with RailCorp. As such it should have been performed by him without seeking payment from Atsan. He claimed that because the work was done after hours including weekends he was entitled to claim for his time and expertise:

It’s genuine work being done and unique work and I am entitled to tell the guy, “Give me my right”. I was working Saturday, I was standing watching the grilles to be done.

He said he did not ask for overtime from RailCorp because he was getting paid by Atsan for the extra work.

Mr Marcos also claimed that, as the request to do the work came from Mr Kevin Heath, Acting District Manager, Buildings, he did not consider the work to be part of his normal course of duties. Mr Marcos regarded the installation of grilles as unique safety work and unrelated to routine air-conditioning work and as such did not consider that there was anything wrong in him assisting Mr Mikhail and receiving payment for it.

Mr Marcos’s evidence that the grille work did not fall within the scope of his duties is, to some extent, contradicted by other evidence. Mr Heath said that Mr Marcos created Station Maintenance Requests through the Station Assets Maintenance System (SAMS) for supplying and fitting of the ventilation grilles in question. He said these jobs were allocated on SAMS to Mr Marcos.

Mr Small said that as the problem of smell and heat was related to lack of ventilation, he considered installation

of the grilles to resolve the problem would be part of Mr Marcos’s job.

While the evidence indicates that Mr Marcos may have provided some services, through Isis, it is not possible to determine the precise extent of those services. While it is possible that at least some of those services should have been provided by Mr Marcos in the course of his duties as a RailCorp employee it is not possible, on the available evidence, to make any finding to that effect.

Irrespective of whether Mr Marcos did any work or the nature of that work, the fact remains that there was an agreement to split the profits made by Mr Mikhail’s businesses with Mr Marcos’s company. Mr Marcos denied the suggestion came from him or that the profit-sharing was a pre-condition to Mr Mikhail’s businesses being awarded any RailCorp work. For reasons set out in the previous chapter the Commission does not regard Mr Marcos as a credible witness. The Commission rejects his evidence where it is in conflict with that of Mr Mikhail.

The Commission accepts Mr Mikhail’s evidence that the profit-sharing arrangement emanated from Mr Marcos. The Commission also accepts his evidence that he understood this agreement was a pre-condition for his businesses to be given RailCorp work by Mr Marcos.

Mr Mikhail initially claimed he believed there was nothing wrong with the profit-sharing arrangement as Isis did in fact provide services. That claim did not sit well with his admitted reluctance to pay Mr Marcos or his conduct in agreeing to split the profit irrespective of the nature or extent of work performed by Isis. In this respect it is notable that, at least in relation to the work performed by Atsan, the profit-sharing agreement was reached before any work was actually undertaken and before the full nature and extent of the work Isis would need to perform could be properly established or costed. If the engagement of Isis had been legitimate it would be expected that Isis would have separately costed its work for each job and invoiced Mr Mikhail’s businesses for that amount, rather than accepting a fixed amount of any profit which might or might not provide adequate reimbursement for its work. Eventually Mr Mikhail admitted that he knew at the time the profit-sharing arrangement was discussed that Mr Marcos had no right to claim any money from him. The Commission is satisfied on the evidence that Mr Mikhail knew the arrangement was improper.

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procurement policy

The Commission examined whether the awarding of work to Atsan breached relevant procurement policy.

Atsan was engaged to install grilles by way of Local Purchase Orders issued by Mr Marcos rather than by way of a single contract. The table sets out the dates on which the Local Purchase Orders were issued and their amounts.

Date

Local purchase order No.

Amount (including GSt)

payment received by Atsan

17/3/2003 B500037 $4,356 29/7/2003

16/7/2003 B508960 $10,890 2/9/2003

30/10/2003 B508972 $2,178 12/1/2004

2/9/2003 B508973 $7,502 30/10/2003

10/11/2003 B508984 $4,356 27/1/2004

13/11/2003 B508983 $7,920 30/3/2004

6/4/2004 AC6600 $5,280 28/5/2004

25/5/2004 AC6608 $5,280 4/8/2004

26/7/2004 AC6623 $5,280 10/9/2004

8/10/2004 AC6629 $2,640 11/1/2005

25/2/2005 No LPO $6,600 24/3/2005

Total: $62,282

Mr Marcos could order goods and services by using Local Purchase Orders subject to the limits placed on his delegation.

The rules governing the Local Purchase Orders are found in RailCorp’s Minor Procurement Policy which was produced in February 2002 and superseded by a similar policy in October 2003. Both policies required that three documented quotes be obtained for expenditure over $1,000. For expenditure under $5,000 departure from the quotation procedures was permitted if the Approving Officer could demonstrate that a genuine attempt to follow procurement procedures had occurred. Expenditure over $5,000 without obtaining three quotes was permitted only if the requesting officer made a formal request in writing to the appropriate officer via the Manager, Contracts and approval for departure was received prior to inviting quotations/tenders. A Certificate of Exemption authorising the departure was also required.

Mr Marcos said he understood that he could authorise work valued at less than $1,000. For any amount in excess of $1,000 he would need the approval of the foreman. Mr Marcos also understood that if the value of the work exceeded $1,000 he needed to obtain three quotes. He understood that there was no need to obtain

three quotes if no-one else could do the kind of work required to be performed.

Mr Small recalled Mr Marcos telling him that the grilles were specialised and had to be custom built. He could not recall if Mr Marcos told him there was only one supplier but agreed that if only one supplier was available that would be a reason to forgo obtaining three quotes. He was clear that he would not have approved the Local Purchase Orders if he had known any profit from the work was to be split with a company controlled by Mr Marcos.

It is not disputed that the grilles had to be custom made and that only one company indicated a willingness to supply and fit the grilles. In these circumstances the Commission is satisfied that the Local Purchase Orders issued for amounts under $5,000 complied with the policy.

In relation to the Local Purchase Orders for amounts over $5,000, the available documentary evidence is insufficient to enable any conclusion to be drawn whether or not there was a breach of the procurement policy.

payments to Isis

Once Atsan had performed the work required by the Local Purchase Order it invoiced RailCorp. All invoices received from Atsan were certified by Mr Marcos and approved by his superiors. All invoiced amounts were paid.

The Atsan invoices did not differentiate between the cost of materials and labour. However, Mr Mikhail maintained an exercise book which contained detailed workings as to how the invoice figures were calculated. This exercise book was part of the material obtained by the Commission during the execution of a search warrant at the office of Atsan on 5 May 2006. It is clear from this material that the amount claimed in the invoices included the cost of the production and installation of the grilles and a profit component. Importantly, the invoices also contained an amount to be paid to Isis Pty Ltd.

Isis forwarded invoices to Atsan for “consultation fees”. The table on the following page sets out the dates and amounts of the Isis invoices.

Once Atsan received payment from RailCorp it paid Isis by cheque. The cheque was banked by Mr Marcos.


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DateInvoice No.

Amount (including GSt)

Date deposited into Isis account

2/9/2003 090203 $4,119 3/9/2003

30/10/2003 Nil Invoice $2,985 30/10/2003

9/1/2004 010904 $952 12/1/2004

28/1/2004 012804 $952 28/1/2004

30/3/2004 04330 $3,960 31/3/2004

3/6/2004 30604 $1,705 4/6/2004

31/7/2004 310704 $2,500 9/8/2004

Nil Invoice $1,758 15/9/2004

11/1/2005 11105 $1,320 18/1/2005

Nil Invoice $3,903 31/3/2005

10/8/2005 050810 $2,178 12/8/2005

Total:

$26,332

Conflicts of interest and secondary employment

Apart from their business relationship Mr Marcos acknowledged knowing Mr Mikhail for a long time before he was awarded any RailCorp work.

The RailCorp policies on conflicts of interest and secondary employment are discussed in the preceding chapter.

A conflict of interest would exist where Mr Marcos had a financial interest in a matter related to his work, such as his family company being a subcontractor to a RailCorp contractor to whom he assigned RailCorp work. The secondary employment policy required him to obtain permission before engaging in any other paid employment or conducting any business.

Mr Marcos did not tell anyone at RailCorp of his friendship with Mr Mikhail, their profit-sharing arrangement or that Isis was subcontracted by Mr Mikhail’s businesses to perform work for RailCorp. He did not seek permission for any secondary employment.

In his compulsory examination Mr Marcos claimed that Mr Heath, who requested the installation of the grilles, was aware that Mr Mikhail was Mr Marcos’s friend. Mr Heath, however, told the Commission that he knew nothing about Mr Mikhail. The Commission accepts Mr Heath’s evidence on this point.

In his statement provided to the Commission, Mr Biggam stated that on at least three occasions Mr Marcos pretended not to remember Mr Mikhail’s name. Given that it was Mr Marcos who introduced

Atsan in the first place Mr Biggam found Mr Marcos’s behaviour very strange.

Mr Marcos clearly had a conflict of interest involving recommending or awarding work to Mr Mikhail’s businesses. He was also clearly engaged in secondary employment. For the reasons set out in the preceding chapter the Commission is satisfied that Mr Marcos was aware of his general obligations to make known any conflict of interest and to seek permission to engage in secondary employment. He did neither. His awareness about having a conflict of interest is reinforced by Mr Biggam’s evidence concerning Mr Marcos’s attempts to conceal his relationship with Mr Mikhail from Mr Biggam.

The Commission is satisfied that Mr Marcos did not declare his conflict of interest or seek permission to engage in secondary employment in order to continue to benefit financially from his relationship with Mr Mikhail and his businesses.

Findings of fact

Based on the evidence set out above, the Commission is satisfied that the following facts have been established.

1. At all relevant times, Mr Mikhail was a director of Atsan Pty Ltd and the owner of the business known as Sami Industrial & Domestic Cleaners.

2. Mr Mikhail and Mr Marcos were long-term associates, their association pre-dating Mr Marcos awarding RailCorp work to Mr Mikhail’s businesses.

3. Mr Marcos and Mr Mikhail entered into an agreement whereby half the profits derived from all RailCorp work undertaken by Mr Mikhail’s businesses would be paid to Mr Marcos through Isis. This agreement was in return for Mr Marcos awarding RailCorp work to Mr Mikhail’s businesses.

4. Between early 2000 and 2001 Mr Marcos awarded RailCorp work to Sami Industrial & Domestic Cleaners. Half the profits from this work were paid to Mr Marcos through Isis, a company controlled by Mr Marcos.

5. Between March 2003 and February 2005 Mr Marcos awarded Atsan the work of supplying and installing grilles at railway sites controlled by RailCorp.

6. Mr Marcos awarded this work to Atsan knowing that he would financially benefit through work performed by Isis for Atsan. Of the total payments

© ICAC


of $62,282 made by RailCorp to Atsan for this work, $26,332 was paid by Atsan to Isis.

7. Mr Marcos deliberately failed to declare to RailCorp his conflict of interest arising out of his association with Mr Mikhail and his interest in Isis and its relationship with NBR.

8. At all relevant times Mr Marcos was a director and shareholder of Isis. He directly benefited from monies paid to Isis by Mr Mikhail’s businesses. As such Mr Marcos carried on a business without obtaining RailCorp consent.

9. Mr Marcos deliberately concealed his conflict of interest and secondary employment in order to continue to benefit financially from the subcontracting of work by Mr Mikhail’s businesses to Isis.

Corrupt conduct

In determining findings of corrupt conduct, the Commission has applied the approach set out in Appendix 2 of this report.

Mr Marcos

An arrangement between Mr Marcos and Mr Mikhail whereby Mr Mikhail would pay Mr Marcos half the profits derived from work performed for RailCorp in return for Mr Marcos arranging for Mr Mikhail’s businesses to get that work (irrespective of whether Mr Marcos or Isis performed any work for those businesses connected with that work) is conduct which involves the dishonest or partial exercise of Mr Marcos’s official functions and constitutes or involves a breach of public trust. As such the conduct comes within sections 8(1)(a), (b), and (c) of the ICAC Act.

Such conduct could constitute or involve a criminal offence under section 249B(1) of the Crimes Act 1900 (corrupt commissions or rewards), a disciplinary offence and grounds for dismissal, and therefore comes within sections 9(1)(a), (b) and (c) of the ICAC Act.

Mr Marcos’s deliberate failure to declare any conflict of interest and to continue to engage in secondary employment contrary to RailCorp policy in order to continue to benefit financially from the subcontracting of work by Mr Mikhail’s businesses to Isis, a company controlled by Mr Marcos, is conduct which affects or could affect the exercise of his official functions. Those functions are his duty to declare any conflicts of interest and to comply with the relevant secondary employment policy. His conduct could also adversely affect the exercise of official functions by other RailCorp officials who may have taken action against Mr Marcos if they

had known the true state of affairs. In either case the conduct could involve official misconduct. In these circumstances the conduct comes within section 8(2) of the ICAC Act.

Failure to declare a conflict of interest or to abide by the secondary employment policy is conduct which, for the purpose of sections 9(1)(b) and (c) of the ICAC Act, could constitute or involve a disciplinary offence or reasonable grounds for dismissal.

The Commission accordingly finds that Mr Marcos engaged in corrupt conduct in relation to:

(a) entering into an arrangement with Mr Mikhail whereby Mr Mikhail’s businesses, Sami Industrial & Domestic Cleaners and Atsan Pty Ltd, would pay Mr Marcos half the profits they derived from work performed for RailCorp in return for Mr Marcos arranging for those businesses to get that work; and

(b) his deliberate failure to declare any conflict of interest and to continue to engage in secondary employment contrary to RailCorp policy in order to continue to benefit financially from the subcontracting of work by Mr Mikhail’s businesses to Isis, being a company he controlled.

Mr Mikhail

An arrangement between Mr Marcos and Mr Mikhail whereby Mr Mikhail’s businesses would pay Mr Marcos half the profits derived from work performed for RailCorp in return for Mr Marcos arranging for those businesses to get that work (irrespective of whether Mr Marcos or Isis performed any work) is conduct which adversely affects or could adversely affect the honest or impartial exercise of Mr Marcos’s official functions, involves the dishonest or partial exercise of Mr Marcos’s official functions and constitutes or involves a breach of public trust. As such the conduct comes within sections 8(1)(a), (b) and (c) of the ICAC Act.

The conduct of Mr Mikhail in agreeing to pay and in making payments to Mr Marcos (or Isis) in return for Mr Marcos awarding RailCorp work to Mr Mikhail’s businesses is conduct which could constitute or involve a criminal offence under section 249B(2) of the Crimes Act 1900 (corrupt commissions or rewards), and a disciplinary offence and grounds for dismissal in relation to Mr Marcos, and therefore comes within sections 9(1)(a), (b) and (c) of the ICAC Act.

The Commission accordingly finds that Mr Marcos engaged in corrupt conduct in relation to entering into an arrangement with Mr Mikhail whereby Mr Mikhail’s


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businesses, Sami Industrial & Domestic Cleaners and Atsan Pty Ltd, would pay Mr Marcos half the profits derived from work they performed for RailCorp in return for Mr Marcos arranging for those businesses to get that work.

Section 74A(2) statement

In relation to the matters dealt with in this chapter the Commission is of the view that Mr Marcos and Mr Mikhail are the only persons who are “affected” persons as defined in section 74A(3) of the ICAC Act.

Although both gave their evidence subject to a declaration under section 38 of the ICAC Act, which means their evidence cannot be used against them in any criminal prosecution (except for a prosecution for an offence under the ICAC Act), there is other evidence which would be available to a prosecuting authority. This includes evidence in the form of documents obtained by the use of the Commission’s formal powers, bank and RailCorp records and, in the case of Mr Marcos, potential evidence from Mr Mikhail.

The Commission states that, pursuant to section 74A(2)(a) of the ICAC Act, it is of the opinion that consideration should be given to obtaining the advice of the Director of Public Prosecutions with respect to the prosecution of Mr Marcos and Mr Mikhail for offences under sections 249B(1) and 249B(2) of the Crimes Act 1900 (corrupt commissions or rewards) respectively.

The Commission is of the opinion that RailCorp should give consideration to taking disciplinary action against Mr Marcos in relation to the findings of fact set out above.

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Chapter�:Corruptionprevention �1

The Commission’s corruption prevention role is established under section 13(1) of the ICAC Act, as follows:

…

(d) to examine the laws governing, and the practices and procedures of, public authorities and public officials, in order to facilitate the discovery of corrupt conduct and to secure the revision of methods of work or procedures which, in the opinion of the Commission, may be conducive to corrupt conduct,

(e) to instruct, advise and assist any public authority, public official or other person (on the request of the authority, official or person) on ways in which corrupt conduct may be eliminated,

(f) to advise public authorities or public officials of changes in practices or procedures compatible with the effective exercise of their functions which the Commission thinks necessary to reduce the likelihood of the occurrence of corrupt conduct …

Section 13 also establishes the corruption prevention functions that apply to investigations carried out by the Commission:

(2) The Commission is to conduct its investigations with a view to determining:

…

(b) whether any laws governing any public authority or public official need to be changed for the purpose of reducing the likelihood of the occurrence of corrupt conduct, and

(c) whether any methods of work, practices or procedures of any public authority or public official did or could allow, encourage or cause the occurrence of corrupt conduct.

Pursuant to these functions, the purpose of this chapter is to examine the systemic factors that enabled Mr Marcos to corruptly obtain over $710,000 in relation to air-conditioning maintenance work conducted at RailCorp over a period of about six years.

This chapter examines the relevant systems and processes within the Asset Maintenance Group of the

Buildings and Sidings Unit of RailCorp’s Metropolitan Infrastructure Division.1 While some of these systems and processes were deliberately breached by Mr Marcos, others were not sufficiently robust to prevent or detect his corrupt conduct, or were not implemented in the way they were intended, thereby allowing the corrupt conduct to occur.

There was also a series of significant organisational changes that occurred at RailCorp, around the time period relevant to this investigation, which are likely to have had an impact on its implementation of the applicable policies and procedures.

The organisational changes involved an agency merger (the amalgamation of the SRA and Rail Infrastructure Corporation in January 2004 to form RailCorp), internal restructures (involving the Asset Management Group and the Buildings and Sidings Unit that resulted in shifting reporting arrangements for Mr Marcos), and a significant change to the way work was carried out (the outsourcing in 1999 of the air-conditioning maintenance function).

The Commission’s experience suggests that organisational change may create opportunities for corruption due to:

n unclear designations of roles and responsibilities;

n poor integration of different systems; and

n uneven application of policies and procedures.

Such features can be identified in the corruption prevention analysis of Mr Marcos’s corrupt conduct and the associated corruption risk areas presented in this chapter. An outline of this analysis is presented below.

Corruption prevention analysis of corrupt conduct

As discussed in earlier chapters, there are two main ways in which Mr Marcos gained a financial benefit, both of which were associated with his undeclared business interests. The first was associated with the air-conditioning maintenance contracts held by NBR, and the second was associated with door ventilation grille installations performed by Atsan and with grease trap, tank installation and ventilation duct cleaning work performed by Sami Industrial & Domestic Cleaners. The key elements of these arrangements and

Chapter 4: Corruption prevention

1. When working for RailCorp, Mr Marcos was employed in the Asset Maintenance Group of the Asset Maintenance Section.


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the benefits obtained from them are summarised briefly below.

In relation to the air-conditioning maintenance contracts, NBR signed its two contracts with RailCorp on 28 April 1999 and 11 November 2002, to provide air-conditioning maintenance services for Sydney Central Business District (CBD) railway stations.2

In the course of his duties with RailCorp, Mr Marcos was intimately involved with these contracts, both in terms of serving on the committees that awarded these tenders and, in his role as Superintendent’s Representative, administering their execution on behalf of RailCorp.

Throughout this period, through his involvement with B&S Mechanical Services (B&S) and Isis Australia Pty Ltd (Isis), Mr Marcos received a financial benefit from these contracts as, from July 1999 until November 2005, these two entities received subcontracting payments from NBR.

Mr Marcos’s connections with B&S and Isis, and his failure to declare these connections to RailCorp, violated RailCorp’s policies and procedures on both outside employment (or secondary employment) and conflicts of interest.

In relation to the installation of door grilles by Atsan, Mr Marcos received corrupt benefits from a profit-sharing arrangement with Mr Mikhail, who controlled both Atsan and Sami Industrial & Domestic Cleaners, during the period September 2003 to October 2004. RailCorp paid Atsan to manufacture and install these grilles and Isis, in turn, received consultancy payments from Atsan.

Isis also received consultancy payments from another of Mr Mikhail’s companies, Sami Industrial & Domestic Cleaners, which was engaged by Mr Marcos for work involving grease traps, water tanks and ventilation ducts.

Combined, the NBR contracts, Atsan door grille installations and work performed by Sami Industrial & Domestic Cleaners earned B&S and Isis over $710,000.

Summary of corruption risk areas

This investigation has identified five main risk areas where system failures and inadequacies allowed the

corrupt relationships and corrupt conduct to occur and continue:

n High discretion and low accountability: Mr Marcos had considerable discretion in how he performed his work but limited accountability for his actions. This, for instance, enabled Mr Marcos’s recommendations that NBR perform additional work to be accepted without scrutiny.

n Contract monitoring and record-keeping: For the NBR contracts there was a lack of adequate contract monitoring and record-keeping. This allowed Mr Marcos, among other things, to avoid acting upon complaints against NBR that might have jeopardised its commercial relationship with RailCorp.

n Implementation of policies and procedures: Many of the policies and procedures that existed to guide the work of Mr Marcos contained significant weaknesses and/or were not followed. This, for instance, allowed Mr Marcos to generate maintenance work requests, allocate this work and then sign off that the work had been completed.

n Conflicts of interest: Mr Marcos’s private interests in B&S and Isis conflicted with his public duty to properly administer the NBR air-conditioning contracts. Through his work at RailCorp, he acted improperly to favour his private interests.

n Secondary employment: Mr Marcos’s involvement with B&S and Isis constituted secondary employment that should have been declared to RailCorp. Mr Marcos’s roles in these entities provided him with the means of obtaining corrupt benefits.

These risk areas are considered in detail later in this chapter. First, however, the key systems that were manipulated by Mr Marcos for corrupt personal benefit are described.

Workplace systems

This chapter examines weaknesses in a number of RailCorp systems, policies and procedures. Four of the key procedural systems relevant to these weaknesses are described in this section. Knowing how the systems should have functioned is crucial to understanding how Mr Marcos was able to engage in corrupt conduct.

Discussed in this section are the systems for:

n classification of maintenance work as “routine”, “nominated” and “emergency”;

2. Some other locations were also covered but the primary coverage of the contract was CBD stations.

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Chapter�:Corruptionprevention ��

n assigning responsibility for contract administration functions to the Contract Superintendent;

n allocating and recording maintenance applications using Station Maintenance Requests; and

n conducting minor procurements using Local Purchase Orders.

Classification of maintenance work as routine, nominated or emergency work

RailCorp classifies the maintenance work performed under contracts according to whether it is routine, nominated or emergency work.

Routine work refers to a list of regular inspections and basic maintenance, such as filter cleaning. For the NBR contracts, this list was detailed in the contract schedules. Contractors do not require authorisation to perform routine work once the contract has commenced.

Nominated work refers to work that has been identified during the routine inspections as necessary to ensure continued appropriate operation of equipment. Emergency work refers to work arising out of a specific failure of a component requiring immediate repair. Contractors are required to obtain authorisation before performing any nominated or emergency work.

It should be noted that RailCorp often groups nominated and emergency work together. For instance, the budgets for the NBR contracts comprised two figures – one for routine work and one for nominated and emergency work.

Extra services that were allowed for in the contract could be routine, nominated or emergency work.

Contract administration via the Superintendent (principal’s Representative)

The Superintendent (later renamed the Principal’s Representative) is a critical figure in terms of RailCorp’s contract administration.3 This position is a representative of the Principal, the Principal being RailCorp as represented by the Manager, Contracts and Procurement.

Mr Marcos performed the role of the delegated representative of the Superintendent for the NBR

contracts, meaning that the functions of the Contract Superintendent had been delegated to him. The role of Superintendent has, inherent within it, considerable discretion – a factor that, given RailCorp’s poor supervision of Mr Marcos, made it difficult for RailCorp to detect Mr Marcos’s corrupt conduct.

While the exact powers of the Superintendent vary from contract to contract, Clause C4.2.1 of the 1999 and 2002 NBR contracts granted the Superintendent broad powers:

The Superintendent:

– administers the Contract on behalf of the Principal, and may issue directions concerning any matters relating to the manner in which the Services are to be carried out or performed under the Contract;

– shall act or determine matters according to criteria set out in the Contract, or inferred or implied from the Contract, or if no criteria are so expressed or can be inferred or implied, according to relevant objective professional or industry norms;

– shall carry out his duties or exercise his powers under the Contract without undue delay so as to not impede or hinder the Contractor, but the Superintendent does not have a positive duty to facilitate the Contractor’s execution of the Services; and

– may act in consultation with the Principal and without consulting the Contractor.

The directions that can be issued by the Superintendent, referred to in (1) above:

… may include, but are not limited to:

– the availability of access to the Place of the Services, hours of operations relating to the Services, and the Programme of Services;

– the preparation of reports by the Contractor concerning the carrying out of the Services in accordance with his directions and the provisions of the Contract and;

– the rejection of any of the Services which, in the opinion of the Superintendent, do not conform with his directions or with the requirements of the Contract.

3. In Version 1 of the State Rail Authority Contract Administration Guidelines, current to June 2003, this position is referred to as the In Version 1 of the State Rail Authority Contract Administration Guidelines, current to June 2003, this position is referred to as the “Superintendent”. Later versions of the Contract Administration Guidelines refer to the position as the “Principal’s Representative”. The term “Superintendent” was also used in the 1999 and 2002 contracts between RailCorp and NBR. These roles are the same. For simplicity and consistency this position is usually referred to as the “Superintendent” in this chapter. Where recommendations are made concerning the current version of the Contract Administration Guidelines, the position is referred to as the “Principal’s Representative” to ensure consistency with these guidelines (see Recommendations 4 to 9 and 23).


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From these sections, it is clear that the Superintendent has the right to make determinations relevant to the contract, control a contractor’s access to the workplace environment, compel the contractor to invoice and record the work undertaken in a particular way and reject unsatisfactory work. Additionally, Clause C7.1 of the NBR contracts grants the Superintendent the right to value the cost of variations to the contract and, under Clause C8.1.1, the Superintendent is responsible for processing claims made for payments under the contract.

Additionally, Clause C4.1.1 of the 1999 and 2002 NBR contracts states that:

The Superintendent named in the Annexure is the lawful representative and attorney of the Principal of the contract.

Section 17 of RailCorp’s Contract Administration Guidelines for Service Contracts gives the Principal’s Representative (formerly referred to as the Superintendent) certain rights and responsibilities.4 These guidelines note that the key functions of this role are as:

n an agent of the Principal and not as a certifier, assessor or valuer; and

n a contract administrator who gives directions and carries out its other functions under the contract.

Section 17 of these guidelines also notes that the role of the Principal’s Representative, in consultation with his or her manager, is to develop procedures to ensure that the following requirements of the Public Finance and Audit Act 1983 (NSW) are met in relation to the contract:

n value for money is always obtained

n delegations are not breached

n proper records of expenditure are kept

n proper accountancy procedures are followed.

The guidelines do not explain how to develop these procedures, but note that advice about how to operate within compliance with these requirements can be obtained from the relevant managers (currently the Manager Procurement Policy and Compliance).

As a consequence of other sections of these guidelines, the Superintendent is also responsible for adherence to safety and quality standards (Section 18), making sure

that RailCorp has been invoiced correctly (Section 31), cost monitoring (Section 33) and coordinating communication between the contractor and RailCorp (Section 27).

Section 15 of the guidelines indicates that when appointing a Superintendent, “past experience”, “capacity” and “level of delegation” should be considered. Beyond these comments, details are not provided concerning how a Superintendent should be selected, or whether there are any other criteria that must be met by the potential Superintendent (such as a particular level of seniority).

Under both Section 18 of these guidelines and Clause C4.1.2 of the NBR contracts, the Superintendent can delegate some or all of his or her powers to a Superintendent’s Representative.5 No information is provided as to how such a person should be selected. Likewise, no information is provided on how to determine whether the appointment of a particular representative is appropriate or, if such an appointment is made, what powers it is appropriate to delegate to him or her. There is a requirement to tell the contractor of the appointment of a Superintendent’s Representative but no apparent requirement for RailCorp to make an internal record of the appointment.

Allocation and recording of required maintenance using Station Maintenance Requests

Station Maintenance Requests (SMRs) are forms used by RailCorp to record and action all instances of particular maintenance problems including mechanical repairs, broken equipment, graffiti and water leaks. SMRs were used to allocate nominated and emergency air-conditioning maintenance work to NBR. Reports of air-conditioning problems were sent to Mr Marcos using the SMR system and he was responsible for allocating the work required to address them. As is discussed later, this gave Mr Marcos considerable control over how repairs were handled and contributed to him being able to classify routine cleaning work that Isis performed (on behalf of NBR) as nominated work. This resulted in NBR and Isis receiving a larger payment for this work.

The June 2000 Station Maintenance Request Operating Procedures describe how maintenance requests should be made:6

4. The current version of the Contract Administration Guidelines is Version 3. This was introduced in March 2005. Version 1 of the The current version of the Contract Administration Guidelines is Version 3. This was introduced in March 2005. Version 1 of the Guidelines was introduced in February 1995 and Version 2 in June 2003. The contents of the three versions are substantially the same.

5. The current version of the Contract Administration Guidelines describes this role as “Delegation by the Principal’s Representative”. The current version of the Contract Administration Guidelines describes this role as “Delegation by the Principal’s Representative”. For simplicity this role is usually referred to as “Superintendent’s Representative” in this chapter. See also footnote 3.

6. RailCorp was unable to locate SMR procedures prior to June 2000. The June 2000 procedures were replaced in July 2002 but, except when noted otherwise, the features of the two versions referred to here are fundamentally the same.

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On commencement of the Station Managers [sic] shift, the station shall be inspected and any maintenance required that day must be prioritised and faxed to the District Maintenance Manager in your area by 0800 …

All other Minor Maintenance can be faxed through the day …

Emergency Work

For any emergency work detected between 0730 and 1600 weekdays, the Station Manager shall phone or page the D.M.M [District Maintenance Manager].�

The procedures also state that, for after-hours emergency work, the District Maintenance Manager should be contacted for advice on how to action the request. However, an alternative contact point is provided for maintenance requests involving electrical equipment, lifts or escalators.

In relation to the emergency work discussed above, the June 2000 procedures do not specify whether or how an SMR is to be used. However, the use of SMRs to record such emergency work may be implied by the purpose of SMRs, namely the recording of all maintenance defects, emergencies and similar problems. Moreover, the inclusion of emergency work in the SMR Operating Procedures by itself suggests that SMRs are meant to be used as a record of the allocation of emergency work.The July 2002 procedures explicitly state that SMRs should be used to record emergency maintenance work:

The purpose of this form is to record all maintenance defects, emergencies, vandalism, graffiti, accidents, minor works, and other works.

However, the method for allocating emergency work did not differ appreciably between the June 2000 and July 2002 procedures. No explanation was given of how SMRs were to be used to record requested emergency work.

The SMR form has three sections.

The Requesting Officer is required to complete Section 1, which briefly records what the request is and who is making it. Although the Station Manager identifies and prioritises the required maintenance, he or she need not be the SMR’s Requesting Officer.

Once Section 1 is completed, the SMR is faxed to the District Maintenance Manager, who completes Section 2. For the purpose of CBD air-conditioning maintenance, the District Maintenance Manager was

Mr Marcos. The District Maintenance Manager puts a reference number in Section 2, records the staff or contractors to be used and lists any Occupational Health and Safety (OHS) requirements. The District Maintenance Manager is required to sign off that the SMR has been received and the work “actioned”. The meaning of “actioned” in this context is not specified although it appears to suggest authorising RailCorp employees and/or contractors to perform the work required.

The SMR is then faxed back to the Requesting Officer, who completes Section 3, indicating that the work has been satisfactorily completed. Finally, the SMR is faxed back to the District Maintenance Manager although a copy remains with the station’s records. It is not clearly specified what the District Maintenance Manager should ultimately do with his or her copy.

Minor procurement involving Local purchase orders

Local Purchase Orders (LPOs) are used by RailCorp as the prescribed ordering method for many types of minor procurement.8 LPOs were used to order the door grilles supplied and installed by Atsan.

LPOs require three signatures – those of a Requesting Officer, an Approving Officer and a Receiving Officer. A person cannot simultaneously be the Approving Officer and Receiving Officer although they can simultaneously be the Requesting Officer and Approving Officer or the Requesting Officer and the Receiving Officer.

Volume 2 of RailCorp’s Procurement Manual defines:

n A Requesting Officer as “…an Officer who makes a recommendation to place an order.”

n An Approving Officer as “…a State Rail permanent employee with appropriate financial delegation who, on the recommendation of a Requesting Officer, may approve the commitment or incurring of expenditure”.

n A Receiving Officer as “…an Officer who certifies that the goods or services have been supplied in accordance with the order.”

Space is provided on LPOs for the recording of quotations but there is no apparent requirement to attach the quotations to them. Because the LPOs for the door grilles ranged in value from $2,170 to $10,890,

7. In the Operating Procedures emergency repairs are defi ned as matters that create either “an immediate safety risk” or “a security In the Operating Procedures emergency repairs are defined as matters that create either “an immediate safety risk” or “a security risk”.

8. During the period applicable to this investigation, minor procurements were defi ned in the Procurement Manuals to be those under During the period applicable to this investigation, minor procurements were defined in the Procurement Manuals to be those under $100,000. Local Purchase Orders could be used for procurements of less than $50,000.


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the quotation requirements for the Atsan LPOs varied across the different LPOs. Specifically:9

n for amounts of $1,000 to $5,000, procedure number p210 of the Procurement Manual requires that the purchaser obtains “…at least three written quotations from suppliers. If this is not possible, obtain a minimum of three oral quotations, details of which must be documented for audit purposes …” [emphasis in original]

n for amounts of $5,000 to $20,000, procedure number p220 of the Procurement Manual requires that the purchaser obtains “…at least three written quotations from suppliers. Quotations must be opened by at least two State Rail Officers.” [emphasis in original].

There were allowable exceptions to the standard quotation procedures. For procurements of less than $5,000, this was permitted if the Approving Officer could demonstrate that a genuine attempt to follow RailCorp procurement procedures occurred. For procurements costing more than $5,000, a Certificate of Exemption needed to be obtained to authorise the departure from procedure.

Recommendations to address corruption risk areas

Discretion and accountability

Despite his relatively junior level, Mr Marcos had considerable responsibilities and discretion as the Superintendent’s Representative on the NBR contracts, with significant autonomy in terms of how he fulfilled this role. Mr Marcos’s role provided him with opportunities for corrupt conduct and made his corrupt activities more difficult to detect.

As discussed earlier, the Contract Superintendent was the person charged with administering the NBR contracts on behalf of RailCorp. While Mr Marcos was not Superintendent for the NBR contracts, he had apparently been appointed Superintendent’s Representative, seemingly with all the Superintendent’s powers delegated to him.10 This gave Mr Marcos broad and discretionary powers in areas such as the rejection of substandard work, contract expenditure, contract performance and coordinating communication with NBR.

There were few accountability mechanisms in place for Mr Marcos in his role as Superintendent’s

Representative. This lack of accountability arises from two main sources: limited supervision by his line managers, and limited guidance from RailCorp about reporting on contract administration.

Mr Marcos’s reporting arrangements varied over the period relevant to this investigation. Following the outsourcing of air-conditioning maintenance, Mr Marcos initially reported to Mr Stephen Barnett (Asset Maintenance Manager). He then began reporting to Mr Clayton Small (Maintenance Support Manager) in approximately July 2000 following an internal restructure. Mr Small reported to Mr Barnett. In another restructure arising from the merger that formed RailCorp, Mr Small’s position was abolished in approximately September 2004 and Mr Marcos subsequently reported to Mr Nick O’Brien (Building Maintenance Manager) until the end of the period relevant to this investigation. Mr O’Brien reported to Mr Barnett, both of whom were acting in their positions.

These managers provided limited supervision and oversight to Mr Marcos. For example, Mr Small gave evidence that he met Mr Marcos approximately monthly to discuss major equipment issues and issues relating to Mr Marcos’s budget, which included but extended beyond the NBR contract budget. More generally, in statements to the Commission Mr Marcos’s role was described by both Mr Small and Mr O’Brien as “fairly self-managing”.

There are four factors that may have contributed to this limited supervision. These factors, and some of their potential consequences, are:

1. The shifting reporting arrangements outlined above, which brought a lack of continuity to the management of Mr Marcos.

2. That at certain periods Mr Marcos was not based at the same location as his supervisor. Mr Marcos’s managers may have been unwilling or unable to face the extra challenges involved in maintaining good quality supervision under such circumstances.

3. The fact that RailCorp perceived the NBR contracts to be relatively ‘low cost’ with limited Occupational Health and Safety risk.11 It has been the Commission’s experience that corruption sometimes occurs in settings with low perceived

9. It should be noted that RailCorp’s current Procurement Manual, which was not applicable for any of the period covered by this It should be noted that RailCorp’s current Procurement Manual, which was not applicable for any of the period covered by this investigation, has different quotation requirements. Work valued below $5,000 requires one verbal quotation and work valued between $5,001 and $30,000 (inclusive) requires three verbal quotations combined with written confirmation of the selected quotation.

10. The problematic nature of delegation of Superintendent’s powers is discussed in the Contract Superintendent and Superintendent’s The problematic nature of delegation of Superintendent’s powers is discussed in the Contract Superintendent and Superintendent’s Representative section on pages 38–40.

11. The total cost of payments from RailCorp to NBR in the period relevant to this investigation exceeded $4 million.

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risk because such work slips ‘under the radar’ of the relevant checks.12

4. The perception that Mr Marcos was the ‘resident expert’ for air-conditioning and that he would know his job and therefore not need direction. The Commission’s experience suggests that a corruption risk can arise when one person has, or is seen to have, specialised knowledge and this person is not sufficiently held to account.13 This can occur when the supervisory or management role is not seen as a complex role that includes performance management.

In terms of the second factor (limited guidance to Mr Marcos), despite the extensive responsibilities associated with the role of Superintendent/Superintendent’s Representative, the Contract Administration Guidelines for Service Contracts provide limited information about RailCorp’s requirements for reporting on contract administration functions. While Mr Marcos was required to process items associated with the NBR contracts, there were no formal processes in place at RailCorp to monitor his work.

It is clear from the description of the role of the Superintendent that this position is designed to have considerable discretion and to operate largely autonomously. In this investigation, Mr Marcos abused this discretion and autonomy for his own personal benefit. To address this risk, it is recommended that RailCorp puts in place a formal accountability framework for the management of contracts by the Superintendent and/or the Superintendent’s Representative.

Such a framework should include mandatory reporting requirements and key performance indicators in critical areas such as expenditure monitoring, performance monitoring and accurate, sufficient and timely processing of contract paperwork. Linked to this there needs to be a process for reviewing the information provided by the Superintendent and acting on any anomalies identified.14

RECoMMENDAtIoN 1

It is recommended that RailCorp establishes a formal accountability framework for the management of contracts that includes (i) mandatory reporting requirements and key performance indicators for all important contract administration functions, (ii) a process for reviewing the information reported under (i), and (iii) a process for acting on anomalies identified as a result of this review process.

Contract monitoring and record-keeping

Monitoring and record-keeping are closely linked. Clear and well-managed records establish a trail that identifies connections between prior and current occurrences, which greatly facilitates monitoring. More generally, appropriate record-keeping can enhance the effectiveness and efficiency of an organisation in areas such as the quality of decision-making, the quality of business activity, long-term planning, quality reporting and fast and accurate customer service.15 Poor record-keeping has featured in several of the Commission’s recent investigation reports, including one involving the defrauding of RailCorp.16

The current investigation found many instances of poor monitoring and/or record-keeping, which are discussed below. The systemic failures in these areas suggest that RailCorp has failed both to provide appropriate guidance on these issues to its staff and to systematically monitor and audit the records it creates. The Commission acknowledges that RailCorp is starting to examine this issue. The 2006 Code of Conduct makes specific mention of employees’ record-keeping responsibilities.

Given the widespread nature of the record-keeping issues discussed in the following sections, RailCorp is referred to Recommendation 27 of the Commission’s 2006 Report on investigation into defrauding the RTA and RailCorp in relation to provision of traffic management services, which recommended that RailCorp perform an audit of record-keeping across “the spectrum of organisational functions”. The Commission reiterates this recommendation to RailCorp.17

12. For example, see For example, seeee Report on investigation into defrauding the RTA and RailCorp in relation to provision of traffic management services, Independent Commission Against Corruption, Sydney, December 2006.

13. For example, see For example, see Report on investigation into safety certification and the operations of the WorkCover NSW Licensing Unit, IndependentIndependent Commission Against Corruption, Sydney, December 2005., Sydney, December 2005.

14. RailCorp advised the Commission in April 2007 that it is reviewing and revising its overall procurement model and that it intends to establish these accountability requirements in the context of this revised procurement model.

15. See Introducing records, record-keeping and records management, State Records Authority of New South Wales, Sydney, 2004.16. Report on investigation into defrauding the RTA and RailCorp in relation to provision of traffic management services, Independent

Commission Against Corruption, Sydney, December 2006.17. RailCorp has advised the Commission in April 2007 that its 2006–07 Audit Plan includes procurement audits. RailCorp has advised the Commission in April 2007 that its 2006–07 Audit Plan includes procurement audits.


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RECoMMENDAtIoN 2

It is recommended that RailCorp implements an audit program to assess the quality and scope of records kept for activities across the spectrum of organisational functions, especially relating to procurement.

As an organisation, RailCorp is required, under section 12(2) of the State Records Act 1998, to follow best practice as established by the State Records Authority. The issue of staff failing to maintain adequate records could ultimately have serious consequences for RailCorp. Providing training to staff about their record management responsibilities would assist RailCorp to meet its statutory obligations.

Therefore, it is recommended that RailCorp reviews the records management training it provides its staff.

RECoMMENDAtIoN 3

It is recommended that RailCorp reviews its induction and refresher training in records management and thereafter provides such training as is relevant.

Contract Superintendent and Superintendent’s Representative

The role of a Superintendent (Principal’s Representative) in a RailCorp contract is discussed earlier in this chapter (see pages 33–34). There are three areas of weakness regarding this role (and the role of Superintendent’s Representative).

The first issue concerns the need to clearly identify the person who has the role of Superintendent or Superintendent’s Representative. For the 2002 NBR contract, the Superintendent was Clayton Small. However, the identity of the Superintendent for the 1999 contract was not clear to the Commission because different RailCorp documents identify either Mr Barnett or Mr Marcos in this role.

Mr Paul Kucia, RailCorp’s Acting Manager Major Procurements, gave evidence to the Commission that Mr Barnett was the Superintendent for the 1999 contract and that the reference to Mr Marcos was something that was initially included in the tender specifications but was later changed to refer to Mr Barnett when the contract was finalised.

Further uncertainty arises as a result of how RailCorp records the delegation of a Superintendent’s powers.

According to the Contract Administration Guidelines for Service Contracts:

You must appoint your Representatives in writing, naming them and their delegated powers in a letter to the Contractor.18

Clause C4.1.2 of both NBR contracts also requires that NBR be notified in writing of the appointment of a Superintendent’s Representative. However, neither the NBR contracts nor (as discussed above) the Guidelines, require that RailCorp records for internal purposes that a representative has been appointed. Mr Kucia also gave evidence that it was not RailCorp’s practice to record delegations of Superintendents’ powers. The Commission sees this as a significant oversight.

It may not be unreasonable in some cases for the Superintendent to delegate some of his or her powers (e.g. because of technical issues). However, given the importance of the functions fulfilled by a Superintendent and the potential for their abuse, the Commission considers it essential that all delegated functions be properly recorded and communicated.

The risk in failing to record the delegation of a Superintendent’s powers is that someone may make an incorrect assumption that a given person is a Superintendent or Superintendent’s Representative. For instance, when Mr Small became Mr Marcos’s line manager, he became aware that Mr Marcos was the person administering the NBR contract. According to evidence he gave to the Commission, it was on this basis that Mr Small formed the belief that Mr Marcos was the Superintendent.

As a result of an incorrect assumption, it may not be noticed that a person exercising the powers of a Superintendent lacks the authority to do so. Given the breadth of the Superintendent’s powers, this may mean, for instance, that receipts or work completion records are endorsed inappropriately.

As a risk control measure, however, documentation showing who the Superintendent is, what powers he or she has delegated and to whom, would allow relevant employees to check whether or not a given person is the Superintendent or the Superintendent’s Representative and also serve to make a Superintendent’s Representative more accountable for his or her actions.

Consequently, such documentation should indicate, for every contract, (1) the name of the Principal’s Representative (formerly Superintendent), (2) what powers the Principal’s Representative has delegated, (3) to whom these powers have been delegated and

18. It is noted that in his evidence to the Commission, Mr Kucia stated that he did “[not] know of” any requirement for there to be an It is noted that in his evidence to the Commission, Mr Kucia stated that he did “[not] know of” any requirement for there to be an internal record of this appointment.

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(4) what powers the Principal’s Representative has not delegated.

It has been established by the Commission that some, but not all, of this information is recorded for each contract and kept in a database in the central Contracts and Procurements Unit. The Commission is of the view that the information collected should be expanded to cover all of the above items, and that the database should be available to staff outside the Contracts and Procurement Unit who may need to check the identity of the Superintendent on any given contract.

RECoMMENDAtIoN 4

It is recommended that RailCorp (i) expands its database of contract details to include all information about the administration of a contract and delegation of powers to a representative, and (ii) makes this database available to relevant employees outside the central Contracts and Procurement Unit.

The second area of weakness concerns the need to clarify who should be appointed Superintendent or Superintendent’s Representative.19

As noted earlier, the Contract Administration Guidelines for Service Contracts provide limited information about who should be appointed in these roles mentioning, without elaboration, “past experience”, “capacity” and “appropriate level of delegation”. The questions of whether the appointment of a particular person as Superintendent is appropriate and who, if anyone, should be a representative for that role are particularly relevant to the NBR contracts given that all the Superintendent’s powers had apparently been delegated to Mr Marcos (although the absence of records makes confirmation of this difficult).

If Mr Marcos were to fulfil all of the functions of the Superintendent then it would have been more logical to appoint his position as Superintendent as opposed to Mr Barnett’s (in 1999) or Mr Small’s (in 2002).20 Indeed, the fact that Mr Marcos’s position was named in the original tender specification suggests that this was the intention at some stage.

The Commission does not know why Mr Barnett and Mr Small were appointed as the Superintendents (rather than Mr Marcos). This may have been because Mr Marcos was not seen as meeting the operational criteria. However, this is not known as there was no requirement to record the reasons underlying these appointments or, as discussed above, the decision to appoint Mr Marcos as Superintendent’s Representative.

However, if the broad operational criteria outlined above are necessary to perform the role of Superintendent then they should be necessary to perform the role of Superintendent’s Representative. In this case, it would not have been reasonable to appoint Mr Marcos to this role as he had apparently been deemed unsuitable for the role of Superintendent, given that his nomination as Superintendent in the 1999 tender specifications was withdrawn when the contract was signed.

To address these anomalies, RailCorp needs to establish formal, explicit criteria for the appointment of Superintendents (now Principal’s Representatives) and their delegated representatives. It should be noted, however, that a Principal’s Representative may delegate all, or only some, of his or her powers. Consequently, when considering whether powers are to be delegated to a particular person, RailCorp will need to take into account which powers are to be delegated.

It is recommended that RailCorp determines the criteria necessary for the exercise of each of the powers of a Principal’s Representative and formally considers these when appointing Principal’s Representatives and their delegated representatives.

RECoMMENDAtIoN 5

It is recommended that RailCorp establishes formal, explicit criteria for the exercise of each of the powers of a Principal’s Representative and that these be formally considered when appointing Principal’s Representatives or their delegated representatives.

There is a third area of weakness, in that there is some confusion as to whether the individual to whom Principal’s Representative’s powers are delegated also assumes delegated responsibilities.

It should be noted that delegation of a Principal’s Representative’s powers is not an abrogation of those powers. Under Section 17 of the Contract Administration Guidelines, the Principal’s Representative still has the right to use these powers. Moreover, the Principal’s Representative’s instructions “always overrule those of his/her representatives”. However, the Guidelines are not explicit as to whether or not the responsibilities, such as monitoring of cost and performance, that they assign to the Principal’s Representative can be delegated.

For instance, while it is clear that a delegate can be vested with the power to reject poor-quality work, it is not clear whether the overall contract performance

19. See footnotes 3 (page 33) and 5 (page 34). See footnotes 3 (page 33) and 5 (page 34).20. In both contracts, the Superintendent was specified by position not name. In both contracts, the Superintendent was specified by position not name.


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monitoring role of the Principal’s Representative can be delegated. By their activities, it appears that Mr Small and Mr Barnett thought that it could be. The Commission believes that such a delegation would be inappropriate.

Moreover, given that the Principal’s Representative’s powers override those of any role to which some or all powers are delegated, it would seem reasonable that the Principal’s Representative is the role ultimately tasked with ensuring that the responsibilities of the role are met, regardless of what powers have been delegated.

Consequently, the delegation of these functions to a representative should be subject to procedural checks and balances designed to ensure that the Principal’s Representative cannot abrogate overall responsibility if powers are delegated.

RailCorp needs to:

n determine what core functions cannot be delegated. This is necessary to ensure that the Principal’s Representative is still the person directly responsible for critical functions. Critical decisions (such as adding extra items to the contract’s schedules) should be authorised by the Principal’s Representative if he or she is to maintain overall responsibility for the contract;

n ensure that the Principal’s Representative maintains ultimate responsibility for contract functions that he or she has delegated. This is necessary to ensure that the delegation of powers does not absolve him or her of responsibility for use of those powers; and

n establish a process for managing the performance of delegated functions. This is necessary to ensure that the functions delegated by the Principal’s Representative are performed to an adequate standard.

RECoMMENDAtIoN 6

It is recommended that RailCorp revises its Contract Administration Guidelines for Service Contracts to (i) identify key contract administration functions that should remain the responsibility of the Principal’s Representative, and (ii) explicitly state that the Principal’s Representative cannot delegate these functions.

RECoMMENDAtIoN 7

It is recommended that RailCorp revises its Contract Administration Guidelines for Service Contracts to explicitly state that the Principal’s Representative

maintains ultimate responsibility for contract management, even if his or her powers have been delegated.

RECoMMENDAtIoN 8

It is recommended that Principal’s Representatives be required to develop and administer performance management plans in relation to the execution of delegated powers.

Monitoring contract expenditure

The monitoring of contract expenditure for the NBR contracts was inadequate. In evidence to the Commission, Mr Kucia, RailCorp’s Acting Manager of Major Procurements, explained what he believed RailCorp’s budget monitoring process to be:

[Counsel Assisting]

Q: … So long as there is money in the account in effect, those invoices will be paid by the accounts department once they receive the documents?

[Mr Kucia]

A: Yes.

Q: As the time goes by from the commencement of the contract until its end, is there any monitoring of the amounts of money that have been spent?

A: In what way do you mean monitoring?

Q: Is the superintendent or his representative monitoring how the monies are going?

A: You mean like –

Q: How things are going according to the budget.

A: Personally, but I would think they would have to have some sort of spreadsheet or flow chart or something to let them know how they’re travelling in comparison with approvals.

The check on accounts payable is certainly an essential check but is elementary in nature. This type of check does not provide a means of monitoring the progress of expenditure relating to the contract.

As discussed earlier, contract monitoring is formally the responsibility of the Superintendent. Section 33 of the Contract Administration Guidelines states that:

The cost of a service contract is not always the Contractor’s tender price. To that price may have

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to be added the cost of “rise and fall” and “extra services”. These are normally covered by contract allowances.

Cost Monitoring of a contract is largely a case of keeping track of these two items.

Section 17 notes that, because of the Public Finance and Audit Act, “proper records of expenditure [are] to be kept” and “proper accountancy procedures are to be followed”. No guidance is given to the Superintendent on how to monitor costs, although advice can be sought from relevant managers regarding compliance with these requirements.

The lack of any clear system for cost monitoring means that appropriate monitoring and recording of costs is reliant on the Superintendent knowing what constitutes sufficiently detailed monitoring and being motivated to actually keep the relevant records. This also applies to any representatives and makes it imperative that they, along with the Superintendent, have the appropriate skills to carry out these tasks.

It is recommended that RailCorp specifies its financial monitoring and associated record-keeping requirements for contracts. As per Recommendation 5, the ability to perform such monitoring should be considered when appointing Principal’s Representatives or delegated representatives.

RECoMMENDAtIoN 9

It is recommended that RailCorp specifies its financial monitoring and record-keeping requirements for Principal’s Representatives and delegated representatives and ensures that employees who fulfil these roles are appropriately qualified and skilled for associated tasks.

One of the reasons that cost monitoring is important is that it can identify anomalous changes in contract costs before they become excessive. The consequences of not monitoring contracts or identifying increases in payments to suppliers can be seen in the following table, which shows the increase in the amount paid by RailCorp to NBR over six financial years.21

Financial year

Routine work

Nominated and emergency work

total payments to NBR

1999–2000 $138,837.70 $170,447.20 $309,284.90

2000–2001 $160,600.44 $324,015.10 $484,615.54

2001–2002 $160,600.40 $330,008.90 $490,609.30

2002–2003 $322,759.23 $368,696.00 $691,455.23

2003–2004 $389,458.03 $592,296.10 $981,754.13

2004–2005 $396,256.64 $740,108.05 $1,136,364.69

The significant increase in nominated and emergency work for these contracts should have been enough to have alerted a conscientious cost monitor and could have led to further checks being run.22 Such checks, in turn, would have established that, at some sites that had been added during the 2002 contract, filter cleaning was being charged as nominated work even though all filter cleaning, whether included in the contract’s schedules or as extra work, was meant to be charged as routine work.23 The classification of this work as nominated work is particularly important because nominated work is charged at a higher rate than routine work, meaning that NBR received more money for performing work thus classified. In evidence given to the Commission, Mr Marcos acknowledged that he, via Isis, also received larger payments as a result of classifying this work as nominated work instead of routine work.

RailCorp needs to be able to detect such increases in expenditure for the purpose of further inquiry. It is recommended that RailCorp conducts regular auditing of payments made to suppliers and contractors. These audits should examine payments of services ordered via all of RailCorp’s procurement mechanisms (e.g. Local Purchase Orders, contract payments, purchase cards).

RECoMMENDAtIoN 10

It is recommended that RailCorp develops a comprehensive program of audit and review for supplier payments.

21. It should be noted that many of the payments to NBR for nominated and emergency work were made using Local Purchase Orders It should be noted that many of the payments to NBR for nominated and emergency work were made using Local Purchase Orders (LPOs). Limited information is available about whether these payments were, or should have been part of the contract. This table includes payments made using LPOs and under the contracts for air-conditioning maintenance.

22. The doubling of routine costs in 2002–2003 can be explained by new OHS requirements that came into effect for the 2002 The doubling of routine costs in 2002–2003 can be explained by new OHS requirements that came into effect for the 2002The doubling of routine costs in 2002–2003 can be explained by new OHS requirements that came into effect for the 2002 contract.

23. The contract states that additional work that is similar to the routine work included in the contract should be charged as routine The contract states that additional work that is similar to the routine work included in the contract should be charged as routineThe contract states that additional work that is similar to the routine work included in the contract should be charged as routine work, rather than nominated or emergency work. The filter cleaning work conducted at the additional sites was no different from that conducted as part of the original contract.


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To monitor expenditure effectively, RailCorp also needs to be able to clearly identify whether work is routine, nominated or emergency.

RailCorp has advised the Commission that the information entered into the accounts payable computer system from invoices submitted by the contractor is not sufficient for auditors, managers or other relevant individuals to make the important distinction between routine work and nominated or emergency work. While the distinction can be made from an examination of the physical invoices, work needs to be appropriately categorised and recorded electronically as part of an adequate contract monitoring process.

It is recommended that RailCorp modifies its system for entering payments such that information about whether work performed is routine, nominated or emergency is entered into the Accounts Payable computer system. RailCorp may wish to implement these changes in the context of the changes to the SMR system recommended later.

RECoMMENDAtIoN 11

It is recommended that RailCorp modifies its electronic payment processing system to include categories defining the work as routine, nominated or emergency.

Contract performance

As with the monitoring of the NBR contract expenses, the monitoring of NBR’s performance was the Superintendent’s responsibility and as such was inadequately performed by Mr Marcos.

There were considerable problems with performance in relation to both contracts. For example, in relation to the 1999 contract, a letter was sent to Mr Marcos from DTZ Australia on 24 October 2000 concerning flooding occurring at the Circular Quay station complex. The letter notes that “following a discussion with you, it would appear that yet again the air-conditioning maintenance contractor has been negligent in the way it is servicing the cooling tower”. [emphasis added]

Also related to the 1999 contracts, Computer Air Services was commissioned by RailCorp to examine the general state of air-conditioning systems across CBD stations. Its report to Mr Barnett on 2 March 2000 had critical comments regarding all stations. These included:

n Checked cooling tower and found to be filthy. Recommend complete clean. [Town Hall]

n In general the filters on all air-conditioning systems require replacing. [Wynyard]

n General [sic] all units require cleaning and sterilization. [Museum]

Moreover, Mr O’Brien, Mr Marcos’s supervisor from 2004 onwards commented, in a statement to the Commission, that on “a couple of occasions”, he had to call in independent contractors to carry out maintenance work that was meant to be performed by NBR. He also remarked that he believed equipment malfunctions and subsequent emergency call-outs resulted from this lack of maintenance.

One final example of the problems with air-conditioning maintenance was the shutting down of a room at Central Station for OHS reasons. In relation to the air-conditioning equipment in the room, an email sent by RailCorp’s Executive Officer, Operations, Mr David Screen, commented that:

… the air-conditioning is so dirty that someone had written “please clean me” in the dirt. The air-conditioning filters are full of black dust and what appears to be a black fluid that has leaked out of the air-conditioning outlet duct.

Despite whatever challenges there are in properly maintaining air-conditioning systems in underground stations, the winning tenderer for the air-conditioning maintenance contract would be expected to meet these challenges and provide the contracted service.

As the Superintendent’s Representative, Mr Marcos had responsibility for monitoring contract performance. In doing this, he does not seem to have adopted any kind of systematic process for monitoring complaints about NBR, assessing them and/or ensuring that they were addressed.

As noted earlier, the Contract Administration Guidelines specify that a Superintendent is responsible for contract performance and may determine that the quality of a given piece of work is unsatisfactory. However, the Guidelines do not mandate the recording of such incidents, nor do they indicate how they might be recorded or addressed. This limited guidance creates a risk that complaints may be inadequately managed.

To ensure the appropriate management of complaints regarding contractors, RailCorp needs to be able to:

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n record complaints;

n action complaints;

n ensure that remedial work is carried out according to the provisions in the contract and any relevant penalties applied to the contractor; and

n subject the system to audit and review.

These could be written as a separate document or included as part of the Contract Administration Guidelines.

RECoMMENDAtIoN 12

It is recommended that RailCorp develops comprehensive complaint handling and review procedures relating to complaints about the performance of contracts.

Subcontractors

Despite being Superintendent on the 2002 NBR contract, Mr Small stated to the Commission that he had only heard about the existence of B&S and Isis as a result of the Commission’s investigation.

Considering that employees of B&S and Isis had performed RailCorp work in many different locations within RailCorp’s system, including work in restricted areas, for a period of over six years, and given Mr Small’s responsibilities as Contract Superintendent, this is of concern from both corruption prevention and security perspectives. This investigation uncovered various deficiencies in the way that RailCorp keeps track of subcontractors.

In relation to both the 1999 and 2002 contracts, NBR was required to list at the time of tendering any subcontractors to whom it intended to pay more than five per cent of the value of the contract. Mr Kucia gave evidence that this check was primarily for the purposes of tender evaluation so that the Tender Evaluation Committee could understand and evaluate NBR’s capacity to fulfil the requirements of the contract.

Once the tender had been awarded, in order to subcontract work Clause C3.11.2 of the 1999 and 2002 contracts required NBR to make a:

… prior application in writing to the Principal, giving full particulars of the part of the Services under the Contract it wishes to subcontract and of the proposed subcontractor, and the written approval is obtained from the Principal, which may be arbitrarily withheld.

As discussed earlier, NBR did not declare its subcontracting relationships with B&S and Isis and Mr Mourched’s failure to do so in 2002 constituted corrupt conduct. Given the conflicts of interest involved in these relationships, it is not surprising that no declaration was made. Hence, RailCorp needs to have the capacity to independently discover such subcontracting relationships, via monitoring of subcontractors and contractors working on its premises.

Evidence to the Commission suggests that the monitoring of subcontractors was a low priority for RailCorp. For instance, Mr Biggam gave evidence to the Commission stating that he did not consider monitoring subcontractors as part of his responsibilities even though he was often responsible for getting access cards for them.

To overcome the corruption risks associated with subcontracting relationships, RailCorp needs a mechanism for determining which subcontractors are working on its sites. RailCorp contracts require contractors to submit a statutory declaration concerning the use of subcontractors with each payment claim. However, this investigation has failed to discover these declarations in relation to NBR or Atsan payments. In other words, there is a gap between the formal requirement and practice.

It is recommended that RailCorp enforces this requirement and keeps the statutory declarations together with the original payment claims.

RECoMMENDAtIoN 13

It is recommended that RailCorp (i) enforces the requirement that statutory declarations regarding subcontractors are submitted by contractors with pay claims, and (ii) that these declarations are retained as a record together with the original pay claims.

Access to RailCorp facilities

RailCorp uses both electronic access cards and sign-in/sign-out log books to monitor access to given facilities. This was another area where RailCorp’s poor record-keeping represented a corruption risk.

Access cards are used by RailCorp to restrict access to certain RailCorp facilities. One advantage of this system is that people’s movements in and out of restricted areas can be logged for future analysis. Such analysis, however, is seriously compromised if real identities cannot be linked to the security cards. Mr Stephen Marcos (one of Mr Said Marcos’s sons) gave evidence that, while working for Isis in 2003, he


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was able to get a RailCorp access card in a name other than his real name.24 Likewise, when applying for an access card, he was not required to declare that he was working for Isis. More generally, in this investigation, it has been very difficult to determine which NBR, B&S and Isis employees accessed various parts of RailCorp facilities to perform work, making it difficult to determine whether or not work was performed at given sites on given days.

From the evidence it would appear that people can gain, and have gained, access to RailCorp restricted areas using a false name and/or other false details. According to evidence given by Mr Biggam, identity verification details (e.g. driver’s licence number) were not recorded when access cards were issued to contractors and subcontractors. Indeed, Mr Biggam commented that no identity checks were performed by him when issuing the access cards.

It should be noted that RailCorp’s access cards also contain a photo of the card’s applicant and that an identification card issued to a public employee counts as 40 points on “the 100 points system” identity verification scheme.25 While a contractor may not technically count as a public employee for these purposes, a contractor issued with an access card may try and present the document as such. Consequently, the way that access cards appear to be handled at RailCorp raises wider security and identity fraud risks.

RailCorp has advised that, in the period relevant to this investigation, no formal procedures existed regarding the issuing of access cards, although a manager was required to sign a Security Access Request Form. However, a list of authorised managers who could sign these forms was only created in August 2006.

RailCorp currently has a draft access card procedures manual, which was being finalised at the time of writing. This manual does not, however, mandate the checking of identity verification details. The recommendations outlined below should be implemented as part of finalising the access card procedures manual.

It is recommended that RailCorp specifies what verification checks are required to establish identity before an access card is issued. The identity information should then be recorded on a register when an application is made. RailCorp may wish to consider using an identity system such as “the 100 points system” or the National Proof of Identity Framework to verify

the identity of contracted or subcontracted workers who request access cards.26

RECoMMENDAtIoN 14

It is recommended that RailCorp requires specific identity verification details to be produced before issuing access cards to contractors and subcontractors.

RECoMMENDAtIoN 15

It is recommended that RailCorp’s databases of access cards include identity verification details of card holders.

Other than access card records, RailCorp also uses log books to record visitor access to its facilities. However, the Commission also found poor record-keeping in relation to these. For instance:

n Individuals signing in using fictitious names and details such as one individual who signed in under the name “Jesus Christ” with the contact number as “Heaven” and the specific work location as “Who Cares”.

n Individuals not providing, or providing insufficient, important Occupational Health and Safety (OHS) information such as certificate numbers, their specific work location and where they should assemble in case of an emergency.

n Individuals signing in with incomplete names such as only their first name or an initial for one of their names.

Poorly kept sign-in/sign-out records represent corruption risks relating to, for example, timesheet fraud and misuse or theft of the organisation’s resources. Consequently, it is recommended that RailCorp reviews its requirements regarding sign-in/sign-out procedures and records and audits their implementation.

RECoMMENDAtIoN 16

It is recommended that RailCorp reviews its procedures in relation to paper-based and electronic sign-in and sign-out records and that the resulting system is subject to regular audit.

24. While Mr Stephen Marcos’s claim that he used the name “Stephen Pappas” seems unsupported by RailCorp access card records, an While Mr Stephen Marcos’s claim that he used the name “Stephen Pappas” seems unsupported by RailCorp access card records, anWhile Mr Stephen Marcos’s claim that he used the name “Stephen Pappas” seems unsupported by RailCorp access card records, an access card assigned to “Stephen Marcos” could not be located either.

25. See SeeSee Protecting identity information and documents, Independent Commission Against Corruption, Sydney, December 2006.26. See SeeSee Protecting identity information and documents, Independent Commission Against Corruption, Sydney, December 2006.

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policies and procedures

As noted earlier, in this case Mr Marcos deliberately breached RailCorp’s policies and procedures. In addition, in some cases there were significant weaknesses in the policies and procedures themselves that allowed Mr Marcos’s corrupt conduct to occur, and in others they were not implemented in the way they were intended.

Some of the weaknesses and implementation failures identified in this investigation are discussed below; others are dealt with elsewhere in this chapter. However, the general topic of effective implementation of policies and procedures is relevant for most of the issues discussed in this report, as well as previous Commission investigations into corrupt conduct at RailCorp.27

To ensure that the efforts that it is making to prevent corruption are successful, and that the policies it has in place are effective, RailCorp needs to ensure that the culture within the organisation fosters and encourages compliance with policies and procedures. This is not an easy task. It takes time and requires leadership and an agency-wide effort to put in place the various components that contribute to the development of such a culture.28 These include induction and refresher training, performance management and supervision, and ensuring that ethical values are integrated into RailCorp’s policies and procedures. These general comments provide an underpinning to the recommendations in this final section.

Station Maintenance Requests

This investigation has identified several problems with the way that Station Maintenance Requests (SMRs) were used. These relate to both flaws in the operational procedures that applied to SMRs and violations of these procedures by RailCorp staff.29

It was noted previously (pages 34–35) that the SMR Operating Procedures imply coverage of all types of maintenance work to be undertaken, including emergency maintenance. Emergency maintenance occurs when there is an immediate safety or security risk that needs to be dealt with urgently.

The first problem with SMRs is that, although the SMR Operating Procedures indicate that requests for emergency maintenance should be phoned or paged to the District Maintenance Manager, they do not explain

how SMR forms are to be used in the context of the need to urgently arrange the required repairs.

It is recommended that RailCorp develops specific procedures governing how requests for emergency maintenance are managed, including the procedures for requesting, authorising, allocating, signing-off and recording them.

RECoMMENDAtIoN 17

It is recommended that RailCorp develops specific procedures for managing emergency maintenance requests.

The second problem with the SMR operating procedures is that there is no link between the SMR forms themselves and payments for work allocated through SMRs.

In a statement made to the Commission, Mr Barnett observed that:

There is the facility on the SMR system to sign off that the work has been done but this may not necessarily be done by the same person that signs off on the invoice, as the SMR system does not tie up directly with the accounting system and payments are made independently of the SMR.

After the maintenance work has been completed, the contractor submits his or her own invoice to the Superintendent (or Superintendent’s Representative), who forwards it to a centralised accounts payable section. There is no requirement for the Superintendent to send details of the SMR with this invoice.

The lack of a direct link between the SMR and invoices for payments processed under SMRs makes auditing work allocated under the SMR system difficult, due to the challenges in reconciling two disparate systems. The separation of these systems is underlined by the fact that the person authorising payment of the invoice need not be the SMR Requesting Officer, who signs off that the work has been completed. This means that payment may be authorised in the absence of the SMR indicating that it has been performed. This is a risk factor for fraud.

The risk of fraud would be reduced, and the ability to detect fraud enhanced, if there were a more direct link between SMRs and the invoices submitted for payments. This could be accomplished by requiring that

27. See See Report on investigation into defrauding the RTA and RailCorp in relation to provision of traffic management services, Independent Commission Against Corruption, Sydney, December 2006.

28. See See Tips from the top: Senior NSW public sector managers discuss the challenges of preventing corruption, Independent CommissionIndependent Commission Against Corruption, Sydney, April 1999., Sydney, April 1999.

29. RailCorp advised the Commission in April 2007 that it is reviewing its SMR procedures. The comments in this section should be considered in this review process.


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basic details from the SMR form be entered into the accounts payable system.

It is recommended that RailCorp integrates its SMR system (or any replacement systems) with its accounts payable systems.

RECoMMENDAtIoN 18

It is recommended that RailCorp integrates its maintenance request system(s) with its accounts payable systems.

The two problems discussed above are related to the adequacy of the SMR Operating Procedures. It also appears that the SMR procedures were generally not followed by RailCorp staff. In a series of comments made in a statement to the Commission, Mr Barnett described how the SMR system was used in practice. First he noted that:

Telephone complaints were the norm after hours but during the course of business hours it could be by way of telephone call, email or SMR [meaning a written request on the SMR form].

Other than emergency work, the SMR Operating Procedures require maintenance requests to be faxed using the SMR form. There is no provision for these requests to be telephoned or emailed.

Additionally, Mr Barnett commented that:

[An] SMR can also be generated after the event when the work has already been allocated and it would not be unusual for Said to enter a number of SMRs to reflect work that has been requested over the telephone.

It is not clear whether, in practice, all of these telephone (and email) requests are subsequently entered into an SMR form for actioning and/or recording. Additionally, entering SMRs on behalf onf other staff violates the Operating Procedures and essentially merges the request and allocation roles of the SMR. This is a fraud risk as it granted Mr Marcos considerable (and unwarranted) control of the process – he could submit an SMR, allocate the work and then sign off that the work had been performed.

RailCorp employees need to follow RailCorp’s policies and procedures if the aims of these policies and procedures are to be met. In relation to SMRs, the relevant procedures were not being followed either because employees:

n found them to be inadequate, inefficient or otherwise inappropriate;

n were not aware of them or did not understand them; and/or

n knew that circumventing them would have no consequences.

It is recommended that RailCorp reviews its SMR Operating Procedures to ensure they are adequate, efficient and otherwise appropriate.

Once the SMR Operating Procedures have been reviewed and modified as needed, it is recommended that RailCorp provides information and/or training regarding SMRs to staff involved in ordering and processing maintenance. Finally, RailCorp needs to ensure it has systems in place to monitor the use of SMRs for compliance with the SMR Operating Procedures. Sanctions for breaches should be specified and applied where relevant.

RECoMMENDAtIoN 19

It is recommended that RailCorp reviews and amends the Station Maintenance Requests Operating Procedures to ensure they are adequate, efficient and appropriate for dealing with maintenance requests.

RECoMMENDAtIoN 20

It is recommended that RailCorp provides information and/or training about Station Maintenance Requests to all staff involved in requesting or processing maintenance work.

RECoMMENDAtIoN 21

It is recommended that RailCorp establishes an audit or review process to monitor compliance with the Station Maintenance Requests Operating Procedures.

Quotations

The door grille installations provided by Atsan were requested through Local Purchase Orders (LPOs) and subject to the procedures in the Minor Procurement volume of RailCorp’s Procurement Manual (see pages 35–36, above).30 The Commission has found that Mr Marcos and Mr Mikhail engaged in a corrupt profit-sharing arrangement relating to the work carried out by Mr Mikhail’s businesses at RailCorp. The way Mr Marcos used LPOs to request this work appears to have assisted him in maximising profits and limiting oversight.

For instance:

n The LPOs did not always include the number of quotations that were required according to

30. While the early installations were covered by the February 2002 version of the Minor Procurement volume and the later While the early installations were covered by the February 2002 version of the Minor Procurement volume and the laterhe early installations were covered by the February 2002 version of the Minor Procurement volume and the later installations were covered by the October 2003 version, the details referred to here did not change between these versions.

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RailCorp’s Procurement Manual. It was not clear from the LPOs why this was the case.

n Certificates of Exemption were required by RailCorp’s Procurement Manual when departing from quotation procedures in relation to orders over $5,000 (whether or not raised by LPO). For the Atsan door grille orders over $5,000 no Certificates of Exemption were found by the Commission when the required number of quotations were not obtained.

n The door grilles were purchased as multiple items, rather than a single order being placed for the installation of all the grilles. Given the similarity of the work required (installation of the door grilles in different locations), it could be argued that this should have been done in one order. According to RailCorp’s Procurement Manual, order splitting is “strictly prohibited”. No plausible reason was provided to the Commission about why the grilles were ordered separately.

The implementation of RailCorp’s procurement procedures regarding the installation of the Atsan door grilles was at best, ad hoc. RailCorp managers need to ensure that such implementation is systematic and consistent. The responsibility of managers in this area should be clarified within the context of its procurement training system.

RailCorp advised the Commission in April 2007 that it has developed three procurement training courses tailored for employees involved in procurement at various levels and is currently in the process of providing this training to all relevant employees. Consequently, the Commission does not need to make a recommendation on this issue.

Local purchase orders

As noted earlier, a person completing an LPO can simultaneously be the Requesting Officer and Approving Officer or the Requesting and Receiving Officer. There are corruption risks associated with allowing an individual to perform more than one of these roles.

In general, when an officer has two procurement roles, the corruption risks are increased because the officer can exert greater control over the whole process. For example, allowing the same employee to be both the Requesting Officer and the Approving Officer means that there is potential for that person to request and approve the purchase of goods and services that are unnecessary.

Separation of duties is an important internal control to ensure that no employee is in a position to perpetuate and conceal irregularities. While having three separate individuals in each of the three procurement roles is always preferable, and should be considered as best practice, there may be cases where this is difficult to implement and one person has to fulfil two of these three roles. In such cases, there need to be additional checks to determine whether the opportunities for corruption this provides are being taken up.While, as noted earlier, RailCorp is replacing LPOs with an electronic system, the same principle regarding separation of duties applies to this new system. It is recommended that RailCorp determines when employees need to fulfil multiple roles within procurements and develops specific probity checks in such circumstances.

RECoMMENDAtIoN 22

It is recommended that RailCorp (i) determines the circumstances when an individual employee needs to fulfil two of the roles of Requesting Officer, Approving Officer and Receiving Officer, and (ii) develops probity checks to prevent individuals abusing these circumstances.

Delegations

This investigation also uncovered problems with the way financial delegations were handled at RailCorp. A RailCorp employee has two potential delegations – a delegation for procurements using a purchasing card and a delegation for procurements using other forms of payments (for example LPOs). The applicability of these to NBR contract payments is discussed later in this section.

As discussed earlier, depending on the period in question either Mr Barnett, Mr Small or Mr O’Brien supervised Mr Marcos. There was confusion among these managers regarding what Mr Marcos’s delegation was. For instance:

n Mr Small stated that “Said’s delegation varied over the years but generally fell within the range of $10,000–$20,000. I do not recall the delegation ever being outside of this amount.”

n Mr O’Brien said that, when Mr Marcos was working for him, “Said’s delegation level … was $30,000 from 2003 onwards.”

When RailCorp was asked for clarification, it was revealed that as of 28 February 2001,31 Mr Marcos only had a purchasing card delegation of $1,000. He is not listed as having any delegation for other expenses

31. RailCorp was unable to provide any information relating to the period prior to that date. RailCorp was unable to provide any information relating to the period prior to that date.RailCorp was unable to provide any information relating to the period prior to that date.


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until 4 September 2004, at which point he was given a $30,000 delegation.

It should be noted that in this period, Mr Marcos was the approving officer on three Atsan LPOs for $4,356, $10,890 and $7,502.32 This would suggest that, over an 18-month period, Mr Marcos approved over $22,000 in purchases that he was not authorised to approve.

When payments are processed, an electronic check comparing the size of the payment requested and the Approving Officer’s delegation needs to be made. RailCorp has advised the Commission that previously such a check was not always performed. RailCorp is moving to a fully electronic system that automatically implements such a check as part of the authorisation process. Consequently, the Commission does not need to make a recommendation on this issue.

The second issue of concern is that there also appears to have been some confusion over how delegations apply to Superintendents and Superintendent’s Representatives. As the Superintendent’s Representative, Mr Marcos approved items of expenditure in relation to the NBR contracts that were greater than his delegation on several occasions. For instance, Mr Marcos signed off on:

n a 31 December 2004 invoice totalling $49,931, when his delegation was $30,000;

n a 31 May 2005 invoice totalling $45,726, when his delegation was $30,000;

n monthly invoices for routine work under the 1999 contract, each of which were greater than $10,000, when Mr Marcos only had a $1,000 purchasing card delegation;33

n monthly invoices for routine work under the 2002 contract, each of which were greater than $30,000, when Mr Marcos only had a $1,000 purchasing card delegation until September 2004. (The $30,000 other expenses delegation added in September 2004 was still insufficient to authorise these invoices.)

Evidence given to the Commission by Mr Paul Kucia, RailCorp’s Acting Manager of Major Procurements, suggests that this was permissible. As described earlier, the budget for the 1999 contract was $292,000 for routine work and $100,000 for emergency repairs and service calls. Mr Kucia indicated that he believed that, because the contract had been signed by the CEO, any expenditure in relation to it had been pre-approved and, consequently, Mr Marcos’s delegation was not

relevant to the expenditure he approved as part of the NBR contracts:

[Counsel Assisting]

Q: … 292,000 [dollars] over the 24 months is slightly in excess of 10,000 a month. Does the person who approves the invoice need a delegation to approve payment in excess of 10,000?

[Mr Kucia]

A: No, because the original approval for 292 was signed off, I think, by the chief executive so they’ve got approval to spend that amount of money.

…

[Commissioner]

Q: Am I right in thinking that if additional work had to be done, it’s left solely to the Superintendent to first of all I suppose determine whether the sum’s reasonable and then authorise the payment?

A: Yes.

Q: And that could theoretically be done in one payment, I suppose, could it?

A: Yes.

Q: Yes?

A: You mean one monthly payment or –

Q: No, just one off. Someone puts in a claim for additional work for $99,000, so he has the authority, the Superintendent, to say yes or no to that?

A: Yes.

However, the Contract Administration Guidelines lack clarity on this issue. According to Section 17 of the Guidelines, as Principal’s Representative (the role referred to previously and in this report as Superintendent):

You may not always have the financial delegation to take the decisions you are required to make under the contract, especially where considerations of safety or the need not to hold up the progress of the work demand an immediate response from you.

This can create a difficult situation if you authorise work beyond your delegation.

Before commencing your duties as the Principal’s Representative, or immediately thereafter you must develop procedures with your manager to ensure:

32. For other Atsan work, Mr Marcos was the Requesting Officer but not the Approving Officer. For other Atsan work, Mr Marcos was the Requesting Officer but not the Approving Officer.For other Atsan work, Mr Marcos was the Requesting Officer but not the Approving Officer.33. NBR payments were not made via purchasing card. NBR payments were not made via purchasing card.NBR payments were not made via purchasing card.

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– that the requirements of the Public Finance and Audit Act and Regulations are met

– that the Authority complies with all provisions of the contract

– that your authority to deal effectively with the Contractor is maintained.

Overall, this extract is very unclear. For instance:

n “You may not always have the financial delegation to take the decisions you are required to make under the contract …” can be interpreted as saying either (i) that the officer will be unable to make these decisions because of his or her delegation, or (ii) that the officer will be required to make decisions beyond his or her delegation.

n The requirements of the Public Finance and Audit Act referred to in the extract are discussed on the previous page of the guidelines and include “that the expenditure authorised is within the limit of the officer’s delegated authority”.

n “This can create a difficult situation if you authorise work beyond your delegation” can be read as (i) indicating a legal requirement not to authorise such work, or (ii) indicating that, while legal, it may be difficult to authorise such expenditure because it is beyond what the officer normally can authorise.

Confusion over the amount and functioning of delegations creates a risk of misappropriation. It is recommended that RailCorp reviews its Contract Administration Guidelines to dispel any confusion about a Principal’s Representative’s delegation and related actions.

RECoMMENDAtIoN 23

It is recommended that RailCorp reviews its Contract Administration Guidelines for Service Contracts to ensure that no confusion exists regarding a Principal’s Representative’s delegation.

Conflicts of interest

The Commission’s research and experience has found that unmanaged or poorly managed conflicts of interest represent corruption risks.34 Consequently, it is important for agencies to ensure that their employees are both aware of the need, and given the opportunity, to declare conflicts of interest.

In relation to the period relevant to this investigation, either RailCorp’s 1999 draft Code of Workplace Standards35 or their 2000 Code of Workplace Standards applied to Mr Marcos.36 Both Codes provided clear obligations on RailCorp employees to declare conflicts of interest:

Conflicts of interest exist when it is likely that you could be influenced, or perceived to be influenced, by a personal interest in the way you carry out your job.

…

[it is] your responsibility to notify your manager if you think there may be a conflict.

Additionally, the Procurement Manuals applicable to the period of this investigation also place specific responsibilities on RailCorp employees involved in procurement. For instance, Volume 1 of the February 2002 and October 2003 Procurement Manuals, which together cover the whole of the 2002 contract and the last few months of the 1999 contract, each state that:

All persons involved in the procurement process for State Rail must:

– declare any interests in any company, business or enterprise which may influence their decision, or which may be perceived as a potential conflict of interest;

– declare any conflicts of interest regarding awarding contracts to family members, relatives or friends; and

– not misuse State Rail information gained in the procurement process or use their position in State Rail to influence the decision making process.

Consequently, RailCorp policy gave a clear responsibility to Mr Marcos to declare any such interests.

34. See, See, Managing conflicts of interest in the public sector: Guidelines, Independent Commission Against Corruption and Crime andIndependent Commission Against Corruption and Crime and and Crime and Misconduct Commission, Sydney and Brisbane, November 2004.

35. Although a draft, this was circulated to Mr Marcos by Mr Barnett with the instruction that he follow it. Consequently, it covered Although a draft, this was circulated to Mr Marcos by Mr Barnett with the instruction that he follow it. Consequently, it covered his actions from the start of the 1999 contract until the 2000 Code came into effect.

36. The Codes of Workplace Standards are Codes of Conduct by another name. The first Code of Conduct by that name was not The Codes of Workplace Standards are Codes of Conduct by another name. The first Code of Conduct by that name was not introduced by RailCorp until 2006.


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In relation to the 1999 contract, Mr Marcos had a public duty on behalf of RailCorp to administer the NBR contract impartially. However, because Mr Marcos was a director of B&S, and B&S was subcontracting work from NBR, Mr Marcos had a pecuniary interest in relation to this work and therefore a conflict of interest that should have been declared.

At the end of the tender evaluation process for the 1999 contract, Mr Marcos was required to make a written declaration as part of the Tender Evaluation Committee’s reporting and recommendation process. The declaration he was required to sign was not specific and simply stated:

The members of the Evaluation Committee declare that they have no financial or other conflict of interest in the evaluation of tenders for [the contract].

Two important factors need to be noted about this declaration. Firstly, Mr Marcos may not have had a conflict of interest at the time when he signed this declaration because neither B&S nor Isis had performed any work for NBR. However, the fact that he owned an air-conditioning filter cleaning business suggests that it would be reasonable to assume that a conflict of interest could arise in the future. Agencies need to be aware of potential conflicts of interest, where an employee’s private interests have the potential to conflict with their public duties in the future.37

Secondly, while Mr Marcos signed the declaration at the end of the tender process, Mr Blake Biggam (who reported to Mr Marcos until 2003 and was a Tender Evaluation Committee member) did not sign it. While there is no suggestion that Mr Biggam held any conflicts of interest in relation to the NBR contracts, his failure to complete a declaration suggests a lack of vigilance in relation to this process. Moreover, evidence that the declaration was treated as a formality is provided by Mr Kucia’s response when asked why Mr Biggam’s signature was absent:

Possibly an oversight, he was located in a different office to where we were and generally when we get the – the evaluation report, we also have the submission to award the contract, so we progress the matter to award the contract.

Mr Marcos had a clear and actual conflict of interest in relation to his recommendation that the 1999 contract be extended, and in his participation in the 2002 tender evaluation process. While he had a public duty to ensure that RailCorp chose the contractor that provided the best combination of quality and price, he also had private interests that encouraged partiality in the decision since:

n B&S had performed filter cleaning work for NBR during the 1999 contract and thus Mr Marcos may have had expectations of future payments if NBR won the contract.

n Isis had previously received three payments from NBR (it is not clear what these were for) and thus Mr Marcos may also have had expectations of future payments for Isis if NBR won the contract.

At both the beginning and end of the 2002 tender evaluation process, members of the 2002 Tender Evaluation Committee were required to sign conflicts of interest declarations as part of the formal tender evaluation process. The declaration required by the 2002 Tender Evaluation Committee was broader in scope than that required by the 1999 Tender Evaluation Committee.

In particular, it required that Tender Evaluation Committee members declare they did “not have any, or potential Conflict of Interest by being involved on this Committee” [emphasis added]. It also gave a description of what was covered by this definition, namely:

n Directorships in Companies or financial interests by way of shares, remunerations or similar, in any Organisation or its associations tendering.

n Personal relationships with any person within the various Organisations tendering.

The declaration used by RailCorp in 2002 is satisfactory because it (i) addresses actual and potential conflicts, (ii) more clearly elucidates what type of private interests are involved and (iii) refers to associations of the tenderers as well as the tenderers themselves. This definition more clearly required Mr Marcos to declare his private business interests than the one in place for the 1999 tender process. Because this definition is markedly improved from that used in 1999, there is no need for the Commission to make a recommendation about this issue.

Once entities associated with Mr Marcos began subcontracting work in relation to the 1999 and 2002 contracts, Mr Marcos had ongoing undeclared conflicts of interest between his duty to RailCorp to administer the NBR contracts and his private interests in relation to B&S and Isis subcontracting some of this work from NBR.

Additionally, in 2003, Mr Stephen Marcos, one of Mr Marcos’s sons, was performing filter cleaning work for Isis related to the 2002 NBR contract. This created a conflict with Mr Marcos’s public duty regarding the administration of the contract because responding to concerns about NBR’s poor performance, especially in relation to filter cleaning, could have been detrimental to his son.

37. See See Managing conflicts of interest in the public sector: Guidelines, Independent Commission Against Corruption and Crime andIndependent Commission Against Corruption and Crime and and Crime and Misconduct Commission, Sydney and Brisbane, November 2004.

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Similarly, a conflict of interest arose when, in 2002, Mr Sameh Mikhail, Mr Marcos’s nephew,38 performed filter cleaning for Isis in relation to the NBR contract.

Mr Marcos was not required to declare these additional conflicts of interest at the time of the 2002 tender process because they did not exist at the time. However, under the 2000 Code, which was in force at the time, he was required to notify his manager if he thought thererequired to notify his manager if he thought there may be a conflict of interest in relation to his work.

The 2000 Code does not provide any details about the process to be followed when reporting a conflict of interest or when this should be done. This information has since been included in RailCorp’s Code of Conduct, which now states:

You must immediately notify your manager or supervisor in writing if a private interest conflicts, or may appear to conflict, with your RailCorp responsibilities.

Additionally, the current Code lists steps that must be taken by managers should a conflict of interest be declared. RailCorp’s current provisions for dealing with conflicts of interest that arise during the course of an employee’s work are an improvement on those applicable to Mr Marcos during the 2002 contract. Consequently, the Commission does not need to make a recommendation on this issue.

For the provisions of the Code of Conduct regarding conflict of interest to be implemented properly, staff need to be aware of the Code and comply with it. RailCorp has previously informed the Commission that new employees, contractors and consultants are required to attend training on the Code of Conduct, and to sign that they have received a copy of the Code. In addition, existing staff are required to attend briefings on the new Code of Conduct introduced in February 2006, and sign that they have received a copy. The Commission refers to Recommendation 26 of the ICAC’s Report on investigation into defrauding the RTA and RailCorp in relation to provision of traffic management services, which is also relevant to the circumstances of this investigation and is repeated here.39

RECoMMENDAtIoN 24

It is recommended that RailCorp requires staff to sign a declaration stating they have read, understood and will comply with the Code of Conduct.

While the focus of this section thus far has been on Mr Marcos, it should also be noted that Mr Mourched, who as the director of NBR was managing the RailCorp

contract, was aware of Mr Marcos’s involvement with B&S and Isis. For both contracts, as part of the tender documentation he was required to submit, Mr Mourched signed declarations on behalf of NBR indicating that:

To the best of the Tenderer’s knowledge and belief, after due enquiry, no family relationship exists between:

(1) On the one hand, the Tenderer or any employee of the Tenderer directly or indirectly involved in the preparation or submission of the Tender; and

(2) On the other hand, any employee involved in evaluation of tenders or administration of contracts or in possession of confidential information relating to the Tender or the Contract.

Generally speaking, this is a very limited declaration for a contractor to sign:

n It only makes reference to a “family relationship”. This has the effect of excluding other associates who may have an interest in the tender or RailCorp.

n It limits itself to RailCorp employees actually involved in the tender. While employees involved in the tender process have the most opportunity to act corruptly in relation to a tender, it is possible that an employee not involved in the evaluation may also do this. For instance, such an employee might conspire with or intimidate a member of the Tender Evaluation Committee into corruptly administering the tender evaluation process.

n It does not appear to cover companies associated with the tenderer (unlike the 2002 Tender Evaluation Committee declaration).

It is recommended that RailCorp reviews the conflict of interest declaration that tenderers are required to make. To increase the likelihood that a conflict is detected, this declaration should be appropriately broad and, as much as possible, be consistent with the declaration that Tender Evaluation Committee members are required to make.

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It is recommended that RailCorp reviews its declaration of conflict of interest for tenderers to ensure that it is sufficiently broad and consistent with the equivalent Tender Evaluation Committee declaration.

38. Mr Sameh Mikhail (Mr Marco’s nephew) and Mr Sami Mikhail (director of Atsan) are different individuals. Mr Sameh Mikhail (Mr Marco’s nephew) and Mr Sami Mikhail (director of Atsan) are different individuals.Mr Sameh Mikhail (Mr Marco’s nephew) and Mr Sami Mikhail (director of Atsan) are different individuals.39. Report on investigation into defrauding the RTA and RailCorp in relation to provision of traffic management services, Independent

Commission Against Corruption, Sydney, December 2006, page 84.


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The sections of RailCorp’s Codes and Procurement Manuals (see page 49, above) requiring Mr Marcos to declare his conflicts of interest, also applied in relation to the work Atsan and Sami Industrial & Domestic Cleaners undertook in 2003 and 2004. Mr Marcos had two undeclared conflicts of interest in relation to the Atsan door grille installations.

Firstly, evidence given to the Commission by Mr Mikhail (who, together with his wife, owned Atsan and Sami Industrial & Domestic Cleaners), indicated that Mr Marcos had a pre-existing conflict of interest. This was because (i) he had known Mr Mikhail for over 20 years, and (ii) Mr Marcos and Mr Mikhail had, at one time, been joint proprietors of a business (Aussie Industclean). Consequently, Mr Marcos may have felt personal loyalty to Mr Mikhail that could have conflicted with his ability to impartially award and administer the door grille installation work.

Secondly, once work began, a further conflict arose because Atsan and Sami Industrial & Domestic Cleaners had agreed to pay half of its profits from the work to Mr Marcos’s business, Isis. This meant that, through Isis, Mr Marcos was corruptly receiving private financial benefits from this work.

While Mr Marcos still had a duty to declare his conflicts of interest in relation to Atsan’s installations of door grilles and the work performed by Sami Industrial & Domestic Cleaners, in contrast to the conditions applying to the NBR tender process, he was not given an explicit opportunity to do so (for example via an interests declaration form). It is noted that in this case, it may not have made any difference had he been required to do so as it is clear on the evidence that Mr Marcos wanted to conceal the arrangement.

It was noted above that these procurements were carried out via LPOs. On the LPO, where the Approving Officer writes his or her details and signs the form, is printed:

APPROVED by an officer who holds a delegation under Section 12(1) of the Public Finance and Audit Act 1983 and in accordance with RailCorp’s Procurement Policies and Procedures. [bold in original]

Given that conflicts of interest are discussed within RailCorp’s Procurement Manual, they are covered by this reference. However, because of the importance for probity of managing conflicts of interest the Commission believes RailCorp needs to highlight this issue to promote better adherence to the policy and procedures.

RailCorp advised the Commission in April 2007 that it is in the process of replacing LPOs with an electronic

ordering system. Whatever ordering system is used, it is recommended that, in relation to procurement, RailCorp requires all certifying statements (electronic or otherwise) to contain an explicit reference to RailCorp’s conflict of interest requirements. This could be a statement such as “I certify that this transaction was conducted in accordance with RailCorp’s conflict of interest policies and procedures.”

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It is recommended that certifying statements in relation to RailCorp procurements explicitly state that the procurement has been completed in accordance with RailCorp’s conflict of interest policies and procedures.

Secondary employment

While there is nothing inherently wrong with secondary employment (or outside employment as RailCorp referred to it in the 1999 and 2000 Codes of Conduct), it is an area that has the potential to be associated with an increased risk of corruption if not properly managed. Conflicts of interest may arise between an employee’s duty to their public sector organisation and their responsibilities to their private job or business. Additionally, secondary employment can also be associated with misuse of resources and information.

Mr Marcos was involved in secondary employment in relation to B&S and Isis.

The 1995, 2000 and 2005 versions of the Transport Administration (Staff) Regulation all prohibit secondary employment without RailCorp’s approval.

The Commission recognises that RailCorp has attempted to appropriately implement these requirements via its policy framework. This is reflected in the fact that the 1999 and 2000 RailCorp Codes of Workplace Standards explicitly state that:

... you need to make an application in writing and need your manager’s written permission before commencing in any outside employment. [emphasis in original]

In addition, during the course of this investigation, several employees of RailCorp gave evidence that they understood that a RailCorp employee needed to get prior, written approval from management before commencing secondary employment.

According to the Outside Employment section of these previous Codes, “Outside employment means work other than your job with the State Rail Authority”.

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In July 2002, RailCorp implemented a new Secondary Employment Policy. This policy had a much broader definition of secondary employment that clearly covered Mr Marcos’s circumstances:

Secondary employment involves an employee of State Rail accepting employment, discharging duties or holding an office (eg as a director on a board) in connection with any financial or commercial organisation or business or statutory authority/government agency. Secondary employment may also involve the employee engaging in private employment, practice or business or any profession, occupation or trade.

As part of the initial implementation of this policy, Mr Marcos was sent a copy and required to sign a declaration indicating any secondary employment that he had. Despite his involvement in B&S and Isis, Mr Marcos signed this declaration “N/A”. When, as part of this investigation, he was asked why, he replied:

Everyone writing N/A, I just write N/A and didn’t come across my mind because I don’t go physically to do the work for NBR. This is my understanding. I am not employed by NBR. I am looking after [RailCorp].

As discussed in Chapter 2, the Commission does not accept Mr Marcos’s explanation. The Commission has found Mr Marcos’s failure to abide by the secondary employment provisions of RailCorp’s Code of Conduct to be deliberate.

RailCorp has a responsibility to ensure that its Secondary Employment Policy is implemented in a way that avoids both deliberate and accidental violations by employees. This includes ensuring that employees are aware of the policy, that they understand its content and that the systems necessary to ensure compliance with the policy are in place. This is particularly the case given that a number of Commission investigations involving RailCorp have identified unauthorised secondary employment as a poorly managed risk area.40

RailCorp has recently released a new Secondary Employment Policy. This policy requires all RailCorp employees to complete an annual secondary employment declaration.41 The definition of secondary employment has also been stated more clearly and now includes:

… all employment (whether paid or unpaid) and voluntary work outside of the employee’s role with RailCorp.

This includes:

n any permanent, casual, part-time or full-time work with another employer, agency or organisation

n self-employment

n independent contracting or consulting

n employment by a family company

n voluntary work in excess of 5 hours per week and all emergency services work [emphasis in original]

n membership of Boards or Committees

n work performed during periods of paid or unpaid leave.

These changes put in place a more rigorous regime for dealing with secondary employment than has previously existed within RailCorp. Nevertheless, as cited earlier, secondary employment has been repeatedly identified as a pertinent corruption risk factor in several Commission investigations involving RailCorp. Consequently, RailCorp needs to pay constant attention to managing this risk.

It is recommended that RailCorp establishes a risk management strategy specifically relating to secondary employment. Relevant risk management options that could be explored include, but are not limited to, interviews with randomly selected or targeted RailCorp employees about secondary employment, conducting Australian Securities and Investments Commission searches on randomly selected or targeted employees, and corporate communications stressing the importance of both complying with, and reporting suspected breaches of, RailCorp’s secondary employment policy.

RECoMMENDAtIoN 27

It is recommended that RailCorp establishes a risk management strategy specifically in relation to secondary employment.

Finally, as outlined on page 11, RailCorp is required to provide follow-up information to the Commission regarding the implementation of these recommendations.

40. For instance, see For instance, see Corrupt networks: Report into the conduct of a technical specialist in the State Rail Authority, Independent Commission Against Corruption, Sydney, April 2001 and A major investigation into corruption in the former State Rail Authority of NSW, Independent Commission Against Corruption , Sydney, June 1998.

41. This declaration is completed at the same time as staff complete a declaration regarding their use of employee travel passes. Because This declaration is completed at the same time as staff complete a declaration regarding their use of employee travel passes. Because of this link to an existing, mandatory process the secondary employment declaration is less likely to be missed or not completed.


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The ICAC Act is concerned with the honest and impartial exercise of official powers and functions in, and in connection with, the public sector of New South Wales, and the protection of information or material acquired in the course of performing official functions. It provides mechanisms which are designed to expose and prevent the dishonest or partial exercise of such official powers and functions and the misuse of information or material. In furtherance of the objectives of the ICAC Act, the Commission may investigate allegations or complaints of corrupt conduct, or conduct liable to encourage or cause the occurrence of corrupt conduct. It may then report on the investigation and, when appropriate, make recommendations as to any action which the Commission believes should be taken or considered.

The Commission can also investigate the conduct of persons who are not public officials but whose conduct adversely affects or could adversely affect, either directly or indirectly, the honest or impartial exercise of official functions by any public official, any group or body of public officials or any public authority. The Commission may make findings of fact and form opinions based on those facts as to whether any particular person, even though not a public official, has engaged in corrupt conduct.

The ICAC Act applies to public authorities and public officials as defined in section 3 of the ICAC Act.

The Commission was created in response to community and Parliamentary concerns about corruption which had been revealed in, inter alia, various parts of the public service, causing a consequent downturn in community confidence in the integrity of that service. It is recognised that corruption in the public service not only undermines confidence in the bureaucracy but also has a detrimental effect on the confidence of the community in the processes of democratic government, at least at the level of government in which that corruption occurs. It is also recognised that corruption commonly indicates and promotes inefficiency, produces waste and could lead to loss of revenue.

The role of the Commission is to act as an agent for changing the situation which has been revealed. Its work involves identifying and bringing to attention conduct which is corrupt. Having done so, or better still in the course of so doing, the Commission can prompt the relevant public authority to recognise the need for reform or change, and then assist that public authority (and others with similar vulnerabilities) to bring about

the necessary changes or reforms in procedures and systems, and, importantly, promote an ethical culture, an ethos of probity.

The principal functions of the Commission, as specified in section 13 of the ICAC Act, include investigating any circumstances which in the Commission’s opinion imply that corrupt conduct, or conduct liable to allow or encourage corrupt conduct, or conduct connected with corrupt conduct, may have occurred, and co-operating with public authorities and public officials in reviewing practices and procedures to reduce the likelihood of the occurrence of corrupt conduct.

The Commission may form and express an opinion as to whether consideration should or should not be given to obtaining the advice of the Director of Public Prosecutions with respect to the prosecution of a person for a specified criminal offence. It may also state whether it is of the opinion that consideration should be given to the taking of action against a person for a specified disciplinary offence or the taking of action against a public official on specified grounds with a view to dismissing, dispensing with the services of, or otherwise terminating the services of the public official.

Appendix 1: the role of the Commission

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Appendix�:Corruptconductdefinedandtherelevantstandardofproof ��

Corrupt conduct is defined in section 7 of the ICAC Act as any conduct which falls within the description of corrupt conduct in either or both sections 8(1) or 8(2) and which is not excluded by section 9 of the ICAC Act. An examination of conduct to determine whether or not it is corrupt thus involves a consideration of two separate sections of the ICAC Act.

The first (section 8) defines the general nature of corrupt conduct. Section 8(1) provides that corrupt conduct is:

(a) any conduct of any person (whether or not a public official) that adversely affects, or that could adversely affect, either directly or indirectly, the honest or impartial exercise of official functions by any public official, any group or body of public officials or any public authority, or

(b) any conduct of a public official that constitutes or involves the dishonest or partial exercise of any of his or her official functions, or

(c) any conduct of a public official or former public official that constitutes or involves a breach of public trust, or

(d) any conduct of a public official or former public official that involves the misuse of information or material that he or she has acquired in the course of his or her official functions, whether or not for his or her benefit or for the benefit of any other person.

Section 8(2) specifies conduct, including the conduct of any person (whether or not a public official), that adversely affects, or that could adversely affect, either directly or indirectly, the exercise of official functions by any public official, any group or body of public officials or any public authority, and which, in addition, could involve a number of specific offences which are set out in that subsection.

Subsection 9(1) provides that, despite section 8, conduct does not amount to corrupt conduct unless it could constitute or involve:

(a) a criminal offence, or

(b) a disciplinary offence, or

(c) reasonable grounds for dismissing, dispensing with the services of or otherwise terminating the services of a public official, or

(d) in the case of conduct of a Minister of the Crown or a Member of a House of Parliament—a substantial breach of an applicable code of conduct.

Three steps are involved in determining whether or not corrupt conduct has occurred in a particular matter. The first step is to make findings of relevant facts. The second is to determine whether the conduct, which has been found as a matter of fact, comes within the terms of sections 8(1) or 8(2) of the ICAC Act. The third and final step is to determine whether the conduct also satisfies the requirements of section 9 of the ICAC Act.

Section 13(3A) of the ICAC Act provides that the Commission may make a finding that a person has engaged or is engaged in corrupt conduct of a kind described in paragraphs (a), (b), (c) or (d) of section 9(1) only if satisfied that a person has engaged or is engaging in conduct that constitutes or involves an offence or thing of the kind described in that paragraph.

A finding of corrupt conduct against an individual is a serious matter. It may affect the individual personally, professionally or in employment, as well as in family and social relationships. In addition, there is no right of appeal against findings of fact made by the Commission nor, excluding error of law relating to jurisdiction or procedural fairness, is there any appeal against a determination that a person has engaged in corrupt conduct. This situation highlights the need to exercise care in making findings of corrupt conduct.

In Australia there are only two standards of proof: one relating to criminal matters, the other to civil matters. Commission investigations, including hearings, are not criminal in their nature. Hearings are neither trials nor committals. Rather, the Commission is similar in standing to a Royal Commission and its investigations and hearings have most of the characteristics associated with a Royal Commission. The standard of proof in Royal Commissions is the civil standard, that is, on the balance of probabilities. This requires only reasonable satisfaction as opposed to satisfaction beyond reasonable doubt, as is required in criminal matters. The civil standard is the standard which has been applied consistently in the Commission. However, because of the seriousness of the findings which may be made, it is important to bear in mind what was said by Dixon J in Briginshaw v. Briginshaw (1938) 60 CLR 336 at 362:

… reasonable satisfaction is not a state of mind that is attained or established independently of the nature

Appendix 2: Corrupt conduct defined and the relevant standard of proof


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and consequence of the fact or fact to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters ‘reasonable satisfaction’ should not be produced by inexact proofs, indefinite testimony, or indirect inferences.

This formulation is, as the High Court pointed out in Neat Holdings Pty Ltd v. Karajan Holdings Pty Ltd (1992) 67 ALJR 170 at 171, to be understood:

... as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct.

See also Rejfek v. McElroy (1965) 112 CLR 517, the report of McGregor J into Matters in Relation to Electoral Redistribution in Queensland in 1977 and the report by the Hon W Carter QC into An Attempt to Bribe a Member of the House of Assembly (Tasmania) in 1991.

As indicated above, the first step towards making a finding of corrupt conduct is to make a finding of fact. Findings of fact and determinations set out in this report have been made applying the principles detailed in this Appendix.

report on an investigation into corrupt conduct associated with railcorp … · 2019. 2. 22. ·...

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