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Estimates: alleged rorting of the Tasmanian forestry exit grants program

Estimates & Committees
Janet Rice 26 May 2015

Senator RICE: I have a question about the region of wood from native forests being burnt for energy and being eligible for renewable energy certificates under the renewable energy target. What type of wood is the government expecting is likely to be burnt under this allowance?

Senator Colbeck: I am not sure what you mean by the type of wood, but there would be an opportunity for residues, for example, from forestry operations to be utilised as part of that process.

Senator RICE: I understand that the Australian Forest Products Association have some estimates of very substantial amounts of wood that potentially would be available. Would it be fair to say that you expect that the bulk of the wood, if these schemes take off—we had power generators using the biomass of native forests— would be whole logs that are currently being chipped?

Senator Colbeck: No. I do not think you could say that at all. In my home state of Tasmania, there are obviously significant opportunities to utilise wood residues from sawmilling operations, for example. That would quite reasonably be utilised. Depending on the financial viability of doing so, they would be utilising residues from forest harvesting operations. I guess in other jurisdictions those sorts of things would occur as well.

Senator RICE: But the residues from sawmilling operations are already eligible. Sawmill waste is already eligible.

Senator Colbeck: Not if they come from the native forests, they are not.

Senator RICE: Leaving aside sawmill residues, the sorts of volumes we are talking about are hundreds of thousands of tonnes. Would it be the expectation that they would use logs that are currently residual round logs, currently chip logs?

Senator Colbeck: I do not know that you can automatically say that. It will depend, obviously, on some of the economics around that and potentially on the woodchip price for those products. Some of it may go to biomass; I do not know. The government is not trying to make that determination, quite frankly. That is not our objective. We believe that the utilisation of residues from native forest operations in particular can reasonably be used to generate energy, bearing in mind the discussion we had earlier around sustainable forest operations. That needs to be a consideration as part of that overall process. That is part of what we are looking at as part of the regulatory process.

Senator RICE: So you would see that if the export woodchip price were not right, it would be another potential use of those woods that are currently being exported for woodchips?

Senator Colbeck: It could be.

Senator RICE: Would you expect bark and branches to be used?

Senator Colbeck: It could be.

Senator RICE: Is there any evidence that bark and branches have ever been burnt for biomass energy in Australia—for example, when native forest biomass was permitted between 2001 and 2011?

Senator Colbeck: No, there is not. But I have seen it occurring in other jurisdictions where I have been and had a look at biomass operations.

Senator RICE: But in Australia?

Senator Colbeck: No.

Senator RICE: Have you got any evidence of anyone ever transporting tree tops and branches on the back of a log truck to a mill?

Senator Colbeck: Not in Australia. But I have seen it in other jurisdictions. It is quite a common operation in some cases.

Senator RICE: But given that transport is such a major cost in logging operations?

Senator Colbeck: Well, it is in those jurisdictions as well. The coup sizes are much smaller. Again, it is going to come down to the economic viability of this at the end of the day.

Senator RICE: You were quoted in a Liberal Party email last week saying that wood biomass is making use of an otherwise wasted product such as timber offcuts and bark and branches that would otherwise be discarded. Do you not think that is rather misleading?

Senator Colbeck: I would have to view the Liberal Party publication. I am not familiar with the one you are talking about.

Senator RICE: It was an email that someone sent to me.

Senator Colbeck: I would like to be able to sight what I am being quoted as saying.

Senator WILLIAMS: What else are you going to do?

Senator RICE: Given the evidence—

Senator Colbeck: It may very well be. Again, I have quite clearly indicated that the economics of this are going to be part of the overall process. I do not know the Liberal Party publication that you are talking about. I would be interested in seeing it before I respond to something that I am quoted as having said. I refer not necessarily to what you have said today but some of the selective quoting that has occurred at the committee today around various other topics. I would like to see the full context of what I am being quoted as saying.

Senator RICE: I will find the document for you. Let us move on.

Senator Colbeck: Sure. I am happy to take it on notice.

CHAIR: Get going, whoever it is that has to get going. We will call the last mob for tonight. It is sustainability and biosecurity policy, I guess. Thanks very much, boys and girls.

Senator RICE: I want to ask some questions about the Auditor-General's reports on the Tasmanian forestry grants program, the Senate inquiry that was conducted under that and the efforts being taken to investigate the claims of fraud and noncompliance under it. I am interested in knowing how much the department has spent investigating, auditing or reviewing the compliance of the Tasmanian forestry exit grants.

Mr Thompson: We would have to take that on notice. We do not have the details of what it has cost to date with us.

Senator RICE: How many staff are involved in the process?

Ms Standen: Again, I would have to take that on notice. I do not know the exact numbers, but I will say that a number of different areas of the department are involved, including the grants administration program, the policy area of the department as well as the fraud and security team.

Senator RICE: So we are talking about quite a few staff involved?

Ms Standen: I could not speculate as to exactly how many. I would have to take it on notice.

Senator RICE: If you could, that be would good. What has the review process involved so far?

Ms Standen: In relation to the two particular forestry exit grant programs that my branch administers, there are matters relating to certain allegations that have been made about some recipients of those grants. Separately there are also ongoing monitoring and compliance activities that we undertake in the branch to ensure the ongoing compliance with the funding deeds.

Senator RICE: Has the review process so far gone beyond just doing reviews on paper of what has been going on?

Ms Standen: I will turn to the monitoring and compliance activities first. There are two streams to them. The first is a requirement of grantees to declare on a yearly basis that they are compliant. There is also on-the-ground activities as well, where officers do make site visits. In relation to fraud allegations, any allegations that are made are investigated by the department's fraud and security team. If warranted, we also work through legal processes as well.

Senator RICE: With these current claims of fraud and the one fraud and two noncompliance, have you conducted any interviews or forensic accounting?

Ms Standen: In relation to the one fraud allegation that is still outstanding, it is an investigation that is ongoing and I am not able to comment further on it.

Senator RICE: Have you contracted any private investigators to be investigating it in the same way Centrelink does for cases of fraud?

Ms Standen: I can take that on notice, but my understanding is no.

Senator RICE: Have any of your officers visited Tasmania to investigate or conduct interviews?

Ms Standen: We have contracted AusIndustry, through the department of industry, to undertake compliance activities on our behalf.

Senator RICE: Could you give me any more details as to what compliance activities they are undertaking?

Ms Standen: In terms of the actual details, I will take that on notice.

Senator RICE: So you do not know them?

Ms Standen: I do not have the information to hand.

Senator RICE: Can you name the business that you were investigating for fraud?

Ms Standen: No. I cannot.

Senator RICE: Perhaps elaborate on the nature and the financial size of this fraud?

Ms Standen: No. I cannot.

CHAIR: I support that position. As a committee, we have to be very careful that we do not interfere with any legal proceedings. Absolutely it is a no-go zone.

Senator RICE: I will move to the noncompliance. Can you elaborate? People understand what fraud is. Noncompliance is rather vaguer. Can you give some ideas of what the noncompliance is that is being investigated?

Ms Standen: Noncompliance could be a range of things. Quite often in these circumstances noncompliance could be as simple as not returning a declaration of their compliance with the program on time. It could be that they have changed address and we do not have a record of their changed circumstances. There are some quite simple noncompliance matters such as that, which we can generally pretty easily fix up. There are other—

Senator RICE: What are the more serious measures?

Ms Standen: At the other end, we need to examine the more serious noncompliance issues to determine whether or not they have to be more fully investigated.

Senator RICE: So what could be the more serious noncompliance issues be? Are they rorting? How serious is this? 

Ms Standen: Noncompliance is not fraud. Noncompliance could mean that they are not complying with the terms of their funding deed. If the matters are not to the extent that we think they may be fraudulent in nature, we will investigate further. But in the first instance we attempt to work with the grantee to overcome that noncompliance so they become compliant.

Senator RICE: Can you give me some idea of what the financial size implicit in this noncompliance is? Grants were issued and they are noncompliant with the conditions of the grant. What sort of size are we talking about?

Ms Standen: I could not go into any details here and now. I would have to make guesses without having the actual circumstances in front of me.

Mr Thompson: Individual grants were quite varied in size.

Senator RICE: What could it have been up to? What were some of the largest ones?

Ms Standen: I can provide you with that information. Under the Tasmanian Forest Contractors Exit Assistance Program, which is running until 2016, the average grant was just over $580,000.

Senator RICE: That is quite a lot of money.

Ms Standen: With the Tasmanian Forests Intergovernmental Agreement Contractors Voluntary Exit Grants Program, which is running until 2022, the average is around $733,000. Within that, there is a range of between $3 million and $20,000, so it is quite a wide range.

Senator RICE: Given that these are meant to be exit grants, they are very substantial amounts of money given to people to exit the industry. The fact that they are noncompliant is a very substantial and significant issue.

Mr Thompson: As Ms Standen said, though, many cases of noncompliance are actually noncompliance with the process as well. So it is incomplete information on documentation or delays in time. Quite a number of the noncompliance things can be sorted out without going to fraud.

Senator RICE: You cannot give us any details of the significance of the noncompliance in these two cases that are being investigated at the moment?

Mr Thompson: Not here and now, Senator, no.

Senator RICE: That is a bit of a worry, because it reflects on all contractors. There are obviously a few bad eggs, but it means that everyone is being tainted. No-one knows who it is.

Senator Colbeck: You call bad eggs those who have changed their address and not provided that information to the department. You might want to cast aspersions on the forest industry and the players within it; that is fine. In fact, you probably demonstrate a reason why, apart from not wanting to jeopardise any action that we might take, we are cautious about providing information in this matter.

Ms Standen: I should clarify that there is one allegation of fraud that we are continuing to investigate. So there has been no confirmation one way or the other.

Senator RICE: When do you think these investigations will be completed?

Ms Standen: I am not able to advise. They are legal processes. They need to take their time.

Senator RICE: Are there any more noncompliance notices that have been issued other than these two that we have been made aware of?

Ms Standen: At this point in time, my understanding is no. But the compliance activities are constant and ongoing. So from time to time grantees could possibly find themselves noncompliant, in which case we will then work with them to ensure that they remain compliant.

Senator RICE: What is the penalty for noncompliance?

Ms Standen: There is no penalty.

Senator RICE: So even though they have received a very substantial amount of taxpayers' money, and they are not complying with the conditions of that grant, there is no penalty?

Ms Standen: Noncompliance does not mean that they are not entitled to the grant.

Senator RICE: You said that there were less serious issues of noncompliance but then there are more serious issues of noncompliance.

Ms Standen: That is right. But I cannot elaborate further on what action we would take in terms of those more serious noncompliant actions.

Senator RICE: So there is still no penalty? 

Mr Thompson: If some of the noncompliance is as trivial as we failed to get a notification of their change of address on time and that is resolved, that would not cause any disturbance under their deeds. I have not looked carefully at the deeds. Normally, with contracts, as you move through the extent of noncompliance, breach notices can be issued. Depending on the magnitude and significance of that, there may well be some penalties. We would have to take on notice what they are. Fraud becomes a deliberate deception. If someone has just failed to do something because something has happened, it may be a breach which results in some other sort of condition under the deed. But we could come back on what the terms of the deed are in general, not in the specific cases because we are trying to not breach their privacy. In particular, they are allegations rather than necessarily proven cases.

Senator RICE: If you could take the terms of the deed on notice, that would be good. What legal advice have you sought in relation to this fraud and noncompliance?

Ms Standen: I cannot elaborate on that.

Mr Thompson: The legal handling of these runs through our office of general counsel, which is our internal solicitors who handle these cases on our behalf when it comes to legal processes under our deeds and contracts.

Senator RICE: What sort of investment in those legal services, then, is being made?

Mr Thompson: We would be one of many users of the department's internal legal services, so I could not separate out. Possibly the office of general counsel do keep track of how much time each part of the department occupies of their staff's time, but it would be part of one person at most.

Ms Standen: We can also take on notice any additional legal advice we have sought from outside the department.

Senator RICE: Are you looking at any increased investment into the future—you have ongoing grant schemes—or are you satisfied with the level of monitoring that you are currently doing?

Ms Standen: Well, we are currently undertaking a review of our compliance and monitoring activities. It is a desktop review. It will be completed around July this year. We may well, as a result of that review, consider increasing on-the-ground compliance activities.

Senator RICE: What level of on-the-ground compliance activities do you do at the moment?

Ms Standen: As I said, we have contracted AusIndustry to undertake those activities. I can provide you with details of that on notice.

Senator RICE: How much time do they spend?

Ms Standen: I do not have that information in front of me. I will have to provide that on notice.

Senator RICE: In terms of monitoring activities, do you send out letters to the grant applicants? What is the usual way of contacting them as to whether they are complying with the conditions of the grants?

Ms Standen: As I mentioned right at the start, grantees are required to make a yearly declaration that they are compliant with the terms of their deeds. We request that declaration in writing.

Senator RICE: What sort of response rate do you get? How many have not been compliant with that aspect? Ms Standen: At the moment, for the current declarations, I understand that over 70 per cent have complied so far. But they have until, I believe, about the end of May.

Senator RICE: That is three days or something.

Ms Standen: That is correct.

Senator RICE: What will be the follow-up process?

Ms Standen: The follow-up process will be through letters and phone calls.

Mr Thompson: As with any program, we may receive phone calls or letters of complaint or allegation. They are all investigated initially at the level of following up the person and what evidence they have and if there is something substantive that can be investigated. If there is evidence provided, that will be handed over to our fraud and investigation team to take further. They would follow that through in terms of the same sort of process they apply to any other of our compliance activities in the department. 

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