The Flip Side of Fraud

Term of Reference: 2 (k) any other related matter.

Overview: The flip side of fraud.

Originally written as a private letter for lawyers and church pastor to consider, the issues mentioned in this submission are relevant to, and comply with, the review panel’s broad terms of reference, i.e. “any other matters”.

“Compliance Measures” encompasses the issue of “Fraud”, a word that was used 53 times in the 2008-09 annual report, indicating that it is a major issue for Centrelink administrators. Further evidence of its important can also be gained from the fact that Centrelink management actually sets annual quotas for the prosecution of welfare recipients.

As important as the prosecution of alleged welfare rorters may be, there are significant issues extraneous issues associated with this activity:

    1. There is a Benefit-Cost ratio that must be considered because of the long term costs resulting from successful prosecutions may far outweigh the short term benefits gained.

    2. When it comes to the crime of “Defrauding the Commonwealth by obtaining a benefit by deception” markedly different standard of Justice are applied by federal law enforcement authorities. This difference depends upon the political or social status of the alleged offender. As the Australian Federal Police have twice made very clear, the prime criteria for investigating an alleged offence is the “gravity/sensitivity” of the issue.

    3. For some reason, politicians alleged by a Crown agency to have rorted $6,460,000 is an issue of low gravity and is not worth investigating whilst welfare recipients who are anonymously accused of rorting $6,460 are most definitely worth investigating.

    4. It is also quite clear the status of the alleged offender plays a key role in the issue of sensitivity of the alleged crime. Investigating massive alleged rorting by politicians is far too sensitive so there is no investigation. However, there is no sensitivity in investigating alleged welfare rorters and so the Federal Police have a task force assisting Centrelink.

    The application of one standard of Justice to welfare recipients whilst using a totally different standard of justice when dealing with Federal Politicians has the potential to cause massive disruption and disarray in our nation’s Criminal Justice System whilst it may also cause great concern within the broader community.

“The flip side of Fraud”

“The AFP Operations Coordination Centre Client Relations Liaisons Team assess correspondence taking into account a number of factors including the gravity/sensitivity of the matter…”

Federal Agent Jeff Pearce

Australian Federal Police

14th September 2009.

Mabo, Wik, The Stolen Generation, and the Lost Generation are all examples of how decisions made by politicians can have un-thought of and unintended consequences. Whilst it is appropriate that Centrelink administrators take action to deal with fraud issues, the ill-considered or un-considered aspects and implications can have intended consequences.

In late 2005 and early 2006, Centrelink spent millions of dollars advertising its “10 prosecutions a day” campaign. Given that Centrelink is responsible for approximately $50 Billion in welfare payments to over 6 million people, such warnings are not inappropriate. However, the question has to be considered as to whether or not prosecuting welfare recipients provides best possible long term Benefit:Cost outcome for taxpayers.

The Benefit:Cost Ratio of Prosecuting Alleged Rorters.

The term Cost:Benefit Ration is a commonly used business management principle that is used in the making of business decisions. However, I have deliberately reversed the term because it is a better match for the following question;

Does the immediate Benefit of successfully prosecuting welfare rorters exceed the long term Cost of doing so?

As the previously mentioned advertising campaign pointed out, deliberate rorting can result in a criminal conviction. The conviction of an alleged rorter may have a number of “benefits”.

  1. A person who is defrauding the Commonwealth is caught and punished;
  2. Restitution of monies defrauded may be recovered;
  3. Centrelink has one less client to pay a welfare allowance too;
  4. Other people who are tempted to rort the system may be discouraged from doing so.

Whilst these are positive benefits, the TCO, the “Total Cost of Ownership” of achieving those limited benefits may be off-set by both the short term and long term costs to taxpayers. The far from minor short term costs include:

  1. The cost of the investigation;
  2. Preparing and presenting the Crown Prosecution case;
  3. The cost of incarcerating rorters who are found guilty
  4. Welfare payments to the spouse and/or dependents of a convicted rorter.

To this list must be added the long term cost of a successful prosecution:

  1. Federal and State/Territory laws prohibit people from gaining employment in a number of occupational areas, e.g. the Australian Public Service.
  2. Many occupations require that a criminal conviction be revealed to a prospective employer, e.g. chartered accountants.
  3. The stigma of a criminal conviction may prejudice employers against employing a convicted rorter.
  4. The cost of paying a welfare benefit to an unemployed convicted rorter.

Taking the long term view, it is not in taxpayers best interests to saddle them with the life long cost of paying a welfare benefit to person who is unemployable because they have a criminal conviction. It is clearly in the best financial interest of taxpayers for Centrelink management to look for a more cost effective performance ration than simply meeting an arbitrarily determined welfare recipient prosecution quota.

Fishing Expeditions- No search warrant required.

The manner in which Centrelink deals with fraud reports is of grave concern for Centrelink has unique powers of investigation that are not enjoyed by either the Federal Police or the various state and Northern Territory police forces. These powers enable Centrelink investigators to circumvent Due Process of Law and are based upon an automatic Presumption of Guilt.

Even where accused welfare recipients are totally innocent of the allegations made against them, the manner in which Centrelink investigators are able to conduct an investigation can leave a stigma, not only the accused welfare recipients, but upon partners, be that marital partners or business partners. Centrelink investigators only have to “believe that a debt is owed” and they can conduct incredibly intrusive investigations and demand private or confidential details from any organization or individual who may have had financial dealings with the accused. No search warrant is required to undertake these fishing expeditions. As Centrelink’s annual reports make quite clear, the most common source allegations made against welfare recipients is from “tip-offs” made on the Fraud reporting hot-line.

In a direct parallel with the administrative process now known as Compliance Measures, these unique “No search warrant is required” powers of investigation only apply to welfare recipients. Further adding insult to this injury is the reluctance of the Australian Federal Police to investigate allegations, backed up strong empirical evidence, made against members of the Federal Parliament who may have “Defrauded the Commonwealth by obtaining a benefit by deception”.

Perksgate, a matter of “gravity/sensitivity”.

In September 2009, the Australian Federal Police were asked to investigate the fraudulent activities identified and reported in the Auditor-General’s Report No.3 2009-10. Audit Report – Administration of Parliamentarians’ Entitlements by the Department of Finance and Regulation. The measure of the Auditor-General’s concern about the alleged rorting of $4,640,000 in an alleged organized rorting spree that allegedly involved 144 member members of the Federal Parliament can be gauged from the following remarkable statement contained in the Auditor-General’s report to Parliament:

“As elected officials holding public office, Parliamentarians are expected to act with integrity in accordance with the public trust placed in them.”

Page 12, Auditor-General Report No.3 2009-10.

“…expected to act with integrity”

That statement was remarkable because a Public Servant, the Auditor-General, was quite clearly telling his bosses, federal politicians, that they were not acting with integrity!

On September 14th, 2009 the Australian Federal Police responded via email and declined to investigate this “Perksgate”. Whilst specific reasons other than “government protocols” were not explicitly stated, the Federal Police inferred a lack of available resources and the (political) “gravity/sensitivity” of the issue.

Since 144 members of Federal Parliament represents 56% of all the members of Federal Parliament, the political “gravity/sensitivity” of the issue is fairly obvious as charging that many politicians with “Defrauding the Commonwealth by obtaining a benefit by deception” would have almost certainly triggered a Double Dissolution of Federal Parliament.

The involvement of 144 Members of Parliament would also have required a massive investigative task force to dig into the financial affairs of each of these politicians. In order to undertake a thorough investigation into the financial affairs of politicians, the Federal police would have had to obtain search warrants and that would have required presenting, substantial objective empirical evidence to a court before any search warrant could be issued.

Without objective evidence, there is absolutely no way that any court, State or Federal, would allow the Federal Police to go on a ‘fishing expedition’ to dig up financial evidence that might be used to convict these politicians of fraud. Despite the empirical evidence uncovered by the Auditor-General, the Australian Federal Police acted as though there was insufficient evidence to obtain search warrants and opted not to conduct a thorough investigation in accordance with Due Process of Law.

Responding to a letter of complaint about the refusal of the Federal Police to investigate “Perksgate”, on 25th November 2009 the Home Affairs Minister, Brendan O’Connor wrote that there had been an investigation by the Australian Federal Police. However, there is no Transparency, no evidence to suggest that any investigation had been conducted. Given that the Auditor-General was alleging in an official report to Parliament that 144 members of the 41st Parliament may have engaged in organized rorting of $4.64 Million from an “Entitlements” Fund, Transparency and full disclosure in relation to the conduct of a Federal Police investigation should have been the order of the day.

The emailed letter refusal by the Federal Police to investigate “Perksgate” (that word is used in the email) contained a reference to a 2004 complaint.

In 2004, a sacked staff members working in Trish Draper’s office presented documentary evidence to a TV station that in 2000, Ms. Draper has taken a mail friend who was not her defacto spouse on a overseas fact-finding trip to Europe at taxpayers’ expense. When a TV current affairs program prepared a segment that would expose Ms. Draper’s actions, she obtained a blanket media suppression order that prevented the people of South Australia from being informed via the news media of her actions. When the suppression order was over-ruled, the current affairs segment was broadcast. This resulted in the Federal Police being asked to investigate Ms. Draper to determine if she had “Defrauded the Commonwealth by obtaining a (Travel allowance) benefit by deception”.

Under massive media pressure and pressure from intensely embarrassing parliamentary debate, Ms. Draper eventually confessed to her “mistake” and repaid the travel allowance that she had wrongly claimed.

Despite this confession, protected by the Prime Minister John Howard, the Justice Minister and the Administrative Affairs Minister, the Federal Police refused to investigate Ms. Draper’s actions.

Since November 2005, all documents, including a ministerial letter, relating to the Federal Police decision not to investigate have been subjected to a Parliamentary Privilege suppression order.

The refusal of the Federal Police to investigate well documented cases of possible fraud by the members of Federal Parliament is in strong contrast to the willingness of the Federal Police to assist Centrelink investigators in conducting investigations of welfare recipients that are based upon anonymous and unsubstantiated hot-line “tip-offs”. Since FY 2004-05, 10 AFP officers have been out-sourced to Centrelink to assist Centrelink fraud investigators but on two separate occasions, according to the AFP, none were available to investigate alleged fraud by federal politicians. The refusal of the Federal Police to investigate alleged fraud by members of Federal Parliament has created a window of opportunity for welfare recipients being prosecuted by Centrelink to require the Crown Prosecutor to demonstrate to the Court, the unique points of law that justify no investigation of federal politicians but which justified the investigation of the defendant!

If, in court, Centrelink must meet the same legal criteria as has been applied to politicians, then their “10 prosecutions a day” score is likely to equal the same score as the number of federal politicians who have been prosecuted rorting prosecuted in the 21st Centaury, i.e. a big, fat ZERO.

Correct me if I am wrong, but I very much doubt that any federal court would consider that (political) “gravity/sensitivity” is a compelling legal reason for not investigating federal politicians who may have “Defrauded the Commonwealth by obtaining a benefit by deception”.

The foundation principal of Equality before the Law requires that the Law treats both welfare recipients and federal politicians in precisely the same manner. There is documentary evidence, some of which is deliberately suppressed by Federal Parliament that two totally different standards of justice apply at the current time.

Centrelink’s expensively advertised “10 prosecutions a day” is founded upon the ability to undertake “fishing expeditions” based upon anonymous and unsubstantiated information received from “tip-offs” made on the fraud reporting Hot-line. It is therefore fair to ask how many of the 3,388 fraud prosecutions that took place during the 2008-09 reporting period would have occurred if Centrelink investigators, like the Federal Police, had had to first seek search warrants from a court before undertaking their investigations into the financial affairs of accused welfare recipients and their partners?

How many search warrants would have been issued based upon anonymous and unsubstantiated hot-line tip-offs? I suspect that very few would have been issued.

Since 1689, the purpose of Parliamentary Privilege has been to expose corruption, not conceal to it.

I have therefore decided that the undated Parliamentary Privilege suppression order that prevents me from copying and distributing details of the Federal Police refusal to investigate alleged rorting by federal politicians is not legally valid. Lacking the necessary financial resourced needed to test my belief in the Federal Court, I have determined that the most reasonable solution to my problem is to make these details available, at an appropriate time, to welfare recipients who facing prosecution for allegedly “Defrauding the Commonwealth by obtaining a benefit by deception”.

It is almost impossible to predict the consequences of accused welfare recipients using this documentation in court. However, there is one outcome that is very predictable, the reaction by the general public to the news that the federal politicians have been rorting.

It will be ignored.

“gravity/sensitivity” applied to Travelgate in 2004 and to Perksgate in 2009. The next time a politician is caught rorting there will be a collective yawn by the general public. When speaking to a South Australian police officer about the refusal of the Federal Police to investigate Perksgate, he responded that the public are not concerned because politicians do this sort of stuff all the time. His response is quite true. There is massive public apathy to rorting by politicians, a fact reflected by the number of politicians accused of rorting who have not been prosecuted. It is simple logic that if it is okay for politicians to rort, then it is okay for welfare recipients to rort.

I do not subscribe to that logic for I believe that if politicians engage in rorting activity, then they should face the same Due Process of Law that applies to anyone else.

Ron Medlicott (Christian welfare justice activist.)

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