Investigation into corporate credit card misuse at Warrnambool City Council

Letter to the Legislative Council and the Legislative Assembly

To

The Honourable the President of the Legislative Council

and

The Honourable the Speaker of the Legislative Assembly

Pursuant to sections 25 and 25AA of the Ombudsman Act 1973 (Vic), I present to Parliament my Investigation into corporate credit card misuse at Warrnambool City Council.

Deborah Glass OBE
Ombudsman

9 October 2020

Foreword

How many bad apples were spoiling the Warrnambool City Council barrel? Local reports of widespread credit card and other financial misuse suggested many, as did the number of allegations being made to Victoria’s integrity bodies. A Council employee had resigned after public exposure, the commentary suggesting that but for the media exposure, the misdeeds would have been covered up.

It was plainly of the utmost importance to the people of Warrnambool and the reputation of the Council to get to the bottom of these allegations. Was credit card misuse rife? Was there a cover-up?

The conclusion of this investigation is that while there is evidence of lax practices by staff and poor judgement by some in senior management, credit card misuse was not widespread. Serious misuse was limited to one individual, although the level of abuse was greater than had been exposed or admitted to, in some instances also suggesting a deliberate intention to deceive.

The people of Warrnambool do not expect their hard-earned payment of rates to be funding espresso martinis, travel to Melbourne coinciding with football games, spa resort massages for family members, or hundreds of dollars in alcoholic beverages, described on the invoice as ‘Room Hire’.

But while the individual no longer works for the Council and has repaid the money, the damage has been done.

Senior management could and should have done more at the time the misuse was first exposed in 2018. Although this inaction was neither dishonest nor systemic, it gave rise to the impression of a cover up. The then-CEO told us he ‘would have dealt with it differently’ had the full picture been known at the time – an important, indeed painful lesson that integrity rules exist for a reason.

The impression of large numbers of snouts in the public trough was also exacerbated by overly generous hospitality policies. It was understandable that Council should wish to support local traders affected by the city centre construction works. But to an observer, the holding of meetings by Council officers in local cafes and restaurants was no different from staff going out for lunches and coffees on the public purse.

Combined with lax adherence to processes and insufficient oversight by some, it is not surprising these public displays of eating and drinking gave rise to the impression they apparently did.

Policies and guidance have since been tightened, external audits and reviews are being implemented, and fewer credit cards are now in use.

But again, the damage has been done. Fairly or unfairly, Warrnambool Council has withered under the intense gaze of public scrutiny. Not only the actions of an individual, but the response, and lack of clear guidance at the time about what was acceptable, undoubtedly dented public confidence in both the Council and its officers. Whether or not they had used or misused a credit card, all have suffered the fallout.

While we did not find evidence of systemic abuse by Council officers or systemic failings by senior management, for reasons discussed with those making the allegations, we did not deal with every allegation aired publicly or privately, and which continued during the investigation.

Their prevalence and persistence suggest a disunity within Council which this investigation does not purport to deal with, but for the sake of ratepayers and the community must be addressed. Communities rely on their council to practice unified and strong civic leadership.

Deborah Glass
Ombudsman

Timeline of key events

Introduction

Why we investigated

1. This investigation examines allegations of corporate credit card misuse at Warrnambool City Council that came to light following reports in local media and the subsequent resignation of David McMahon, Manager Visitor Economy, City Growth in 2019.
2. The Independent Broad-based Anti-corruption Commission (IBAC) received multiple allegations about the use of credit cards at the Council in 2019. IBAC determined the reports were not 'protected disclosure complaints' under the former Protected Disclosure Act 2012 (Vic). On 16 August 2019 IBAC referred the reports to the Ombudsman, in effect, to deal with as the Ombudsman saw fit.
3. Following enquiries, including considering media reports and allegations of widespread misuse, the Ombudsman commenced an ‘own motion’ investigation into the use and authorisation of corporate credit cards at the Council, pursuant to section 16A of the Ombudsman Act 1973 (Vic).
4. The investigation was publicly announced on 16 December 2019. The Ombudsman said her investigation would look into actions taken by the Council, and the controls it had in place, to protect public money.
5. In April, May, and June 2020, IBAC referred three public interest complaints, containing a number of further allegations of improper conduct by Council officers. These allegations were all reviewed in light of the investigation already substantially underway. On 9 July 2020, the Ombudsman expanded her investigation to include potential improper invoicing practices and failure to address allegations of serious misconduct by other Council officers.
6. Given the sensitivity of the allegations, the investigation consulted with relevant parties and concluded that the other allegations lacked sufficient detail to investigate or were otherwise not appropriate to bring into the terms of reference of the current investigation. These allegations included matters that had already been investigated or were being investigated by other bodies.
7. This investigation looked into the actions of David McMahon, what action was taken by senior managers in response to his and other alleged misconduct, and whether credit card misuse and other financial irregularities were widespread at the Council.
8. Throughout the investigation the Ombudsman was mindful that the matters giving rise to it continued to be subject to widespread speculation within the Council and the community, as well as litigation and further allegations about the culture within the Council. While this investigation makes observations about these matters, it does not purport to examine them.

Jurisdiction

9. Under the Ombudsman Act, the Ombudsman’s jurisdiction extends to investigating actions and decisions of a public authority. The definition of an ‘authority’ includes local councils and members of council staff.

Investigation methodology

10. On 1 November 2019, the Ombudsman notified the Minister for Local Government, the Chief Executive Officer and the Mayor of the Council of her intention to investigate the allegations.
11. The investigation involved:
    • analysing about 3,500 transactions on 12 Council credit cards
    • reviewing Council’s policies on credit card usage, travel and entertainment expenditure, and fraud and corruption controls
    • reviewing media reports about the use of corporate credit cards at the Council
    • reviewing Council officers’ internal emails and electronic calendars
    • obtaining evidence from private companies and individuals
    • obtaining Statutory Declarations from three members of the public
    • attending Council Offices to meet with the then Chief Executive Officer and other individuals on two occasions.

12. The investigation also interviewed 13 current or former Council officers, including its two previous Chief Executive Officers.
13. In investigating potential systemic issues of misuse of Council credit cards and improper invoicing practices in the Council’s City Growth team, the investigation obtained and reviewed a substantial amount of Council’s financial records to assist in reaching the Ombudsman’s conclusions. However, the investigation is not an audit of Council’s financial records in their entirety.
14. The investigation has been guided by the civil standard of proof, the balance of probabilities, in determining the facts of the investigation - taking into consideration the nature and seriousness of the matters examined, the quality of the evidence and the gravity of the consequences that may result from any adverse opinion. An Ombudsman investigation does not determine criminal liability.

Procedural fairness

15. This report includes adverse comments about David McMahon, former Manager Visitor Economy at the Council, and comments that may be regarded as adverse about Council Director Andrew Paton and former Chief Executive Officer Bruce Anson. In accordance with section 25A(2) of the Ombudsman Act, the Ombudsman has given them a reasonable opportunity to respond to an earlier draft of this report. This report fairly sets out their responses.
16. The investigation also provided relevant sections of the draft report to a number of individuals for their comment.
17. In accordance with section 25A(3) of the Ombudsman Act, any other persons who are or may be identifiable from the information in this report are not the subject of any adverse comment or opinion. They are named or identified in this report, as the Ombudsman is satisfied that:
    
    • it is necessary or desirable to do so in the public interest, and
    • identifying those persons will not cause unreasonable damage to those persons’ reputation, safety or wellbeing.

Warrnambool City Council

About the Council

18. Warrnambool City Council, located on Victoria’s south west coast, has a population of around 35,000 people across 120 square kilometres. The Council consists of seven Councillors. The Chief Executive Officer (CEO) reports to the Council and implements strategic initiatives, ‘influences and informs’ other branches of government and industry about local initiatives and issues, and oversees engagement of Council staff and the day to day operations of the Council.
19. Council operates 35 business units and provides approximately 120 different services to the Warrnambool community. These include maternal and child health services, home care and support for elderly residents, garbage and recycling, road maintenance, the South West Victorian Livestock Exchange (the sale yards), and parks and recreation facilities.
20. Council’s head office and Chambers are located at 25 Liebig Street, Warrnambool. Council is a major employer in the community, with a full-time equivalent of 395.3 employees in 2018-19.
21. Council owns and manages community assets including Aquazone, Warrnambool Art Gallery, Warrnambool Stadium, the Lighthouse Theatre, Surfside Holiday Park and Flagstaff Hill Maritime Village.
22. The Council Plan 2017-2021 has key strategic objectives to:
    • sustain, enhance and protect the natural environment
    • foster a healthy, welcoming city that is socially and culturally rich
    • maintain and improve the physical places and visual appeal of the city
    • develop a smarter economy with diverse and sustainable employment
    • practice good governance through openness and accountability while balancing aspirations with sound financial management.
23. Council’s total expenditure for the 2018-19 financial year was approximately $75m, and rates are a substantial source of income to fund Council’s activities.
24. In March 2019 Council resolved to apply to the Essential Services Commission for a variation to its rate cap, which was subsequently approved for a period of two years. Council sought the rate increase to allow renewal of infrastructure in the Warrnambool region, including roads and footpaths and to increase tourism.

Council’s management structure

25. Council officers work across the 35 different business units, each reporting to their respective management teams led by an Executive Director. The four Executive Directors report to the CEO and meet as the Management Executive Group on a weekly basis to discuss and plan strategic and operational issues.
26. Bruce Anson was Council’s CEO from 2008 until 4 January 2019. Peter Schneider commenced as CEO in February 2019, with an acting CEO holding the position in the interim. Peter Schneider was the CEO from February 2019 to July 2020.
27. Bruce Anson and Peter Schneider each told the investigation their Executive Directors were a high-level team who worked closely as a management group.
28. Below is Council’s management structure in relation to its City Growth Directorate during the time of the investigation. Staff who have since left the Council are shown in bold text.

Warrnambool City Council Management Structure 2017-20

Council’s integrity obligations

29. The Local Government Act 1989 (Vic) governed the Council’s operations at the time of the events subject to this investigation. This Act has since been superseded by the Local Government Act 2020 (Vic), which will become operational in four stages.
30. As required by both versions of the Local Government Act, the Council has a Code of Conduct, which Council employees, contractors and volunteers are required to comply with. Former CEO Bruce Anson’s message at the beginning of the Code of Conduct says:
    
    "The Warrnambool City Council aims to maintain a culture that promotes honesty, trustworthiness, professionalism, and a cooperative working environment. This Code of Conduct helps us maintain standards and leadership within the community.
    
    "This Code of Conduct establishes the foundation for the behaviours and attitudes that will further strengthen our commitment to the community.
    
    "If you are uncertain about what is expected of you consult with your direct manager or the relevant Director. If you act in good faith and in keeping with the spirit of this Code, you can expect to be supported."
    
31. The Code of Conduct states:
    
    "Council employees must act impartially, with integrity, avoid and declare conflicts of interest, be accountable and provide responsive services with reasonable care and diligence in the performance and discharge of official functions and duties.
    
    "An employee of the Council has a unique position of trust requiring standards of behaviour that reflect the expectation of the Council and the people of the City. Council intend for the Code of Conduct to be a public declaration of the principles of good conduct and standards of behaviour … of its employees."

Council’s Corporate Credit Card Policy and Procedure

32. Council adopted a Corporate Credit Card Policy and Procedure on 8 March 2018, to be reviewed in March 2021. Prior to this, information about the use of corporate credit cards was addressed in Council’s procurement procedure.
33. The introduction of the Credit Card Policy and Procedure coincided with the decision to increase the number of credit cards issued to Council officers, the intention of which was to produce payment efficiencies within Council.
34. A key requirement of both the Policy and Procedure is that credit card purchases must be for ‘official purposes’, defined as:
    
    "purposes that are in direct connection with, or a direct consequence of, the cardholder’s functions and duties within the Council."
    
    
35. Both the Policy and Procedure were revised in December 2018, with this definition unchanged.
36. The Credit Card Policy states that where ‘unauthorised use’ is detected:
    
    "The Manager Financial Services is responsible for investigating all instances of unauthorised use and for reporting such instances to the Chief Executive, independent Internal Auditor, Manager Governance and Risk or the Risk Management Coordinator.
    
    "A disclosure about unauthorised use may also be made directly to the Ombudsman or to IBAC …"
    
    
37. The Credit Card Procedure states:
    
    "Where the Manager Financial Services identifies non-business related or inappropriate expenditure has been incurred on a credit card the cardholder will be personally responsible for these charges. The Manager Financial Services shall notify the cardholder and arrange for a tax invoice to be issued and may have the card cancelled immediately.
    
    "A cardholder must ensure that the Council’s credit card is maintained in a secure manner and guarded against any improper use. Credit card details are not be released to anyone – all credit card purchases must be made through the cardholder."

Council’s Travel and Entertainment Policy

38. The Council adopted a Travel and Entertainment Policy on 22 December 2008. An updated Policy was drafted in 2017 but was not adopted by the Council until November 2018.
39. The Travel and Entertainment Policy applies to Council staff, except for Councillors and the CEO, and provides:
    
    Approval and Authorisation
    All staff required to travel or entertain for WCC in the normal conduct of Council business are eligible for reimbursement of reasonable costs. Such costs must fall within the confines of this Policy and be accompanied by appropriate forms and have approval from the employee’s supervisor (i.e. Manager or Director or Chief Executive). All interstate and overseas travel requires approval by the CE and registered in Council’s travel register (in accordance with the Local Government Act).
    
    Corporate Credit Cards
    Where possible, staff are required to use the corporate credit card as the sole payment for all business-related travel and entertainment expenses. The card should be used for all business-related expenses, including airfares, car rentals, hotels, entertainment, meals and car services. Staff are responsible for ensuring that monthly account statements are authorised and submitted to the Finance Branch for payment.
    
    Meals whilst travelling, with clients/associates or other staff are reimbursable according to the redeemable allowance in Appendix 2.
    
    All expenses claims are to include the following:
    • Amount of the expense
    • Venue
    • Business purpose of the expense
    • Names of individuals present, their titles and company name (both WCC and non-WCC)
    • Original tax invoice.
40. The Policy was silent on the purchase and consumption of alcohol. Council updated the Travel and Entertainment Policy in November 2018 to include:
    
    "Any purchases of alcohol will not be reimbursed as part of the meal allowance."
    
41. The redeemable meal allowance for breakfasts and lunches was up to $25 and dinners were up to $50.
42. Where meals occurred with external parties and/or other Council staff, in addition to the receipt, the expense claims were to detail the names, titles and company name of the attendees and the business purpose of the expense.
43. The Travel and Entertainment Policy states credit cards are to be used for meal purchases where possible, and for the most senior Council officer present to use their Council credit card to pay the bill.
    

Council's Procurement Policy

44. Council’s Procurement Policy promotes the benefits of Council procurement of goods and services from local businesses in the Warrnambool region, and directs preference should be given to doing so where justifiable.
    

Council’s Fraud and Corruption Control Policy

45. Council adopted a Fraud and Corruption Policy on 5 September 2016. Its purpose is to:
    • Promote and guide the conduct of Councillors, Council staff and external parties associated with Warrnambool City Council, with a view to the avoidance of fraud and the management of situations which may be regarded as unethical conduct or behaviour;
    • To demonstrate that Council is committed to the detection and investigation of any such occurrences;
    • Encourage and facilitate the notification of matters that will assist in the avoidance of fraud;
    • Ensure that notifications are treated in strict confidence and investigated fully;
    • Protect those people making notifications from retribution.
46. Council also adopted a Fraud and Corruption Control Procedure and a Fraud Control Plan on 25 January 2017. The Procedure outlines the regulatory framework and Council’s approach to monitoring, investigating, and reporting instances of fraud, defined as ‘Dishonestly obtaining a benefit, or causing a loss, by deception or by other means’.
47. The Procedure states that the CEO may direct reports to Council’s independent Internal Auditor for investigation; will be consulted and decide whether the Police or any external assistance will be employed; and is responsible for selecting the personnel to be involved in the investigation team.

Independent Broad-based Anti-corruption Commission Act 2011

48. The objective of the IBAC Act is to prevent, identify, investigate and expose ‘corrupt conduct’. Section 4(1)(b) defines ‘corrupt conduct’ as conduct ‘of a public officer or public body that constitutes or involves the dishonest performance of his or her or its functions as a public officer or public body’.
49. Section 57 of the IBAC Act refers to mandatory notification to IBAC of suspected corrupt conduct:
    
    "Subject to any exemption notices issued under section 57B, the relevant principal officer must notify the IBAC of any matter which the person suspects on reasonable grounds involves corrupt conduct occurring or having occurred."

Council's credit cards - an overview

50. Prior to 2017, credit cards were held by some members of the Council’s Executive Team and a small number of other staff. In 2017, Council changed its practice from procuring day to day goods and services through an invoicing process, to using corporate credit cards.
51. Council considered this to be more efficient and cost effective than generating invoices. Former CEO Bruce Anson told the investigation that the cost of procuring goods and services via invoice was about $100 per transaction. In contrast, the charge per transaction for a credit card is minimal and the reconciliation process can be conducted in bulk on a monthly basis, by checking transaction receipts against a credit card statement.
52. Where a business need was identified for a Council officer to be issued with a corporate credit card, a line manager would submit a request to Council’s Finance Department. The Manager Financial Services would assess the request, the nominated credit limit and authorise it, if considered appropriate. The Credit Card Procedure states the card is issued to a Council officer based on operational need, not simply seniority.
53. In the 2018-19 financial year, Council had 93 credit cards (with 15 deactivated during the period), with the card limits ranging from $500 to $10,000. When the investigation last checked with Council, it advised there were around 70 credit cards in use.
54. Bruce Anson informed the investigation that about 25 per cent of Council’s transactions were paid by corporate credit card by the end of his tenure.
55. Credit card purchases could be for a variety of goods and services. These could include office and engineering equipment, stationery, Council officer travel and accommodation expenses while away on business, and in some instances, accommodation for contractors who travelled to Warrnambool and needed to stay overnight.
56. Council’s credit card expenditure acquittal process is a systems-generated electronic system. A manager responsible for authorising a Council officer’s monthly credit card purchases is required to review the transactions entered into the system. If the authorising manager agrees the transactions comply with the Credit Card Policy, the manager electronically authorises the reconciliation, and it is forwarded to Financial Services for payment.

Reconciliation Process

Source: Victorian Ombudsman (incorporating information from Warrnambool City Council)

57. The investigation asked Bruce Anson what controls were put in place to manage the compliance and risk associated with the use of Council credit cards:
    
    "… internal audit. Directors were to sign off on purchases … on the credit card. … everyone would get a sheet with the transaction of the credit cards. They would then be required to provide the receipts to those transactions, and those were signed off by the various levels within the organisation. And, then … there was also internal review of the Credit Card Policy ..."

Use of Council credit cards to support Council’s ‘support local’ strategy

58. During 2017 and 2018, Council redeveloped the main street of Warrnambool’s town centre, Liebig Street. Andrew Paton, Director City Growth, told the investigation the $15 million-dollar City Centre Renewal was the biggest capital works project ever undertaken by Council. It was considered a generational project that would benefit the community for decades to come.
59. The redevelopment caused significant disruption to local business proprietors, who were concerned about loss of patronage, potential job losses and business closures as a result.
60. Andrew Paton told the investigation that Council’s ‘support local’ strategy encouraged spending at local traders during the works, in line with Council’s directive in its Procurement Policy to support local businesses. He said given the upset caused to local traders by the redevelopment, Council considered it important to be visibly supporting them. The ‘support local’ strategy included the City Growth team driving marketing and promotional activity, event attraction, advertising, website promotion and business development workshops.

Manager Visitor Economy credit card spend

Use by David McMahon of his corporate credit card

Background

61. David McMahon commenced in his role as Manager Visitor Economy at the Council on 7 November 2016. He was an experienced Business Development Manager in the events and tourism sector, having had management roles in regional tourism in Victoria and as an events manager in the United Kingdom.
62. Bruce Anson told the investigation that David McMahon was appointed to the role to promote an external facing approach to generating tourist activity in the region - by establishing new events and streamlining and expanding the operations of tourist attractions. He said the previous approach by Council to local tourism was ‘very operational’ and not strategic.
63. The Visitor Economy team sits within the City Growth Directorate and is directed towards cultivating and driving tourism in Warrnambool and its regions, through staging special tourist-attracting events. Council’s funding to drive the visitor economy makes up $7.4 million or just under 10 per cent of Council’s budget.
64. Economic modelling by REMPLAN estimates the annual output generated by tourism in the region is $226.5 million. Council invests in a range of events each year and estimates significant events in Warrnambool generate $20 million per year to the local economy, and regional events generate a further $15 million per year.
65. The Manager Visitor Economy was a new role in Council at the time and had Key Performance Indicators which included visitor numbers and visitor spend. The role managed the Flagstaff Hill Maritime Village, the Visitor Information Centre, Events and Promotions, Holiday Parks and Destination Marketing.
66. David McMahon told the investigation there were significant cultural problems in the Visitor Economy team he had been brought in to manage:
    
    "So, I had a bit of pushback from some staff around that they couldn’t just come and go as they chose; they couldn’t swear; they had to wear the uniform, just some very basic stuff. And, I guess … quite unfairly on me … because you know, I’d put on an army uniform once a week, and go and do that job in Melbourne, there was that sense that I was the new sergeant in town ..."
    
    
67. Around that time, the Events and Promotions branch moved to Flagstaff Hill. As part of the changes introduced, some of the Council officers in the team were required to change some of their duties and their hours of work. In Bruce Anson’s view, while necessary, this made some people feel unhappy and unsettled.
68. David McMahon covered multiple vacancies and roles as acting Events Manager for 18 months and Flagstaff Hill Manager for 11 months. His workload was extensive; he told the investigation he would usually start work at 6am or 6:30am and work until 10pm at night, five or six days per week.
    
    "One minute I’m responsible for caravan parks, and then the next I’m responsible for a museum up on the hill, and the Visitor Information Centre that’s part of it, plus the accommodation that’s part of that; plus the marketing of Warrnambool as a whole … plus bringing events to the town."
    
    
69. He said he threw himself into his work, as he wanted Council’s growth plan for the City Growth Directorate to succeed. He said for a time after he commenced, he worked tirelessly and found the work rewarding. However, the long hours took their toll and he began to get tired; he said this led to him making some poor decisions:
    
    "So effectively, you know, I was busy, but then I got tired. I got tired in 2017 and 18, I drank too much … I guess I was very functional in that I might get home at 9pm, drink two bottles of wine and be asleep by 12am, but then I’d be up at 6am and back at work.
    
    "And you can’t do that for very long before … you get tired.
    
    "And you make poor decisions.
    
    "And we made some errors ... but I think I pride myself on, we didn’t drop too many balls … we delivered a great Fun4Kids, the redevelopment ... I mean I could have just let it go, and blamed the people before me, but I put a lot of effort in, along with Andrew Paton, and others at Council. And I think … what we got … I’m quite proud of that. But it was hard being in Warrnambool with ... well, I virtually didn’t know anyone in Warrnambool."
    
    
70. Bruce Anson thought David McMahon brought some positive changes to the Visitor Economy team and to Warrnambool, but there were some negatives:
    
    "The area needed a broom ... but I think I've bought a D9 rather than broom, a bulldozer. So, change happened, and a lot of good things happened. He's very energetic, got some great events into the city ... when tourism was a ... growing part of our economy."

The Visitor Economy Manager’s Council credit card

71. David McMahon was issued with a corporate credit card in February 2017. He told the investigation that while he did not specifically recall receiving training on Council’s requirements for appropriate credit card use, he was ‘well aware’ of the Procedure and responsibilities to use it for official purposes only.
72. Some types of credit card expenses David McMahon would incur as part of his day-to-day role were more varied than those of most other Council officers. For instance, purchases included online marketing services, a toaster for a Council caravan park, and food and beverages for a stakeholder meeting. This made it more difficult for the approver to identify purchases as being for official purposes, compared to purchases made by other Council officers issued with credit cards.
73. The Manager Financial Services said he was alert to the difference between the credit card spend for the Manager Visitor Economy compared to most other Council officers. He also said the Finance team relied on David McMahon’s Director to confirm the transactions were legitimately for official purposes in compliance with Council policy:
    
    " ... there was … some transactions which we did query back with Andrew ... if there wasn't sufficient documentation [or] if it looked a larger amount or whatever else, we might've queried back with Andrew, but nothing specific that I can remember. But like I said, we were always a little bit wary because of the type of expenditure which was outside of a normal Council officer.
    
    "From memory, I'm pretty sure that Andrew … agreed that things were fine and that he's approved them, because everything has already gone through Andrew's approval before it's come to us."

74. Andrew Paton told the investigation he was responsible for authorising credit card reconciliations for three managers which he estimated to be between 50 and 70 transactions per month. He stated that he ensured the City Growth Directorate credit card expenditure was within budget.
75. He said he used a number of checks and balances when authorising credit card transactions from the three managers. These included reviewing electronic calendars, his awareness of his managers’ activities, and using his professional acumen to identify unusual transactions and query staff where necessary.

Victorian Tourism Industry Council Conference 2018

76. On 30 and 31 July 2018, the Victorian Tourism Industry Council (‘VTIC’) held its 2018 conference at RACV Cape Schanck Resort.
77. Two Councillors, the Warrnambool Racing Club CEO at the time, David McMahon and three other Council officers attended the conference.
78. Tickets to the conference were purchased online in advance, and included access to the conference, morning tea, lunch and a gala dinner on the first night. Accommodation was booked separately directly through the RACV Cape Schanck Resort. The combined cost amounted to $8,750. It was a key industry conference for the Victorian visitor economy sector, providing ‘professional development opportunities’ and an opportunity to ‘cultivate tourism and events industry contacts’.
79. Council has a budget for these events and had sent delegates to the 2017 conference at Flemington Racecourse, including David McMahon and three other staff.
80. The conference consisted of seminars and presentations from tourism industry professionals, which the Council officers and Councillors allocated between themselves to attend in line with their respective roles and interests. There was a dinner on the first evening where VTIC assigned attendees to sit at tables with attendees from other regions and organisations, to provide networking opportunities.
81. The investigation asked Andrew Paton about the selection of Council officers and Councillors to attend the conference. He replied that each Council officer in Visitor Economy had a different role in developing the visitor economy in Warrnambool and would benefit in performing their roles by attending. The two Councillors were members of the Visitor Economy Advisory Committee and attended for ‘a bit of education and what tourism is all about’.
82. When asked whether attendance at the event was more of a ‘junket’, Andrew Paton said:
    
    "I could see from the outside there may be that perception. A large group of four officers, I get that. But the distinction I talked about earlier I think was justification … now, would I do it again? Probably not ... Seven was probably overcooked."
    
    
83. Prior to attending the conference, David McMahon emailed the Events and Promotions Officer and requested she purchase two gift vouchers for RACV Cape Schanck Resort to the amount of $850. Knowing that the conference tickets included food, drinks and accommodation at the conference, she declined to purchase the vouchers:
    
    "Finance don’t like cc’s being used to purchase gift vouchers. I’d say there will be some questions asked about why you would need vouchers when you can just use your card. Especially since the accom is already paid for on your card."
    
    
84. At interview, David McMahon advised he did not recall asking the Events and Promotions Officer to purchase the vouchers or what the intended purpose for the vouchers was.

The Cape Schanck Resort receipt

85. In September 2018, David McMahon submitted his monthly credit card reconciliation. He included a receipt containing non-descript transactions for food and beverage purchases at Cape Schanck Resort. The explanation provided for the transaction was ’Meals and beverages for VTIC Conference’.
86. This transaction was electronically authorised by Andrew Paton on 21 September 2018 before being forwarded to the Financial Services team for processing.
87. On 21 September 2018, a Finance Officer queried the transaction with the Manager Financial Services. At interview, the Manager Financial Services recounted that he asked the officer to contact RACV Cape Schanck Resort to get the itemised receipts.
88. The Finance team received the itemised receipts from the resort on 10 October 2018. The Manager Financial Services said:
    
    "And once we got that back, I reviewed that and confirmed that of the $1,600 transaction a fair proportion of that was alcohol, which, you know, in my view, was excessive."

89. On 12 October 2018 the Manager Financial Services raised his concerns with his supervisor, Director of Corporate Strategies Peter Utri. Peter Utri told the investigation he spoke with Andrew Paton about the issue, as it was ‘very significant’ in terms of the purchases and Council’s reputation, with two Councillors being in attendance.
90. Andrew Paton said he was ‘furious’ when he became aware of the amount of money spent on alcohol using a Council credit card, and he raised it with David McMahon.
91. David McMahon told the investigation he was ‘shocked’ at the amount and guessed he didn’t realise the volume and the cost at the time. He said the alcohol purchases were made when the dinners had concluded on both evenings of the conference at around 10:30pm and attendees moved to the bar areas at the resort. He said conversations would carry on until around midnight or 12:30am.
92. David McMahon said his view at the time was there was value in continuing to socialise with other attendees, to cultivate industry contacts and learn about other regions’ approaches to attracting tourists to their area.
    
    "I absolutely feel we got value for the time and cost in terms of professional development for the staff and the Councillors, and the volunteers that were there. In hindsight, the drinks didn’t add to that value or success. My recollection is that at the time it wasn’t excessive. At the time it felt like we were achieving things. It didn’t feel over the top. When it was brought to my attention about the numbers of drinks, I just simply hadn’t realised at the time that that’s what had happened."
    
93. David McMahon went on to tell the investigation:
    
    " ... we were being social with lots of other people at the conference in those social settings which is where a lot of the discussions [took place] and I was actively negotiating two major projects at the conference because people were there. So, we had several side meetings.
    
    ...
    
    "But, I would say that you know in the cold light of day, the consumption of alcohol was probably too much. I didn’t think that at the time … The first time I thought that that could’ve been excessive was when it was brought to my attention that it was …"
    
    
94. When asked at interview about the alcohol spend of 34 espresso martinis and one shot of whisky at a cost of $38, David McMahon said that others had put alcohol on his tab, and he did not know who bought which drink when. He said that when he was given the invoice, which he paid for using his Council credit card:
    
    " … I guess I wasn’t really paying a lot of detail to it at the time either because I knew it had that many people there and I knew that we’d had that many rooms, and we were there for that many nights. And you know, I cast my eye down it and I saw that we had our pizzas and stuff on the first night, and it looked acceptable to me as in that’s a fair amount, because from memory I think it said something like, ‘Dinner, dinner beverage’, or ‘Dinner’, something along those lines. So, I didn’t see whatever number of espresso martinis."
    
    
95. On 15 October 2018, Peter Utri raised concerns with Bruce Anson, who told the investigation he ‘immediately asked for all the details of David McMahon’s credit card to be presented’. He said he ‘immediately advised the Mayor’, and was ‘very … very angry, and my language may not have been as the Queen’s English’.
96. Bruce Anson said he and the Manager Financial Services met with David McMahon on 2 November 2018 to review his transactions for excessive expenditure. He said that having identified the transactions he considered excessive, they went through them with David McMahon and discussed with him why they were inappropriate. He said in the course of that process, David McMahon identified some others he volunteered to repay.
97. Bruce Anson said David McMahon considered there was a ‘business connection’ with his transactions.
98. David McMahon told the investigation:
    
    " … we went through my credit card purchases and I explained a range of issues. Like one of them could’ve been, ‘Well why is your car being washed so many times?’ and I just pointed out to them it was ‘x’, ‘y’, and ‘z’. But it was also a time for me to reflect on the use of my card, and I paid some things back that were accidental, or I wasn’t aware of, or I deliberately made the decision to pay some things back that I thought would just make the whole issue be publicly acceptable ... I was happy to do whatever, you know, I could to ensure that the damage that was being done to my reputation and the Council’s by a local blogger. I’ve repaid back things that were definitely appropriate use."
    
    
99. The Manager Financial Services recalled it took a number of hours to view the invoices, obtain David McMahon’s account of what were excessive purchases and what were not, and document the results in a spreadsheet.
100. The Manager Financial Services said that when David McMahon was asked at the end of the meeting if there were any other transactions he needed to declare, he referred to a further transaction at RACV Cape Schanck Resort for another two-day conference in late August 2018. This transaction was processed on a junior Council officer’s credit card and was for accommodation, meals and drinks at the conference for three Council officers including David McMahon. The reconciliation process for this Council officer would have included David McMahon as the approver of the expenditure.
101. Upon review of this latest itemised receipt, it was identified there was excessive alcohol expenditure similar to the VTIC conference a few weeks prior. This transaction was not queried by the Finance team before processing, as the original receipt submitted did not have a breakdown of the charges.
102. Table 1 shows the Cape Schanck Resort and other transactions paid by David McMahon.

Table 1: Transactions paid by David McMahon on 5 November 2018

David McMahon repays monies

103. On 5 November 2018, David McMahon transferred a payment of $5,666.84 directly to the Council.

104. The amount repaid included the full value of the second RACV Cape Schanck Resort transaction dated 24 August 2018. As this included accommodation and food which is a reimbursable expense under Council’s Travel and Entertainment Policy, $534.50 was subsequently returned to David McMahon.
105. David McMahon told the investigation he did not consider all the monies he repaid were excessive or inappropriate expenses, but that as the spend had been on his credit card he believed it was his responsibility:
     
     "I repaid back alcohol at functions, where there were many other people consuming - ordering and consuming, but it all went onto my card, or back to my hotel room, or back to my card at the end of the function. I’ve repaid those because of the attention that they were receiving, not because I had necessarily believed that they were inappropriate."
     
106. In response to the Ombudsman’s draft report David McMahon noted there was an error in the RACV Cape Schanck Resort invoice for the VTIC conference (see Table 1 above) as it referred to another Council; and in light of this, he suggested there ‘may be a real likelihood of error here in the calculation of the account and allocation of food, beverages and other items’. The investigation noted that at the time of receiving the invoice, David McMahon did not raise this concern and paid the full amount using Council’s corporate credit card.

First and final warning issued

107. Both David McMahon and the Manager Financial Services told the investigation they thought Bruce Anson would terminate David McMahon’s employment; however, he was issued a first and final warning instead.
108. Explaining his reasoning for issuing the warning, Bruce Anson told the investigation:
     
     " ... if I had seen blatant personal fraud, it would have been an instant dismissal … What I saw was excessive expenditure, and so my view was [it was] a first and final, and we also removed the credit card ..., but a first and final was the appropriate action to take.¹

First and final warning issued to David McMahon

Source: Warrnambool City Council

109. Bruce Anson said because he thought the transactions were a case of ‘excessive spend’ rather than fraudulent activity, he did not consider it necessary to alert Council’s Audit and Risk Committee. Instead, he said he ‘did an internal audit’ to identify the amount of excessive expenditure.
110. Bruce Anson reflected to the investigation that in retrospect, he should have dealt with the matter differently:
     
     "I should have had … an independent audit undertaken and ... let them go through all the stuff in absolute forensic detail. So, that's a mistake I made."
     
111. No action was taken against any others present at the VTIC conference after the excessive alcohol spend on David McMahon’s credit card was identified. Bruce Anson advised the investigation that instead, he raised the topic of excessive alcohol purchases with the Executive team.
112. In December 2018, the Council reviewed and amended the Credit Card Policy and Procedure and the Travel and Entertainment Policy, to reflect that alcohol would not be an allowed purchase or reimbursed.
113. Council’s Manager Organisational Development told the investigation this wasn’t the end of it all. He intimated that some staff were ‘less than happy’ with the outcome of this process with David McMahon and raised it via a number of different forums.

Media attention about Council credit card use

114. While enquiries into David McMahon’s credit card use were underway, the topic of Council credit cards had become an interest of local journalist and writer of ‘The Terrier’ blog, Carol Altmann.
115. On 20 September 2018, Carol Altmann emailed the Council asking how many staff had access to a corporate credit card and if Council had a corporate credit card policy.
116. On 30 October 2018, Council received a Freedom of Information request from Carol Altmann about David McMahon’s Council credit card transactions.
117. In early 2019, Carol Altmann commenced writing blogs around the use of corporate credit cards at Council.

Headlines from The Terrier blog by Carol Altmann Jan – Feb 2019

Council appoints a new Chief Executive Officer

118. Around this time, in January 2019, Bruce Anson retired from Council. Peter Schneider commenced as CEO in February 2019, having held a number of senior roles in local government interstate.

David McMahon’s resignation and second disclosure of unauthorised spend

119. Peter Schneider told the investigation that when he became CEO, he was not aware David McMahon had received a first and final warning, or that he had repaid some of his credit card transactions. He said it was brought to his attention when a journalist made enquiries of the Council; and he asked Peter Utri for details.
120. Peter Schneider said the matter was explained to him as a case of David McMahon’s ‘excessive spending’, which he had repaid when challenged. He told the investigation:
     
     "It was work-related; he was away on a conference, or he was ... entertaining ... maybe someone from the races, who we were working with, or maybe someone from the RSL, or a consultant, or something like that. It all seemed to be work-related ... except there was probably some generous ... expenditure there."
     
121. Peter Schneider said that having looked into the matter, he emailed Councillors, who were also aware of the blogs, to inform them of what he had found.
122. The frequency of the blogs increased in July 2019, when Carol Altmann reported on a dinner for five people at Warrnambool’s Bojangles restaurant, which David McMahon had charged to his Council credit card. Around this time, the local newspaper, ‘The Standard’, also picked up the story.

Headlines from The Terrier blog by Carol Altmann July 2019

123. Peter Schneider explained to the investigation that he met with David McMahon on 8 July 2019 and relayed his understanding of what he had been told about his spending. He asked if there was anything else he should be aware of, to which David McMahon replied in the negative.
124. Peter Schneider said he sensed no tension from David McMahon, that he left the meeting believing the matter had been dealt with appropriately at the time, and no further action was required. Peter Schneider said he then decided to review Council’s credit card policies to ensure they were appropriately drafted.
125. During the course of the week, however, pressure began to mount on David McMahon as blogs about his credit card use continued to emerge. Peter Utri told the investigation that David McMahon was extremely distressed by the situation. He said he went to David McMahon’s home to do a ‘welfare check’ and described this visit as the most challenging day of his professional career.
126. Peter Utri said that during his visit, David McMahon told him some of the transactions were not for official purposes under the Credit Card Policy; and he had constructed a list of all the things he'd done 'where he'd perpetrated frauds and all this sort of stuff’:
     
     "… like dinners where he was purporting them to be for work purposes where they weren't for work purposes. They were basically for himself and friends. There were some - I think he talked about some tickets … attendance at the football, I think … I don’t have a lot of recollection about the detail about what they were … clearly there was more at play here."
     
     
127. He went on to tell the investigation how he tried to console David McMahon and to help him see a way through to a resolution.
128. The investigation asked David McMahon about Peter Utri’s evidence that he had admitted to him some transactions were not for official purposes; and he responded:
     
     "I just said, ‘Well there was things I didn’t know, or didn’t realise at the time, or there was things that at the time I didn’t realise they would now be categorised as not acceptable.’ So, I’m not sure of his recollection or what his conversation with you was, but I would categorise it, I was talking about transactions that I knew would get me into trouble. Now the degree of trouble I wasn’t sure, but I just knew there was more to come and because of the first and final I was aware that it didn’t matter what they were, it was going to be the end of my position."

129. On 15 July 2019, David McMahon submitted his resignation to Andrew Paton, which attached a list of 14 further transactions he volunteered to repay at a cost of $2,680.31.

Attachment to David McMahon's resignation letter

For repayment by DMc - July 2019

Source: Warrnambool City Council

130. In his resignation letter he described himself as ‘sincerely sorry and humiliated’. He acknowledged that while he was dealing with some challenging personal circumstances, he had no one to blame but himself, and had to face the consequences of his actions. He concluded:
     
     "I will regret for a lifetime wasting the opportunity you and Warrnambool City Council gave me to part of its future and to serve its community … [I] disrespected the trust and faith you had placed in me. I am not asking for forgiveness or pity as I deserve neither."

131. David McMahon ultimately paid more than the amount he declared. He reportedly sent a text message to Andrew Paton in the days following his resignation, stating:
     
     "There will be a purchase on the event team credit card … for flowers on 17 May 2019 that was for my private use. I think it’s $70. It would have been listed as flowers for Volunteer. This is a lie and I would have also approved this as VE manager.
     
     "Can you have this added to my repayment.
     
     "There has been no other inappropriate use of that events card."
     
     
132. David McMahon also paid Council for four further credit card purchases at the same time:
     • $172.50 at Bojangles dated 4 June 2018 declared as a ‘VEAC meeting’
     • $32.90 at Fishtales Café dated 6 July 2018 declared as an ‘Events meeting’
     • $34.02 paid to Warrnambool Taxis on 20 July 2018 declared as ‘WCC & GORRT taxi’
     • $82 of a $164 transaction at Bojangles on 3 August 2018 declared as ‘VE Famil[iarisation] Meals’.

133. At interview, David McMahon explained that he repaid the amounts to remove any ambiguity and to save the Council and his colleagues from negative publicity, as he could not recall some of the transactions and did not have any supporting information. He said, ‘I should’ve been paying closer attention to my reconciliations every month, but I simply wasn’t.’
134. David McMahon said he believed he had paid back to Council approximately double the amount he would have incurred as expenses for his personal use:
     
     "I guess I’d had more time to reflect on them, but I’d also wanted to remove any greyness to anything that if I became subject to an investigation … I could put my hand on my heart and say that there was no ambiguity about my use … but
     that’s the reason I did it. I did it so that if I was ever questioned, I could say, ‘Well, it was not a hundred percent work related, but there was elements of it that certainly were.’

135. After resigning from his role, David McMahon said he believed his job was the best job he had ever had:
     
     "It was very challenging, it was probably the hardest period of my professional life, but also just coincided with the hardest part of my personal life. But I absolutely am not offering that as … any justification or excuse, or mitigation, for anything else. I’m not that kind of guy."

Senior management oversight

136. In both of David McMahon’s repayments of transactions in November 2018 and July 2019, Council did not appear to concern itself with the fact that Andrew Paton had authorised the inappropriate transactions. Neither was Andrew Paton counselled about the credit card authorisation process.
137. The investigation sought to identify the reasons for this with Bruce Anson in the first instance, and Peter Schneider in the second.
138. Bruce Anson said that when he asked Andrew Paton why he authorised the RACV Cape Schanck Resort credit card expenditure, Andrew Paton regretted his actions, saying:
     
     " ... it's something [Andrew Paton] said, ‘Oh look, it just came over, I signed the damn thing. We had pressures on.’ ... Andrew is someone I hold in the highest possible regard in relation to integrity, honesty ... So, he would not be party to anything in that space, he's far too honest."
     
     
139. Andrew Paton told the investigation he trusted his managers and staff in his Directorate to act honestly and relied on the processes he had in place. On reflection, he said:
     
     "Look, what I know now, which I didn’t know then, was that he was clearly skilled at deceiving, and being dishonest, and I guess that’s the thing I reflect on deeply, was - did I test the veracity of those things enough, and I suspect he would have dug deeper and come up with more explanations that seemed legitimate at the time.
     
     "Because that was certainly the view I had of David, that he was doing things by the book. He was a stickler for procedure and process and I guess I had the expectation that same, same diligence would be extended to credit cards, and it clearly wasn’t."

140. David McMahon also told the investigation he did not believe Andrew Paton was at fault for authorising his transactions that were not for official purposes, saying that Andrew Paton ‘trusted me explicitly’ and ‘he’s endorsed and signed off on the automated system … You have a quick look and you click and you move on’.
141. David McMahon told the investigation he had betrayed Andrew Paton’s trust.
142. Peter Schneider explained that in his assessment, Andrew Paton had authorised the transactions because he was a ‘time-poor’ manager who trusted his staff member, and probably authorised the payments without checking the transactions. He explained the rationale for his response to Andrew Paton having authorised these transactions, in his response to reading the Ombudsman’s draft report:
     
     " ... while I did not ‘formally’ counsel Mr Paton, I did discuss with him what the process should entail from my perspective. Any formal counselling should have taken place at the time of the initial investigation by the former CEO in 2018."

Mandatory referral to IBAC

143. On 15 July 2019, the same day David McMahon resigned, Peter Schneider discharged his statutory obligation and made a mandatory report about the matter to IBAC, pursuant to section 57 of the IBAC Act.

Was the credit card misuse wider than declared?

144. The investigation looked behind David McMahon’s Council credit card purchases to identify whether the circumstances of the transactions were accurately declared in the first instance, and in the two instances where Mr McMahon repaid the monies to Council in November 2018 and July 2019.
145. As part of this process, the investigation reviewed invoices submitted by City Growth to confirm the nature of the credit card purchases and David McMahon’s receipts.
146. From the investigation’s review, it is apparent that David McMahon’s explanations of the transactions that he repaid were, in part, not an accurate account.
147. Although Bruce Anson and other senior managers believed David McMahon had been open and honest about his transactions and had probably paid back more than he should have, it is apparent this was not the case. While the final written warning represented the CEO’s formal disciplinary outcome, other matters came to light which meant the concerns around ‘excessive’ spending had not been laid to rest.

‘Room Hire’ at Lady Bay Resort, Warrnambool

148. The investigation identified occasions where food and drink bills paid on David McMahon’s corporate credit card were being invoiced as ‘Room Hire’. His repayment to Council in November 2018 included a credit card transaction relating
     to ‘Room Hire’ of $736.50 at Lady Bay Resort on 6 September 2018.

149. David McMahon’s explanation to Bruce Anson and the Manager Financial Services was it was a work ‘thank you’ function for a Service Manager. His calendar records a meeting in which he invited a number of colleagues to dinner at Lady Bay Resort.

150. However, an itemised point-of-sale receipt from Lady Bay Resort obtained by the investigation confirms that the goods and services provided do not match what was listed on the receipt and declared during the account reconciliation process. The receipt details food totalling $198 and beverages totalling $538.50. The beverages include $325 for three bottles of red wine.

Itemised point of sale receipt from Lady Bay Resort dated 6 September 2018

151. Peter Utri confirmed the invited attendees were present at the dinner to acknowledge the Service Manager’s efforts. He said he questioned the need for his attendance and was advised by David McMahon that it was a show of support for the Service Manager.
152. Andrew Paton told the investigation that in relation to paying the bill, David McMahon said to him he would settle it. Peter Utri and Andrew Paton told the investigation they expected to pay their share, and the following day had discussed contributing to the cost of the dinner. Andrew Paton’s subsequent discussion with David McMahon revealed he had used the corporate credit card to pay for the full cost of the dinner.
153. Andrew Paton explained that the dinner was not work-related, and he discussed the need for repayment with David McMahon. He told the investigation he didn’t think David McMahon understood why it was not considered a business expense:
     
     "I think he had in his mind that it was a ‘thank you’ dinner for [the Service Manager], and that was the tenuous link to being business related, to which I corrected him quickly. It’s not."
     
154. David McMahon told the investigation he had formed a different view of the dinner:
     
     "I can’t speak for them, but I went there under the full knowledge that this was a work ‘thank you’ function. I don’t remember anyone having a discussion …"
155. In response to the Ombudsman’s draft report David McMahon’s legal representative said:
     
     "[David McMahon] was asked to arrange a thank you dinner by his employer for a staff member. There was never any discussion about payment. His employer attended the dinner. There was no offer to pay or contribute to the bill."
     
156. The investigation reviewed David McMahon’s credit card statement for other transactions of a similar nature and identified another ‘Room Hire’ receipt of $434.90 dated three days earlier on 3 September 2018.

Receipt submitted by David McMahon for payment of ‘Room Hire’ – $434.90

157. This amount was not repaid by David McMahon in either of the two repayments he made to Council.
158. The investigation reviewed David McMahon’s calendar and identified an invitation to the Victorian Tourism Industry Council’s election campaign stakeholder dinner. This invite was forwarded to Andrew Paton, who tentatively accepted but ultimately did not attend.
159. The investigation confirmed with the Victorian Tourism Industry Council that David McMahon was invited as a guest, and the cost of his attendance was covered by his VTIC membership, including the dinner. There was no expectation or agreement for Council to arrange or pay for the venue hire or any other financial contribution, either to the dinner or anything following.
160. The investigation obtained an itemised receipt for the cost of the invoice, which shows the full value of the purchase was for a range of alcoholic beverages and not room hire.

Itemised point of sale receipt from Lady Bay Resort dated 3 September 2018

161. When asked about the transaction, Andrew Paton said he had been told by David McMahon the Council would be supporting the event by paying for the room hire, and there was no communication that alcohol was going to be funded by Council.
     
     "I wasn’t aware of any alcohol to be paid, certainly wasn’t aware of this list, it’s the first time that I’ve seen this list.
     
     "I’m shocked. So, $434 of alcohol that we don’t know who was consuming. It wasn’t for everyone at the conference, because VTIC paid all the costs. Wow. There was no communication to me that that alcohol was going to be funded by Council. I had no visibility of it."
     
     
162. David McMahon gave the investigation a different explanation for the alcohol spend:
     
     "But what each LGA would do is pay for after the function drinks basically. So, the receipt for VTIC was for effectively the bar tab. It was drinks after they finished ... We were in a room. And then we moved out of that room to the bar. And then I paid for that … It was what I was asked to do, the expectation of us hosting it."
     
     
163. When asked to account for the receipt stating ‘Room Hire’ and the itemised bar bill, he replied:
     
     "I think ‘Room Hire’ is something that appears on several transactions, not just on my card, but it’s a fairly common … you have an event at a function centre ... or whatever and sometimes you get an invoice that says, you know, ‘Room Hire, $100. Food and beverage $280. Total $380’."

Local accommodation

164. Andrew Paton told the investigation that where appropriate, Council would pay for contractors’ and other visitors’ local accommodation, with these expenses being considered as ‘official purposes’. The accommodation would be either booked with local hotels and an invoice provided for payment, or booked using a credit card, when the bookings were made at short notice.
165. David McMahon’s credit card statements show seven transactions relating to the purchase of local accommodation (see Table 2).

Table 2: Extract from David McMahon’s credit card transactions

166. None of these transactions were flagged as ‘excessive’ business spend or for ‘personal use’ during David McMahon’s meeting with Bruce Anson and the Manager Financial Services in November 2018.
167. However, all seven transactions were repaid by David McMahon in July 2019. He told the investigation some of the accommodation was for personal reasons, and where he could not recall the reason for the transaction, he repaid it.
168. David McMahon was asked by the investigation about a stay at the Mid City Motel on 24 January 2017 for $236 paid on Andrew Paton’s corporate credit card. The reconciliation stated the reason as ‘D McMahon accom Services’, although the name on the receipt was a member of David McMahon’s family. David McMahon could not explain the transaction at interview but he has subsequently paid $236 to the Council.

Travel to Melbourne

169. On 27 June 2018, a transaction was processed on David McMahon’s card for a Friday night stay at the Citidines hotel in Melbourne for $166.65. A charge of $107.63 for car parking was also incurred. David McMahon repaid the cost of the hotel in November 2018 but he couldn’t recall the transaction and there was no related appointment in his diary. The investigation noted that the parking cost was not repaid.
170. On 26 July 2018, two transactions were processed on David McMahon’s card at the Apartments of Melbourne for $50 and $75. A Statutory Declaration submitted by David McMahon as part of the reconciliation process stated that the charges were for parking and breakfast, and the receipts had been lost.
171. The amount of $75 was repaid by David McMahon as part of his initial repayment to the Council in November 2018.
172. He explained he had stayed at the Apartments for two nights for work-related reasons but decided to stay on for a third night for a social function. He said the third night was not ‘legitimate’, so he paid back the ‘whole amount plus the parking’.

Bojangles Restaurant

173. On Monday 4 June 2018, a credit transaction of $172.50 at Bojangles was processed on David McMahon’s card. During reconciliation, David McMahon declared this transaction as a ‘VEAC Meeting’ (Visitor Economy Advisory Committee).
174. This transaction passed through the usual process – Andrew Paton for authorisation, then to Finance Services for processing.
175. On 16 July 2019, Carol Altmann contacted Council for information about this receipt. Carol Altmann put it to Council that the transaction occurred on Thursday 31 May 2018, and was not for a ‘VEAC Meeting’, but rather dinner and drinks for David McMahon, two Council officers and two members of the public after a ‘Beers and Ideas’ event earlier that night.
176. An email exchange between David McMahon and a colleague following Carol Altmann’s email confirmed a ‘Beers and Ideas’ event was held at a local venue, The Loft, that evening.
177. A person who attended the eventconfirmed this with the investigation. They said that at the end of the event, they joined David McMahon, two Council officers and another person. They went across the road to Bojangles and ordered pizzas and a range of alcoholic drinks. The lack of detail in the handwritten receipts does not reveal that five people attended the dinner and alcohol was consumed.
178. The witness further stated that David McMahon paid the full amount of $172.50 at the table with a credit card. The witness fully expected to pay for their share of the meal and thought David McMahon was being generous by personally paying for it. The witness apparently only realised David McMahon had used his Council credit card after reading Carol Altmann’s blog.

Headline from The Terrier Blog 16 July 2019

179. The investigation noted that receipts issued by Bojangles usually are itemised and time stamped. An example of the usual receipts submitted by David McMahon as part of the reconciliation process appears below.

Itemised receipt submitted by David McMahon from Bojangles

180. On 9 July 2019, David McMahon emailed Andrew Paton and the Council’s Communications Manager in response to Carol Altmann’s blogs and requests for information regarding the VEAC meetings. He wrote that the Bojangles meal was not a VEAC meeting and gave a new explanation that it was ‘Dinner with [a facilitator] after Industry Sessions’.
181. David McMahon listed 10 other transactions which were originally described as ‘VEAC’ and offered alternative reasons for the expenditure. He stated they were meals for events staff, meetings with external parties, and a ‘make good’ purchase after a complaint.
182. On 17 July 2019, two days after David McMahon’s resignation, Andrew Paton emailed the Manager Financial Services and Peter Utri advising that he had received the following text message from David McMahon the previous day:
     
     "For the Bojangles meal in Aug, $164 - there were 2 personal guests of mine and I paid for all the meals. This included the workshop facilitator for Beers & Ideas ... I haven’t got receipt on me but it was for several pizzas - but not alcohol. Please also add this full amount to my repayment."
     
     
183. Andrew Paton then states in the email that David McMahon had verbally advised him that the earlier meal at Bojangles was ‘nonwork-related expenditure’, and concludes:
     
     "The above $172.50 and half of the $164 ($82) (i.e. Total of $254.50) should be added to the list for invoicing and repayment. The half payment of the $164 item on the basis that the dinner included 2 personal guests of David."

Logans Beach Spa Retreat Vouchers

184. The investigation reviewed an invoice submitted by David McMahon for four massage vouchers valued at $90 each, which were declared as ‘Famil[iarisation] vouchers’. When contacted by the investigation, the spa retreat confirmed it had supplied two vouchers and booked two massages for David McMahon’s family members. When the investigation asked David McMahon about the transactions, he said:
     
     "That’s correct. I purchased these for a promotion, and I made very poor judgement in just supplying them [to family members] when they came for a day trip. So, I completely acknowledge that that was outside of any reasonable use and that’s why I repaid them at the time …"
     
     
185. The investigation asked Bruce Anson for his comment in light of his having given David Mahon the benefit of the doubt when he reviewed these invoices as part of the credit card transactions in November 2018, but had not been made aware of the true nature of the purchase:
     
     "Well, that's … blatantly wrong, and ... no justification. If ... they were for competition vouchers, I understand that, but if they've then gone to friends, no sympathy."

Port Fairy Folk Festival

186. On 9 March 2018, a payment of $1,201.20 was made for four adult tickets valued at $300 each to the Port Fairy Folk Festival, on the corporate credit card held by the Destination Marketing Coordinator as instructed by David McMahon. The reconciliation process would have included David McMahon as the approver of the expenditure.
187. A Council officer told the investigation that David McMahon offered them a ticket. They declined as they had already purchased their own ticket; but a Council maintenance officer was given a ticket. They said:
     
     "But I do know that he then went and purchased four tickets to the Folk Festival. And I know that David McMahon and [a colleague] attended the Festival on those tickets. I don’t know where the other two tickets went."
     
     
188. David McMahon told the investigation he attended on one day for about four hours for work purposes, to see if the Council could get more out of the event, such as attracting overflow accommodation to Warrnambool.
189. The investigation notes that David McMahon purchased four tickets for the four-day event. The records do not show who else attended, nor is it apparent that all of the tickets were used for work purposes.

Oktoberfest

190. Oktoberfest was an event run for the first time in 2018. With the support of Council’s Visitor Economy team, the event attracted visitors to Warrnambool in the ‘off-season’, utilising the Shipwreck Bay holiday park which would have otherwise sat vacant at this time.
191. On 11 July 2018 David McMahon emailed the organiser seeking an arrangement to obtain around 50 VIP tickets, which he said were for Councillors, Senior Managers and guests. He wrote he would be happy to reduce the venue hire fee to cover the cost. The value of this would have been $5,000. The external event organiser declined, as he had already paid the hire fee.
192. The investigation sighted an email from the organisers on 20 September 2018 to David McMahon titled ‘Oktoberfest Warrnambool invoice’, stating:
     
     "Invoice for Oktoberfest tickets as discussed.
     
     "Includes 35 GA Tickets, 7 x 5 Drink Cards."
     
     
193. Below is copy of the attached invoice of the same date.

Oktoberfest invoice dated 20 September 2018

194. On 27 September 2018 David McMahon replied in an email asking for the invoice to be made out to ‘Marketing Support’. The invoice was returned to David McMahon with the description amended from 35 Oktoberfest tickets to ‘Marketing Support’.
195. The invoice was then submitted for payment through Council’s invoicing process.
196. When the investigation asked David McMahon why he requested the amendment of the invoices, he said he thought it was because the event was under-subscribed for a long time, suggesting Council may have had ‘a range of giveaways on social media and on local radio, from memory’.
197. However, media reports indicated the ticket sales were going well.

Headline from The Standard 12 September 2018

198. Council officers told the investigation no marketing support was given to the event outside the promotions agreed as part of the venue hire contract, which organisers of the event had paid for in full.
199. On 17 September 2018, the organisers emailed a Council officer thanking the Council for help with the event and offering the Council six free tickets.
200. David McMahon organised several Council officers to attend a preview and walk-through of the event before it started, and invited Bruce Anson. He then emailed Andrew Paton on 4 October 2018 after Mr Anson pulled out of the preview, writing:
     
     "FYI: the event is sold out as you know and we have no other tickets available should you be asked."
     
     
201. Three Council officers told the investigation they had been offered free tickets to the event by David McMahon

David McMahon’s former school reunion dinner

202. Several witnesses told the investigation they had concerns about a payment made to be a sponsor of David McMahon's former school’s reunion dinner held in Melbourne. Evidence obtained by the investigation indicated that no payment was made by Warrnambool City Council towards this event. David McMahon told the investigation he had arranged some prizes through his own connections, in his capacity as a School Alumni Committee member.

Council sponsorship of the Warrnambool Racing Carnival

203. Several witnesses told the investigation that they had concerns about the validity of elements of the sponsorship payment made to the Warrnambool Racing Club. The investigation’s evidence did not identify any improper conduct or payments in respect of this event.

City Growth's credit card spend

204. The investigation reviewed 3,139 transactions on over nine corporate credit cards within the City Growth directorate between 3 January 2017 and 28 February 2020.
205. The purchases made on these credit cards are for a diverse range of goods and services. Largely these transactions relate to the operation of Flagstaff Hill, Liebig Street redevelopment promotional activities, online marketing, professional development, and business travel.
206. The review identified that Council officers had purchased coffees and meals at local trading venues, consistent with Council’s ‘support local’ strategy to support these businesses during the Liebig Street redevelopment. However, many of the transactions were not accompanied by an explanation of who attended the meeting and the business purpose of the transaction, as required by the Credit Card Procedure.
207. Other deviations from the Credit Card and Travel and Entertainment Policy were identified, such as the cost of parking exceeding the expenditure guideline.
208. The investigation noted a transaction on Andrew Paton’s corporate credit card for the Myrtle Bar & Kitchen on 18 July 2018 for $693.50. David McMahon was present, along with a Councillor and the Great Ocean Road Regional Tourism (GORRT) General Manager. Although this meal was considered for business purposes, the purchase of $447.50 on alcohol does not fit within the Travel and Entertainment Policy limits on entertainment, as it then was, and would be considered excessive.
209. Andrew Paton told the investigation:
     
     "When the evening finished and we settled the bill, I looked at the bill and I was shocked by it. My initial thought was to query it, and then split the bill; and I didn’t do that, and, and I regret it. So I can see what that looks like, it’s about, oh we’re building a relationship with GORRT by wining and dining them, and I get that, totally get that perception. But the picture for me and how I rationalised it, was the outcomes that I got from that discussion, that on balance I had good outcomes, but it didn’t meet my personal standards.
     
     "That dinner with Great Ocean Road Regional Tourism delivered some good things, but there are some things that could have been done better that I regret."

210. The investigation has seen further receipts relating to hospitality for Sister Cities delegates where the spend on food and drink exceeded the limits set out in the Travel and Entertainment Policy. Although infrequent, Council has acknowledged that the previous practice of allowing attendees free reign in ordering did not meet community expectations and it has taken steps to allocate a moderate per head allowance to these meals.
211. The investigation did not identify other Council credit card spending by Council officers that was not apparently for ‘official purposes’ under the Credit Card Policy, or improper invoicing practices, except in respect of David McMahon.
     

Council's 'Support Local' strategy

212. As part of the ‘support local’ strategy, council officers were encouraged to hold work-related meetings at local cafés and restaurants, and to use their Council credit cards to pay for food and coffees.
213. Andrew Paton told the investigation that Council had budgeted $170,000 per year during the redevelopment for these activities. No guidance was issued by Council to assist Council officers decide what was an acceptable purchase using Council funds and what was not, other than the directives in the Procurement Policy and the Credit Card Policy.
214. Andrew Paton said the City Growth directorate was mindful how the spending could be perceived by the community; and he actively promoted responsible spending and conduct when Council officers met externally on Council business. He said he informed his team that the ‘rules’ were that Council officers conducting external meetings had to be with another Council officer or another stakeholder, and the meeting was required to be business-related.
215. Andrew Paton told the investigation he did not believe the strategy was a reason for concern for the community:
     
     " … it’s easy to look at a spreadsheet and say, ‘You spent $600 on coffees. How do you justify that?’ with no context of why that meeting occurred and why that expenditure occurred. And that’s a hard one to explain sometimes even to the people who are involved in it … I can see how that would look. But in terms of the context of the space we were in and the battle we were in, I’ll use that language … it was a bit of a battle to try and keep the wheels spinning because it was a day-to-day thing."
     
     
216. The investigation’s analysis of credit card purchases during this time shows a significant amount directed toward purchasing meals and drinks in the local area. One example of a breakdown of the types of credit card expenditure in the City Growth directorate.

Summary of the spend on Andrew Paton's corporate credit cards

Source: Data from Warrnambool City Council

217. Andrew Paton told the investigation that a significant portion (around 40%) of the value of this category related to a small number of functions for the Council’s Sister City delegations and relationships. He also noted that the total expenditure was not solely for himself but also for the operations of his directorate which included payment of subscriptions, staff travel and accommodation and professional development courses
     

Conclusions

Did David McMahon misuse his credit card?

218. An examination of David McMahon’s credit card expenditure between March 2017-July 2019 leaves no doubt that he misused his card, both in incurring excessive work-related expenditure and expenses for personal use. A breakdown is shown below.

Summary of the spend on David McMahon's corporate credit card

Source: Data from Warrnambool City Council, based on David McMahon’s admissions to Council. Does not include transactions on other officers’ credit cards.

219. Although David McMahon told the investigation he understood his obligations under Council policies, his evidence in respect of transactions such as the RACV Cape Schanck Resort alcohol expenditure indicated that his interpretation of what was reasonable and what was excessive was vastly at odds with both Council policy and community expectations.
220. David McMahon said he repaid Council for what could be considered excessive transactions and some transactions he had made due to ‘poor judgement’. He noted in some instances, he had repaid the
     full amount of transactions where other Council officers had also been present at certain events. He said that as a manager, he believed it was his responsibility to pay.
221. He told the investigation he decided to 'repay anything that could be seen as grey or black, whichever way you want to look at it’.
222. The investigation identified a number of invoices submitted by David McMahon that were presented in a way that concealed the true nature of the goods or services obtained.
223. A handwritten receipt dated 4 June 2018 for Bojangles restaurant showed the expense as meals, described as ‘VEAC Meeting’. No further breakdown of the expense is provided. The investigation obtained evidence that this meal occurred on a different day, and was a private meal, including alcohol. While the venue has the capacity to provide an itemised receipt, the handwritten receipt conveniently concealed the number of attendees, the time they were present and details of the meals and alcohol consumed. This prevented scrutiny of whether the meal was genuinely for official purposes.
224. Invoices for the Lady Bay Resort dated 3 and 6 September 2018 described the expenses as ‘Room Hire’. The Resort provided the investigation with a copy of the receipts which showed the expenses were, respectively, a bar bill for $434.90 after an official VTIC function, and a restaurant bill for $736.50. Both expenses were described as ‘room hire for conference’ when reconciled by David McMahon.
225. An invoice from Logans Beach Spa Retreat for $360 showed the purchase of four massages, two of which were booked for David McMahon’s family to use, suggesting deliberate use of his corporate credit card for personal gain.
226. An invoice from Oktoberfest dated 2 October 2018 for $1,750 showed the description of ‘marketing support’ and quantity of ‘1’. The original invoice shows the purchase of 35 tickets at $50 each, with email correspondence from David McMahon to the organiser requesting the description be changed from tickets to ‘marketing support’, which conceals the number of tickets provided to David McMahon.
227. His explanation of his requirement to attend the Port Fairy Folk Festival for research is at odds with the purchase of four tickets for $1,200 to a four-day event which he only attended for four hours. The
     spend is excessive and if his explanation is correct, it is unclear why he needed to purchase two extra tickets, which he said were not used.
228. In response to the draft report, David McMahon challenged the investigation’s preliminary conclusions regarding the Oktoberfest and Port Fairy Folk Festival invoices. He reiterated that the payments were for ‘official purposes’ in furtherance of Council work.
229. However, he did not provide a cogent account of why he required the Oktoberfest invoice to be modified so the quantity of tickets could not be interrogated. Nor did he provide a cogent account of why he purchased four tickets for the Port Fairy festival.
230. David McMahon now accepts his spending was excessive, but he did not consider it to be so at the time. His evidence was this was the cost of doing business in the region. The largesse of his spending, however, is indefensible and falls well short of ratepayers’ expectations of Council spending.
231. David McMahon’s decision to resign and the tone of his resignation letter demonstrated his reflection and shame about his conduct, and suggest he was genuinely sorry for the effect it had on Council and his managers. He openly stated he had ‘betrayed his manager’. Regrettably, however, he was not completely transparent at the time about some of his transactions and invoicing practices.
232. His genuine disappointment in his conduct is justified. His behaviour did not reflect ‘the expectation of the Council and the people of the City’. In addition to breaching his obligations under the Credit Card Policy and the Travel and Entertainment Policy, he breached his contractual duties as a Council officer and under Council’s Code of Conduct, specifically in failing to:
     
     " ... act ... with integrity ... [and] be accountable ... in the performance and discharge of official functions and duties."

Was senior management’s response to the credit card misuse adequate?

233. Andrew Paton, an experienced Council Director, authorised the excessive transactions. It was not until the Finance team raised the issue of the RACV Cape Schanck Resort alcohol spend that the issue came to a head.
234. Andrew Paton told the investigation he felt deceived by David McMahon, an employee he trusted; and his confidence was shaken as a result. Given some of the invoices were amended but still did not accurately reflect the reason for the purchase, Andrew Paton could be excused for some of his errors. His failure to identify some excessive transactions was due to his own inadvertence.
235. In response to the Ombudsman’s draft report, Andrew Paton stated:
     
     "Whilst I conducted the abovementioned checks and balances when authorising the credit card transactions, I accept that in some instances there have been weaknesses in the narration on the receipts I have authorised."
     
     
236. Bruce Anson confirmed he had discussed this issue with him, and Andrew Paton was suitably regretful. Both Bruce Anson and Peter Schneider informed the investigation they considered Andrew Paton to have the highest level of professionalism and integrity, and that he accepted his mistakes.
237. The investigation considers it was open to both former CEOs to decide that Andrew Paton had made honest mistakes and in some instances been misled, and accordingly the formal disciplinary process was not engaged. But given Council’s reputational and financial exposure, a more structured approach to addressing the problem should have been instituted in November 2018, including revisiting credit card oversight processes.
238. David McMahon's excessive expenditure was investigated in accordance with Council policy, and subsequently handled by Bruce Anson, who identified that some of the transactions were excessive and should be repaid. He took the view that David McMahon was honest in his responses, and he did not need to take further steps to look behind them. He believed that the First and Final Written Warning and the repayment put a line under the issue pursuant to the relevant policy’s requirements.
239. Bruce Anson did not assess the conduct as being criminal in nature or as corrupt conduct. The investigation does not consider that Bruce Anson was legally required to refer the matter to IBAC at that time. However, if he had not taken David McMahon’s explanations on face value, other inappropriate transactions were likely to have come to light, which could well have engaged Council’s Fraud Corruption and Control procedure.
240. Bruce Anson should have referred the matter to an Internal Auditor for investigation. His failure to do so also exposed the Council to suspicion, in some quarters, that Council had covered up the issue.
241. Bruce Anson acknowledged in retrospect there should have been an independent audit of David McMahon’s credit card transactions in accordance with Council policy. The findings of a subsequent report by HLB Mann Judd commissioned by the Council in 2019 were consistent with this.
242. Bruce Anson did change the Policy to clarify that expenditure on alcohol would not be permitted by Council officers on Council credit cards.
243. When provided a copy of the Ombudsman’s draft report, Bruce Anson told the investigation he did not wish to make any variation to it:
     
     "It is a depressing read of misplaced trust. Unfortunately, the draft report provides concise details of the deliberate rorting of the Council by an individual."
     
     
244. David McMahon’s misuse became public knowledge in July 2019, due to media scrutiny. Witnesses in this investigation said that without the media scrutiny, there would have been no further investigation of David McMahon’s Council credit card spending. Given Bruce Anson had personally looked into the matter and drawn a line under it, there was no reason why a new CEO would have had cause to revisit the matter.
245. On becoming aware of the media reports, Peter Schneider made his own enquiries of David McMahon on 8 July 2019, following which David McMahon resigned and repaid additional Council credit card transactions.
246. The investigation also notes that Peter Utri and Andrew Paton acted responsibly in supporting David McMahon in his time of crisis in July 2019. It is a duty of managers to support and protect their staff’s health and safety even in circumstances such as this.
247. Peter Schneider was correct in his assessment that a referral by Council to IBAC was required in 2019.

Was the financial misuse more widespread?

248. While there was some evidence of lax practices and non-compliance with policies and procedures, the investigation did not identify Council credit card spending by Council officers that was not apparently for ‘official purposes’ under the Credit Card Policy, or improper invoicing practices, except in respect of David McMahon.
249. It did however identify a number of other concerns in relation to Council’s policies and practices in 2018 and 2019.
250. These include the impact of the ‘support local’ strategy, in which Council officers were encouraged to hold work-related meetings at local venues. From the public’s perspective, the practice of holding meetings in local cafés and restaurants to support local business could have been viewed as personally benefiting Council officers, rather than being for official purposes. Enjoying a coffee and a meal at a local café over a meeting about Council business is likely to look like work colleagues going out to lunch.
251. In any event, it exposed Council to criticism from those who reasonably questioned use of Council funds by Council officers to buy meals and drinks, whether they were working or not. While well intentioned in its desire to support traders affected by infrastructure works, such an approach was fundamentally unwise.
252. Council officers interviewed demonstrated they were aware of their obligations under Council’s Credit Card and Travel and Entertainment Policies; however, the investigation identified lax practices such as not providing the required level of detail of the reason for purchase or seeking pre-authorisation for travel or entertainment.
253. When asked if Council officers sought their supervisor’s approval before making purchases under the Travel and Entertainment Policy, the Manager Financial Services said:
     
     "No, that practice didn't occur. So, the new policy and procedure has the preapprovals in there, and we've now got a preapproval form online … if they're going for a conference or a seminar in Melbourne, they'll need to fill that in, or if they're entertaining clients as well, they'll need to fill that in. But that policy - or that part of the procedure, that wasn't being adhered to up until this point."
     
     
254. The investigation appreciates that in practice, a Council officer using their Council credit card is required to use their judgement about what is reasonable in individual circumstances. When asked by the investigation what a reasonable meal purchase under Council’s policies would be, Peter Schneider noted that a meal might be a ham and cheese sandwich, not ‘a T-bone steak washed down with a bottle of Grange’.
255. Most surprisingly, Council’s Travel and Entertainment Policy did not provide an express direction about acceptable expenditure on alcohol as part of the meal allowance, until it was updated in November 2018.
256. As noted below, Council policies have been significantly tightened since the events in question.
257. Well-drafted policies provide Council officers certainty about what is or is not permissible and can reassure them that their conduct is appropriate in the eyes of Council and its community. They also protect the public purse by removing ambiguity where misconduct is identified. Council did not have the benefit of this when subjected to intense scrutiny by its residents and the media, and this has damaged confidence in Council and its officers who did not engage in any misconduct, but have suffered the fallout nonetheless.
258. The damage to public confidence in Council also affected Council officers in their day-to-day life. Bruce Anson gave an insight into the effect of these events on him, personally:
     
     " ... even after I retired, I went to buy something and someone said, ‘Is that on your card or the Council's card?’ You know, that does damage, that does hurt, you know, so it did damage the reputation, no doubt about that. And it will take a lot for Council to rebuild."
     
     
259. Another Council officer told the investigation:
     
     "I’d go out into a local coffee shop or a cafeteria or the local football club or something like that, and people that I know, jokingly, but it was only half-jokingly, say, ‘Oh, just pull out the Council credit card. Everyone else down there does’, those type of things. And that was not just confined; that was, anyone that worked here, the commentary around town was all based on the public disclosure of what David had done …"

Improvements by Council

260. The investigation notes the improvements made by Council as a result of these events. In December 2018, Council amended the Credit Card Procedure to update the reference to alcohol to read:
     
     "Alcohol is not permitted to be charged to a Corporate Credit Card in relation to travel, meals or entertainment."
     
     
261. The Travel and Entertainment Policy was also amended to update alcohol spend in the meal allowance:
     
     "Any purchases of alcohol will not be reimbursed as part of the meal allowance."
     
     
262. The reference to alcohol was also updated in the guidance around entertaining:
     
     "Staff entertaining clients or team members are required to gain approval from their Director prior to any such arrangements being undertaken. Alcohol will not be a reimbursable expense in these circumstances."

263. The guidelines detailing the permitted cost of accommodation, parking and meal expenses were also updated to reflect current prices.
264. The Travel and Entertainment Policy was further updated in September 2019 and as part of this review, the meal allowance for dinner was reduced from $90 to $65.
265. Although the requirement to obtain pre-authorisation was in the Travel and Entertainment Policy, Council admitted this was not a practice that was previously enforced. Council has now introduced a pre-approval online form which officers complete and to ensure compliance to this part of the Policy.
266. On 22 August 2019, Council agreed to engage external auditor HLB Mann Judd to review and assess the adequacy of existing policies, governance, reporting and investigation processes/procedure. In March 2020 they provided their final report to Council, which accepted all ten of its recommendations. In summary the recommendations were that Council:

1. Provide fraud and corruption control training to all Council staff including reporting of actual or suspected fraud and corruption
2. Review and update Fraud and Corruption Control Plan and Procedure to include fraud incident reporting protocols to the Council
3. Establish a criterion to determine the need for a credit card by a staff member
4. Review and update the existing Corporate Credit Card Procedures, including to stipulate the roles and responsibilities of an authoriser, create list of risk factors for authorisers to be aware and create guidelines on ‘taking face value explanations’ versus ‘appropriate inquiry’
5. Provide training to authorisers with respect to approval of monthly credit card expenses
6. Review and update the existing Fraud and Corruption Controls Procedure to include specific trigger points when an independent auditor should be brought in (i.e. the period after unusual/misuse has been identified to when possible fraud is suspected)
7. Implement a process wherein pre-approvals (except CEO) shall be required for expenses such as (but not limited to):
   a. Business travel
   b. Accommodation
   c. Conferences
   d. Seminars
8. Implement an approval process which aligns with the practice recommended by VAGO: The Council’s Chief Financial Officer or Director Corporate Strategies, shall approve CEO’s credit card expenditure, and table the full transaction history to the Audit and Risk Committee for periodic review
9. Implement ongoing reporting and monitoring processes that fosters continuous improvement of credit card processes (with suggested areas for improvements including implementing Breach reports and Repeat Offenders report)
10. Incorporate a process wherein Statutory Declarations are witnessed by one of the many people authorised to do so (outside the Council).

267. The annual internal review of purchasing cards originally scheduled for March 2020 was brought forward at the suggestion of Peter Schneider to the Audit and Risk Committee and conducted by Crowe Horwath. They reviewed the adequacy of the processes and procedures within Council for purchasing cards, fuel cards and expense reimbursement between 1 January 2019 - 30 August 2019. The resulting report highlighted five moderate risks and eight issues which they classed as low risk. No high-risk issues were identified.
268. The number of corporate credit cards now in use has reduced, partly due to individual card holders’ relinquishment, due to the external perception created from David McMahon’s conduct. Council also has an annual review process in which it assesses the requirements and appropriate credit limit for each cardholder.
269. Council card holder approvers must now complete a mandatory online training course which provides them with information on their roles and responsibilities.

Observations

270. In the course of this investigation, a number of concerns were raised by Council officers, who told the investigation they were hesitant to report those concerns through formal processes.
271. The investigation heard from a number of Council officers that they felt they were not being heard. One Council officer said:
     
     "I felt that they by now should at least know that it would appear that allegations had been made over time and people who are by law required to report … allegations may not have acted ... I felt they were all in roles that would under normal circumstances require them to report to an external body that they felt something was going on."
     
     
272. Although the Council had policies about how to escalate and report issues of concern, the investigation was told that staff lacked understanding of how to lodge a complaint and were fearful of reprisal if they were identified. Council officers told the investigation they would struggle to find a comparable job within the local area, and these concerns overrode their wish to make a complaint.
273. Although whistleblower legislation has been in place in Victoria since 2001 and further strengthened with the creation of the IBAC in 2011, for a whistleblower scheme to operate effectively, it is vital for public sector bodies to create a culture of integrity and to empower employees to speak up when they see conduct that does not align with sector values.
274. It was also apparent from the witnesses interviewed that there is discord between Councillors at Council and that a similar concern exists between Directors at the executive level. The investigation was told that functions within Council were siloed from each other, among other things affecting staff morale. The overwhelming impression to the investigation was that - rightly or wrongly - some disaffected Council officers did not have confidence that Council and its senior managers would deal with their concerns effectively.
275. Councillor conduct also came into the frame, although this did not form part of the investigation. Bruce Anson told the investigation:
     
     "We had a very … toxic Council, very difficult Council. I think in 2015 ... we had two Councillor Conduct Panels, bullying and harassment complaints by a Councillor, five Council WorkCover claims all coming from three Councillors, two Councillors suing the Council, and one alleged assault that didn't happen. We had constant abuse of and undermining of staff by some Councillors."
     
     
276. Peter Schneider agreed with the investigation’s observations about Councillor disharmony. However, he said he had not experienced or received feedback about discord between his Directors from any Council officer.
277. The discord within the Council body has played out publicly, with Peter Schneider having been removed from his position as CEO less than 18 months into his four-year contract with Council. In addition, further allegations continued to filter through from whistleblowers while the investigation was ongoing. Allegations included concerns about management inactivity or lack of accountability, and several specifically raised concerns about Council’s investigation into the leaks to the media, and its treatment of those suspected to be the source of the leak.
278. A former senior Council officer told the investigation:
     
     "If in Warrnambool, you don’t get your way with the Council, threaten the Council that you’re going to go to The Standard. I don’t know how many times people have said to me, ‘Oh, if you don’t do this, I’m going to go to The Standard.’ This is the standard thing here. Council is a big fish in a very small pond … So, people don’t go through the right channels now, and they don’t go through the process …"

279. Some Council officers appear to have ‘leaked’ information to the media, in order to pressure Council to address their concerns by embarrassing Council into doing so. The outcome of the - real or perceived – reluctance by Council to address concerns raised was for information to be given to a local journalist and reported publicly in a blog where individuals were named.
280. Andrew Paton expressed his concern about how this impacted those named in the media:
     
     "I’m really concerned about some staff that do get named and shamed … and [named Council officer] is one of those that left, in my view for doing absolutely nothing wrong, but was a victim of the transactions and the deductions that were made about their presence down Liebig Street, when in my view they were all legitimate and all for the betterment of our community. And whilst … they’ve resigned for other reasons … I think that really weighed heavily on them ..."

281. These and other allegations have fed further media reports, as well as open letters by the advocacy group Ratepayers Victoria, publicly expressing concerns about systemic abuse, coercion by senior management, and cover-ups.
282. While this investigation did not deal with every allegation that emerged since David McMahon’s credit use misuse was first exposed, its scope was expanded to look into the broader concerns about senior management’s handling of misconduct by council officers. The investigation did not find evidence either of systemic abuse by Council officers, or systemic failings by senior management. But while these later allegations were not substantiated, their prevalence and persistence suggest a broader problem with morale within Council which this investigation does not purport to address.

Opinion

283. On the basis of the evidence set out above, David McMahon engaged in misconduct by seriously departing from his responsibilities to act with integrity and be accountable in respect of his duty to honestly report his financial transactions.
284. David McMahon acted in a manner that was wrong within the meaning of section 23(1)(g) of the Ombudsman Act.
285. Section 17(6) of the Ombudsman Act requires that in the event an investigation considers there is evidence of a breach or duty or misconduct by a public officer, the Ombudsman must report the matter to the principal officer of the authority and send a copy of the report to the responsible Minister and, in this instance, the Mayor of the relevant Council.
286. Accordingly, the Ombudsman will report the matter to the Acting Chief Executive Officer of the Council, and this report will be provided to the Minister for Local Government and the Mayor.

Recommendations

Pursuant to section 23(2) of the Ombudsman Act, it is recommended that:

Appendix 1 - Council's response

Attachment 1

Appendix 2 - Investigation analysis of repaid transactions

Transactions paid by David McMahon in November 2018

Transactions paid by David McMahon in July 2019