ATO fraud scandal: just how big is the public service's nepotism problem?

The accusations arose out of extensive inquiries into a tax fraud involving Plutus Payroll Australia, a company providing payroll services for large corporate clients in the public and private sector. The investigation began within the Australian Taxation Office itself, after a suspicious pattern of transactions, and then involved the Australian Criminal Intelligence Commission and the Australian Federal Police. One of Plutus' key directors and an alleged ringleader of the fraud, Adam Cranston, is a son of Michael Cranston.

While no one suggests Cranston snr was in any way involved in the fraud or even aware of it, he appears to have intervened improperly on his son's behalf. Published transcripts of an intercepted conversation between father and son bear out these conclusions. Michael Cranston has since been charged with two offences under the criminal code: using information obtained as a public official with the intention of dishonestly obtaining a benefit for another person, and exercising influence as an official for the same dishonest purpose.

These offences are allegations only, yet to be tested in court. But while the extent and intent of Cranston's intervention may be open to question, there is little doubt he overstepped the line, at least to the extent of seeking access to information he was not entitled to. Tax commissioner Chris Jordan admitted as much at Senate estimates in May when he said Cranston was guilty of "a huge error of judgment, trying to find out some information for his son". By contrast, at the same hearing, Jordan was scrupulous about not commenting on the guilt or innocence of three senior executive service officers who might have breached the Australian Public Service code of conduct in trying to access information at Cranston's request. These officers were suspended without pay pending the outcome of an investigation by former fair work commissioner Barbara Deegan.

The Cranston case is a classic instance of nepotism in its most compelling form: a parent's assistance for a son or daughter. The closeness of the relationship between the two parties might seem to make the intervention more forgivable. Certainly, Jordan stressed the connection in his Senate evidence. "This was a father misguidedly ... trying to find out some information for his son," [emphasis added] he said, as if trying to do the best for a colleague who had fallen from grace.

The urge to help one's children is wired into humans, as into many other species. It is the mainspring of family life and of much else besides. It drives large sections of the economy, from wealthy dynasties to modest family firms. Until the 19th century, nepotism in its broadest sense was a natural feature of European government systems. Since then, however, modernised bureaucracies have rejected nepotism, along with cronyism, as contrary to merit appointment and the rule of law (though nepotism and cronyism still flourish within the political class). All public service codes of ethics refer to family connections as potential sites of conflict of interest. Most public servants, we can be confident, would see an intervention like Cranston's as unethical and beyond the pale.

But how rare is such behaviour? Is Cranston a rogue outlier? Or is his case the tip of a large iceberg of unreported family favouritism in government agencies? Are parents all over the APS using their positions and contacts to give their children a helping hand? We have no way of knowing for sure.

The most recent APS employee census conducted by the Public Service Commission found 4 per cent of respondents witnessed colleagues engaged in corrupt conduct sufficiently serious to warrant dismissal or criminal prosecution. Of these, about one in four witnessed instances of nepotism. If the sample is accurate, well over 1000 public servants reported significant acts of nepotism in their workplaces. This is hardly evidence of a mass epidemic. But it is not insignificant either, given the very strong test of corruption adopted in the survey. Presumably, there would be many other observed cases of favourable treatment for family members that were culpable breaches of the code of conduct without being criminal or justifying dismissal.

Inferences could also be drawn from how the Commonwealth manages general conflict of interest issues within the public service. In 2014, the Australian National Audit Office inquired into APS procedures for dealing with conflicts of interest and found many agencies were very lax in promoting, implementing and monitoring such conflicts. The ANAO also noted that the growing tendency to rely on external contractors to perform government functions had led to increased opportunities for conflicts of interest and required greater vigilance from senior managers. In other words, many sections of the APS are overly relaxed about conflicts of interest. The initiative in reporting such conflicts lies with the individuals concerned, with little attempt at supervision. Such complacency could easily support a culture of informal mateship, where public servants see nothing wrong in helping a close relation or friend, or in turning a blind eye when a colleague does so.

A recent case from Victoria is a sobering reminder of the lengths to which public service nepotism can go. A former chief information officer at the Metropolitan Fire Brigade, having difficulties finding suitable staff, hired her son to fill a temporary position in the organisation. To do so without detection, she falsified his CV and did not declare her relationship with him (a deception made easier after she had persuaded him to change his name a few weeks previously). When the son was moved into a permanent position, she replaced him with a second son, using the same devices of a falsified CV and a changed name!

Whether such egregious nepotism has ever been tried attempted in the APS, the method of its exposure is instructive. A fire brigade employee became suspicious and informed Victoria's Independent Broad-based Anti-corruption Commission. In turn, the commission passed the issue to the Victorian Ombudsman, who conducted an investigation and uncovered the improper appointments, and many other irregularities besides.

A federal anti-corruption commission, we can assume, would provide a similarly valuable point of contact for public servants wishing to report on suspected corruption in the workplace. The Public Interest Disclosure Act certainly offers encouragement and protection to whistleblowers. But its emphasis on internal resolution of complaints may act as a dampener on those who wish to raise concerns about possible impropriety in senior management. An anti-corruption agency could add a useful, supplementary mechanism of disclosure.

The ATO itself would benefit from greater external scrutiny. Several former staff have complained to the media about the treatment of whistleblowers and a generally secretive management culture. There is no reason to suspect widespread corruption in the agency. Indeed, as Jordan and his colleagues stressed at the estimates hearing, the agency conducts its own rigorous checks on staff. So far this year, for instance, 30 people were identified making unauthorised access to information, of whom 12 were dismissed and the others subjected to a range of lesser sanctions depending on the seriousness of their offence. Jordan himself is aware that public trust in the ATO is a paramount objective.

Yet, as the royal commission into child protection demonstrated in quite another context, concern for an organisation's reputation can easily tempt otherwise honourable leaders into turning a blind eye to internal abuse. The ATO is already subject to external regulation, through the Inspector-General of Taxation, who is yet to report on the latest scandals. But an anti-corruption commission could be an extra deterrent against corruption and thus help the tax commissioner safeguard public trust in the ATO.

Advocates of a federal anti-corruption agency along the lines of the NSW ICAC will therefore take heart from the recent scandal in the ATO. Here, at last, is some evidence of criminal corruption in the heart of the APS, which might justify an anti-corruption agency. This is a much better line of argument, incidentally, than focusing on public disgust over political donations, where the problem lies in the laxity of the rules themselves, not in any breaches of them. An anti-corruption agency cannot change existing laws and codes but must work within them. Possible breaches of criminal law or of the APS code of conduct, on the other hand, offer a much more promising hunting ground.

Richard Mulgan is an emeritus professor at the ANU's Crawford School of Public Policy. richard.mulgan@anu.edu.au