Missing fuel, missing documents and billions of dollars on the line

SOMEWHERE in Australia is a Department of Defence facility where 200,000 litres of fuel was “misappropriated” in a single year, 2016.

It was a missing 36,000 litres in November, 2016 that finally caught someone’s eye. Something odd was happening. Where had all the fuel gone?

It was a missing 36,000 litres in November, 2016 that finally caught someone’s eye. Something odd was happening. Where had all the fuel gone?

The Australian National Audit Office tells an abridged version of the case of the flogged fuel in its performance audit report released this week, Defence’s Procurement of Fuels, Petroleum, Oils, Lubricants, and Card Services.

It’s 66 pages long. I read it to the end but I couldn’t see anything about card services, which we’ll get back to later. All the action occurred with fuels.

The ANAO regularly audits federal government departments. The Department of Defence – with its budget of $32.4 billion for 2016-17 alone – is a favourite.

Its performance audit report is annoyingly short on detail about how the flogged fuel problem at the unidentified “fuel installation” was discovered.

There are 107 fuel installations across the country, with the capacity to store 167 million litres of various kinds of fuel for planes, ships and land vehicles. Defence uses 423 million litres of fuel a year, making it one of the country’s biggest fuel consumers.

In other words, there’s plenty of scope for fuel to go “missing”, and there’s a pressing need for the government department responsible to have extremely rigorous processes and procedures in place to ensure public funds are not wasted.

Unfortunately, as the ANAO has noted in a succession of reports, Defence hasn’t quite got the “rigorous processes and procedures” bit sorted yet.

While completing the performance audit the ANAO said it became “aware Defence was investigating losses of large volumes of fuel” at an unnamed fuel installation.

The Defence investigation identified “large variances of aviation fuel between January, 2015 and December, 2016 totalling over 750,000 litres at the same fuel installation”. That equates to a potential, and very conservatively counted, loss of at least $1 million of taxpayer funds.

And it wasn’t just fuel for cars or vehicles but aviation fuel. Based on an exhaustive investigation – typing “Can you use aviation fuel in a car” – Google has helpfully put me onto a website that says you can use jet fuel in a diesel car or truck but it doesn’t lubricate very well. Please don’t try it out at home to see if that’s true, but I think it’s reasonable to suspect the market for flogged aviation fuel is restricted. 

Defence found “a pattern of significant and regular fuel discrepancies in the preceding 12 months of data examined”. There was a reasonable chance of finding similar discrepancies in years before that but the relevant fuel data was “overwritten annually”, the ANAO report found.

In other words, we will never know how long someone, or a lot of someones, have been flogging fuel from a Department of Defence fuel installation because Defence hasn’t got the kind of rigorous processes in place to detect it in a timely fashion, and hasn’t seen it as a priority despite previous reports identifying Defence risk management failings.

The ANAO performance audit found “deficiencies in security arrangements for protecting Defence's fuel stores from harm or fraud” and “non-adherence to Defence fuel management procedures”, and recommended a suite of changes.

Defence, in response, “advised the ANAO that the focus for 2017 was on educating Defence personnel on security requirements”. Which is ironic, really, given its core business. Defence said it was “taking steps to introduce centralised monitoring and reporting in 2018” while working on permanent longer-term “enhancements”, but the ANAO said it would “continue to carry both fraud and reputational risk” until it gets its act together.

I love reading federal and state audit reports, which is probably a sign of something disturbing and best left unexplored. There are usually fairly dry executive summaries with wordy recommendations and findings, but the bodies are often buried in chapters way down the reports, which is why I read them.

In this case the ANAO found some unusual activities associated with the tendering process for five years of fuel contracts worth about $2 billion.

A successful contractor for a key part of the tender evaluation process nominated a person who had only left a major Defence fuel supplier two months earlier. That person went on to play a central role in evaluating the tenderers which included his or her former company, which quite possibly still had some of his or her dried-up farewell cake at the back of a fridge somewhere.

And, oopsie, although the contractor was one of seven people with conflicts of interest involved with the tender process, and although the contractor filed a conflict of interest document to be assessed by a Defence probity advisor, the ANAO notes that Defence provided six conflict of interest forms to the probity advisor, and, oopsie, the contractor’s conflict of interest form seemed to have gone missing. Just like the 750,000 litres of fuel.

And, oopsie again, “Defence records indicate tender information was removed from Defence’s secure system”. Defence advised the ANAO the above had been referred to its fraud control and investigations branch.

Why should we care about this, apart from the fact that it’s our tax dollars on the line? Because governments talk about fiscal responsibility and running a tight economic ship and all that, but some departments seem to cop the chop more than others. Defence is a repeat offender when it comes to waste and fraud problems, and you only have to look at its appalling response to the contaminated fire fighting foam scandal to see that it shrugs off “reputational risk”.

And the fuel cards? Last time I checked it was grim news there too.

This story And in their defence first appeared on Newcastle Herald.