One of the world’s biggest defence contractors tried to bill the Australian government $55,000 for Christmas cards and decorations, an audit report reveals.
The Department of Defence overruled the Christmas-related invoice from a subsidiary of the British contractor BAE Systems but gave initial approval for an “adventure room” social event.
The expense claims are detailed in an Australian National Audit Office report on the initial stages of the program to build nine new Hunter-class frigates for the Royal Australian Navy at the Osborne shipyard in Adelaide.
The central findings of the report are that the $45bn project faces “significant” cost blowouts after defence officials failed to properly consider “value for money” before the Turnbull government’s 2018 selection of BAE Systems.
But the ANAO report, tabled in parliament this week, also includes examples of more recent expenses claims.
Every six months, Defence and BAE Systems Maritime Australia review expenses – and in some cases Defence requires adjustment if “disallowable costs” are found.
“Disallowable costs identified by Defence included: $54,875 invoiced for Christmas cards and decorations for non-Hunter class personnel; $1,470 related to gym memberships; and £133 [$248] related to corporate purchasing card transactions for travel,” the report’s footnotes state.
“Defence also queried the reasonableness of costs including $100,000 claimed for a leadership conference, which Defence considered ‘at best marginal as an allowable claim’ and excessive in terms of total activity cost.”
Despite raising those concerns, Defence accepted the leadership conference costs, the report said.
The ANAO also mentioned the company’s plans to spend $3,700 for a social event – including an “adventure room” and dinner – with Defence representatives in attendance. Adventure rooms usually refer to a team exercise where people are locked in a room and need to find a way to escape.
Defence told the company on 25 July 2022 that this proposal was “in accordance with the principles and intent of ‘Team Hunter’”.
“Defence records indicate that the Director-General Hunter Class Frigates had verbally ‘endorsed Team Hunter activities as an allowable cost’,” the report said.
The relevant transactions for this social event ended up totalling $2,633 – and these costs are expected to be considered by Defence in the next six-monthly review of allowable costs.
The project is being delivered by BAE Systems Maritime Australia, a subsidiary of the major global defence contractor BAE Systems.
BAE Systems was contacted for comment about the expenses claims before publication.
A company spokesperson said on Friday that the costs “were charged in error and were quickly identified through our stringent financial auditing process”.
“Every month, costs and expenses billed to the customer are audited to ensure they are reasonable and comply with the terms of our agreement,” the spokesperson said.
“In this case, the process worked in identifying the costs that did not meet this criteria or were incorrectly or mistakenly charged in error and were immediately rectified.”
The company did not respond directly to the ANAO report but said the Hunter program was “the cornerstone of continuous naval shipbuilding in Australia” and continued to make “strong progress”.
The parliament’s joint committee of public accounts and audit decided on Thursday to launch an inquiry into the issues with the Hunter program.
The decision was made less than 24 hours after the ANAO report was tabled – a fast turnaround.
The chair of the committee, the Labor MP Julian Hill, said the inquiry would “examine the apparent failure to conduct a value-for-money assessment and decision making under the previous government” so the problems could be avoided in future.
“Given the seriousness of the concerns raised, the audit committee moved immediately to refer the auditor general’s report into the Hunter-class frigates for a public inquiry,” Hill said.
The committee is expected to call for submissions from Defence, the ANAO and BAE Systems. Submissions will also be sought from the British and Canadian high commissions, given that the Hunter program is backed by memorandums of understanding with the UK and Canada.
