NEWCASTLE-based charity Allambi Care has been warned its contract to provide services to some of the region's most troubled children and young people will be wound up if it does not adhere to strict conditions.
Those conditions include cooperating with the Department of Communities and Justice (DCJ), to which it must submit its draft annual budget for approval.
The department is also imposing strengthened obligations to record and manage perceived or actual conflicts of interest, and evidence of regular conflict of interest training for board members and staff.
The extraordinary measures are understood to be the strongest restrictions imposed by the state government on a service providing child protection services, outside of being exited from the system.
It is understood Allambi Care has also been required to return millions of dollars to the state government.
The decision to extend Allambi's contract was made by an assessment panel convened within DCJ. If Allambi fails to adhere to the conditions, their contract will be wound up.
NSW Minister for Families and Communities and Port Stephens MP Kate Washington said the government was adopting a zero-tolerance approach to "poor behaviour".
"Allambi has dismantled its staff property investment scheme and will have to sign up to the strongest possible financial controls going forward, including DCJ reviewing and approving their annual operational budgets," Ms Washington said.
"I won't apologise for protecting public funds and ensuring every single dollar goes towards supporting the vulnerable children in their care. That's a critical part of my job as Minister.
Despite the unacceptable property investment scheme, Allambi does deliver quality services to vulnerable kids, Ms Washington said.
"It's now up to Allambi to continue working with DCJ to rebuild trust and secure their future as an out-of-home care provider."
The ultimatum comes months after the public release of a forensic audit report on Allambi's operations which uncovered an "unacceptable" property investment scheme involving senior Allambi Care staff, including chief executive Simon Walsh.
It guaranteed those investors a 20 per cent return on the properties which were leased back to Allambi Care via the state government-funded Permanency Support Program for kids in out-of-home care.
In a letter to Allambi late last year, Ms Washington said funds intended for residential and therapeutic services and supports for vulnerable people had, instead, been applied to give significant financial benefits to senior staff in the organisation.
The forensic audit report found that while Allambi had been representing itself as being in "deficit", they were likely in surplus, and separately, $30 million in term deposits were identified by the audit team.
"Significant funds" were also used to set up properties later used to house children with government funding, including $20,000 to paint a house, and to pay bills, including water rates and council rates, all out of funds that should have been going to children, the minister said.
Ms Washington later said she was fed up and angry that funds that ought to be going to vulnerable children were being used in other ways.
Allambi Care has repeatedly denied any wrong doing.
Their housing initiative was established as "an innovative solution" in reponse to a critical lack of housing for children and young people in out-of-home-care, an Allambi Care statement says.
"This involved properties owned by Allambi Care staff being leased as housing for children and young people, with the awareness of the DCJ Permanency Support Program (PSP)," the statement said.
"The houses in question represented just over 10 per cent of the total leased housing that Allambi Care provides for our clients.
"The Initiative enabled us to deliver long-term safe and secure housing. It also provided savings for the Government by reducing the movement in and out of the general rental market by children and young people in our care. This also worked to provide the children in our care with long term, stable and secure housing."
However, the audit report included a response from Allambi and sums of money that the organisation admits "should not have been allocated" to investment properties from OOHC funding.
Allambi, which is one of the largest out-of-home-care residential service providers in the state, receives more than $70 million per year to help the most vulnerable children, removed from their families due to neglect and abuse.
Greens MLC Sue Higginson, deputy chair of the Budget Estimates Committee for Communities and Families, said she was glad that the government had responded, and put in place, controls, mechanisms and measures to make sure that the provider was "no longer gaming the system and profiting".
"But I am genuinely concerned that not enough has been done to make sure that this is not, and cannot, happen again," Ms Higginson said.
"The minister is in a very difficult position because if Allambi were to fall over, there's no one to pick up the pieces. It's such an untenable position, that the only recourse has been to correct the wrongdoing."
