Calvary top brass resigned in 2014 over incorrect financial reports and false minutes: audit report

The chief executive was asked to resign in August 2014 and the chief financial officer in September, ACT Auditor-General Maxine Cooper said in a report released on Friday, which details falsification of financial statements back to October 2012.

In 2013-14, $8.89 million was falsely reported as having been received from the ACT government, allowing the hospital to report an operating surplus of $1.9 million, when the real position was a $9.5 million loss.

Each month during the financial year, the hospital inaccurately reported its budget as "in balance" in the financial system. There was also "manipulation of financial and other reports in order to mislead", Dr Cooper found.

Reports to ACT Health were manipulated and income was falsely reported for the 2013‐14 financial statements, perpetuating the misleading financial position.

Dr Cooper reports a meeting on August 26, 2014, between ACT Health and Calvary, in which officials pointed to the discrepancies between the amounts that ACT Health had paid Calvary and the amounts Calvary had reported as being received. In response, the former chief financial officer of Calvary provided minutes of a meeting a year earlier, dated July 12, 2013, recording that the project control group had endorsed a new emergency department model for which $3.1 million would be provided.

ACT Health subsequently raised concerns about the authenticity of the "minutes". When it took its concerns back to Calvary, the chief financial officer resigned, admitting in a statement that the minutes had been falsely created. The chief financial officer claimed to have been "bullied by the [by then] former chief executive officer of Calvary Health Care ACT Ltd into securing a balanced financial position".

Calvary is run by the Little Company of Mary Health Care, which has 15 hospitals in all, as well as aged care and other facilities. It received $1.1 billion in operating revenue in 2013-14.

Calvary is Canberra's second public hospital and funded by the ACT government under an agreement put in place in February 2012. In 2013-14, it received $190 million in operating revenue.

Dr Cooper said there was no direct loss for the ACT government and no funds were misappropriated.

Her report said there were signs the financial results were improbable, including the results right on budget during 2013-14, and suggested the discrepancies should have been picked up earlier.

"Each month's surplus or deficit, predicted when the budget was set prior to the beginning of the year, was achieved exactly, every month of the year. In the absence of other information, reporting each month a zero variance ... strongly indicates that costs are highly controllable and are being tightly controlled and/or revenue streams are flexible and the earning of revenue takes place in a very timely manner. Neither of these scenarios is a likely explanation for a public hospital."

The same pattern showed up in 2012-13, indicating "that regular revenue adjustment was likely to have been taking place from October 2012 onwards".

Deloitte was appointed to investigate in 2014, recommending that Little Company of Mary Health Care "consider discussing various issues with the former chief executive officer and former chief financial officer". But those discussions had never happened.

The auditor pointed to other concerns – including the employment of a relative of the former chief executive officer with no evidence of a merit-based selection process.

Executives and staff at Calvary had expressed concerns to her office about "a range of financial practices", but there was no evidence they had been raised through appropriate channels, despite the Public Sector Management Act requirement for employees to raise any corrupt or fraudulent conduct or any possible maladministration.

Dr Cooper recommended the government examine "the fundamental issue of whether or not the Calvary Network Agreement is the most appropriate mechanism for delivering public hospital services".

In its response, Calvary stressed that there had been no financial impact on the ACT government.

"Calvary took immediate action to replace staff, rectify the financial challenges left in the wake of the financial misrepresentation and implemented controls to safeguard against any further impact," the hospital said. "… Money was not 'lost' nor misappropriated, services were delivered in good faith and monies were spent on supplementing emergency department activity and the recruitment of additional doctors and nurses."

The audit was conducted after the ACT Health Directorate wrote to Dr Cooper in September 2014 setting out concerns.