The Finance Department waited until three people were charged with conspiring to defraud the Commonwealth before it stood one of the accused men down and terminated its contracts with two others.
The charges followed an 11-month Australian Federal Police investigation that started with a referral from the Finance Department in July 2019.
Finance officials told a Senate estimates hearing on Thursday that the department stood down an employee and terminated two contractors once the three accused men were charged.
Police allege that between June 2018 and June 2020, Abdul Aziz El-Debel, Gopalakrishnan Suryanarayanan Vilayur, and Raminder Singh Kahlon, profited from a scheme to manipulate IT procurement processes at the Department of Finance.
Department secretary Rosemary Huxtable told the estimates hearing it referred the matter to the AFP after a public interest disclosure from staff. Staff reported concerns to Ms Huxtable, however she decided it should be treated as a public interest disclosure, to provide the complaint appropriate protections.
Finance official Iain Scott said an external party examined the disclosure, which was found to be potentially substantial. The department then referred the matter to police on July 2019.
Mr Scott said once Finance became aware there was potential substance to the allegations, the department took actions to manage potential risks. He did not detail the measures and said the court case had to run its course.
"Once we became aware, and this was in 2020, so it gives you an idea of the length of the investigations, that search warrants would be issued and potentially charges laid, we took further steps," he said.
"On the day the search warrants were issued and charges laid, we were prepared to be able to act once there was sufficient evidence that action was necessary and appropriate."
Ms Huxtable said following the charges, Finance asked consultants Ernst and Young to look at whether processes were clear for staff if they identified unusual behaviour. Another firm, PwC, is also leading a taskforce looking at the department's procurement practices.
"We were not aware that charges would be laid until quite soon before that occurred," Ms Huxtable said.
"My capacity to do the type of actions that we've done post [charges being laid], I can certainly do that once charges have been laid, but leading up to that point, we were quite constrained because we couldn't do anything that could in any way hinder the AFP investigation."
The men were charged on June 10 this year for allegedly using inside knowledge of a government department to direct contracts through certain suppliers for their own financial gain.