Lessons from Operation
Jarek
Presentation by:
Colette Kenny
Corruption Prevention
Gifts & corruption
2

Wollongong (2008) – Beth Morgan

Transgrid (2009)

Willoughby (2011) – Edward Karkowski

Operation Jarek (2011)
Robin
Newman
Pty Ltd
Pinnacle
Traders
Universal
Telemarket
ing
Services
(UTS)
PAE
Industries
Universal
Cartridges
NCH
MOMAR
Chemicals
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R&R Tape
Supplies
Operation Jarek – Conduct uncovered:

Corrupt conduct findings against 41 people and
seeking advice of DPP re: prosecution of 9 people.

False invoices paid by Bathurst and Yass councils

Extensive gift-giving

A total of $1.5million worth of corrupt conduct

“Relational sales” tactics used by salespeople

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Weak procurement and inventory management
processes
Jarek gifts
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Why beware a gift?

Gifts manipulate the value that society places
on an individual to return a favour

Gifts create an illusion of trust and are a means
of flattery


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A receiver of gifts often doesn’t realise the
effect
Gifts work: they wouldn’t be given otherwise
The norm of social reciprocity
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
Society expects that people respond to each
other kindly

There is a moral obligation in our society to
reciprocate kindness

It is essential for the effective functioning of
cooperative behaviour and the control of the
unscrupulous
Jarek: Gifts given in the context of sales
& marketing
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
Gears of selling

Suppliers trained to build up relationships with
customers (so-called “relational selling”)
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“If you do something nice for me, I’m
obligated to reciprocate”
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Customer Record Card
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Salesperson or friend?

Suppliers were well prepared for
their job of selling

Public officials were unprepared for
these tactics:
Well, he was a sales rep and I was, you know,
doing my job but we'd sort of worked up a little
bit of a personal friendship as well, I thought it
was, but in hindsight it wasn't.
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How do you prevent gift giving in
this context?
Public officials
 Equip public officials to recognise “relational
selling” tactics

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Help staff to say no to gifts – rehearse a
response

Have clear rules on gifts and train staff on
these rules.

Staff should know the disciplinary
consequences of accepting a gift.
How do you prevent gift giving in this
context?
Supplier engagement
 Engage with suppliers not just about gifts but
about procurement more generally.
 Public sector to take the initiative and set the
rules.
 Take control of interactions
Reduce supplier gift giving
 Set expectations
 Align incentives
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What if gifts are given in secret?
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
Gifts can still be given in secret. If so, need
strong operational processes and controls.

In Jarek, the points of vulnerability were weak
procurement and inventory management
systems.

These weak systems allowed staff to take the
opportunity to act secretly & in a self-interested
way without being detected.
Procurement processes


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Co-ordination costs: theory v’s practice
Risk of self-interested behaviour v’s Cost of
control
Controls
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
Segregation of duties

Control via delegation

Oversight
Efficient control of procurement
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
Consider introducing e-procurement

But first, analyse procurement processes and
identify vulnerabilities.

Also ensure managers of stores can monitor all
procurement activities of their staff.
Inventory management: Weaknesses
uncovered
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
Push & pull inventory: Stores and non-stock

Organisation and operation of the store

Stocktakes
Best practice inventory management
• Know what you have in stock (push & pull)
• Know how much inventory you need to have
on hand.
• Organise the stores area so it is easy to find
items
• Keep stock secure
• Have a system that tracks all inventory activity
• Conduct regular stock-takes
• Have random spot checks.
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Conclusion

One of the biggest investigations in 20 years of
the ICAC

Corruption prevention lessons to be learned
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•
•
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Equip staff to deal with suppliers
Have clear rules on gifts
Deter suppliers from providing gifts
Have strong procurement and inventory management
processes.