The Salvation Army has lost its funding to care for vulnerable children in parts of Victoria because of concerns over the quality of care they were providing.

Key points: Victoria's residential care network has been dogged in recent years by reports of sexual and physical abuse

Victoria's residential care network has been dogged in recent years by reports of sexual and physical abuse The Salvation Army came under intense scrutiny when 16yo Maria Liordos died of a drug overdose while living in one of their residential facilities

The Salvation Army came under intense scrutiny when 16yo Maria Liordos died of a drug overdose while living in one of their residential facilities The move to cancel the contract is a highly unusual one

Victoria's Department of Health and Human Services (DHHS) confirmed to the ABC that it would no longer fund the Salvation Army's Westcare agency to provide residential care in the region that takes in Melbourne's western suburbs and much of the state's west.

"The decision follows concerns about the quality of care of young people in several residential care facilities run by Westcare in the department's west division," the DHHS said in a statement.

"The department had performed extensive work with Westcare over the last two years to address specific concerns relating to the safe care of children.

"The department is in the process of tendering these services, with a view for a new provider to be in place before June 30 to ensure the ongoing care of young people residing there."

Teenager overdosed while in Salvos care

The move to strip Westcare of the contract was a highly unusual one, and indicated the depth of the problems with its operations.

Last year, the Victorian coroner identified a series of failings in the care provided to a 16-year-old girl, Maria Liordos, who died of a drug overdose while living in a residential care home run by Westcare.

Coroner Audrey Jamieson also sharply criticised the actions of Westcare staff, who allowed Maria to leave the unit and go to the house of a male acquaintance, where she overdosed and died during the night.

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The staff who were working that night saw that Maria was drug-affected before she left the unit, but failed to call an ambulance to treat her, did not enact a crisis plan specifically designed for her, and failed to call police and request an arrest warrant.

The inquest also revealed a lack of oversight of Westcare by the department, with staff from both organisations giving evidence of a lack of communication and poor record keeping.

'It's too late for my daughter'

Maria's mother Sue Liordos welcomed the decision, but questioned why the department had not moved against Westcare earlier.

Sue Liordos was shocked by revelations about the standard of care provided to her daughter. ( ABC News )

"I see this as a positive move but it has come all too late for my daughter Maria," she said.

"Westcare's inefficiencies were vast. If the department had been appropriately monitoring Westcare this could have happened many years ago, and my daughter would still be alive today.

"All vulnerable children deserve to be in only the best of care."

National media director for the Salvation Army, Steve Speziale, said the organisation "acknowledged" the department's decision to withdraw funding from Westcare.

"Westcare's management and care teams are focused on the wellbeing of the young people in their care during this time of transition," Mr Speziale said.

Victoria's residential care network, which houses many of the state's most vulnerable children, has been dogged in recent years by reports of sexual and physical abuse perpetrated by carers, other children and paedophiles outside the system.

Some agencies that operate the units have been criticised by parents, carers, children and others over the standard of care they provide, but they in turn have claimed to be underfunded by successive state governments.

In response, the current Victorian Government has pledged to dramatically cut the number of children in residential care, and to provide improved therapeutic care that tackles the underlying sources of trauma.

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