Former Wallabies player Glen Ella is CEO of Guardian Youth Care, a children's charity accused of misusing millions of dollars in government funds. Credit:Kate Geraghty As outsourcing grows, more than $3 billion of taxpayer funds is now spent annually with the NSW Auditor-General able to examine the government agency spending the money – but not ensure the service provider does its job. FACS, which receives the bulk of the money, has been buffeted by revelations surrounding service providers since February. On Saturday, the Herald revealed a failed charity run by former Wallaby Glen Ella had been accused by FACS in an administrator's report of misappropriating nearly $20 million. It comes after the Herald detailed allegations of systemic fraud by fallen Australian of the Year finalist Eman Sharobeem that were probed in public hearings at the Independent Commission Against Corruption.

The NSW government of Gladys Berijiklian has rejected proposed reforms to audit laws. Credit:Daniel Munoz In 2013, the influential NSW Public Accounts Committee that oversees the Auditor-General recommended the government adopt "follow the dollar" changes. In March 2014, then premier Barry O'Farrell said the government would review the recommendations. Commonwealth Auditor-General Grant Hehir called on NSW to pass the laws in 2014. In response to questions to the Premier's office about why the government hadn't acted for four years on the advice, a department spokesman issued a statement, killing off an extension of powers on how the money is actually spent. "The Auditor-General already has audit powers over government bodies which provide state funding to NGOs, and government agencies already collect a large amount of information on the activities of NGOs operating in these sectors.

"In line with the NSW government's commitment to minimise the administrative burden on service providers, a reporting process that would potentially duplicate existing measures has not been introduced." The PAC told the government in 2013 that the then auditor-general Peter Achterstraat had identified "a key deficiency in his current powers relating to monitoring the performance of NGOs or partners spending taxpayer funds on behalf of the government under the Act". Mr Achterstraat said that when FACS contracted a provider, he could check if the department was monitoring the organisation but "I could not test the veracity of the information the NGOs would be giving to the department". "In other states they can do that." Tony Harris, a former NSW auditor-general, told the Herald the government should adopt the laws.

"Why would you even hesitate if you've got an organisation alleged to have misused taxpayer money and the state doesn't really have the power other than police to undertake a financial examination. "It wouldn't be used very often – it would only be used at times when there are questions about governance failure and the prospect of fraud and the like. "If the Commonwealth pays a contractor to deliver the goods the Auditor-General there can follow the dollar to see why the goods weren't delivered as required," Mr Harris said. The 2013 PAC recommendation came around the time the alleged misconduct was occurring at both Eman Sharobeem's community organisations and Glen Ella's Guardian Youth Care charity. The not-for-profit Guardian Youth Care received more than $30million in public funds over five years to provide full-time care for the state's most traumatised children in Sydney group homes.

But the charity run by Mr Ella now stands accused by the government of misappropriating $19.6million, according to administrators called in late last month. Guardian Youth Care, which blames the government for withholding its rightful funding over several years, allegedly entered into unauthorised subcontracts. The money went to companies with links to former criminals, which are now refusing to open their books to show how it was spent. FACS has previously told the Herald it "reviews all contract performance data and financial information submitted by its service providers in November of each year". "Detailed analysis of all financial information includes the verification that funds are used in accordance with FACS contracts," a spokeswoman said.

The department would not say when it learned of the unauthorised subcontracts. Nor did it comment when asked how they had escaped its attention. Accounting firm Deloitte reported to the government last September that it had found breaches of financial obligations, breaches of conflict of interest rules and misappropriation by Guardian Youth Care. In February, the department issued a breach notice, "which included a performance improvement plan", a spokeswoman said. The former Australian of the Year awards finalist, Ms Sharobeem, who ran two publicly funded community organisations, the Immigrant Women's Health Service (IWHS) and the Non-English Speaking Housing organisation (NESH), has been accused at ICAC of fraudulently claiming expenses, and using fake names to earn extra salaries. Workers at Ms Sharobeem's IWHS and NESH first detected irregularities in 2013. NESH, which was a service for homeless women at risk from domestic violence, received funding from FACS. IWHS was funded in part by the department of health.

In a statement to ICAC, Eleri Morgan-Thomas, a FACS executive director responsible for development of NGO funding and contracting, said there are "three accountants in the prudential oversight area that can assist district contract officers in reviewing financial information". FACS funds about 850 organisations in NSW. "District contract staff undertake desktop reviews and then assess the information submitted by service providers. The district contract staff, for example, spend time examining the financial information to identify whether expenditure patterns raise red flags such as significant variations in expenditure." With ICAC hearing that workers expressed concerns as far back as 2013, Ms Morgan-Thomas noted: "A key challenge for FACS is to distinguish between facts and unfounded rumours." A NESH employee, Nevine Ghaly, told ICAC she felt concerns weren't taken seriously. FACS introduced centralised risk assessment in February 2016. Ms Morgan-Thomas told ICAC that FACS had become "increasingly concerned about the operation of NESH" prior to a 2013 tender and "believed that the quality of NESH's services was poor".

When NESH missed out on a tender, "FACS undertook a close examination of NESH's acquittal information" and a deeper financial review in November 2014. ICAC contacted FACS in February 2015. FACS was still working on a "Performance Improvement Plan." in August that year. FACS says "Dr [sic] Sharobeem made informal enquiries with FACS about the possibility of contracting out back office services" to her other organisation the IWHS around early 2014. But Ms Sharobeem had already merged the organisation in September 2013 without telling FACS. Ms Sharobeem was accused in ICAC of ordering NESH to pay IWHS $1500 a fortnight which she then claimed as a reimbursement. Loading

In a statement, FACS said it "takes these matters very seriously because they represent a critical risk to public money, and they undermine the quality of service that is being delivered to very vulnerable people, including children". FACS was "not the sole or overarching regulator of funded NGOs", it said, noting the role of the Australian Charities and Not-for-profits Commission, but did not want to "duplicate regulation". It has the power to refer matters to ICAC and NSW Police.