Young children taken from their parents and placed in Victorian residential care were subjected to horrifying sexual and physical abuse by other children, despite being in the care of workers contracted by the Department of Human Services.

Details of the abuse and neglect surfaced in a Victorian court recently during a hearing over whether two siblings should be returned to their mother or left in the care of the department.

The case has exposed glaring flaws in the standard of care offered by the organisations contracted by the department to run its network of residential care units.

The Minister for Community Services, Mary Wooldridge, has admitted to the ABC that the abuse suffered by the children was "devastating" and "unacceptable", but said lessons had been learned from the events.

The judicial officer hearing the case has criticised the people responsible for the children's care, suggesting that they failed to pass on information about the abuse suffered by the girl and boy in resi-care facilities.

The siblings, a brother and sister both aged under 10, were taken from their mother in 2011 after allegedly suffering physical abuse. They were eventually placed in separate units, run by two community agencies.

The girl was sexually assaulted by a boy six years older than her on at least two occasions last year, and she and other children were also allegedly sexually abused on numerous occasions by another boy.

The girl has tried to commit suicide, and has been diagnosed with post-traumatic stress disorder.

The boy was allegedly groomed and raped by an older boy, and also witnessed a girl living in the unit having sex with older men outside the unit.

A number of witnesses have admitted that the children were failed badly by their carers and the department, which left them in the units despite being aware of the abuse allegations.

Parents lash out at 'incompetent, negligent' department

Parents of other children who were sexually and physically abused at the unit have spoken to the ABC.

"Incompetent, negligent, very disgusting in the way they have handled this case and many other cases that I'm aware of," one father said when asked to describe the department's actions.

"The Department of Human Services is there to ensure the protection and safety of children when parents can't do it or when they have trouble doing it. Their behaviour in this case - handling this case and this unit - they can't protect children, they shouldn't be in a position to protect children if they can't do it properly."

Last year, on her first night in the unit, the girl was found in the bedroom of a 14-year-old boy. He had an erect penis and was attempting to pull her on top of him.

Staff from the agency that operated the unit told the court they immediately notified the department and asked that the boy be moved to another unit.

They also put staff on a "stand up" roster, meaning there was a carer awake through the night to protect the girl, and asked the department to pay for this level of security to continue indefinitely.

However, they said the department rejected both these requests, a decision an agency worker agreed in court was "outrageous".

The court has also heard the girl had run away from the unit with the boy and came back with red marks on the inside of her thighs.

Six months later, the older boy lured the girl into his room and sat her on his knee, then bit her on the neck. Police officers interviewed the girl and compiled a brief of evidence, but the matter was eventually dropped.

However, police were not told by carers of the other incidents that had happened between the girl and boy.

"I believe that if we had been told of any of the other incidents beforehand, the other ones might not have happened," one witness said.

"I don't think that [children of different ages] should be in the same residential unit, but that's not my decision to make."

Girl attempted self-harm and suicide

Over the course of a year, the girl showed behaviour a series of witnesses agreed in court was a clear indication that she was traumatised, including a number of incidents of self-harm and suicide attempts.

Her lawyer wrote to the department expressing concern at the girl's filthy clothes, matted hair and scratched arms. The girl had also said she could not sleep at night without her door being locked.

"Do you agree there seems to be an escalation, a young girl crying out but not being heard," a witness was asked. "Yes," she replied.

The witness also gave evidence that there was a "line of sight" policy at the unit, meaning that the children should be in direct view of the staff at all times, but said that in the wake of abuse, the witness was "mistaken in assuming staff knew what 'line of sight' meant".

Another young girl living at the unit alleged that she and a number of other children - including the girl at the centre of the court case - had been repeatedly sexually assaulted by a second older boy at the unit.

The evidence she gave in a police interview - shown on video in court - is graphic and detailed.

A boy at the same unit also told police that he had been sexually assaulted by the older boy, and described the abuse he witnessed carried out by the older boy against the young girls. The children in the unit were immediately separated.

Department 'not cooperative' in assessment of girl's mental health

The court heard that an evaluation of the girl's mental health was conducted without disclosing the serious abuse allegations.

The court asked the witness: "You've never been told about the seemingly lengthy history of ongoing sexual abuse at [child]'s residential unit?"

"Correct," the witness replied.

The barrister representing the girl asked the witness: "Knowing now that [the department] did not disclose these significant events, would you describe them as fully cooperative?"

The witness replied: "No, I wouldn't."

A departmental official also sent a report on the girl to the Commission for Children and Young People, which omitted the evidence of the serious sexual abuse, and said the children's behaviour was caused by trauma from their home life, and their mother's unreliability when it came to access visits.

The court described the report as "self-serving and unimpressive", and raised the possibility of forcing the official to explain the omission in court.

"I will be placing little if any weight in this," the court said.

While the girl was allegedly being subjected to months of physical and sexual abuse in her residential-care unit, her older brother was placed in another facility with a number of older children.

Over the next few months, he was allegedly sexually abused by two older children, one of whom allegedly groomed him for months and then raped him.

It has also been alleged that he witnessed other residents at the unit having sex, and that one girl, older than him, took him with her when she had sex with older men outside the unit for money.

In addition to the sexual abuse, the boy witnessed a girl living at the unit cutting her arms with a blade. His schooling has been "fragmented", and there was no coherent description of the home-schooling he receives.

Staff recieve one day of training on 'sexualised behaviour' in children

Evidence was given that staff at certain units have a one-day training session on managing "sexualised behaviour" among children, and that not all staff attended.

It was admitted in court that they had no specific training for managing children under the age of 10 in resi-care units, despite the units originally being intended to house children aged 12-16.

When a witness was asked by the barrister representing the children's mother whether it was appropriate for the boy to be housed with children who self-harmed and behaved sexually, the witness replied that it was "the nature of residential care", and "unavoidable" that children in the facilities would be exposed to suicide attempts, self-harm, sexual abuse and drug use.

Evidence was given that the department staff responsible for deciding where the boy would be placed were unaware that the boy was seriously sexually assaulted by an older boy, that he had allegedly seen other children having sex or that he had watched as the older girl had sex with men outside the unit.

It was also admitted that children of varying ages and with different behavioural problems should not be placed together in facilities, but that the department was hamstrung by lack of options.

"We have the resources we have at the time," a witness said.

Another witness told the court that the boy's "sexualised" and violent behaviour escalated during the last six months he regularly attended the school.

The Victorian Commissioner for Children and Young People, Bernie Geary, is conducting an investigation into conditions in resi-care units.

He could not comment on the individual case before the courts but said the system is a fundamentally flawed one, where the most damaged and vulnerable children are "funnelled" together into houses across the state.

The ABC revealed earlier this year that children in resi-care are also being targeted by groups of paedophiles.

"I'm really concerned about the way children are abused, harmed and particularly what's coming before me at the moment is the sexual abuse of children that live in residential care, child on child, outsider on child and children being sexually exploited, all of these kids who live in state care and we are not able to keep them safe, that's why we are doing an inquiry into the situation around all of these children around Victoria," he said.

"It's a widespread problem and we have some wonderful people working in residential care across the state who are just as concerned as I am and it's like a whole lot of spotfires."

Mr Geary said the solution is to dramatically increase the number of foster carers, who are deterred by the financial implications.

"We've got about 500 kids in resi-care and 300 of those, in my opinion at least, should be living in community with kin or with foster care," he said.

"The reason they can't live in foster care is because of taxation impediments that at the moment people who care for people in foster care are only endowed to the point of about $10,000 per year.

"I think that they should be professionally foster caring, that they should get a wage so that they are accountable and so we get a different range of people doing it."

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