Corruption investigators have recommended sweeping changes to public accounting after finding the Department of Education has been defrauded of several million dollars.

Key points: IBAC report finds at least $6 million stolen from Victoria's Department of Education

IBAC report finds at least $6 million stolen from Victoria's Department of Education Three former heads identified in report as being involved in the fraud

Three former heads identified in report as being involved in the fraud IBAC investigators to prepare a brief of evidence for Office of Public Prosecutions to consider laying criminal charges

The report by Victoria's Independent Broad-based Anti-corruption Commission (IBAC) found at least $6 million was stolen from the department in suspicious transactions.

The report alleged sacked director of school resources, Nino Napoli, organised for millions to be funnelled through an intricate web of companies owned and run by his extended family.

The IBAC report included three separate chapters named after former executives of the Education Department; Nino Napoli, former acting secretary Jeff Rosewarne and former regional director John Allman.

During public IBAC hearings last year, Mr Napoli admitted stealing department money.

The hearing was told his son Ralph Napoli was paid $120,000 by the department for work he never performed.

"In effect, on [your son's] behalf, you stole this money from the Department of Education?" counsel assisting, Ian Hill QC, asked Mr Napoli.

Mr Napoli said: "Strong word, but yes."

Mr Hill responded: "You abused your position of trust."

Mr Napoli replied: "Absolutely. What I have done was dreadful."

Department funds were transferred to seven public schools known as 'Banker Schools' and used to pay fraudulent invoices to a variety of companies mainly owned and operated by Mr Napoli's family.

Department money spent on 50th birthday party, hearing told

Mr Rosewarne approved some of the fraudulent expenditure, the report said.

IBAC hearings were told the department paid $5,000 for his 50th birthday party.

The department also paid for coffee machines, wine and furniture for Mr Rosewarne's personal use.

Mr Rosewarne resigned from his position as an executive of Catholic Education last year.

Mr Allman admitted destroying financial records to prevent IBAC investigators discovering them.

Public IBAC hearings last year played secret recordings of conversations between Mr Allman and Mr Napoli that showed the pair colluded to deceive IBAC investigators and revealed Mr Allman lied to the hearing.

Mr Hill asked Mr Allman: "Did you ask Mr Napoli not to make mention of Silverton Primary School?"

Mr Allman replied: "No, I don't have any memory of such a conversation."

The IBAC hearing was then played an audio recording of a conversation between Mr Napoli and Mr Allman.

Mr Allman is clearly heard saying: "Mate, nothing's come up at Silverton so don't f****** mention that."

Under cross-examination Mr Allman confessed, "The Banker School arrangement has never been a legitimate practice of the Education Department, so I did have something to hide".

IBAC investigators will prepare a brief of evidence for the Office of Public Prosecutions to consider laying criminal charges against a number of people involved.

Conduct 'completely unacceptable'

The Victorian Department of Education and Training said it welcomed the report and said many of the recommendations had already been implemented.

Department secretary, Gill Callister, said the conduct of those involved was "completely unacceptable".

"It is is unacceptable in the public sector and it is unacceptable in this department," Ms Callister said.

She said no-one involved now worked for the department and that the so-called "Banker Schools" had been abolished.

Ms Callister said she was leading a complete overhaul of the department's processes, procedures and culture to "ensure that we act with integrity and the highest ethical standards".

There is a separate IBAC investigation into the department's handling of the failed $180 million Ultranet project, and a report will be tabled in Parliament later this year.