$35bn of state funds 'put at risk'
The Age
Tuesday March 8, 2011
MAJOR malfunctions in financial software put at "significant risk" billions of dollars of public savings managed by the state government's main investment arm, according to documents leaked to The Age.Victorian Funds Management Corporation executives had a crisis meeting in August over the software, and later called in consultants who agreed there were significant, continuing problems.Senior investment staff said urgent action was needed to repair software "in which we lack confidence" and warned that technological errors could produce "substantial loss to clients", according to a summary of a two-day meeting at The Westin hotel in Collins Street.A corporation insider said software issues were the result of wider problems. "Poor leadership, lack of ability and political intrigue characterise the current executive," the insider said.The corporation manages about $35 billion of public money on behalf of various public sector superannuation funds, the Transport Accident Commission, WorkSafe and other government agencies.The software malfunctions have added to a series of controversies. Last week The Age revealed the corporation had lost about $500 million investing in a so-called "death fund" that specialised in American life insurance policies.The loss which added to billions of dollars of other investment losses run up by the corporation since the start of the global financial crisis has prompted the Baillieu government to order an independent review of the corporation.The software systems SimCorp Dimension and RiskMetrics provide electronic snapshots of every asset, and tell the corporation whether it is meeting demands set by the agencies for which it manages money.Corporation chief executive Justin Arter said he had identified problems with the financial software and commissioned independent reports on them, but there had never been any real potential for the corporation to lose money."Absolutely not. There were no significant risks to client assets, and I'm happy with the progress on the software," Mr Arter said.But an insider claimed the corporation was continuing to ignore the software problems. "I conscientiously, strongly object to what management is doing," the insider said.There are also concerns that the corporation continues to suffer from rushed consideration of major projects, similar to the approval process for the "death fund", where potential risks and benefits were not properly queried.According to a confidential report by Shoreline consultants last October, benefits that the software was supposed to deliver were "not independently verified and [were] largely based on representations received from then vendors during the sales process".The consultants also said that installation of one of the key software systems "has not been a successful project" and staff were still waiting on "key components".A source said: "The software systems didn't have to fail, they were mismanaged in a big way, management were repeatedly told there were problems."Serving and former staff say internal tensions over the significance of the software problems have fuelled low morale and led to the departure of two key staff, including the head of information technology.The claims of morale problems appear to be backed by a staff survey by consultants AON Hewitt, and given to The Age. Less than half of the 90 staff members responded positively to most questions including questions about whether they were motivated, would recommend the corporation to their friends or tell others "great things" about their workplace.Mr Arter said of the staff survey results: "Naturally, I'd like them to be better, but staff engagement is important."At their meeting in August, the corporation executives discussed that 90 staff were managing the same volume of assets $35 billion as was managed by just 20 staff five years ago.In 2007, the value of assets managed by the corporation climbed to $41 billion, but dropped dramatically during the global financial crisis.The corporation now charges bigger management fees because it makes more of the investment decisions itself.Some executives involved in the August review said "change will not be cheap" and suggested higher fees for clients such as WorkSafe and the Transport Accident Commission.Both organisations say they are happy with the corporation's current performance.
© 2011 The Age