Security contractors admit there has been "at least one incident" where guards "mishandled" asylum seekers on Nauru and they are aware of allegations of staff trading contraband such as cigarettes for sexual favours on the island.
A Senate inquiry was also told a woman said she had been raped by a cleaner at the offshore processing centre.
During shocking evidence presented at the Senate Committee at Parliament House on Tuesday, representatives from Transfield Services and Wilson Security confirmed that asylum seekers on Nauru are being held in mouldy tents in temperatures above 30 degrees, while local Wilson guards were not screened for working with children.
Both Transfield Services and Wilson Security admitted there had been "incidences" in the centre and Transfield was working on improving their "harassment and professional boundaries" policies .
"Despite our commitment and our best efforts, some allegations of misconduct have arisen," said Kate Munnings, Transfield's chief executive of operations.
Transfield Services has been paid $1.2 billion for 20 months to provide security and welfare services on the island, while it has cost the government $276.45 million to operate the island's centre over seven months. Wilson Security is contracted by Transfield Services.
Dr David Issacs, a doctor who worked briefly on the island, wrote in his submission that a woman had told him she had been raped by a cleaner when she went to the toilet at night.
"She told me that since the rape, one guard had offered her extra shower time in return for sexual favours (each person was restricted to two minutes a day because of water restrictions), and on another occasion a different guard offered marijuana in return for sexual favours," he wrote.
"She wept uncontrollably for 10 minutes when telling me her story, which I had no reason to doubt. I discussed the rape with senior IHMS medical colleagues and we arranged for the mother to see an IHMS psychologist to try to help her cope with the trauma."
Wilson Security said that Transfield had responsibility of the cleaners.
But Brett McDonald, the security contract manager, said he was aware of at least one incident where a "transferee had been mishandled," and "there has been some cases where staff have been moved on or terminated."
The executive general manager of Transfield, Derek Osborne, said he was "made aware" of the allegations of sexual abuse and the limited access to showers, but could not say when he knew.
When asked whether male guards were present when women were showering, Mr Osborne replied: "No". But Wilson Security later confirmed male guards do patrol the shower areas, but do not enter. In the family compound, 40 per cent of guards are female, he said.
During the evidence, Transfield could not tell the committee what the gender break down was of their 275 expat guards and 277 local guards. They could also not say when they were first told of the allegations of rapes or incidences of sexual assault, nor how many blackouts occur on the island.
They confirmed there was mould in the tents and they were "working with the Commonwealth" to remove it. The accommodation on the island is controlled by the federal government, they said, but it was are "maintained" by Transfield Services.
Wilson Security said they had implemented the 19 recommendations made by the Moss Review, which included better communications with the Nauruan Police force.
The Secretary of Immigration, Michael Pezzullo, will give evidence this afternoon.
Fairfax Media understands Transfield Services were told about the hearing on Thursday night.
