Corrections said he was placed there because he was homeless and there were no other options available at the time.
"Ensuring that offenders have stable accommodation keeps the community safe," said operations director Lynette Cave. "Being homeless increases an offender's likelihood of committing crime."
She said the lodge, which is mostly focused on drug and alcohol rehabilitation, has now been deemed unsuitable for housing child sex offenders and there are no longer anyone with these convictions living there.
The decision to place O'Reilly at the shelter was made by local Corrections staff. Cave said the department had changed its policy to require a district manager to approve a placements of anyone who was subject to an extended supervision order - though this was not as a direct result of the Epsom case.
O'Reilly left the house in May last year after being convicted of breaching the conditions of his supervision order.
He had left the address and got a job without notifying or getting approval from authorities.
The conditions of his supervision order meant he could not associate with people under the age of 16, could not get a job without consent, and could not stay away from the Epsom address overnight. He was visited twice a week by Corrections staff.
Act MP for Epsom David Seymour said Epsom Girls Grammar and Diocesan had not been informed about O'Reilly's placement near their schools.
"Obviously they weren't too happy about it," he said. "This is 100 metres away from the grounds of Dio."
Seymour said he wasn't necessarily against sex offenders being placed near schools, but he said that schools and other relevant people in the community should be told about it.
"I have great faith in the Salvation Army. And we are not unreasonable people - [offenders] have to go somewhere. But Corrections needs to let people know."
Diocesan principal Heather McRae confirmed the school was not told about the placement.
"I think it's critical that we are informed," she said.
She supported Corrections' decision to no longer place sex offenders at Epsom Lodge.
"The schools are so close. And our young people are so precious. We don't want to expose them to any higher risks than we need to.
"I agree that people need the chance to have their lives put back together and to repair the damage within their own lives - without putting at risk other people if we can."
Cave said that since September 2016, Corrections has had a policy of notifying communities about the placement of high risk child sex offenders – unless there was a specific reason not to.
In this case, the schools were not told because it was an emergency placement, it was intended to be short-term, and because there were strict measures in place to monitor his behaviour.
The department is carrying out a nationwide review of accommodation options for ex-prisoners and the way in which it notifies and engages with the community when housing child sex offenders.
In all, there are 225 people around the country who are subject to extended supervision orders.
Around 15,000 people were released from prison last year, and Corrections said it had extreme difficulty finding housing for a "very small number" of them.
