Procurement a major corruption vulnerability for councils

By Alistair Maclean, Chief Executive Officer, Independent Broad-based Anti-corruption Commission.

All public sector agencies are susceptible to corruption. Through the Independent Broad-based Anti-corruption Commission(IBAC)’s investigations and corruption prevention work, we’ve seen corrupt practices across our police, state and local government jurisdictions. What ties many of our investigations together are common corruption risks such as procurement, asset management and
conflicts of interest.

In 2014/15, IBAC assessed 4443 allegations, of which councils accounted for six percent. We took up 38 allegations as part of 16 new investigations, two of which involved councils. Of our 15 completed investigations, six dealt with procurement, misuse of information, conflicts of interest and criminal associations
at councils.

By analysing data from our operations and prevention work over the past two years, IBAC is in a better position to identify corruption ‘red flags’ at councils. And by sharing this information with you, councils can better assess and mitigate corruption risks and work towards building a corruption-resistant organisation.

Throughout recent IBAC hearings into alleged corruption at Public Transport Victoria and the Department of Education and Training, we heard a consistent message that risks associated with procurement leave our public sector vulnerable to corruption. At both organisations, employees allegedly subverted procurement and contract management processes.

The amount of public funding committed to purchasing goods, services and works by councils surely makes procurement a major risk area for organisations in the local government sector. Yet in our Review of integrity frameworks in six Victorian councils, we found that procurement-related issues were considered low-risk by senior council managers and staff.

We’ve seen evidence of people manipulating tender processes by using false companies to bid. Other patterns, such as late bids being accepted or losing bidders being hired as sub-contractors by the successful bidder, have also been evident. Business areas might split contracts – with multiple contracts coming in just below the procurement threshold and controls. And we’ve seen many instances of false, inflated or duplicate invoices.

In 2013, we investigated allegations of corrupt conduct involving employees at a metropolitan council’s works depots – an investigation dubbed ‘Operation Continent’. This included allegations that fuel had been stolen, spare parts ordered fraudulently and particular contractors favoured.

While we weren’t able to establish that corrupt conduct had occurred, Operation Continent did establish the council had inadequate controls, including a lack of audits, segregation of duties and inadequate management of conflicts of interest. Throughout the investigation, IBAC had great cooperation from the council, with its CEO leveraging off the investigation to effect cultural and organisational change.

The risks identified in Operation Continent are not isolated. Following our investigation, we undertook a broader Review of council works depots, focusing on the vulnerable areas of:

  • procurement
  • management of bulk consumables
  • management of small plant and equipment
  • leadership and culture.

We found that while councils generally complied with their own policies, procedures and legislative requirements, there were systemic, common weaknesses, including:

  • allowing council employees or business areas to bid for council tenders
  • failing to submit/sight supporting documentation for awarding contracts
  • completing purchase orders after the delivery of goods and services
  • failing to adequately identify and manage procurement-related risks, such as conflicts of nterest and
  • not providing training or support required for employees to be able to report suspected corruption.

An important part of a robust integrity culture – at any level – is ensuring that people understand where to report any concerns, and that they feel comfortable and safe doing so. And yet, an IBAC survey of 600 employees found only 25 percent would be inclined to report instances of suspected corrupt conduct.

The protected disclosure regime in Victoria is an important tool to support potential whistleblowers. Public sector agencies – including councils – are obliged to make information available to encourage people to report wrongdoing, with confidence in the protections available when they do so. Everyone is responsible for preventing public sector corruption, and by encouraging and supporting people to speak up about corruption, councils are taking an important step towards building a corruption-resistant organisation.

While councils have specific corruption profiles – often around uncontested service delivery functions, and heightened by community expectations – traditional fraud risks around procurement, tendering, contract and conflicts of interest are pervasive.

IBAC will continue to expose and investigate corruption, and work with councils to help prevent corrupt conduct in the local government sector.

Bio: Alistair Maclean is the Chief Executive Officer of the Independent Broad-based Anti-corruption Commission (IBAC). IBAC is Victoria’s anti-corruption agency responsible for identifying and preventing serious corrupt conduct across the whole public sector, including Members of Parliament, the judiciary and state and
local government.