Financial management

Procurement is an important function for council, as it involves the expenditure of public funds and the attainment of best value for its community, through strategic and well-developed policies and processes. It is also an acknowledged high risk area for fraud and corruption.

A detailed procurement policy is one of the main pillars of good governance for a council. It should balance the need for rigorous process, value for money and efficiency in decision making to ensure council continues to function in accordance with community expectations. In order to address these requirements, the procurement policy must be reviewed at least once in each financial year.

In 2012, the council was found to be not compliant and many of the same issues are present in this examination.

Prior to the examination, the Inspectorate reviewed the most recent procurement policy, which was adopted by council on 12 March 2014. It was confirmed this policy was more than four years out of date due to a lack of resources and not being given a high priority.

The Inspectorate notes that an updated procurement policy was adopted at the 22 May 2019 council meeting. It is important that councils review their policy annually, not just to satisfy the legislation but to ensure current practice is continually evaluated to remain best practice and minimise the risk of fraud and corruption.

As part of the review, the Inspectorate examined relevant procurement files, including those relating to the provision of home maintenance services; supply and delivery of a grader; Warracknabeal Golf Club irrigation; provision of cleaning services; and supply and delivery of a road maintenance unit.

The issues identified include:

• Lack of control over the opening of tenders prior to the closing date, contrary to council policy.
• No consistency of process and documentation. Written evaluations were not completed, demonstrating a lack of integrity of process, and a failure to provide adequate transparency.
• Instances where tender evaluation panels were not created or when members’ names were not recorded in evaluation reports.
• Tender scoring matrices not completed.
• Lack of separation of duties whereby one staff member has multiple roles in, or controlled every aspect of, the tender process.
• No evidence that reference checks were routinely undertaken.
• The inclusion of a councillor on a tender evaluation panel, a highly unusual situation with no explanation of why it occurred.
• Panel recommendation sign-off was not obtained.
• Decision making was not supported by sufficiently detailed information.
• A staff member approving a recommendation and signing a contract outside of their delegated authority.
• Failure to have panel members complete conflict of interest declarations, exposing the council to possible fraudulent or corrupt activity.

There were also numerous breaches of council policy including: failure to adequately detail evaluation practices contrary to best value principles; lack of accountability for procurement processes; lack of internal controls; insufficient documentation to provide an audit trail; authorisations not obtained or completed inappropriately; and no systems or framework in place for performance monitoring.

There was also a failure to conduct quality assurance reviews and, contrary to policy, there was no aggregated supplier reviews conducted annually. Council systems were also shown to be incapable of producing such data to the Inspectorate’s satisfaction.

The following issues were raised by staff in regard to general procurement practices:

• There was no line of sight of procurement projects below the threshold of $25,000.
• In a majority of instances, the staff member responsible for signing off on tender evaluation panel recommendations (prior to going to council) was also a scoring member of the panel.
• Tender evaluation panel members are not provided with training/instruction in regard to their respective roles and responsibilities.
• No independent review of completed procurement files is routinely undertaken to ensure that probity standards and independence of decision making are upheld.
• Tender evaluation panel members have not received specific ongoing training on the subjects of conflict of interest or confidentiality.
• It was advised that no procurement specific complaints policy had been considered or implemented.

Recommendations

• Council review its procurement policy in accordance with legislation and adhere to it.
• Procurement staff should use the Local Government Victoria best practice procurement guidelines to assist in developing their processes.
• Timeline established for delivery of training and education to all procurement staff and evaluation panel members.

Poor procurement controls and contracting processes were involved in issues such as this substandard bin being used for electronic waste, by a company that had no formal contract with the council for waste management.

Council rates are a necessary impost on the community to help fund services and asset purchase and renewal. It is important that councils apply an equitable imposition of rates and charges across the municipality. Failure to recover outstanding rates means it fails this objective and provides a disadvantage to ratepayers.

Issues were raised with the Inspectorate regarding the large amount of outstanding rates and the lack of action taken to collect these debts.

As of September 2018, council was owed more than $1.5 million in outstanding rates. There is no evidence that council has attempted to collect these outstanding debts. Rate revenue for 2018-19 was $12.3 million, with an amount worth more than 12% of rates revenue outstanding. Other outstanding rates for similar sized councils only average 4% of their total rate revenue.

Councils with a higher outstanding rate burden have set processes in place to address outstanding rate debtors. The Inspectorate acknowledges that many instances of failure to pay rates may be instances of hardship but council requires a process to manage such circumstances.
It is of concern that due to the passage of time and poor record keeping, some of the debt may be unrecoverable.

Recommendations

• Council must develop a policy to govern the management and recovery of outstanding rates.
• Take immediate action to recover outstanding rates or where appropriate, write off any unrecoverable debts.

The use of corporate credit cards can expose councils to potential financial and reputational risks as well as fraud and corruption, therefore it is important that internal controls are embedded to mitigate these risks.

The Inspectorate received specific allegations relating to the misuse of a corporate credit card. In the course of the investigation, it was identified that the council now has only one active corporate credit card, to which all relevant corporate council expenses are charged. While the previous CEO was allocated a credit card for his use, the current CEO did not exercise that option.

What are the key issues or challenges?

Currently there is a gap in controls that may allow for collusion between the person incurring the expense and the cardholder

The requirement that transactions be checked by an authorised person was raised in a card activities audit in 2010 but the practice was not adopted.

The current Corporate Credit Card policy was adopted on 27 June 2018. The principles of the policy are to ensure transparency in council operations concerning the use of cards and to ensure council resources are managed with integrity and diligence.

Despite maintaining a limited number of cards, probity protocols did not appear sufficient to identify or restrict fraudulent or corrupt activity. Section 8 of the Corporate Credit Card policy states that the monthly statement, with all invoices attached, is to be authorised by an appropriate person.

When queried on the process, it was explained that the cardholder would sign off on the statement (with the invoices attached) and it would be processed in the finance system. There was no requirement to have the statement authorised or approved by senior management.

Section 11 requires that monthly statements are to be periodically checked by the internal auditor. Council advised that the internal auditor did not carry out this function and there were no instances where staff had been questioned in regard to expenditure.

A review was undertaken of the previous two years’ statements for the senior officer and former CEO. It was found that: not all statements were authorised by senior management; a description of purchases were not recorded; and not all monthly statements were signed by the cardholder. No instances of fraud were substantiated.

The senior manager responsible for drafting and managing the policy did not appear to understand the reconciliation and approval process.

Recommendations

• Council must adhere to its own policy on credit card use.

Councils are required to ensure that robust processes are in place to facilitate the appropriate management of public money for the full benefit of the community.

The Inspectorate found that council operates the ‘Share Grants Program’ with two annual rounds of grants of $30,000. At the time of this examination, the council website contained a one-page document outlining the relevant application details including the opening and closing dates and eligibility criteria.

Council advised that there is no Share Grants Program policy in place and until recently there was no structure or process document to provide operational guidance to relevant staff. Once applications are received, a committee of councillors and council managers is formed to conduct roundtable discussions. There is no criteria to determine the membership of the panel or rationale for councillors undertaking operational roles within the council.

What are the key issues or challenges?

While there was a structured application process, the council:

• public funds through an evaluation process that had very little rigour
• not promote transparency
• no independent oversight of the process
• not keep records detailing the reasons applications were approved or declined

The examination of the current community grants process identified:

• lack of transparency to the community.
• failure to document the evaluation process which may result in inconsistent outcomes.
• separation of duties in the decision making process.
• involved in the evaluation and approval process.

Recommendations

• Develop and document the process, clearly outlining who has responsibility for the assessment/evaluation of applications, who is to prepare the report to council and who is to sign off on the report prior to going to council.
• Written assessments to be made for each application, outlining the reasons for approval or decline and why applications did not receive their full allocation.
• Councillors to receive full report for both recommended and not recommended applications.
• Councillors should be removed from the evaluation process.

In February 2019, a chartered accountancy firm completed a review of the reliability and effectiveness of the internal controls over the management of grant funding. The scope included: a review of policies or procedures; a review of the management process (including the seeking and pursuing of funding opportunities, acquittals, activity, milestones and reporting); the adequacy and use of records management; and testing a sample of federal and state government grants received.

The Inspectorate found there was scope to improve the management of grants through the development and implementation of a grants management policy and procedure document. Improved practices would include creating a centrally managed grants register, reporting on aggregate co-contribution obligations across all grants, ensuring the finance department is involved in the application stage, and documenting current processes as part of an overall grants management policy and procedures.

While it is too early to conduct an assessment of council’s implementation of the review recommendations, it appears the council has committed to act, particularly in regard to developing a policy and register.

Recommendations

• Adopt a Grant Management Policy.
• Create a comprehensive grants register.
• Council to act on the recommendations of its accountancy consultant.