Alistair Maclean: corruption red flags in local government

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All public sector agencies are susceptible to corruption.

Through the Independent Broad-based Anti-corruption Commission’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 — particularly in state government agencies and councils — are corruption risks associated with procurement, asset management and conflicts of interest. With knowledge of the key corruption “red flags”, councils can better assess and mitigate corruption risks and work towards building a corruption-resistant organisation.

In 2014/15, IBAC assessed around 4500 allegations, of which councils accounted for around 6%. We completed 15 investigations and held two public hearings into alleged corruption at Public Transport Victoria and the Department of Education and Training. We also took up 38 allegations as part of 16 new and ongoing investigations, two of which involve councils.

Of the 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” in the public sector, and provide information to help agencies to manage these risks.

Procurement

Throughout the recent PTV and DET public hearings, 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.

Invoicing patterns can tell an interesting story. Business areas often split contracts — with multiple contracts coming in just below the procurement threshold. And we’ve seen many instances of false, inflated or duplicate invoices.

A marked theme of our investigations has been the rorting of the frequent purchase of low-value items, precisely because they “slip under the wire” of thresholds and controls.

Learnings from Operation Continent

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; and
• Leadership and culture.

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

• Allowing council employees or internal business areas to bid for council tenders;
• Failing to submit or sight supporting documentation for awarding contracts;
• Completing purchase orders after the delivery of goods and services and accompanying invoices;
• Failing to adequately identify and manage procurement-related risks, such as conflicts of interest; and
• Not providing the training or support required for employees to be able to report suspected corruption, without fear of reprisal.

Conflicts of interest

Conflict of interest is a common risk we see in allegations of corrupt conduct and in our investigations. Often the complaints we receive do little more than point out perceived or actual conflicts of interest, and assume that they constitute corrupt conduct.

Of course, the point is not whether there is a conflict of interest, but rather the way in which it is managed (or not). Gifts and benefits registers and declarations of secondary employment are common examples of an organisation’s response to such conflicts.

Another increasingly prevalent issue is associations outside of the workplace, specifically with members of organised crime groups. We recently released a report showing council employees are among those being targeted by criminals to gain information, influence decisions and manipulate systems.

Last year, IBAC investigated allegations that a council employee had stolen work equipment and given it to members of an outlaw motorcycle gang. After investigating, we recommended the council review its policies and procedures, especially in relation to declarable associations, and increase employee awareness of their obligations.

Simply by having greater awareness of this risk, councils will be better equipped to manage, and hopefully, mitigate. Included in our Organised crime group cultivation of public sector employees report are more strategies councils can implement to help mitigate the risk of employees being compromised by criminals.

Building a culture of integrity

Our integrity framework review identified that organisational culture and leadership is just as important as management controls when managing fraud and corruption risks. Without the right leadership and culture, the best set of policies and procedures in the world will often do little more than sit on the shelf, and be reliant on individual rather than collective effort.

Employees and management need to understand corruption risks, be appropriately trained, and be kept informed of emerging integrity issues. When that happens, they are better placed to prevent corrupt behaviour in the first place, and to identify and respond to corrupt conduct when it is occurring.

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.

The protected disclosure regime in Victoria is an important tool to support potential whistleblowers. It applies to councils as much as it does to any other public institution. 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. There is some way to go in developing widespread acceptance of, and confidence in, the regime.

As part of our recent council review, a survey of 600 employees found that only 25% would be inclined to report instances of suspected corrupt conduct.

This result demonstrates how management must show its commitment to corruption prevention by:

• Reassuring employees they will not be penalised or identified; and
• reiterating that employees don’t need to have hard evidence to make a report.

Last year, IBAC reviewed the protected disclosure procedures established and implemented by government agencies. It found almost one in four agencies weren’t meeting their legal obligations in dealing with complaints and supporting whistleblowers. Four of the seven organisations identified as having no protected disclosure procedures in place were councils – this was almost two years after the laws were introduced.

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 asset management are pervasive throughout the public sector.

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