Victorian Auditor-General’s Office

Victorian Auditor-General’s Office

Tendering and Contracting in Local Government

6 October 2011 ▌ IPWEA Strategic Contract Management & Procurement Conference

Overview

Today’s presentation• Role of the Auditor-General• Findings from audit of Tendering and Contracting in Local

Government• Key audit themes and lessons


Role of Auditor-General

Our Purpose: Providing assurance to Parliament on the accountability and performance of the Victorian public sector• Auditing in the public interest since 1851.• Constitutional safeguard to serve interests of Parliament.• Constitution Act – ‘Independent officer of Parliament’• A key link in the accountability process• Accountable to Parliament via the Public Accounts and

Estimates Committee• Auditor-General mandate


Role of Auditor-General: Context

Victorian public sector • One of the state’s largest businesses• More than 232 000 employees: $73 billion annual turnover

• Government departments • Local government• Companies, trusts and joint

ventures• Water authorities

• State owned enterprises • Police, emergency services and courts

• Public hospitals and ambulances • Universities and colleges• Financial institutions • Superannuation schemes

620+ Client agencies include:


Role of Auditor-General: Context

As you all know, the Auditor-General is the auditor of all Victorian local councils • Provides an opinion on all statements:

• Financial statements• Standard statements• Performance statements

• We use a mix of in-house and contracted firms• The appointment of contracted firms is through a public

tender process.• Ability to undertake performance audits to assess

effectiveness, efficiency and economy



Background• Councils spend more than $2.7 billion annually on goods,

services and works. • The Local Government Act 1989 requires councils to tender

contracts worth $150K or more for goods and services, and $200K or more for capital works.

• LGV has recently introduced sector-wide initiatives to improve procurement systems, practices and capability across councils.



Audit objective• To examine whether policies, guidelines and procedures for

tendering and contracting are adequate, have been complied with and have resulted in value for money.

Overall conclusions• There is a low level of assurance that probity standards

had been applied consistently.• There is significant scope at the councils examined to

achieve better value for money through procurement.



Probity in procurement• Probity in procurement is critical to achieving value for money.• The Act establishes obligations that promote probity:

• Staff and councillors must act impartially, with integrity and avoid conflicts.

• Staff and councillors must disclose a direct or indirect interest in matters they report or advise council about.

• Staff are prohibited from exercising delegated powers if they have conflicts of interest and must disclose them.

• Councillors must avoid conferring an advantage or disadvantage on any person, and must avoid conflicts between public duties and personal interests.

• Council procurement policies should identify acceptable probity standards that reinforce these requirements

page 8–9



Procurement policies

Obligations for acting fairly,

impartially with integrity

Treating potential suppliers equally

Demonstrating probity and

adherence to procedures

Protecting the security of

confidential information

Statutory responsibilities

for ethical behaviour



Maintaining probity in procurementFindings• Absence of proactive declarations by panel members meant there was a

lack of assurance they were free from bias.• Poor practice at Casey permits contractors with a conflict to evaluate

tenders, and to approve invoices up to $100K contrary to the Act.• Bendigo had insufficient controls to prevent in-house bidders from

accessing information on competing tenders.• Mt Alexander needs to strengthen file management practices to better

demonstrate bidders are treated equally.• Only Yarra had an extensive training program that covered probity issues for

all staff.• Tender evaluation reports at Casey and Bendigo did not offer sufficient

information to support decisions made.

page 8–9

page 10

page 10

page 9

page 11

page 10



Maintaining probity in procurement – continuedRecommendations—Councils should strengthen probity by:• Training all staff in identifying and managing conflicts.• Requiring all tender panel members to document conflict of

interest declarations.• Assuring TEP reports provide sufficient detail and analysis

to support decisions.• Maintaining detailed and secure records to acquit

transparency and accountability obligations.

page 20



Achieving value for money from procurementFindings

• There was insufficient assurance councils had optimised value for money through competition or complied with their obligations to tender:• numerous examples of cumulative payments to suppliers over tender

thresholds with no contract or competition• confusion on whether the statutory thresholds apply to discrete purchases

with suppliers or to multiple purchases over time • there is inadequate monitoring of and reporting on supplier expenditure due in

part to the limitations of software systems.• Casey has spent around $18.7 million with 12 contractors since 2008 under the

Act’s emergency provisions, but did not identify when works should be tendered.• None of the councils systematically reviewed the effectiveness of their

procurement and associated controls.

page 12-19

page 17

page 19



Recommendations Councils should strengthen oversight and monitoring of procurement by:

• Regularly monitoring cumulative payments to suppliers to identify opportunities.• Establishing procedures for assuring statutory compliance and

adherence to probity standards.• Systematically reviewing the effectiveness of procurement activities

and associated controls.

LGV in consultation with stakeholders should enhance guidance to councils on strategic procurement and amend the Regulations to:

• Better prescribe the circumstances under which a council’s statutory obligations to tender apply.

• Require councils to set the scope, timeframe and value of works to be covered by contracts entered into because of an emergency.

page 20


Key audit themes 2010–11

1. Managing performance of outsourced services2. Regulation, compliance and oversight3. Using evidence to support decision-making and

planning4. Reporting meaningfully on performance5. Managing risks from joined-up initiatives6. Probity in procurement7. Security of systems and information


For further information on this presentation please contact:

Steven VlahosDirector, Performance Audit [p] 8601 7071[e] [email protected]

Questions


Documents

Victorian Auditor-General’s Office