1. Victorian Auditor-General’s Office Tendering and Contracting in Local Government 6 October 2011 ▌ IPWEA Strategic Contract Management & Procurement Conference

2. Overview Today’s presentation Role of the Auditor-General Findings from audit of Tendering and Contracting in Local Government Key audit themes and lessons 6 October 2011 ▌ IPWEA Strategic Contract Management & Procurement Conference

3. 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 6 October 2011 ▌ IPWEA Strategic Contract Management & Procurement Conference

4. 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 departmentsLocal government Companies, trusts and joint ventures Water authorities State owned enterprisesPolice, emergency services and courts Public hospitals and ambulancesUniversities and colleges Financial institutionsSuperannuation schemes 620+ Client agencies include: 6 October 2011 ▌ IPWEA Strategic Contract Management & Procurement Conference

5. 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 6 October 2011 ▌ IPWEA Strategic Contract Management & Procurement Conference

6. Tendering and Contracting in Local Government 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. 6 October 2011 ▌ IPWEA Strategic Contract Management & Procurement Conference

7. Tendering and Contracting in Local Government 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. 6 October 2011 ▌ IPWEA Strategic Contract Management & Procurement Conference

8. Tendering and Contracting in Local Government 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 6 October 2011 ▌ IPWEA Strategic Contract Management & Procurement Conference

9. Tendering and Contracting in Local Government 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 6 October 2011 ▌ IPWEA Strategic Contract Management & Procurement Conference

10. Tendering and Contracting in Local Government Maintaining probity in procurement Findings 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 8–9page 10 page 9 page 11page 10 6 October 2011 ▌ IPWEA Strategic Contract Management & Procurement Conference

11. Tendering and Contracting in Local Government Maintaining probity in procurement – continued Recommendations—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 6 October 2011 ▌ IPWEA Strategic Contract Management & Procurement Conference

12. Tendering and Contracting in Local Government Achieving value for money from procurement Findings 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 6 October 2011 ▌ IPWEA Strategic Contract Management & Procurement Conference

13. Tendering and Contracting in Local Government 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 6 October 2011 ▌ IPWEA Strategic Contract Management & Procurement Conference

14. Key audit themes 2010–11 1.Managing performance of outsourced services 2.Regulation, compliance and oversight 3.Using evidence to support decision-making and planning 4.Reporting meaningfully on performance 5.Managing risks from joined-up initiatives 6.Probity in procurement 7.Security of systems and information 6 October 2011 ▌ IPWEA Strategic Contract Management & Procurement Conference

15. For further information on this presentation please contact: Steven Vlahos Director, Performance Audit [p] 8601 7071 [e] steven.vlahos@audit.vic.gov.au Questions 6 October 2011 ▌ IPWEA Strategic Contract Management & Procurement Conference