Our review of 4,600 personal interests returns for 650 councillors from 78 councils found much higher rates of non-compliance that we anticipated. We found that 51% of councillors did not complete at least one interests return in strict compliance with the requirements of section 81 of the Act. This level of non-compliance is unacceptable because it risks decreasing public confidence in councils.
Increased compliance with the declaration of personal interests returns will increase transparency and the community’s trust in local government decision making. In addition to increasing compliance through education and guidance, we propose 3 ways to increase compliance by:
- automating processes
- increasing scrutiny and mandatory reporting to make it easier to identify non-compliance
- introducing a proportional range of sanctions to make it easier to hold those who do not comply accountable.
Automating the personal interests returns submission process would make it easier for councillors and council staff to comply with the personal interests returns requirements of the Act. The local government sector also gave us consistent feedback that they wanted to move to automated systems to collate personal interests returns information. Councils told us that the current manual process, which was generally done using hard copies, was outdated, time consuming and did not achieve the best outcomes.
Councillors complained that they were often provided with hard copy interests return forms at a council meeting and were required to complete the form prior to leaving, not allowing them the opportunity to fully consider any changes that may have taken place since they had submitted their previous return.
Meanwhile, council staff commented that hard copy forms were time consuming to follow up, particularly in rural councils where councillors do not attend the council office on a regular basis. These issues were compounded during the summer break in January and February. In some instances, return forms were illegible due to poor handwriting.
Automating the personal interests returns process would allow councillors and council staff to fill out the information from anywhere and at any time. A good system could also include information about the process. Other potential benefits of an electronic, possibly web-based system include:
- removing the need for council staff to distribute hard copy forms to councillors
- improving record-keeping
- quick reference to previous returns
- mitigating risk of illegibility
- improving confidentiality/privacy
- automatic reminders
- automatically creating a summary which can be published on the web.
There is also an opportunity for the council peak bodies to:
- provide leadership
- encourage sharing of knowledge and best practice across the sector.
For example, Casey City Council and Melbourne City Council both use a governance system through Microsoft’s Sharepoint, and this knowledge could be used by other councils. If VLGA coordinated the collaboration and sharing of knowledge, it would help smaller councils with less governance resources.
We surveyed a small number of councils on how they manage the interests returns process.
Northern Grampians use an online internal form system called elementORG. The program has been tailored to the council’s needs to mitigate data management issues and manage all governance tasks. Council was not required to purchase new hardware or additional software to support the system. Instead, it was integrated into their existing system, with pre-built templates allowing it to be implemented efficiently.
The system’s features include:
- councillor interests returns are completed via an online form, from which a summary of interests is created
- LGV’s Quick Guide on Personal Interests Returns for Local Government and the legislation are linked as help notes to each question on the online form
- it is linked to council’s Electronic Document Records Management System and completed returns are recorded as part of the workflow
- the workflow includes a governance check prior to the return being finalised to ensure all questions have been adequately answered
- the system automatically transfers the summary of personal interests data onto the council website.
Council described the program as being very simple and user-friendly. One of the key benefits is the transition to a fully automated, paperless process.
Northern Grampians Shire Council has adapted an internal form system to collect personal interests returns from councillors and staff.
Towards a best-practice model
Compliance with the requirements of the 2020 scheme is fundamental for its effectiveness as a means of ensuring both the adequacy of personal interests disclosures by council decision-makers and the integrity of the decision- making process.
The 2020 scheme follows the ‘standard’ state model for local government personal interests returns: councillors and senior council officers are required to regularly submit returns, a register of returns is maintained by the council and the public can access information concerning the disclosed interests.27 The only available sanctions for non-compliance are through the criminal justice process.
Making non-compliance a criminal offence is not an adequate response to this issue. Our review indicated that the 2020 scheme should encourage compliance through a range of proportional and scalable measures.
We propose four amendments to enhance the effectiveness of the 2020 scheme:
- replacing the current court-based prosecutions with infringements except in the most serious cases
- introducing a system of non-monetary sanctions for non-compliance
- creating a mandatory reporting requirement for non-compliance
- removing potential barriers to external scrutiny.
Replacing some prosecutions with infringements
A feature of the 2020 scheme (and the 1989 scheme) is the use of the criminal justice process as the principal enforcement mechanism. However, the nature and seriousness of the offences relating to personal interests returns in the 2020 scheme do not lend themselves to prosecution in the Magistrates’ Court.
In our experience, prosecutions cause unreasonable delay, are disproportionately expensive for the Inspectorate, the defendant and the court system itself, and do not act as a deterrent. Because the offences are mainly ‘administrative’ in nature, in most cases they should not carry the stigma associated with criminal judicial processes, including the possibility of a criminal conviction.
Given the significant cost and time needed to bring a matter to court, historically the Inspectorate has issued written warnings for failures to comply with the interests returns provisions. Only the most serious examples of non-compliance have been prosecuted. This means the impression across the sector is that there are little consequences for compliance failings in relation to personal interests returns.
A suitable alternative is to make some of the offences created by the interests returns provisions in the 2020 Act infringeable. Total failure to lodge, or late lodgement, of an initial or biannual personal interests return, are strict liability offences.28 They are suitable for inclusion in the framework for the issuing and serving of infringement notices contained in the Infringements Act 2006 and meet the determinants found in the Attorney General’s infringements guidelines.29
We consider that the 2020 Act should be amended to give us specific power to issue infringement notices for these offences. Adoption as infringeable offences would have an appropriate deterrent effect and would aid these offences in being taken more seriously by the sector. This, coupled with a public information campaign directed at councillors and senior council officers, should be effective in increasing compliance with the scheme.
Legislative change would allow us to immediately apply penalties once a pre-established threshold has been reached. The change would mean fines would be applied at the point of infringement, removing the need for costly legal and court proceedings. Protections would be afforded in the form of an internal review system built into the process, as directed by the Infringements Act 2006.
Any penalties would be dependent on the nature of the offence. For example, a single late return may attract a fine worth one penalty unit, whereas failing to submit any return at all for a return period may attract a fine worth two penalty units. Fines would be dependent upon the severity of the breach.
In some cases, written warnings and prosecutions will continue to be the most appropriate response to breaches. Prosecutions would be warranted, for example, where a specified person deliberately included false or misleading information in returns to subvert the council decision-making process.
In 2017 the Inspectorate charged former Wyndham City councillor Intaj Khan for failing to file ordinary interests returns and for the non-disclosure of various interests on those returns between February 2016 and February 2017. Mr Khan was charged with three counts of failing to disclose companies in which he held an office position during the return period; three counts of failing to disclose companies in which he held a financial interest; two counts of failing to submit ordinary returns; and one count of failing to disclose property holdings, in breach of the interest provisions of the 1989 Act.
Mr Khan pleaded guilty to eight charges.30 On 16 July 2018, Mr Khan was convicted in the Sunshine Magistrates Court on the eight charges and was fined $26,000 – $8,000 related to the two counts of failing to submit an ordinary return, and $18,000 for the remaining six charges. Mr Khan was also ordered to pay $15,000 in legal costs. While he subsequently appealed the matter in the County Court, Mr Khan dropped the appeal partway through proceedings and the decision stood.
Magistrate Therese McCarthy said Mr Khan had received training from Wyndham Council and a previous warning from the Inspectorate over a failure to submit an interests return, which she considered was an essential tool for good governance.
The conviction and penalty imposed against Mr Khan illustrates the importance of councillors complying with the interest provisions of the 1989 Act and 2020 Act, for the promotion of transparency and integrity.
It is often difficult to obtain a conviction through the current court system because the courts typically require a higher threshold than that intended by the legislation. As a result, offences at the lower end of the scale have not been pursued as the cost to take the matter to court is often in excess of the penalty that can be applied.
In some cases, non-monetary penalties could provide more appropriate, proportional and scalable sanctions for specified persons who consistently flout the provisions of the 2020 scheme.
A good example of non-monetary sanctions can be found in the New South Wales personal interests return scheme, which is contained primarily in codes of conduct that must be adopted by individual councils under the Local Government Act 1993 (NSW).
Under the NSW scheme, councillors, administrators, council staff, council delegates and any other person to whom a council’s adopted code of conduct applies must comply with the provisions of the code. Failure to do so by a councillor constitutes misconduct for the purposes of the NSW Act. Penalties for misconduct include suspension or disqualification from civic office. A councillor who has been suspended on three or more occasions for misconduct is automatically disqualified from holding civic office for five years. Failure by a member of staff to comply with a council’s code of conduct may give rise to disciplinary action.
We believe that consideration should be given to adopting a similar scheme for Victoria for more serious breaches of the 2020 requirements which could be used in conjunction with an infringements scheme. Under this proposal:
- failure to comply with the requirements by a councillor could constitute misconduct
- penalties for misconduct could include suspension or disqualification from civic office, including automatic disqualification from holding civic office where a councillor has been suspended on three or more occasions
- failure by a member of stall to comply could give rise to disciplinary action.
Mandatory reporting of breaches
Without mandatory reporting, it is difficult to identify where breaches have occurred as there is no current structured testing regime or general oversight program embedded. Consideration should be given to CEOs being required to report breaches of the 2020 requirements to the Inspectorate. Mandatory reporting of failure to submit returns, or to submit incomplete, inaccurate or late returns would act as significant deterrent – particularly when coupled with a new infringements’ regime.
Currently there is no requirement for councils to report identified breaches of the Act, despite penalties being applicable for non-compliance. Traditionally, no action was taken against those who fail to submit a return or submit a late or incomplete return. An unwritten threshold has been in place where only those that have transgressed on multiple occasions have been threatened with action. Mandatory reporting would ensure we had oversight of non-compliance, could monitor the levels of non-compliance, and act in accordance with the nature of the breach.
Mandatory reporting would also aid council staff who felt they could not report non-compliance for fear of recrimination. An example of a mandatory reporting requirement can be found in the interests return scheme created by Part 4 of the Members of Parliament (Standards) Act 1978. This requires the Clerk of the Parliaments to report Members of Parliament (MPs) who fail to submit returns to the relevant presiding officer. For MPs, the prospect of mandatory reporting would appear to be sufficient to ensure compliance, given that Part 4 does not contain any criminal sanctions. A similar approach could be taken in the local government sector.
It is worth noting that no equivalent interstate requirement for personal interest disclosures in any other state has a mechanism for reporting breaches of the requirement. If Victoria were to introduce such a provision, it would lead the way in how interests return breaches are reported.
Public register of non-compliance
The 2020 Act improves the transparency of the declaration of personal interests by requiring CEOs to publish a summary of the returns. However, consideration should also be given to increasing the transparency at the other end of the system with a public register to name councillors and council staff who do not submit a personal interests return or submit incorrect information in their return.
A governance officer told us that there should be public accountability for infringements so that it was more than a financial penalty. “There needs tobe a disincentive for those doing the wrong thing. A public register or something similar would act as a deterrent and expose wrongdoing,” the officer said.
A public register would increase the stakes for councillors in particular, and provide an incentive to take more care with their returns. Knowing that they could be publicly named for non-compliance would also act as a disincentive to ignore the returns process and encourage them to understand the importance of the declaration process.
“There is little point in officers constantly warning people of the consequences of non-compliance, if the regulator fails to take meaningful and public enforcement action.”
- council officer
“The process needs external oversight as it can be seen as a tick and flick-type exercise which councillors don’t take seriously.”
Although the personal interests returns requirements have been in place for more than three decades, no audit of the returns has been undertaken by any entity, including councils. The 1989 and 2020 Acts do not require any entity, including councils or the Inspectorate, to oversee the interests return requirement. Nor do the Acts impose any obligation on any entity to scrutinise the accuracy and completeness of the interests disclosed in the returns.
“I would welcome a requirement on councils to provide all returns (or failure to submit returns) to the Inspectorate on a regular basis. Even if the Inspectorate did not actually actively audit this information (which I concede might be overly resource intensive) the fact that the data is being provided to an external agency at all would create cultural change amongst councillors”.
- council officer
Another method of improving the level of compliance across the sector is through the development of a structured oversight framework, combined with strict enforcement of penalties. Councils have historically carried out minimal scrutiny of personal interests returns, and those that do typically focus only on ensuring that basic requirements are met.
Our review highlighted that some councillors were not aware that they breached the legislation until it had been pointed out to them, and the misdemeanour clearly explained. The creation of a structured review program, particularly if it is external, would increase the level of compliance at a time much closer to the breach.
Further, where breaches are discovered and are found to have been intentional, applying the set penalties has historically proven to be problematic. The cost of acting typically exceeded the outcome that could be achieved.32
“The recent audit of returns was good for councillors to be reminded of the requirement of accuracy and full transparency. I suggest over the four years, random audits of accuracy and currency of some returns would be good to assist the officers in education and reemphasising the requirement to accurately complete the returns.”
We considered the merits of a centralised model, under which returns would be submitted to a central agency, ideally using an electronic platform. A centralised model was suggested by both council staff and councillors in survey responses. The receiving agency could also perform checks on the submitted returns. Due to the resources required to establish and maintain such system, as well as privacy aspects, we concluded this model not desirable at the present. The main value of the information contained within the interests returns is at the local council level, where it could impact on decision making, therefore the information should continue to be collected by the council.
Instead, we have arrived at the view that most of the utility of a centralised system can be achieved through the creation of a common electronic form that provides a standardised template for councillors and selected council staff to complete. In light of this, we have recommended that Local Government Victoria investigate the feasibility of creating a common electronic form to be distributed to councils to incorporate into their IT platforms. 33
We believe that the LGI can deliver structured oversight through a continued review of interests returns, through:
- random sampling of returns (for example 10% of councils or councillors each return period)
- formal checking of returns (a combination of high-level consistency checks and more detailed background checks)
- ongoing reviews across the council term ensuring all councils (councillors) are reviewed at least once.
The ongoing monitoring of personal interests returns would be greatly enhanced by mandatory reporting of breaches of the interests returns provisions34 and a change in sanctions for breaches35. Meanwhile, councils could gain efficiencies through the creation of an electronic submission platform that feeds the information back to councils.36
11. LGV should investigate the feasibility of creating a common electronic form that provides a standardised personal interests returns template that councils can incorporate into their IT platforms.
12. The Local Government Act 2020 should be amended to give the Inspectorate specific power to issue infringement notices for strict liability offences.
13. LGV should amend the Local Government Act 2020 to introduce non-monetary sanctions (such as temporary suspension or disqualification from civic office) to provide a more appropriate, proportional, and scalable sanction for persons who consistently flout the personal interests returns provisions of the Act.
14. The Local Government Act 2020 should be amended to require CEOs to report suspected breaches of the personal interests’ returns provisions to the Inspectorate, including failure to submit returns or submitting inaccurate or late returns.31
27 See Interstate schemes
28 The offences are created by sections 133(1) and 134(1) of the 2020 Act.
29 Under the 2020 Act, lodgement of a personal interests return containing false or incomplete information under s 133(3) and 134(2) of the Act is not a strict liability offence. This is because it requires proof of a fault element – either intentionality or recklessness. As such, it may be difficult to make this offence infringeable.
30 All the charges brought against him, excepting the failure to disclose property holdings.
31 This change would mean the requirement would be similar to the mandatory reporting of interests for Members of Parliament under the Members of Parliament (Standards) Act 1978
32 See Replacing some prosecutions with infringements
33 See Recommendation 11
34 See Recommendation 14
35 See Recommendations 12 and 13
36 See Recommendation 11
Reviewed 27 October 2021