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 It was confirmed this policy was more than four years out of date due to a lack of resources and not being given a high priority.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.

As a method of meeting governance obligations and facilitating accountability, many councils maintain governance schedules for key dates throughout the year such as interest return deadlines, mayoral election periods, budgets, annual reports and delegation reviews, amongst a host of other relevant time-critical legislative requirements.

Council confirmed that it does not maintain a formal governance schedule that captures the statutory obligations placed upon the council. Despite best efforts, legislative requirements have historically been treated in an ad-hoc manner, resulting in a number of requirements not being met.

What are the key issues or challenges?

• Council did not have any form of governance schedule to ensure key statutory requirements are met.
• Council failed to meet time-critical statutory obligations such as reviewing delegations and local laws.
• Inexperienced and unskilled staff are not provided with an appropriate level of guidance to undertake their duties.
• Resourcing is inadequate to ensure that staff deliver successful governance outcomes.

The failure to develop an adequate schedule has led to staff not completing critical tasks, senior management not having clear oversight of what tasks had or hadn’t been undertaken, and no structured follow up process in place that promotes accountability.

As a result, it was identified that important, time-critical governance tasks had not been completed within legislated timeframes. These included the Meeting Procedure local law which had been out of date for more than two years and the review of officer and special committee instruments of delegations. Failure to review these documents in accordance with the legislation may have resulted in persons acting under a delegation that was not current, presenting a significant risk to council.

Along with not maintaining a governance schedule, failure to document key governance processes was also identified as a major legal and financial risk to council. The council is heavily reliant on individuals to carry out tasks based on knowledge/ experience, as opposed to following a well-documented process that is readily available to relevant persons within the organisation. Should the council lose key staff at short notice, it is likely to result in time-critical tasks not being completed as required by legislation.

A copy of a recently-developed governance schedule by Hobsons Bay City Council was made available to governance staff to assist in the development of a Yarriambiack-specific template.

Recommendations

• Develop a whole of organisation governance schedule that captures each of the council’s statutory obligations and that clearly details the responsible staff member and function to be carried out.
• Information on progress against governance schedule milestones provided to management and council.

Every council requires up to date policies and procedures to function efficiently and effectively. They are particularly important for a local government as they facilitate consistency and transparency across the organisation.

A register containing 66 policies was examined by the Inspectorate and it was identified that only 22 of the policies listed were current (as of June 2019).

What are the key issues or challenges?

• Lack of a comprehensive up to date policy framework is a significant failing of council.
• Process for updating policies is now better managed, however staff are still failing to accept responsibility to review and amend policies within due dates.
• Approximately two thirds of existing policies were out of date, which potentially exposed the council to the risk of fraud and/or corruption.

Council staff confirmed that ensuring that all council policies were up to date was problematic. Despite being requested to, policy owners had historically not displayed a willingness to review them, even when approaching expiry.

The leadership team was routinely notified as to which policies were outstanding, however no remedial action was taken to rectify the situation and no consequences were placed upon staff not meeting their obligations.

Examples of expired policies included the procurement policy, which had not been reviewed since 2014. When queried, it was advised that despite constant reminders, a lack of accountability in the procurement department was the reason for non-compliance with section 186A of the Act that requires the policy to be reviewed annually.

Recommendations

• Ensure updated policies are in place for key operational issues.
• Policy review should form part of the governance schedule.
• Senior management and council need to be accountable for the policy review process.

Accurate record keeping at local government level is a fundamental aspect of council business. The keeping, handling, storing and eventual disposal of council records is governed by the Public Records Act 1973.

The Public Records Act requires the proper maintenance of records. Delivering record keeping practices that meet legislative requirements ensures that records are kept secure and allows for them to be made readily available to the public and other government entities, which is an important function of councils.

A Public Record is all information created, sent and received by a Victorian public sector employee in the course of carrying out the business of the agency including electronic documents, emails, websites, audio-visual records, databases and system-generated records, as well as physical documents and files.

Yarriambiack Shire Council receives, creates, handles and stores thousands of records annually and as such is required to ensure they are stored and documented in the correct manner.

The council does not currently operate an electronic document storage system, as all government and local government entities should. The council uses a manual record filing system which requires staff members to store records in a designated area consisting of two rooms with compactuses at the council’s Warracknabeal offices. Staff also store records within cupboards, drawers and on desks in their work areas.

The examination found a number of staff have developed their own databases or programs to record their work but it is not widespread and is not accessible by all parts of council and not accountable in any manner.

The archives for council records are held in 3 shipping containers that are located at one of the council depots. They are secured by padlock but are not compliant with the storage guidelines as set out by the Public Records Office.

This current system is totally inadequate for a council to run its business.

The Inspectorate found there were no back-ups of council computer records prior to March 2019.

This highlighted that digital records prior to that date may be unavailable. In an emergency, records may be lost if the servers are damaged or destroyed. It was confirmed that from March 2019 all digital records were safely secured and a back-up process is in place.

Recommendations

• Records are to be kept in accordance with the Public Records Act.
• All records should be converted to electronic format.
• Training should be provided to staff on record storage and their responsibilities under the Public Records Act as a high priority.

One of the key legislative requirements is that council establish an effective audit committee to assist in ensuring the integrity of council operations and provide a safeguard for the community.

In the context of local government, the audit committee acts in an advisory capacity that typically:

1. focuses on issues relevant to the integrity of financial reporting
2. monitors risk management systems, internal control framework, compliance and audit activities
3. liaises between internal and external auditors and management

While the audit committee is fulfilling its requirements currently, throughout 2014 and 2015, there was only one independent member of the committee, which did not meet the requirements of its charter and was in breach of the Act. Given the elected councillors have direct representation on the audit committee, the elected council should have been well aware that the lack of a properly-constituted audit committee is a breach of the Act. The failure to fill the vacancies occurring in these two years would have effectively inhibited the audit committee from holding a properly-convened meeting.

An ineffective audit committee exposed the council to significant risk due to the failure to have independent oversight of the council’s financial reporting, internal control framework, risk management systems, compliance and internal audit activities.

What are the key issues or challenges?

• The failure to have a functioning Audit Committee reflects council’s inadequacy in meeting its governance obligations
• Council must ensure ongoing audit committee viability

While not prescribed by legislation, it is good practice for councils to adopt and regularly review the audit committee charter by which the committee are governed. As part of this examination, council provided their audit committee charter, however the document was significantly out of date, having most recently been adopted by council on 4 October 2007.

An independent gap analysis undertaken in July 2014 by internal auditors of the audit committee made reference to the need for periodic reviews of the charter, however this recommendation, along with a number of others, were never acted upon.

The current committee is made up of three independent members and two councillors, which equates with industry standard and best practice. The independent members are considered to be well qualified to perform their role, having accounting and government agency backgrounds. The members are considered to be proactive in terms of seeking/ clarifying information, and work in a cohesive manner.

Minutes were provided for the previous 12 month period to June 2019, which confirmed adherence to the requirement of meeting on a quarterly basis and a uniform, structured approach to carrying out meetings.

It was identified that the tenure of the current independent members is to expire on the same date. Council should give consideration to staggering the expiry dates to ensure that the combined experience and knowledge of members does not depart the organisation simultaneously, which would leave a significant governance gap.

Recommendations

• Conduct an immediate review of the charter, referencing Audit Committees – A guide to good practice for local government and the July 2014 gap analysis in conjunction with publicly available charters of similar councils.
• Restructure the expiry dates for each of the independent members.
• Develop a set of performance objectives for the committee and have them conduct an annual self-assessment against the objectives.
• Ensure that at all times the quota and membership of independent members are in accordance with the requirements set out in the charter.

Councils establish section 86 special committees to assist in the management of specific projects, initiatives and select municipality assets. Special committees are required to have current, authorised Instruments of Delegation to ensure they act within their regulated powers, are properly constituted and limited to their purpose.

Special committees play a specific role in the management of community assets on behalf of council but the council retains an important governance oversight role of their activities and reporting to ensure their ongoing value to the community.

What are the key issues or challenges?

• Failure to review delegations of all committees in accordance with the Act.
• Failure to manage interest returns of committee members in accordance with the Act.
• Inadequate oversight of the special committees.

Council currently has four special committees overseeing Hopetoun Swimming Pool, Tempy Swimming Pool, Murtoa Housing Units and Woomelang Community Units. Responsibility for managing the committees is split between the Infrastructure Services Manager and the General Manager Community Development. It was confirmed that there is no structured internal oversight of the committee management.

Each of the special committees were reviewed and the following key issues were identified:

• No interest returns were submitted and no instruments of delegation were reviewed in the 12 month period post 2016 election.
• For the Murtoa and Woomelang committees, the meeting minutes from 12 June 2013 did not provide sufficient authority to execute the instrument of delegation.
• For Woomelang, the number of committee members could not be established.

Issues identified

The examination found that each of the committees are reliant on expired instruments of delegation, representing a risk to council of decisions made under delegation being subject to challenge.

In addition, the examination found in the minutes dated 12 June 2013 and 12 February 2014 that exemptions to members of each committee from submitting interest returns were made specifically to the committee members of the day as opposed to providing a blanket exemption for all members current and future, until the next review, as per section 81(2A) of the Act. This has resulted in a large number of existing committee members being in breach of the interest return requirements of section 81(2) and 81(5)of the Act.

It was identified that at the time of their most recent financial statements, the committees were responsible for managing funds totalling approximately $480,000. Given the significant value of the funds, combined with the lack of structured oversight, the security of the funds is considered to present a significant financial risk to the council.

The council was rated as not compliant in the Inspectorate’s 2012 examination in regard to special committees. Despite assurances from the council to the Inspectorate at the time, it is evident that these issues were never adequately addressed.

Recommendations

• Immediate review of committee instruments of delegations to ensure compliance with the Act.
• Review of interest return exemptions for current committee members.
• Appropriate and effective management oversight of all special committees to ensure financial accountability and compliance with legislation.

Under the Local Government Act and a wide range of other Acts and Regulations, council, the CEO and other council employees can delegate powers, duties and functions to special committees and council staff. The delegation process is essential to ensure actions and functions are lawfully exercised and council is not exposed to risk.

The examination found that until recently, responsible officers were unfamiliar with the proper delegations process, including the manner with which delegations are reviewed and the powers provided to them. Council has subsequently adopted and accepted a delegation model to ensure the council remains up to date with legislative requirements and any legislative amendments.

Section 98(6) of the Act states that a council must, within the period of 12 months after a general election, review all delegations which are in force and have been made by the council. It was identified that the required reviews were not undertaken in that period. As the CEO delegation was not adopted by council until 22 August 2018, any decisions made by the CEO under delegation between the period of October 2017 and August 2018 are at risk of being invalid. There are similar concerns with the delegations to council staff.

What are the key issues or challenges?

• Failure by senior staff to adhere to key legislative requirements.
• Failure to review delegations to the CEO and council staff between October 2016 and October 2017 exposed the council to significant risk.

During the previous Inspectorate examination in August 2012, delegations were assessed as non-compliant and despite assurances this would be addressed, recommended changes to follow legislative requirements and best practice procedures were not followed.

This examination confirmed that the delegations from council to the CEO and from the council to council staff are currently in accordance with legislative requirements. The delegation to the CEO was most recently adopted at the 22 August 2018 meeting. The delegation to council staff was most recently adopted at the 27 February 2019 meeting.

Recommendations

• Ensure that all delegations made by council are reviewed within the period of 12 months after a general election in accordance with section 98(6) of the Act.
• Ensure that all staff holding a delegated authority are trained in regard to their obligations under the delegations.

Councils use local laws to respond to issues and community needs within a municipality. These local laws complement council’s powers and responsibilities under both state and federal laws. The local law, once passed, has up to a ten year lifespan unless revoked sooner or renewed to remain valid. This ensures that local laws remain current and suitable for the purpose for which they were made.

As part of the examination, the Inspectorate reviewed local laws and assessed two as being compliant, however the existing Meeting Procedure Local Law expired in March 2017. The Inspectorate was advised that an updated draft version was completed in mid-2018 and presented to a councillor briefing session. Due to the expected introduction of the Local Government Bill, formal adoption of the revised Local Law was not undertaken.

What are the key issues or challenges?

• The correct implementation of local laws is a legislated responsibility of a council.
• Council’s decision not to remake the meeting procedure local law due to the potential introduction of a new Local Government Act is a breach of the legislation.
• An expired local law being enforced for more than two years exposes the council to potential challenge in respect of relevant decisions made at council meetings during that time.
• Senior management, who are ultimately accountable, did not query the decision to let the local law remain expired.

Council has committed to ensuring the updated version proceeds to adoption. The former CEO noted that the Meeting Procedure Local Law expiration had not been brought to his attention. He believed that it may have been an oversight as “other areas required attention” and he “didn’t like to overload the staff”.

Council’s failure to review the meeting procedure local law since March 2017 has resulted in subsequent council meetings being administered under an expired local law, leaving council decisions vulnerable to challenge. The elected councillors were clearly not aware of their responsibilities and exposed the council to legal and financial risk.

It is noted that following the identification of this issue, council adopted the new local law on 4 October 2019.

Recommendations

• Develop a process whereby local laws reviews commence at least 12 months prior to the expiry date and are adopted before local law sunset dates.
• Include the local laws review as part of the governance schedule.
• Publish all local laws on the council website.