On September 30, the Independent Broad-based Anti-corruption Commission (IBAC), a commission charged with investigating public corruption and police misconduct in the State of Victoria (Australia), issued a special report on corruption risks associated with local government procurement (Report). The Report presented findings from two of its investigations into alleged corruption in the local government sector: Operation Dorset, which focused on an unnamed former project manager in the capital works department of the Darebin City Council; and Operation Royston, which focused on Lukas Carey, who was a manager responsible for sports and recreation for the City of Ballarat Council.
In Operation Dorset, IBAC reported that the project manager had received cash, gifts, and other benefits from an unnamed “Company A,” which received more than AU$16 million in city contracts. That investigation also identified a number of other conflicts of interest, including (1) the manager’s failure to declare his prior association with a number of contractors (“Companies A and B”); (2) the manager’s having a controlling and financial interest in “Company C”; and (3) the manager’s “direc[t] and inappropriate[e] involve[ment] in amending invoices submitted by Company A and Company B.”
In Operation Royston, IBAC found that IBAC found that Carey “was instrumental in setting up Company D (which was solely owned and operated by his wife) and engaging the company on behalf of council.” His actions
played a critical role in his family obtaining a financial advantage ($55,885 in contracts awarded to Company D between June and October 2015). This advantage was obtained in circumstances where Mr Carey dishonestly represented parts of his own university thesis as work performed by Company D. Mr Carey was also actively involved in engaging three associates on behalf of council. Again he played a critical role in those companies obtaining a financial advantage ($128,238 in contracts between 2013 and 2015) in exchange for which he solicited and received secret commissions totalling $47,745.
That investigation also found various conflicts of interest including (1) Carey’s failure “to declare his familial connection with Company D and associations with Companies E, F and G”; (2) Carey’s “direc[t] and inappropriate[e] involve[ment] in the management of Company D, including its purported work for the council and submitting invoices for payment by council”; and (3) Carey’s failure “to comply with the [Ballarat] council’s policies in areas including procurement, declaration of conflicts of interest and information management.” In both cases, IBAC found that the city councils had failed to provide adequate oversight of senior employees, which resulted in missed opportunities to detect and correct the managers’ conduct.
The Report also identified various key corruption risks and opportunities. These included the need for competitive processes for sourcing suppliers; the need for “clear policies and rigorous [conflict of interest] processes that are actively monitored and tested”; the importance of adequate internal controls; segregation of duties and rotation of employees involved with procurement; robust information-management processes; ongoing monitoring of expenditures; random internal checks and an internal audit program; and the risks of allowing employees great autonomy without meaningful supervision and oversight.
On the latter issue, one of the supervisors of the Darebin manager said:
I thought [he] was doing a great job, he was very efficient and knowledgeable so I continued the current system where he had [a] lot of freedom to just get things done quickly. He got twice as many projects done as other people.
The Report stated that as a result of the IBAC investigation,
- Carey pleaded guilty to obtaining financial advantage by deception, attempting to commit an indictable offence, and soliciting secret commissions, and was sentenced to three years’ imprisonment and ordered to repay AU$31,200 to the City of Ballarat Council;
- Carey’s wife, the sole director of Company D, pleaded guilty to obtaining a financial advantage by deception and attempting to commit an indictable offence, and was fined AU$3,000 and ordered to repay $20,500 to the council;
- The sole director of Company E pleaded guilty to charges of paying secret commissions, and was fined AU$15,000 without conviction;
- The sole director of Company F pleaded guilty to charges of paying secret commissions, and was fined AU$8,000 and sentenced to 200 hours of community work without conviction.
The Report recommended “that all Victorian councils consider their procurement policies, systems and practices to identify how they can strengthen their resistance to corruption.” It also found “merit in local government suppliers being subject to a code of conduct.” Such a code of conduct, as IBAC put it, “could explicitly outline the standards expected of suppliers, including in relation to reporting suspected misconduct or corrupt conduct on the part of council employees and other suppliers.”
N.B.: This report demonstrates the need for state and local governments to have strong and consistent oversight and internal controls for their procurement activities, as well as clear codes of conduct for all government employees. While national governments and global companies often attract far more public attention when fraud or corruption affect their procurement activities, states and cities often have substantial procurement budgets comparable to those of some smaller nations and companies. As the IBAC Report noted about Victoria,
Victorian councils play a pivotal role in providing and maintaining a wide range of services, programs and infrastructure for their communities. With responsibility for the management of community infrastructure worth approximately $90 billion and delivery of more than $7 billion in critical public services every year, councils spend between 45 per cent and 60 per cent of their annual budgets on procurement.