Effectiveness of Support for Local Government

Tabled: 26 February 2015

3 Municipal Association of Victoria's support for local government

At a glance

Background

The support the Municipal Association of Victoria (MAV) provides to Victorian councils should be based on a sound understanding of council needs. Support programs and activities should be underpinned by reliable monitoring, evaluation and reporting to demonstrate the achievement of the intended objectives and outcomes.

Conclusion

MAV has established methods to identify council support needs and develop its Annual Strategic Work Plan. While its programs generally have clear objectives, MAV's monitoring, evaluation and reporting is primarily focused on outputs and activities rather than measurable outcomes. Weaknesses with procurement practices—a key support activity provided by MAV—increase the potential of fraud or corruption and bring into question whether value for money is being achieved through MAV's support to councils.

Findings

  • MAV is unable to demonstrate the impact or cost effectiveness of its support activities.
  • MAV's performance measures focus on membership numbers, participation and member endorsement of its strategic work plan.
  • MAV's procurement practices lack appropriate levels of probity and controls to manage conflicts of interest.

Recommendations

That the Municipal Association of Victoria:

  • as a priority, reviews and updates its procurement policies and procedures
  • improves the monitoring, evaluation and reporting of its support activities.

3.1 Introduction

The Municipal Association of Victoria (MAV) currently provides a range of support to Victorian councils. Support programs and activities should be based on a sound understanding of council needs and underpinned by reliable monitoring, evaluation and reporting to demonstrate the achievement of intended objectives and outcomes.

3.2 Conclusion

MAV has established methods to identify council support needs and develop its Annual Strategic Work Plan. While its support programs generally have clear objectives, MAV's monitoring, evaluation and reporting is primarily focused on outputs and activity‑based information. This means it cannot demonstrate that its support activities for councils are effective, efficient and economical. There are also weaknesses in MAV's procurement practices in key areas of probity and controls for managing conflicts of interest. This increases the potential for fraud or corruption and also brings into question whether value for money is being achieved from MAV's support for councils.

3.3 Identifying council support needs

3.3.1 Background

MAV uses various methods to identify councils' support needs. These include:

  • through MAV representatives—who are responsible for identifying issues in particular geographical areas
  • MAV events and forums
  • working groups and committees
  • a number of specific project advisory groups and reference groups.

The two main processes that provide a structured approach to capturing feedback and identifying council support needs are the MAV State Council and the annual development of MAV's Strategic Work Plan.

Our survey revealed that most councils contact MAV for support either at least once a month (34 of 69) or once a quarter (24 of 69). The majority of councils indicated their needs varied and support was sought as needed. Support needs identified by councils included 'when there is a skill or information gap', or 'to access sector-wide knowledge or experience'. Councils recognised the facilitation of shared insights across the sector, and learning from the experiences of peer authorities as a key support activity. Feedback MAV has obtained from participants of its training and forums also commented on the value of these events in facilitating networks among peers.

3.3.2 MAV State Council

The State Council is a body consisting of all council representatives that are financial members of MAV. It meets twice yearly to consider MAV's annual report, activities and financial affairs. These meetings are also used to deal with the general business of MAV and consider motions presented by councils. Supported motions are put to the MAV Board of Management to discuss MAV's proposed action. The Strategic Work Plan which identifies issues, objectives and strategic direction of MAV is endorsed through this meeting forum.

The MAV Rules provide guidance on process, detail and time frames required for the submission of motions for resolution at State Council. The number of motions can vary but there have been more than 50 over the last three meetings. Motions which are carried from a meeting of the State Council become MAV endorsed policy and proposed actions are reported back to councils. Most motions relate to MAV advocating on behalf of councils on particular issues—including MAV meetings with government, writing position papers and letters, or other related activities. This is not necessarily reflected in MAV's Strategic Work Plan, however, it constitutes a large portion of its advocacy activities.

3.3.3 MAV Strategic Work Plan

MAV runs a series of Strategic Work Plan sessions with councils each year. Council participation has ranged from 47 to 54 councils over the past three years—including attendance by elected council representatives and some chief executive officers (CEO).

MAV uses these sessions to inform the development of its Strategic Work Plan. It has received council feedback on the draft plan from a minimum of five to a maximum of 11 of the 79 councils over the past three years. The feedback provided includes:

  • support for specific priority areas identified with suggested refinement
  • performance measures need to be stipulated
  • resources are not allocated against specific actions
  • statements appearing too broadly based and generalised
  • priorities are too diverse in scope and long term, rather than being annual actions.

MAV does not undertake any independent assessment of council needs or of whether the support requests raised by councils are representative and address key issues or risks facing Victorian councils. Over the past five years, MAV's Strategic Work Plan has identified between nine and 11 priority areas and there has been carryover of issues including kindergarten funding, emergency management, climate change, library funding and transport and planning. However, not all of the priorities are identified through consultation with councils. For example, the last five of the 2014–15 Strategic Work Priorities listed in Figure 3A were identified from other sources including various MAV managers, the CEO and the MAV Board.

Our survey asked councils to rate how effectively MAV identified their council support needs. Forty of 69 councils gave MAV a good rating, while nine councils provided ratings of poor, and 17 moderate. This indicates a high level of council satisfaction. Figure 3A lists the functional areas of support delivered under MAV's Strategic Work Plan for the past three years.

Figure 3A

MAV strategic priorities and reported activities

Figure 3A lists the functional areas of support delivered under MAV's Strategic Work Plan for the past three years.

Figure 3A lists the functional areas of support delivered under MAV's Strategic Work Plan for the past three years.

Figure 3A lists the functional areas of support delivered under MAV's Strategic Work Plan for the past three years.

Source: Victorian Auditor-General's Office based on information in MAV publications.

In addition to the specific work priorities identified in the Strategic Work Plan, MAV also responds to ad hoc support requests from council members, and has established networks and MAV representatives to identify council needs. While MAV does not systematically collect evidence to evaluate the effectiveness of communications between representatives, members and the MAV Board on support activities, council responses to our survey indicate high levels of satisfaction with this process.

MAV reports various highlights in relation to its priorities and activities as part of its annual report. The latest published annual report is for the 2012–13 year, which includes commentary on a mix of support activities referenced in Figure 3A but not measurable outcomes.

3.4 MAV support programs and activities

Our survey asked councils to rate MAV's performance in relation to its various stated functions. Councils rated MAV's promotion of local government and targeted advocacy most highly. Identifying the administrative requirements relating to various matters and improving systems for effective member liaison, communication and participation received lower ratings.

When asked about MAV's assessment of the level of support needed, 34 of 69 councils rated this as good, 24 rated it as moderate and seven rated it as poor. Councils were also asked to consider various aspects of MAV support, and to indicate their level of satisfaction with each. Satisfaction was highest for the following measures, around 80 per cent:

  • knowledge of the policy and legislative framework
  • engaging via representatives
  • the relevance of training programs and guidance material
  • quality and timeliness of technical advice
  • getting issues onto the MAV agenda—around 70 per cent.

Councils were less satisfied with, or less clear about whether they received value for money for their membership costs (around 50 per cent) and for engaging with councils about the effectiveness of support programs during delivery (around 40 per cent) and after completion (just below 40 per cent).

We assessed a range of support activities, including:

  • councillor development, training and events activities
  • a priority policy area—emergency management
  • procurement—including a dedicated business unit—MAV procurement—and the procurement of insurance services by MAV.

These represent a cross-section of MAV's support activities.

3.4.1 Training and events

Councillor development, training and events have been long standing MAV support activities. While MAV undertakes a wide range of feedback and reporting on these activities this information does not provide a measure of the impact on relevant council performance improvement, application of learning or behavioural change.

MAV manages councillor development separately to training and events. The objective of the councillor development program is 'to support and encourage high quality governance processes, protocols, conduct and relationships across the local government sector and build the capability of elected members to effectively fulfil their roles'.

It consists of training programs that are informed by a volunteer-based reference group on professional development. More recently, training content has drawn upon the structure of a councillor competency framework.

In our survey councils identified the councillor development program as a highly sought after area of support. However, while MAV collects feedback on this program, it cannot clearly demonstrate its performance against its objective of building the capability of elected members to effectively fulfil their roles. In July 2014, a position paper presented to the MAV Board identified the need to improve monitoring of the longer‑term impacts of councillor professional development. This work is yet to be significantly advanced beyond a survey of councillors in September 2014.

MAV delivers an extensive array of events and training activities including:

  • annual conferences
  • professional development training, seminars or workshops
  • workshops or forums
  • State Council meetings, metropolitan forums, rural, regional and CEO forums.

In 2012–13, it delivered over 125 forums, workshops and training events with more than 6 000 registrations. This high volume of activity has continued in subsequent years with 156 and 135 identified events delivered in the 2013 and 2014 years respectively.

MAV assesses its overall performance related to training and events through participation rates. It uses feedback forms to obtain information from participants on program content and operational aspects, such as venue and catering—but it does not conduct evaluations on all training and events.

Despite the volume and range of events offered, improving participation from rural and regional members has been a challenge for MAV.

MAV was not able to provide reliable evidence on what measures it has used over a period of time to engage a broader and more diverse range of council participants.

3.4.2 Emergency management

Emergency management has been identified in strategic work plans for MAV for over 10 years. The last three MAV annual reports have reported the role of the MAV Steering Committee on Improving Emergency Management in Local Government to oversee projects to define the role of local government in emergency management, improve capability and capacity of performance and develop robust performance measures. This has been complemented by MAV Strategic Plans for the past two years which included the specific objective of MAV's emergency management support to be 'to define the role for local government in emergency management, deliver capability improvement programs and ensure councils are properly resourced to meet their obligations'.

MAV's focus on emergency management increased in response to the 2009 Black Saturday bushfires. MAV received almost $2 million funding from Local Government Victoria (LGV) to support councils at highest risk of bush fires and other emergencies. The funding and its associated work represent a subset of emergency management activity by MAV. The agreement with LGV over four years was to employ up to five staff at MAV and assist with the employment of 25 others in high-risk councils to assist councils to respond to the findings of the 2009 Victorian Bushfires Royal Commission. MAV did this through a range of programs and activities, and in acquitting the funding to LGV, reported their outputs from the Improving Emergency Management in Local Government program. This program was made up of six streams—Policy and Role, Legislative Change, Financial Sustainability, Capability Building, Shared Services and Performance Measurement. MAV's final report on the program in October 2014 highlights the project outputs and achievements, however, their impact cannot be determined.

While these projects were progressively finalised over the past four years, at the conclusion of the funding period there had been no assessment of the program's impact. In connection to the MAV strategic objective, this funding has enabled MAV to define a role for local government in emergency management. However, MAV cannot readily demonstrate the achievement of the remaining components of its objective for emergency management. Anecdotal feedback provided to MAV at the time of our audit indicated council satisfaction with its work in relation to their delivery of emergency management projects.

The established program and project briefs which included budgets and outputs were not finalised nor could MAV provide any endorsed versions. The performance and monitoring of the achievement of the project objectives set out in the draft project briefs could not be reliably traced to their completion. Administrative oversight by LGV was limited to the approval of salary expenditure and did not capture any detail on project progress despite project reporting forms specifying such detail. As the project briefs for all six projects were incomplete, the uncommitted funding and their associated funding estimates, could also not be determined.

3.4.3 Procurement

Background

Procurement is a key service provided by MAV to support councils. The objective of the MAV Procurement business unit is 'to achieve better procurement outcomes for local government by leveraging the combined purchasing power of councils, and delivering training programs to improve councils' procurement capacity and practices'. MAV Procurement was established in 2009 with the acquisition of the Co-operative Purchasing Scheme, an existing council procurement business, and around 30 existing contracts. Since 2009, MAV Procurement has undertaken around 40 tenders on behalf of Victorian councils. It advised that all 79 councils have participated in at least five tenders, and more than 60 councils have participated in eight tenders.

Group procurement activity for the supply of goods and services to councils is the primary focus for the MAV Procurement business unit. However, procurement support has been provided to other MAV business units such as insurance. MAV has advised that MAV Procurement is not responsible for the procurement of insurance services which is managed through separate internal arrangements.

Council responses to our survey recognised the in-principle benefits of economies of scale sought from collaborative procurement. Procurement ranked second in the needs of councils and was also the second highest area in which councils were looking to become self-sufficient. However, they would continue to seek support for the purpose of getting a second opinion from competent external sources.

Policies and processes

The Victorian Local Government Best Practice Procurement Guidelines 2013 (LG Guidelines) outline that better practice in procurement requires a comprehensive, formally endorsed procurement policy that provides:

  • value for money—the optimum combination of quality, quantity, risk, timeliness and cost on whole-of-contract and whole-of-asset life basis
  • open and fair competition—all prospective tenderers must be treated, and be seen to be treated, fairly in an open and transparent manner
  • accountability—clearly defined roles and responsibilities and established lines of accountability and delegation
  • risk management—identification of associated risks and effective strategies to mitigate them
  • probity and transparency—in all commercial dealings, the highest standards of honesty must be observed demonstrating the highest levels of integrity consistent with the public interest.

As noted in Part 2, MAV is not subject to legislative or other whole-of-government procurement requirements. MAV's procurement policies are not consistent in a number of respects with the LGV Guidelines. The MAV is not subject to the LGV guidelines but has advised it will consider them in reviewing its procurement policies and procedures. Despite having a specific business unit and undertaking a significant number and value of procurements for councils, MAV does not have a formal procurement policy in place to guide its procurement activities. Instead it has a Procurement Process Overview, which details process steps for identifying need and preparing business cases, developing the procurement approach, appointing the tender evaluation panel and evaluating tenders. While this document does provide guidance for MAV Procurement staff about processes such as undertaking tenders, there are no clear policies and processes covering accountability, risk management, probity and transparency, and other aspects such as social and environmental procurement.

MAV internal audit reports in recent years have highlighted deficiencies in MAV Procurement's operations. A July 2013 audit report stated that 'the absence of formal policies and procedures increases the risk of oversights or noncompliance with key tendering controls'. The internal audit report included key recommendations for MAV to develop:

  • a formal tendering policy and procedure framework to reflect, and where appropriate, enhance the integrity of MAV's Procurement tendering process
  • a comprehensive formal fraud and corruption control policy framework that should be referenced in declarations to be signed by all parties—including council or other external representatives—involved in MAV Procurement processes
  • a single efficient data base to facilitate all reporting needs.
Probity in tendering

For large and complex tenders, better practice in procurement requires high level probity standards to be applied at all stages of the process. In accordance with the LG Guidelines, sound probity should be based on the following:

  • compliance with the legal and policy framework applying to procurement decisions
  • use of an appropriate competitive process
  • fairness and impartiality
  • consistency and transparency of process
  • identification and management of conflicts of interest.

MAV's website includes a link to these guidelines and a range of other procurement‑related information, and states that 'through our partnership with LGV we play an important role in research, policy development and establishing best practice'.

MAV has not documented its probity processes, except for its Procurement Process Overview, which states that each tender evaluation report should contain any probity issues arising during the evaluation process, as should Tender Evaluation Plans which include probity guidelines. Consequently probity guidance applies only to the tender evaluation process.

MAV advised that the probity process is captured in the tender evaluation plan for each tender and is determined on a case-by-case basis by MAV and the relevant tender evaluation panel. Tender evaluation plans in a sample of major procurements examined by VAGO acknowledged the importance of applying probity principles, but did not explain the nature or scope of the probity process. MAV does not prepare probity plans for its major procurements and the appointment of a probity advisor to oversee the tender process on major procurements is not mandatory. While the LG Guidelines do not require these for all procurements, they outline when they would apply, which should be reflected in a relevant procurement policy.

We assessed a sample of MAV procurements to examine its procurement practices—including compliance with its own framework—and to determine if value for money had been achieved by these contracts. These are discussed below.

Council insurance services

Under its legislative mandate, MAV may arrange insurance for its members and receive commissions for arranging insurance contracts. Since 1993 MAV has been required to establish and manage a mutual liability insurance scheme for the purpose of providing public liability and professional indemnity insurance for the benefit of local government. MAV established the Civic Mutual Plus Scheme in 1993 following an amendment to the Municipal Association Act 1907 and contracted an insurance service provider to provide public liability and professional indemnity insurance, claims and risk management services to local government—this is now known as Liability Mutual Insurance. The service provider has administered the scheme continuously since 1993 under various contractual arrangements. Under the current agreement, the value of this procurement is around $2.03 million annually.

MAV Procurement has assisted with some support services in relation to the procurement of insurance services. However, MAV has advised that, in the case of Liability Mutual, Commercial Crime and Self Insurance for Worker's Compensation, procurement is managed through separate internal arrangements.

Lack of competitive tendering for the provision of insurance services

The service provider—and its predecessor organisation—have provided insurance services to MAV dating back to 1987. Since the original management agreement was established in July 1993 no subsequent management agreements have been subject to a competitive tender process. This is despite an independent review in 2010 of risk management services raising concerns about the performance of the provider, and a recommendation for competitive tendering—this is discussed below. In July 2012, MAV entered into a new 10-year agreement with the same service provider, with a possible five-year extension. This agreement includes the ability for MAV to terminate any or all components by giving one-year's notice in writing. For a contract of this value councils are required to undertake a public tender or expression of interest process, unless an exemption is granted by the minister. Similar standards apply to all state government departments and agencies under Victorian Government Purchasing Board requirements.

With no market testing for the past 10 years, MAV cannot reliably demonstrate value for money from its insurance business activities or that the arrangements with its service provider are appropriate for the needs of member councils. Figure 3B highlights deficiencies in MAV's oversight of contracts leading up to 2012.

Figure 3B

Case study—deficiencies in contract management and oversight

Since 1993, there have been four management agreements for the provision of public liability and professional indemnity insurance with the same service provider.

In 2010 an independent review noted that the risk management services were developed over time and had been principally driven by the service provider's view of what they considered appropriate to the scheme. The Civic Mutual Plus (CMP) Management Agreement between the MAV and its service provider was executed in 2001, after the agreement had commenced on 1 July 2000. The agreements lacked clarity and detail about the risk management services to be provided, and until the current 2012 agreement, had no reliable or appropriate performance measures to assess contract performance. Further to this, councils were exposed to a lapsed contractual arrangement for the period 2010 to 2012 with the expired contract defaulting to a month-by-month basis.

Source: Victorian Auditor-General's Office.

Independent review of risk management services

In late 2010, MAV commissioned an independent assessment of the service provider's performance in providing risk management services. While the review found that services compared favourably to similar schemes set up by local government associations in other Australian states, it highlighted significant issues concerning the performance of the service provider and its relationship with MAV.

The review report stated that in the early 1990s the service provider approached MAV with the idea of setting up a mutual liability insurance scheme. The service provider was providing similar services to local government in other jurisdictions around the same time. The report noted that:

'MAVIC/MAV were initially 'naive' about the service provider and the scheme and were content to let them have their run of the Scheme without much oversight. The service provider drove the strategy and built up relationships with the councils. It became a very profitable business for the service provider.'

'Over time MAVIC became much more knowledgeable about the Scheme and the strategic benefits of taking a more active role in its administration.'

This review pointed out concerns that MAVIC and MAV management had with the performance of the service provider and its relationship with MAV at this time. It included recommendations for working together—Scheme Members, MAVIC and MAV in strategy and planning sessions—MAV and its service provider jointly developing a strategic plan for risk management that encompasses broader MAV risk issues. In reference to verifying costs of service delivery, the report made a specific recommendation that the services provided be subject to competitive tendering as a whole or individually—i.e. risk management services only:

'Concerns about value for money and quality of service are difficult to resolve in the current long-term arrangement. The presence of the service provider in every applicable local government mutual liability scheme (or equivalent) means that their respective services are likely to be similar making it difficult to assess best practice from a benchmarking approach. Subjecting the services to a competitive tender is the best way to assess the services against good practice and value for money.'

Despite the issues raised in the independent review, in July 2012, MAV entered into the new agreement for potentially 15 years without undertaking a competitive tender process.

3.4.4 MAV self-insurance scheme proposal

Since 1992, MAV and its existing insurance service provider have made submissions to the government proposing to establish a local government self-insurance scheme. In 1993 the state government amended the Accident Compensation Act 1985 which allowed MAV to establish a self-insurance scheme for councils, subject to the approval of the Victorian WorkCover Authority (VWA). In 1996–97, MAV submitted an application to the VWA to establish a self-insurance licence with the assistance of its existing insurance service provider— the application was not approved.

In 2002, with the assistance of its existing insurance service provider, MAV commenced preparatory work for an application, but did not proceed as VWA was in the process of reviewing self-insurance and advised that it would not consider an application at this time. Between 2006 and 2007, MAV again commenced preparatory work for an application with the assistance a different organisation. No application was made due to the capital requirements of the scheme.

Again, at its own initiative, MAV is applying to the VWA for a licence to operate a WorkCover self-insurance scheme for local government councils and authorities under the Workplace Injury Rehabilitation and Compensation Act 2013. MAV engaged with councils on the initiative and commissioned independent actuaries and financial analysts to inform the decision to commence the application process, prior to finalising a business case. MAV has advised that a business case will be drafted once all analysis has been completed about the costs and benefits of proceeding with the self-insurance application.

MAV has now provisionally procured claims/injury management, health and safety, return to work, training and education services through a competitive tender process which resulted in the contract being awarded to MAV's existing insurance services provider in October 2014.

Procurement process

Procurement is a key support activity provided by MAV to councils. The provision of self-insurance services represents a major procurement. Deficiencies in the procurement process highlight the need for a comprehensive review and updating of MAV's procurement policies and procedures.

Tender evaluation process

The decision to opt for a selective tender process for this procurement or the inclusion of the suppliers in the tender was not subjected to probity examination. Better practice requires that tender evaluation panel (TEP) members possess the necessary technical skills and experience to ensure a robust and transparent evaluation process, and that they declare any conflict of interests. Consistent with better practice, MAV's process for procurements requires the appointment of representatives from the participating councils and specialists in the field of product or service being procured. TEP members are required to complete a declaration of confidentiality and interest prior to the commencement of tender evaluations.

Examination of the tender files disclosed no evidence of the process undertaken by MAV to appoint members to the TEP or to ensure that they were appointed on the basis of the skills and knowledge required for this complex procurement. A subsequent file note was supplied by MAV with details of the CEOs views and project team discussion on the composition of members to be considered for the TEP.

Conflicts of interest

The Department of Treasury and Finance Good Practice Guidelines–Conduct of Commercial Engagements provides guidance on managing conflicts of interest. This includes the need to ensure all participants in the procurement process—including advisers—declare their interests before the tendering process begins and at critical stages. The guidance describes three types of conflict: actual, potential and perceived.

The Tender Evaluation Plan for this self-insurance procurement requires any person with a declared evaluation role to complete a declaration of confidentiality and interest form and provide details of any circumstances that may give rise to an actual or potential conflict of interest. There is no requirement to declare perceived conflicts. All TEP members except MAV staff signed a declaration of confidentiality and interest form, each stating no conflicts. MAV advised that the staff did not complete the declarations as they were not part of the TEP, but that amendments have been made to MAV's internal processes to ensure compliance in the future.

The request for tender (RFT) for this procurement required tenderers to make full and complete disclosure of the nature and extent of any conflicts of interest or any fact or circumstance likely to result in a conflict of interest. In its tender submission, the successful tenderer did not disclose any conflict of interest. However, it has had an existing relationship with MAV for over two decades and had previously partnered with MAV to establish a self-insurance scheme for local government in Victoria. This situation could give rise to a perceived, potential or actual conflict of interest which MAV should have recognised, acknowledged, documented and managed accordingly.

Probity process

The Department of Treasury and Finance Good Practice Guidelines–Conduct of Commercial Engagements defines probity as uprightness, honesty, proper and ethical conduct and propriety in dealings and in the context of government, good process.

These guidelines and the LG Guidelines, require the development of a probity plan and the appointment of an independent probity adviser for large procurements. Better practice also requires that probity must be an integral part of the entire process. The probity adviser should be appointed before the tender specification is completed and should review all procedures and documentation throughout the tender process.

MAV did not prepare a probity plan for this procurement, which was in excess of the benchmark for developing a plan outlined in LG Guidelines, but did engage a probity adviser. The probity adviser concluded that 'no matter was noted that would indicate that the procurement process, to date, has not been conducted with an appropriate level of probity'. However, the scope of the probity review was limited in its focus as it did not consider the entire process. Key issues associated with this include:

  • The probity adviser was appointed on 10 July 2014 after the decision had already been made to proceed with a selective tender process to the preferred providers. The probity adviser's report considered and assessed probity principles during the period from 28 August 2014 until 22 September 2014.
  • The probity review appeared limited to a review of the RFT document and the evaluation assessments of the tender evaluation panel.
  • There was no probity review of the rationale for the decision to proceed with a selective tender, rather than an open tender procurement.
  • There was no probity review of the rationale to select the entities invited to submit a tender.
  • No concerns were raised about the possible conflicts of interest or the lack of documentation supporting key decisions throughout the process.

The Tender Evaluation Plan required the probity adviser to sign a declaration and confidentiality and interest form but this did not occur.

Better practice would have involved the appointment of a probity adviser before the decision to proceed with a selective tender was made and the disclosure of potential, perceived or actual conflicts of interest by all tenderers. In this instance, there was no probity of the decision to undertake a selective tender and non-disclosure of possible perceived conflicts of interest associated with the selected contractor. Given that procurement is a key support activity provided by MAV it is important that the effectiveness of this support is not undermined by poor procurement practices and inadequate probity throughout all stages of the procurement process.

3.4.5 National Procurement Network contracts

MAV is part of the National Procurement Network (NPN) which is an initiative of various local government associations across jurisdictions. The concept is based on the premise of achieving better rates and services by combining the purchasing power of more states and territories. In all such contracts the lead is taken up by one or two local government associations based on the demand in their own jurisdiction. The remaining jurisdictions are invited to become part of the tender process to increase economies of scale.

As part of this audit, we evaluated two such contracts for compliance with MAV Procurement and/or better practice—one for the supply of fuel and lubricants and the other the procurement of passenger and light commercial vehicles.

MAV had limited information for either of these contracts as the procurement processes were run by interstate entities. There were no business cases—which are developed by initiating jurisdictions—in the files provided. Therefore we could not ascertain how a needs assessment was done for these contracts. MAV advised that the majority of these documents are held by the agency that takes a lead on the contract. There was no evidence to demonstrate if a needs analysis was done, or business case developed, by MAV to assess if the Victorian councils would benefit from participating in NPN contracts which were driven by demand from other jurisdictions. MAV did undertake a survey of councils willing to participate in the contract. However, no further benefits analysis was available to ascertain the rationale for entering the arrangement. MAV has advised it engaged widely within each industry through supplier meetings to understand their willingness to participate. However, it did not provide any evidence of this process or its effectiveness. Further, similar to other NPN contracts, it did not undertake any needs analysis, and evidence was not available to demonstrate how the councils were better off with this new arrangement as compared to the previous one.

Both contracts involved setting up a panel of suppliers with available products and respective prices. A tender evaluation report was available that demonstrated how the panel was finalised. There was a qualitative ranking available on file for the fuel and lubricant tender evaluation based on pre-decided criteria, however, there was no consolidated ranking available based on both qualitative and quantitative criteria. The finalised panel with their listed products and prices was available for the participating local governments to use. MAV's involvement in these contracts varied—it was represented on the TEP of one contract but had no role in the other. The tender evaluation report in the case of the passenger and light commercial vehicles procurement was not sufficiently detailed to demonstrate that the evaluation was done in accordance with the tender evaluation plan.

The assumption that value for money would be achieved through these contracts was made based on achieving 'great pricing' due to 'the bargaining power of six states and territories' as was noted in the contract file for fuels and lubricants. There was no evidence, in the form of any subsequent monitoring and evaluation, to demonstrate that value for money has been achieved or how councils have benefited by participating in this contract. MAV has advised that it only receives 'quarterly sales reporting' while performance monitoring reports are with the lead agent. MAV also advised that it manages supplier compliance through the vendor panel system which provides some key statistics—including number of requests, requests responded to, time lines met etc.

Similarly, over the past 12 months, no cars have been purchased by any council through the passenger and light commercial vehicles contract. MAV has advised this was because key players did not participate or pulled out of the contract before finalisation. The reason for entering into a contract without key suppliers raises questions over the consideration of risks and contract viability. Two key suppliers did not participate in the tender and another one withdrew during proceedings, which may be a cause for this outcome. Lack of key suppliers within the available procurement panel reduces the effectiveness of the tender process.

There was no evidence on file of any probity process, or detail provided about how any conflicts of interest issues were managed. One of the contracts mentioned the probity process in the RFT by an appointed officer but there were no subsequent details available in the tender evaluation report of any probity process being undertaken.

Management of procurement contracts

MAV Procurement undertakes bulk procurement contract purchasing on behalf of councils who choose to participate under the blanket ministerial exemption from Section 186 (5)(c) of the Local Government Act 1989 (LG Act). In 2013, an internal audit found a need to update and further develop policies and procedures governing the tendering process, a lack of consistency in data management, the need for a formal fraud and corruption policy framework, and training for staff in this area.

MAV Procurement has not acted on almost half of the recommendations in the audit report, and still does not have an overarching procurement policy. MAV has advised its 'Tender Evaluation Template' is used to provide guidance to staff on probity and ethics. However, there is limited detail and consistency on how to implement a rigorous probity process. MAV was not able to demonstrate that its procurement activities align with better practice principles as outlined in the LG Guidelines, which means it is not undertaking procurements consistent with the standards required of councils under the LG Act, despite acting on their behalf. While MAV is not strictly bound by the requirements of the LG Act or LG Guidelines, councils are required to determine if a proposed contract demonstrates value for money before they decide to participate. MAV has indicated it will consider them in reviewing its procurement policies and procedures.

Demonstrating performance

MAV Procurement's objective is to achieve better procurement outcomes for local government by leveraging the combined purchasing power of councils, and delivering training programs to improve councils' procurement capacity and practices. There was no evidence that MAV routinely monitors and reports on the achievement of its intended objectives for achieving savings for Victorian councils.

3.5 Monitoring, evaluation and reporting

MAV undertakes a wide range of reporting on support activities to members throughout the year at various forums, in member updates and in the annual report. This reporting does not, however, provide sufficient information to demonstrate the achievement of intended objectives, outcomes and continuous improvement. Our examination of selected support activities discussed in Part 3.4 was consistent with this view. While almost half of councils (33 of 69) responding to our survey were satisfied with the way MAV monitors and reports the effectiveness of its support programs and activities, MAV was unable to demonstrate the impact of support activities and achievement of measurable outcomes. Given our assessment, the survey results indicate there may be a relatively high degree of trust by councils in MAV's monitoring and reporting.

MAV's reporting generally has a focus on financial status, updates on activity and limited monitoring and reporting to demonstrate how support activities are meeting council needs or the achievement of outcomes. MAV's annual report provides information on updates and activities undertaken against the stated objectives of work plan priorities. Information reported to the MAV Board provides a breakdown by priority area with anecdotal information, but is not presented in a manner that clearly demonstrates the progress against specified and measurable performance criteria.

MAV has multiple forms of internal and external reporting on its support programs and activities. Board and committee level reports, alongside the monthly or bi-monthly meetings of all MAV managers with the CEO and deputy CEO, are the main internal performance reporting processes. Externally, MAV provides activity reports and updates to councils in a variety of ways, including:

  • MAV President monthly updates
  • MAV Bulletin news items and e-policy bulletin items
  • email circulars to members
  • State Council meetings—written progress report on motions and a verbal report from the President at each State Council
  • CEO forums
  • metropolitan and rural/regional meetings of councils
  • advisory committee updates
  • MAV annual reports.

MAV advised it primarily relies on membership levels and participation rates in support programs, as well as member endorsement of its strategic work plan, to determine council satisfaction with its support provision. This is not a reliable or appropriate measure of whether objectives or intended outcomes are being achieved. A relevant performance measure is one that has a logical and consistent relationship to the entity's objectives, and that the entity is responsible for achieving. An appropriate measure is one that is underpinned by sufficient information to assess its achievements against objectives, outcomes and outputs and activities to demonstrate the achievement of intended support objectives and outcomes.

In relation to procurement activities, MAV relies on the forecast or estimated cost benefit savings rather than actual savings achieved by councils, therefore, the value for money measures do not provide appropriate assurance to councils. While membership levels could be considered a proxy indicator, they provide neither a relevant or appropriate measure of performance. MAV has acknowledged this deficiency in some areas, such as training, where it is revising its approach for assessing and reporting performance, including having a focus on enhancing the measurement of behavioural change.

Monitoring and reporting on support activities generally does not incorporate reliable measures of performance against identified priorities and objectives and is not consistent across the organisation. The information captured for recording progress and performance of support programs and activities depends on the type of support offered and the decision of the responsible MAV manager. For example, where a priority area such as emergency management has an established committee for overseeing delivery, reporting will be developed to meet the needs of the committee and may provide updates to the MAV Board on key issues. Other areas, including procurement which has a separate business unit, provide a standing report on the financial status of contract usage rates to the MAV Board. The information is a mix of statistics and anecdotal content.

In addition—with the exceptions of MAV Procurement, MAV Insurance, grants and events—MAV cannot link sources of funding with its work activities. Therefore it is difficult to determine whether funding is allocated to its intended purpose.

Recommendations

That the Municipal Association of Victoria:

  1. as a priority, reviews and updates its procurement policies and procedures, so that:
  • they comply with better practice
  • high probity standards and appropriate controls around conflicts of interest are applied to all phases of procurements
  • it actively monitors compliance with updated policies and procedures
  1. improves the monitoring, evaluation and reporting of its support activities, including developing relevant and appropriate performance measures, and publicly report their progress and performance
  2. improves councillor development, training and events evaluations to clearly measure and demonstrate their impact on participants and council performance.

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