Fraud and Corruption Control—Local Government

Tabled: 19 June 2019

4 Maintaining public trust

Councils are accountable to the communities they serve and the ratepayers who fund their services. To properly manage fraud and corruption risks, councils must be aware of how ratepayers may perceive the actions and expenditure of councillors and senior council staff. To signal to their municipality that they have zero tolerance for fraud and corruption and that they are managing fraud and corruption risks to uphold public trust and protect council resources, councils must:

  • identify and manage conflicts of interest and associated risks
  • effectively manage and be prepared to report and explain expenditure, including managing community perceptions of excessive entitlements for discretionary spending, such as meals and alcohol
  • ensure adequate fraud and corruption frameworks are in place and effectively respond to suspected fraud and corruption.

4.1 Conclusion

The audited councils need to do more to maintain public trust. Control weaknesses have resulted in transactions and practices at some councils where it is unclear how residents and ratepayers benefited, particularly at Strathbogie and Wyndham. This can create a perception of council funds being used inappropriately, for example, spending council funds on alcohol or selling vehicles to employees under market value. We also identified instances where senior leaders did not declare interests and where councils could have responded more effectively to suspected fraud and corruption. When these examples are viewed collectively, they have the potential to damage public trust.

4.2 Managing conflicts of interest

All councillors and council employees have private interests. However, these private interests can at times conflict, or be perceived to conflict, with the performance of their public duties. Effective management of conflicts of interest is vital to maintain public trust and ensure that council decisions are in the public interest and free from inappropriate influence and personal gain. IBAC, LGI and VO investigation reports frequently reference poorly managed or undeclared conflicts of interest.

Ordinary Returns and Related Party Disclosures

The Act and the Accounting Standard require councillors and certain council staff to declare their interests, which helps identify and effectively manage potential conflicts of interest associated with their roles.

Ordinary Returns process

Under the Act, councillors and nominated officers must submit Ordinary Returns in the prescribed form to the CEO within 40 days after 30 June and 31 December to declare their interests.

Ordinary Returns capture information such as whether a councillor or nominated officer:

  • has been a director or otherwise in any company or body
  • has a beneficial interest in any company or body or trust
  • has a beneficial interest in any land in the municipal district of the council or in an adjoining municipal district
  • has received any gift or hospitality above a threshold
  • has any other substantial interest, whether of a pecuniary nature or not, for them or their families, that they are aware of and consider might appear to raise a material conflict between their private interests and public duties as a councillor, member of a special committee or nominated officer.
Related Party Disclosure process

Since July 2016, the Accounting Standard has required certain council staff and councillors, known as KMP, to annually declare if they or close family members control or jointly control a business, club, association or sporting group that transacts or has commitments with the council. The purpose of these declarations is to ensure that financial statements contain disclosures to draw attention to the possibility that an entity's financial position may have been affected by the existence of transactions with related parties.

Responsibility to declare interests

The responsibility to complete these interest declaration processes and accurately declare interests rests with the individual. However, the audited councils facilitate these processes by sending copies of required forms, explaining the process and tracking completion.

Completing declarations of interests

We checked to ensure that all sitting councillors and nominated officers at audited councils had completed their Ordinary Returns, and KMP had completed Related Party Disclosures as required. We also checked to ensure that Ordinary Returns were appropriately signed and witnessed.

All councillors and nominated officers at audited councils have submitted their Ordinary Return declarations for the past three return periods. However, we found one Ordinary Return for a Wellington councillor that was a photocopy of a previous return with the date changed. The councillor did not ensure this Ordinary Return was witnessed appropriately. Instances such as this weaken this control. Councillors must ensure they make accurate declarations that are properly witnessed and meet all legislative requirements. Wellington advises that it intends to amend its instructions to councillors to ensure this does not happen in future. LGI advises that it considered this matter as a possible breach of the Act and decided to resolve it informally and provide guidance to this councillor.

Councillors that do not meet this legislative requirement open themselves to scrutiny and potential legal action for breaching the Act. The case study in Figure 4A highlights the importance of the Ordinary Returns process and councillors meeting their obligations. It also highlights that council staff made efforts to ensure compliance with this requirement, despite the legislative responsibility resting solely with the individual.

Figure 4A
Example of a councillor failing to complete Ordinary Returns

On 4 January 2017, Wyndham emailed its councillors to explain the Ordinary Returns process, attaching guidance and the form for completion with a due date of 9 February 2017. The council monitored completion of Ordinary Returns and sent reminders about it.

One councillor failed to submit an Ordinary Return by the due date. This offence under the Act carries a maximum penalty of 60 penalty units. In March 2017, the council reported this councillor's non-compliance to LGI as a breach of the Act. LGI investigated and prosecuted the councillor.

The councillor pleaded guilty to eight charges relating to the filing of interest returns under the Act, including:

  • three counts of failing to disclose companies in which they held office during the return period
  • three counts of failing to disclose companies in which they held a financial interest
  • two counts of failing to submit Ordinary Returns between February 2016 and February 2017.

On 16 July 2018, the Magistrate fined the councillor a total of $26 000, plus $15 000 in legal costs. The Magistrate noted that the councillor had received training from the council, a previous warning from LGI, and that the requirement to submit an interest return was an essential tool for good governance.

Source: VAGO, based on LGI media releases and Wyndham data.

Strathbogie KMP did not complete Related Party Disclosures in 2016–17, when it was first required. Strathbogie advises that at the time it had a contracted staff member who was unaware of the requirement, and it has now implemented measures to ensure compliance.

When we reviewed Ordinary Returns and Related Party Disclosures against data from ASIC, we identified anomalies across Shepparton, Wellington and Wyndham. We referred these matters to LGI for consideration given its responsibility to investigate and prosecute offences under the Act.

LGI has now completed its preliminary assessment and determined that:

  • three matters are possible breaches of the Act and LGI has considered the associated risks, and determined that formal action is not required, and LGI will provide guidance to those individuals
  • three matters require further review in order for LGI to determine whether there has been a breach under the Act.
Scrutiny and active management of declared conflicts

Responsibility to complete Ordinary Returns under the Act rests with the individual. However, we found that Wellington actively uses this information to manage declared conflicts of interests. Wellington collates information from Ordinary Returns and Related Party disclosures into a spreadsheet and identifies risks and actions to mitigate risks. Council staff use the spreadsheet to develop council meeting agendas to determine when certain councillors or nominated officers may need to leave meetings due to a conflict.

The Act also requires councillors and council staff to disclose conflicts in council meetings and to leave meetings when a matter is considered, or a vote taken, where they have a conflict. We reviewed a selection of the audited councils' meeting minutes and saw evidence of compliance with this requirement for all audited councils.

Transparency and perception risks

To ensure transparency to the public, the Act requires that the CEO of a council maintain a register of interests of councillors and nominated officers, consisting of the last three Ordinary Returns. The council must make the register available for public inspection on written request. All audited councils comply with this requirement and have registers that are available to the public for inspection at council offices.

However, to manage community perceptions that conflicts of interests are being effectively managed, councils must also ensure that council staff are mindful of their interactions with suppliers and how residents and ratepayers may perceive these interactions.

We identified examples in our credit card transaction testing at Strathbogie that raise risks regarding the management of perceived conflicts. These transactions were also in the context of:

  • the council having a code of conduct directive that requires staff to disclose conflicts of interest to a nominated senior executive
  • the senior executive reporting to us that no staff had ever formally declared a conflict.

We identified examples of a former manager providing suppliers with gifts of:

  • a number of $100 gift vouchers described as 'thank you' gifts for suppliers for work done at no cost
  • a transaction for $33 described as a bottle of wine to thank a supplier for work done at no cost.

We also identified examples of a former manager dining with suppliers, as detailed in Figure 4B.

Figure 4B
Lunch and alcohol with a supplier

Example 1

A Strathbogie manager used a council purchasing card to buy lunch for themselves and a supplier. The receipt for the lunch for two people was $147.50, $82.50 of which was for alcohol. The transaction stated that the lunch was a meeting to discuss future work with the supplier.

Under the council's Discretionary Expenditure Guide, the set meal allowance for lunch is $20 and the purchase of alcohol requires CEO approval.

There is no evidence of CEO approval for the purchase of alcohol, nor any evidence that the executive who approved the transaction raised concerns regarding the appropriateness of the manager buying lunch for a supplier.

Example 2

The manager used a council purchasing card at a restaurant for $70 on a Sunday night. The transaction stated that it was for a meeting with a marketing supplier regarding future work. The receipt was illegible.

A month later, the manager met with this same supplier at a local restaurant to discuss a current marketing campaign and charged $82 to the council purchasing card. There was no receipt and instead the manager provided a statutory declaration to support the spend. A senior executive witnessed the statutory declaration, which was undated, and also approved the transaction, contrary to policy.

Source: VAGO, based on Strathbogie data.

Strathbogie advises that it had given some 'flexibility' to the former manager, 'naively or not', due to an understanding that, just as in the private sector, some weekend work would be required, as well as 'partnership building with private and public sector'. The council also advises that 'budgets were monitored for a net result' and the council identified 'no material overspend'. Strathbogie acknowledges that there could have been 'more scrutiny over actual purchases'. Strathbogie also advised that it finalised a review of its code of conduct in April 2019 and that it completed mandatory staff training in May 2019, at which time staff were required to declare that they had read, understood and would comply with the code of conduct.

4.3 Effective use of funds

Organisational culture and the actions of council leaders represent an important fraud and corruption control. The perception of highly visible council leaders spending council funds inappropriately, or receiving excessive entitlements, may lead to:

  • an organisational culture that normalises inappropriate use of council funds, and a culture that may not deter council employees from inappropriate conduct
  • a reduction in organisational morale and productivity
  • a loss of public trust and a damaging community perception that waste and/or fraud and corruption may be occurring.

In our testing of credit card transactions, reimbursements and fuel cards, we identified instances that, although not fraudulent, represent potentially inappropriate or inefficient use of council funds. We have grouped these findings under the themes of:

  • discretionary spending
  • selling and providing vehicles to staff as part of exit packages, at times below market value, and associated expenditure
  • employee contributions to private vehicle use.

Discretionary spending

Alcohol and meals

The provision of alcohol in the context of council business varies across the audited councils. Shepparton recently implemented a travel and accommodation policy with a strong stance on alcohol, which states that the council will not reimburse any expenditure involving alcohol while staff are travelling on council business. Shepparton advises that it is also in the process of developing a procedure for the appropriate use of catering, meals and alcohol. At the time of the audit, the audited councils had policies that allowed alcohol in certain circumstances. Figure 4C outlines these policies and alcohol and meal‑related expenditure found in our testing.

Figure 4C
Alcohol and meals

Council

Transactions

Shepparton

We did not identify any purchases of alcohol at Shepparton on council credit cards.

Strathbogie

The council's Discretionary Expenditure Guide states that 'The provision of alcohol is not considered a reasonable expense. Exemption requires CEO approval'. The guide also sets caps for meal allowances of $20.00 for lunch and $40.00 for dinner. We identified transactions that did not comply with this guidance:

  • a statutory declaration to account for a transaction of $67.50 at a winery, described as a 'Christmas lunch'
  • a transaction on a Friday after 5pm. at a supermarket for $37.95, described as 'meeting/catering supplies'
  • $255.50 on an end-of-year lunch, which included $60 worth of wine and spirits
  • $292.00 at a winery for an executive management team meeting
  • $202.10 on a meal for councillors, including $41.10 on alcohol
  • $312.40 on a meal for the senior management team, including $83.40 on alcohol.

Strathbogie advises that in February 2019, in response to our findings, it reviewed the guide and ceased:

  • alcohol purchases, under any circumstances
  • additional Christmas functions
  • minibar purchases
  • any offsite café purchases (unless special circumstances apply and the CEO gives formal approval).

Strathbogie subsequently required all council managers and relevant staff to declare that they had read and understood the revised guide.

Wellington

Wellington does not currently have a policy that prohibits the purchase of alcohol. The Employee Code of Conduct states that the council aims to 'foster an attitude among employees that working under the influence of alcohol and/or drugs is unacceptable'.

The council confirmed that staff attend after-hours events where alcohol is served. Transactions we identified include:

  • $171.50 for a long-term staff member's farewell with external stakeholders in attendance, including $100.00 on alcohol
  • $92.00 for a 'working dinner' that included alcohol.

Wellington advise that it has implemented a new initiative and that it has ceased the practice of providing alcohol after council meetings and that attendees now provide their own refreshments.

Wyndham

Wyndham's guidelines prohibit the purchase of alcohol unless it is:

  • for an approved council function
  • for official business and considered 'essential to facilitate the conduct of council activities'
  • pre-approved by the CEO for council-related activities.

We tested spends on meals and alcohol at two restaurants that are close to the council's main office. We selected these two restaurants to see how Wyndham employees were using their cards to buy meals and alcohol not related to travel. We identified:

  • a transaction for $534.00 described as a 'monthly working lunch', which included two bottles of wine for $75.00 and $45.00 each. The council noted that this lunch included nine executives, an agenda and action items were identified, and the cost per person was $59.
  • a transaction for $210.00 for a meal between a council staff member and four external stakeholders, which included $46.00 for alcohol and a $15.00 tip. The leaving of tips is contrary to the council's policy.
  • 15 instances between January 2018 and January 2019, where the CEO attended lunches that included the consumption of alcohol in a local restaurant. This includes the CEO attending lunches at the same local restaurant over three consecutive days in May 2018, with one of these events to show appreciation for a successful staff team.

Wyndham state that 'the purchase and consumption of alcohol on each of the occasions identified … was permissible and appropriate …'.

However, we do not believe these transactions are instances where alcohol is 'essential to facilitate the conduct of council activities', as outlined in the council's guidelines.

Source: VAGO, based on council data.

We also identified an example at Strathbogie where council staff purchased alcohol 'shots', as detailed in Figure 4D.

Figure 4D
Council staff purchasing 'shots' of alcohol over dinner

A Strathbogie manager used a council purchasing card to pay for a dinner attended by six council staff, including a senior executive. The receipt for the dinner was for $298 and included beer, wine, vodka and other alcoholic 'shots'.

The staff had been working in Melbourne over the weekend at a trade event, promoting the shire and its businesses.

Under the council's guide, alcohol is 'not considered a reasonable expense' and employees must seek exemption from the CEO. There was no evidence of CEO approval for the purchase of alcohol. The senior executive approved this transaction.

Strathbogie advises that to offset unbudgeted overtime and weekend work, the council pays for accommodation, meals and drinks.

The council also advises that it ceased the purchase of alcohol under any circumstances from February 2019.

Source: VAGO, based on Strathbogie data.

While councils may consider that spending council funds on meals and alcohol is appropriate and reasonable in some circumstances, they need to consider community expectations and perceptions that can be associated with this type of expenditure.

Selling or providing vehicles to staff

There are no specific requirements or rules for councils regarding either selling or providing vehicles to staff as part of exit packages—it is a discretionary decision. When a council needs to dispose of a fleet vehicle, an employee may wish to purchase the vehicle from the council. Similarly, if an employee is retiring or made redundant, the council may decide to include a fleet vehicle as part of their exit package.

However, councils must recognise that this practice can create a perception of improper conduct, particularly if it is not transparent. For example, there may be a perception that the council has sold or provided vehicles to staff at costs below market values.

Shepparton, Wellington and Wyndham demonstrate awareness of these perception risks. Both Wellington and Shepparton have a strict policy that prohibits council employees from purchasing council vehicles, and they also do not sell or provide vehicles as part of exit packages.

Wyndham advises that the council usually does not sell or provide vehicles to staff, but noted one instance of the council selling a vehicle to a staff member in 2015. The council obtained a vehicle valuation from a car dealership and sold the car to the staff member at the valued amount.

Strathbogie selling and providing vehicles to staff

Strathbogie's procedures state that:

All Council owned vehicles will be disposed of by way of tender, auction or trade-in, as appropriate at the time of disposal. However, in exceptional cases, the CEO may approve the sale of vehicles to employees or former employees after informing Council of the proposal and the special reasons for such a sale.

Strathbogie was unable to provide documentation to demonstrate that this process had been followed. The council advises that: 'The CEO briefs Council at the Councillor / CEO only sessions without notes so they can all talk freely and confidentially about staff matters …'.

Figure 4E outlines examples where the council sold or provided vehicles to staff by agreement when they left the council. We have included, where available, the original purchase price of the vehicle and the sale price, or the dollar value, attributed to the vehicle in exit package agreements.

Figure 4E
Staff purchasing and being provided with vehicles

Example 1

Strathbogie purchased a fleet car in January 2015 for $35 980.55, which in October 2017 was valued at $25 000.

The council sold the car to a staff member on their retirement for $10 000—$15 000 under the market value. In addition, the council paid the $1 134.82 VicRoads fee to transfer ownership to the staff member.

Example 2

Strathbogie purchased a fleet car in June 2016 for $35 107.96.

In August 2017, council sold the car to a senior executive on their retirement for $23 000. The documentation in support of this amount was an email from the senior executive to the CEO stating they had difficulty obtaining prices but had spoken to a number of dealers and 'they agree that $23 000 would be a reasonable price …'.

The council did not seek a formal valuation of the car. On the day the council sold the car to the senior executive, the council also paid:

  • $595 for new tyres
  • $942.85 for a service of the car
  • $184.75 for a roadworthy certificate.

The senior executive also negotiated to keep their council-issued tablet, telephone and laptop for $200. There is no evidence that the council sought a valuation for the items.

Example 3

Strathbogie purchased a vehicle in June 2015 for $33 214.80. In May 2017, the council provided the car to a staff member as part of their exit package.

The council did not seek a valuation of the vehicle. On the staff member's departure, the council also paid:

  • $1 271 for new tyres
  • $840.45 for the VicRoads transfer fee
  • $170 for a roadworthy certificate.

Example 4

Strathbogie purchased a fleet car in August 2014 for $42 126.15.

In August 2018, the council provided the car to a staff member as part of their exit package. The council did not seek a valuation of the vehicle.

Example 5

Strathbogie purchased a fleet car in March 2015 for $31 754.55.

In July 2018, when the council decided to dispose of the vehicle, it sold it to a staff member for $11 500.

Example 6

In August 2016, a staff member wrote to Strathbogie and asked to purchase a vehicle that the council purchased in 2012.

The staff member noted that they had attempted to seek valuations for the vehicle and had been quoted $30 000, but the vehicle they wished to purchase had driven almost three times the kilometres.

The staff member noted the benefits of purchasing a car for which they knew the history, including that it had been serviced regularly. They offered the council $16 000 to purchase the vehicle.

Documentation shows a management meeting considered the offer and agreed that the staff member could purchase the vehicle for an online valuation price.

The council was unable to confirm if it sought the online valuation before selling the vehicle to the staff member for $16 000. Council also reimbursed the staff member $170 for a roadworthy certificate.

Source: VAGO, based on Strathbogie data.

In response to the examples where Strathbogie sold vehicles or provided them as part of exit packages, the council states that these were part of ex gratia payments and therefore the council's policy for the disposal of vehicles does not apply. In relation to associated expenditure, the council note that they paid for new tyres at times to ensure vehicles were in a roadworthy state when the council transferred ownership.

Strathbogie state that it has now amended its procedures to ensure that a vehicle is not sold or transferred below market value. However, the practice of selling vehicles under market value or providing cars to employees—as well as paying additional expenses such as new tyres before the council transfers the vehicle—risks generating a perception of inappropriate or excessive entitlements for council employees. Further, a vehicle that a council does not dispose of through a competitive auction represents a potential financial loss to the council and its residents and ratepayers.

Employee contributions to private vehicle use

Councils assign private-use vehicles to an employee based on their role and they differ from fleet vehicles in that the employee may drive the car in their private time. Offering private-use vehicles can attract and retain staff, as they include:

  • unrestricted business and private use of the vehicle
  • use of vehicles during leave periods, which can include interstate travel
  • council payment of fuel, maintenance and insurance costs.

To pay for the benefit of having a council car for private use, an employee makes annual contributions, negotiated as part of their employment package and contract. Although these contributions are subject to negotiation, private use of a council vehicle is ultimately funded by ratepayers and so must be transparent. Figure 4F shows the annual motor vehicle contributions by senior executives at each council. Novated leases are private arrangements between a council officer and a company and do not impact on council expenditure.

Figure 4F
Annual motor vehicle contributions for council senior executives

Council

Senior Executives

Shepparton

$9 085.44 to $10 902.59

Strathbogie

$0 to $8 000

Wellington

$10 000 to $12 000

Wyndham

Novated lease

Source: VAGO, based on Strathbogie and Wellington council data.

To provide transparency, councils should have a sound basis for the way they calculate contribution amounts and include the benefit of full private-use vehicles when reporting total remuneration packages in their annual reports.

Calculating motor vehicle contributions

Victorian Public Sector salary packaging arrangements do not apply to the local government sector. However, the Victorian Public Sector Commission (VPSC) has developed tools and guidance for costing executive vehicle salary sacrifices. The VPSC provides a calculator to help state government agencies determine what the annual employee contribution should be. The calculation includes:

  • the vehicle model and current value
  • expected annual kilometres travelled and the percentage of these kilometres that will be private use
  • a dollar value for any additional items that will be included, such as servicing and fuel.

Although councils are not bound to use the VPSC calculator, we consider that councils should have transparent and consistent ways for calculating employee contributions. We did not identify any issues with the way Shepparton calculates vehicle contributions and Wyndham executives are on novated leases. We outline issues with Strathbogie and Wellington approaches to calculating employee contributions to private-use vehicles in Figure 4G.

Figure 4G
Calculating staff motor vehicle contributions

Council

Audit findings

Strathbogie

While the council's 2013 policy references a formula to determine staff contributions towards their vehicles, the council is not using this consistently, resulting in contributions lacking transparency.

Yearly vehicle contributions are as follows:

  • Staff contributions range from $4 000 to $10 000.
  • Senior executive contributions range from $0 to $8000.

For comparison, under the VPSC calculation tool, two senior executives would be paying a minimum of $15 338 per year for their vehicles if they were in the VPS, and this is not factoring in that their vehicles' cost prices are higher than the proforma capital costs in the tool.

Contrary to the council's stated policy, these two senior executives currently make no contribution towards their vehicles as a result of contract negotiations.

Wellington

Motor vehicle contributions are currently set according to an individual's role, regardless of the extent of private use. There is no spreadsheet or working paper that shows how the council calculated and set the contribution amounts. The motor vehicle contributions for general managers have remained at 2012 levels.

The council is looking to change the structure of contributions, basing it on a percentage of the vehicle and running costs, rather than a set amount. The council will include the revised contributions in the new policy.

Source: VAGO, based on council data.

Reporting contributions towards motor vehicles

The Accounting Standard requires councils to report the remuneration of their executives in financial statements. Where it is not possible to attribute a value to a benefit, the Accounting Standard requires councils to provide a qualitative description of the benefit in a footnote. This practice provides transparency over the council's expenditure and the benefits received by senior council staff.

We found that Strathbogie's 2017–18 annual report does not include a footnote for one senior executive's remuneration to capture the benefit of a motor vehicle. As a result of contract negotiations, the senior executive ceased making contributions in the last month of that financial year. The council advised that it subsequently failed to include a footnote about this in its annual report and this was an omission and will be rectified it in its 2018–19 annual report.

4.4 Responding to fraud and corruption

Protected Disclosures

Fraud and corruption are secretive by nature and can be difficult to detect. IBAC states that employees are 'best placed' to identify suspicious conduct by their colleagues or concerns about external parties. Protected Disclosures are one way to report suspected corruption.

The Protected Disclosure Act 2012 requires councils to:

  • establish procedures to facilitate the making of disclosures and to handle those disclosures, including where appropriate the notification of disclosures to IBAC
  • have these procedures readily available to the public
  • detail in their annual report information about how to access procedures they have established, and the number of disclosures they have notified to IBAC during the financial year.
Procedures accessible to the public

Protected Disclosure procedures must be a clear and accessible channel of complaint for employees and people external to the council. Unclear or inaccessible guidance creates a risk that individuals may not report fraud and corruption as they may be unsure of whom they can complain to, and whether they will be protected from reprisals.

Figure 4H describes the Protected Disclosure information the audited councils have made available to the public.

Figure 4H
Protected Disclosure procedures available to the public

Council

Audit finding

Shepparton

Shepparton's website has a section regarding Protected Disclosures, which includes their Protected Disclosure Policy and the contact details for their Protected Disclosure Coordinator (PDC). Shepparton recently added a link to Protected Disclosure information in the 'Contact Council' section of the website. This makes Protected Disclosure information more accessible for the public.

Strathbogie

The council had published a Protected Disclosure Policy on its website, but it did not provide contact details for the PDC.

The council published the Protected Disclosure Procedure on its website in May 2019, and now provides contact details for the PDC.

Wellington

Wellington has its Protected Disclosure Policy on its website and the contact details for the PDC.

Wyndham

In February 2019, the council's Protected Disclosure Procedure was not available on the council's website, and there was no contact number for a PDC. The council advises that it removed the procedures from its website as they were out of date. A draft of the council's procedures was on the council's intranet, which was only available to council staff and not external parties.

In March 2019, Wyndham published easily accessible guidance on making a Protected Disclosure on the council's website, including contact details for the PDC.

Wyndham has also included a link to its Protected Disclosure Policy in the 'Complaints' section of its website, which is good practice.

Source: VAGO, based on council data.

Protected Disclosure Coordinators are employed by public-sector agencies and are nominated to receive potential protected disclosures and notify IBAC of them.

Annual reporting of Protected Disclosures

For their most recent 2017–18 annual reports, all audited councils met their obligations to detail information about how to access their Protected Disclosure procedures and the number of disclosures notified during the financial year. However, Shepparton's annual report only referenced the role of the VO in relation to Protected Disclosures, and not IBAC, which makes determinations on Protected Disclosures, and so this information is outdated.

Fraud and Corruption Response Frameworks

Policies

The Australian Standard recommends that agencies develop a fraud and corruption control plan as a means of increasing staff awareness and ensuring a focus on areas vulnerable to fraud and corruption. The audited councils have all developed fraud and corruption control policies.

Training

Training helps staff understand their obligations and know what fraud and corruption is and how to report it. Fraud and corruption awareness training is mandatory at Shepparton, Wellington and Wyndham.

Figure 4I shows the training provided by the councils. Strathbogie references training in its fraud and corruption policy and prevention strategy but does not state that it is mandatory.

Figure 4I
Fraud and corruption awareness training provided to staff

Council

Audit finding

Shepparton

The council's fraud control plan states that it will provide mandatory fraud awareness training for all staff every two years as a minimum, or more frequently as required. The council last provided fraud and corruption training to staff in October 2017.

Strathbogie

The council's fraud and corruption policy references training to all employees on fraud and corruption awareness activities. The fraud and corruption strategy states that the council will arrange quarterly online training and require new staff members to read the fraud and corruption prevention policy and procedures as part of the induction process. Training records show that the council last provided training to staff in September 2018.

Wellington

The council provides online fraud and corruption awareness training to staff. This training is mandatory for all staff every two years. Fraud and corruption training is also part of the induction process. In addition, the council also delivered face-to-face training in 2017.

Wyndham

Online fraud and corruption awareness training is mandatory for all new staff as part of their induction process. The council has also engaged an external company to deliver fraud and corruption awareness training to all staff in February to March 2019.

Source: VAGO, based on council data.

Fraud and corruption incident registers

To align with better practice from the Australian Standard, councils should maintain a fraud and corruption incident register to track and monitor incidents and record how the council has addressed them and any associated risks.

At the time of testing, Wyndham was the only audited council with a fraud and corruption register. Figure 4J details the status of incident registers at each council.

Figure 4J
Council fraud and corruption incident registers

Council

Audit finding

Shepparton

While the council's policy references a fraud register, the council does not maintain a register, as it states it has not identified any instances of suspected fraud and corruption.

Strathbogie

The council did not maintain a fraud and corruption incident register, despite it having investigated at least two matters. For one of these matters, the council terminated the employment of the staff member for what the council described as 'petty' theft.

In response to our findings, the council has established a register.

Wellington

The council established a fraud and corruption incident register in December 2018. The council advises that there have been no identified incidents of fraud and corruption since the register was established. In discussions with staff, we identified one alleged WorkCover fraud that resulted in the termination of employment. The council took the view in that instance that the alleged fraud was against the insurance agent, not the council, and this incident predated the establishment of the register.

Wyndham

The council maintains an incident register, which takes the form of a locked down file in the council's record management system. At the time of our inspection, the register contained 10 cases, with the first case dated June 2015.

Source: VAGO, based on council data.

Responding to potential instances of fraud and corruption

Councils must conduct thorough investigations into suspected fraud and corruption and keep appropriate records. Councils should also consider fraud and corruption risks when they identify non-compliances with council policy or inappropriate staff behaviour.

Through case studies, we explored the responses of Strathbogie and Wyndham to non-compliant staff behaviour and potential instances of fraud and corruption. Through our audit testing, we did not identify similar instances that required review at Shepparton or Wellington.

Strathbogie

We identified multiple transactions and reimbursements for a former manager that were non-compliant with Strathbogie's purchasing card policy. Multiple non-compliances with policies may indicate a fraud and corruption risk, especially if a staff member fails to present documentation that supports the legitimacy of a purchase. In this instance, despite several non-compliances and questionable spends on a council credit card, Strathbogie failed to identify these instances and respond. The transactions we identified span three years and include:

  • illegible receipts
  • multiple statutory declarations to account for missing receipts
  • receipts for meals on weekends and after hours with insufficient evidence of who attended or the business purpose.

In response to our findings, Strathbogie acknowledged that 'budgets were monitored for a net result' and it identified 'no material overspend'. Strathbogie acknowledged that there could have been 'more scrutiny over actual purchases'.

A manager exceeding data allowances

Strathbogie issues councillors and staff with mobile telephones and some also receive tablets.

Strathbogie advised that there are no formal maximum data limits that staff must adhere to; however, a spend over $80 triggers the council to consider excessive use.

We reviewed reports of usage over $80 for the period November 2015 to August 2018. Some staff and councillors, including the former manager with persistent non-compliance with policy, had consistently exceeded the $80 trigger, sometimes by several hundred dollars. Figure 4K shows data use for that manager over the $80 amount.

Figure 4K
Strathbogie manager's data use over $80 per month trigger November 2015-April 2017

Figure 4K shows data use for that manager over the $80 amount.

Note: Yellow bars show data usage on a tablet and blue bars show data usage on a mobile telephone. The red line shows the $80 trigger.
Source: VAGO, based on Strathbogie data.

We requested supporting documentation from Strathbogie as to any action it had taken in response to these reports and it:

  • advised that 'follow up to date has been verbal'
  • provided two emails to the former manager from an information and communications technology (ICT) officer, as opposed to a director, in 2014 and 2015.

The council subsequently advises that it has now entered into a new contract for telephone/tablet provision and has seen no expenditure over the $80 trigger.

Wyndham

We inspected Wyndham's fraud and corruption incident register, which contained 10 cases, with the first case dated June 2015.

Our review of the register found key documents, such as the final investigation report and investigation evidence, missing in one case folder. Wyndham was unable to provide all the requested missing information.

Investigation of fuel card transaction anomaly

With the commencement of a new fleet coordinator, Wyndham has introduced monthly fuel card exception reporting, which we consider to be good practice. The case study in Figure 4L concerns a matter the council identified and effectively responded to and highlights the importance of consistent exception reporting over fuel card transactions.

Figure 4L
Misuse of fuel card

As part of the monthly exception reporting over fuel cards, the Wyndham fleet coordinator identified anomalies involving one litre oil purchases made on 17 occasions using the same fuel card between 27 February 2018 and 30 November 2018, totalling $303.49.

According to the vehicle's odometer reading, the vehicle should not have required any oil. The fleet coordinator also identified that the same employee purchased car wash vouchers totalling $1 074.15 between 21 January 2015 and 30 November 2018, without entering the car wash. The council was able to establish these instances by using GPS tracking. The council found that the vehicle left the service station in less than the standard wash duration of 11 minutes on these occasions. The council investigated the matter and substantiated the misconduct. The council subsequently terminated the staff member's employment.

Source: VAGO, based on Wyndham data.

Investigation of credit card transaction anomaly

We selected one incident contained in the register to assess Wyndham's response to complaints of inappropriate behaviour by a staff member, including alleged misuse of a council credit card. The case study is detailed in Figure 4M.

Figure 4M
Investigation into allegations of card misuse

In Wyndham's audit of credit card transaction data, the council identified 29 questionable transactions on a staff member's credit card. The staff member claimed that for 12 of these transactions, another member of the team had used the credit card, so they were not responsible for those transactions. For five of these transactions, the staff member claimed that they were unsure who was responsible for these transactions. This control weakness is discussed in Section 3.3 of our report.

Council engaged an external investigator to further examine four transactions, among other matters concerning the staff member. The investigator:

  • interviewed council staff, including the staff member
  • reviewed documentary evidence
  • prepared a report, with findings, for the council.

In an April 2016 report, the investigator concluded that of the four transactions they considered, one allegation that related to credit card misuse was substantiated. The investigator found that for this $89.99 transaction at a liquor store, the staff member 'used council's corporate credit card to pay for item(s) that were not required for Council or were not Council approved purchases'. Wyndham has not provided evidence that it sought to recover these funds.

Source: VAGO, based on Wyndham data.

In our credit card testing, we identified one transaction on the same staff member's credit card from February 2015 that we believe Wyndham should have referred to the investigator a receipt for $370, which due to it being folded over when scanned, only showed the transaction total and not the items purchased.

We also found further transactions attributable to that individual in January and February 2016, after the time of the investigation, but just before the investigation report was released in April 2016. This shows that the council did not suspend the staff member's access to a credit card while investigating the alleged credit card misuse.

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