Fraud and Corruption Control

Tabled: 29 March 2018

Appendix B. Public Transport Victoria's Response to Operation Fitzroy

In October 2014, IBAC published its investigation report into allegations of serious corruption in the former Department of Transport and PTV. The investigation examined the circumstances around the procurement of infrastructure works between 2006 and 2013. Victoria Police laid more than 100 criminal charges against nine individuals and one company.

To address the issues identified by Operation Fitzroy, IBAC recommended that PTV implement a program of procurement reforms and cultural change. PTV was required to report to IBAC on implementing the reforms. PTV provided a progress report to IBAC in June 2015 and a final report in December 2015, which are available on IBAC's website.

Following IBAC's investigation, PTV committed to a broad range of reform initiatives, including:

  • developing new policies and procedures
  • appointing new specialist staff
  • procuring new systems
  • implementing an extensive program of fraud and corruption-specific training.

IBAC recommended that VAGO consider and review PTV's actions to ensure it identified and addressed systemic weaknesses.

We assessed whether PTV had implemented the reform activities it reported to IBAC in 2015 and whether PTV's current practices address the fraud and corruption control weaknesses identified by IBAC—see Figure B1.

We have rated PTV's implementation of the reforms using a traffic light system:

Reform fully implemented and still in place at PTV

Reform implemented slowly or inconsistently

Reform not implemented, or was implemented but is no longer in place

Conclusion

PTV was subject to public hearings as part of IBAC's Operation Fitzroy and undertook to address the issues identified by that investigation. PTV made considerable progress in implementing many of these initiatives. PTV developed a Fraud and Corruption Control Plan, established a response team, and conducted an extensive training program on fraud and corruption for staff. However, in some cases implementation was slow, or did not occur, as PTV elected over time to take alternative action. Gaps remain in certain areas, meaning work is still required to further reduce the risk of fraud and corruption.

Findings

Figure B1 PTV reforms following Operation Fitzroy

Reform

Rating

Status

Fraud and corruption reforms

Fraud and corruption risk assessment

PTV conducted a fraud and corruption risk assessment to inform its Fraud and Corruption Control Plan. All risks identified were being managed (see Section 2.2).

Develop a Fraud and Corruption Control Plan

PTV developed a Fraud and Corruption Control Plan consistent with the Australian Standard (see Section 2.3).

Establish fraud and corruption response team

PTV established a fraud and corruption response team that meets quarterly, has appropriate senior membership, has developed terms of reference and keeps minutes of its meetings (see Section 5.2).

Establish fraud and corruption incident register

PTV has established a fraud and corruption incident register (see Section 5.2).

Fraud and corruption lead indicator reporting

PTV has generated reports on lead fraud and corruption control indicators.

Internal control reviews advisor

A dedicated resource to undertake reviews on internal controls and ensure procurement policy compliance was in place but subsequently left PTV.

Procurement reforms

New procurement framework accredited by VGPB

After Operation Fitzroy, PTV developed a new procurement framework, however this framework did not achieve accreditation with the VGPB. It was not until March 2017 that an accredited framework was operational at PTV. This framework only applies to procurements over the value of $25 000 (see Section 4.2).

Creation of 'approval to procure' and 'recommendation to award' stages

PTV created an 'approval to procure' stage and a 'recommendation to award' stage within its procurement process. The addition of these stages has created an added level of control in PTV's approval process for procurements over $25 000.

Monthly monitoring of procurement activity for fraud and corruption indicators

PTV has attempted monthly monitoring reports over procurement activity. However, these reports have been inconsistent (see Section 4.5).

Supplier vetting prior to execution of every contract and when engaging a new supplier

PTV procured licenses for software to facilitate due diligence and supplier vetting activities. However, PTV's legal, finance and procurement branches lack a clear understanding of their roles and responsibilities for supplier vetting, resulting in inconsistent searching practices (see Section 4.3).

PTV will not re-engage suppliers named during the Operation Fitzroy investigation

The only control in place to not re-engage these suppliers was an email to staff listing which suppliers they should not re-engage. PTV has experienced high levels of staff turnover—therefore, a number of current staff would not have received this email.

PTV has not put in place other controls, such as a flag in the CMS or ongoing monitoring of identified suppliers. PTV did not present any evidence that it conducted searches with the Australian Securities and Investments Commission to help identify individuals and companies named in the investigation who may be associated with new companies that PTV has engaged.

Finance will conduct spot checks across all levels of procurement expenditure

There is no evidence of consistent spot checks across all levels of procurement expenditure.

Development of procurement templates and guides for staff undertaking procurements

Procurement templates are only mandatory for procurements over $25 000. There is currently no guidance for procurements under $25 000.

Financial control reforms

Manage weakness of current CMS

PTV acknowledged the weaknesses in the CMS and reported to IBAC that it would procure and implement a new CMS by June 2016. This did not occur. A procurement process began, but no current PTV staff could confirm when PTV discarded the decision to procure a new CMS.

PTV still does not manage weaknesses in the CMS well and was slow to implement access controls. The CMS does not integrate with the accounts payable financial system responsible for the actual payment of funds. This means that PTV cannot track real-time expenditure against a contract in the CMS, and there is a risk that PTV may fail to detect and prevent over-expenditure. Manual controls could detect and prevent over‑expenditure on contracts. PTV currently does no manual checks or reconciliations between accounts payable expenditure and CMS approval records to manage this system weakness.

Before March 2017, all PTV staff could edit records in the CMS. Over time, and due to the lax procurement processes in the past, the integrity of the data in the CMS was poor. PTV's current chief procurement officer, who started at PTV in June 2016, advised us that when they started the CMS reflected approximately 3 800 active contracts. They began a data cleansing exercise, which reduced the number of active contracts to between 600 and 700. Some expired contracts were incorrectly marked as active and still had funds attributed. The data cleansing project took a year to complete. It was not until March 2017 that access to the CMS was restricted and became centrally managed by the procurement branch.

Cultural reforms

Staff required to fill out conflict of interest declarations

PTV requires staff to sign a conflict of interest declaration upon commencement, however in some cases action plans resulting from identified conflicts have not been well managed.

Fraud and corruption awareness training

PTV committed to changing its workplace culture and encouraged staff to identify, report and act on integrity matters. In the two years following Operation Fitzroy, PTV ran an extensive training program on fraud and corruption risks, including specialised training for those involved in managing contracts and procurements, as well as members of the fraud and corruption response team (see Section 2.4).

Police checks for selected staff

Conducting police checks on new employees has been inconsistent at PTV, and there has been poor record keeping of checks that were completed (see Section 3.2).

Source: VAGO.

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