Victorian Auditor-General’s report
7 December 2011

Compliance with Building Permits 
Audit summary
Introduction
Victoria’s building industry is a significant component of the state’s economy, employing almost 7 per cent of the work force and generating over $24 billion in domestic and commercial building work in 2010–11. These works are governed by the Building Act 1993 (the Act), the Building Regulations 2006 (the regulations), and the Building Code of Australia (BCA) that aim to assure buildings are safe and meet minimum standards.
The state introduced the competitive building permit system in 1994 as part of reforms designed to speed up the building approval system which, up to that time, had been administered by local councils. 
The new system removed municipal building surveyors’ monopoly on issuing building permits and opened the market to private building surveyors, who have to be registered and insured to protect the public’s interests. By 2009–10 they were issuing around 85 per cent of permits worth 93 per cent of the total value of approved building works.
These reforms also established the Building Commission (the commission), as a new statutory authority to oversee building control, including the competitive building permit system. 
The commission’s functions are to:
·	enforce compliance with the Act and regulations
·	participate in the development of national building standards
·	monitor developments relevant to the regulation of building standards in Victoria
·	monitor the building permit levy collection system
·	administer the Building Administration Fund
·	inform and train the industry
·	resolve disputes
·	advise the minister on the carrying out of its functions and powers under the Act.
It administers four statutory bodies including the Building Practitioners Board (the board) which registers building practitioners, and supervises and monitors their conduct.
Local councils are also responsible for administering and enforcing parts of the Act, and for appointing municipal building surveyors who, along with their private counterparts, authorise and oversee building works to assure they are safe and comply with requisite building standards. Municipal building surveyors also have additional responsibilities for community safety and for enforcing statutory building requirements in their municipality.
This audit assessed the effectiveness of the building permit system in assuring that approved works meet requisite building and safety standards. It examined how effectively the commission regulates the activities of municipal and private building surveyors, and how effectively councils enforce compliance with the Act. It also analysed a sample of building permits issued by private and municipal building surveyors to determine if they complied with the Act, the regulations and the BCA.
Conclusions
The commission cannot demonstrate that the building permit system is working effectively or that building surveyors are effectively discharging their role to uphold and enforce minimum building and safety standards. 
The commission has failed to develop a framework to monitor the effectiveness of the building control system more than 17 years since its establishment, and notwithstanding this fundamental issue being raised over 11 years and six years ago. It also has ineffective controls for assuring all building permit levies due are collected. Additionally, its powers to audit private building surveyors who are responsible for over 85 per cent of the more than 100 000 permits issued each year have not been adequately exercised. 
These shortcomings are significant and mean the commission has not adequately discharged its responsibilities under the Act, and its obligations as a regulator. This means the building control system in Victoria depends heavily on ‘trust’, which is neither guided nor demonstrably affirmed by reliable data on the performance of building surveyors.
Ninety-six per cent of permits examined did not comply with minimum statutory building and safety standards. Instead, our results have revealed a system marked by confusion and inadequate practice, including lack of transparency and accountability for decisions made. In consequence, there exists significant scope for collusion and conflicts of interest. 
This audit highlights the need for the commission and the board to purposefully assure ongoing compliance with minimum capability standards and to appropriately educate practitioners.
In the absence of leadership, guidance and rigorous scrutiny from the commission, councils have adopted a largely reactive approach to enforcing the Act that offers little assurance of compliance within their municipalities. Together with private surveyors, they apply varying interpretations of what the Act requires of them, resulting in further confusion and ad hoc practices. 
Consequently, there is little assurance that surveyors are carrying out their work competently, that the Act is being complied with, and the risk of injury or damage to any person is being minimised.

Findings
Monitoring the building permit system
The commission has statutory monitoring responsibilities relating to the building permit system, but has yet to develop a framework to evaluate its performance more than 17 years since its establishment and 11 and six years respectively since two external reviews raised this fundamental shortcoming.
Specifically, it has no defined targets, standards or documented arrangements for monitoring and assessing the system’s effectiveness, including whether building surveyors effectively discharge their statutory responsibilities to enforce technical building and safety standards. 
The commission’s monitoring and public reporting is limited to such activities as the number of complaints received against building practitioners, the number of audits undertaken, and consumer perceptions of building practitioners and their building experience. However, these measures offer little insight into the impact of the commission’s regulatory efforts, or the extent to which building surveyors adequately discharge their statutory responsibilities.
Our 2000 audit, Building Control in Victoria: Setting sound foundations concluded that the commission had not given sufficient priority at that time to monitoring and evaluating the effectiveness of the Act in assuring the building control system was working. This was again noted by the Victorian Competition and Efficiency Commission (VCEC) in 2005 as part of its inquiry into Housing Regulation in Victoria: Building Better Outcomes.
VCEC similarly observed that many of the commission’s indicators did not relate to its performance as a regulator and recommended it review its framework to assure it reflected how well it was performing against the outcomes sought by the Act.
Notwithstanding, this framework has yet to be established.
The commission has advised it is now in the process of developing this framework, however considerable work remains to further clarify its parameters and the implementation approach. 
Review of the regulation of building surveyors
In October 2009 the commission set up a working group to identify ways of addressing problems with the operation of the Act concerning the regulation of building surveyors. By 2011, the working group produced a discussion paper summarising key issues and options for amending the Act to improve the regulation of building surveyors and the building permit system.
While positive, the commission’s discussion paper demonstrates the need for more regular and comprehensive reviews of the system’s effectiveness as many of the issues it identifies are longstanding in nature. 
Monitoring building permit data and levies
The commission is responsible for monitoring the system for collecting building permit levies. It does not, however, have adequate arrangements for assuring it receives all levies due. 
The Act requires building surveyors to calculate, collect and deposit levies in the commission’s Building Administration Fund each month. The levy payable in respect of an individual building permit is determined by the building surveyor and is based on the value of the building works covered by the permit. Currently, the integrity and accuracy of levies deposited depends entirely on the vigilance of the building surveyor and there are no controls to assure the reliability and regularity of this process.
Building surveyors are not required to become qualified valuers or quantity surveyors or to demonstrate that their calculation of levies payable is soundly based. Further, their failure to report all levies owed to the commission is not an offence, except if they provide false information.
Additionally, the commission does not systematically monitor that surveyors accurately estimate the levies they do report, which means it has no assurance it is receiving all levies due.
This lack of transparency and accountability over building surveyors’ decisions, coupled with the commission’s inadequate monitoring and enforcement controls means that surveyors could collude with clients to minimise their exposure to fees with little risk of detection. There is also no restriction on building surveyors using collected levies as working capital, until they deposit them in the Building Administration Fund each month. 
The commission’s 2011 discussion paper proposes further options to address protection of revenue through amending the Act. These options could assist in minimising future losses. Nevertheless, the commission already has extensive powers to audit whether building surveyors accurately estimate the levies they do report, but has to date not done so. 
Council monitoring and enforcement
Councils are responsible for enforcing the Act in relation to their municipal districts but lack clarity on how their role extends to private surveyors. Further, their monitoring is limited and reactive in nature offering little assurance that all buildings and associated works in their municipalities meet requisite standards.
Councils do not have a statutory obligation to proactively monitor compliance with the Act, but can do so at their own discretion to gain assurance it is being administered and enforced effectively within their municipal districts.
Councils do not systematically review permit documentation lodged with them by private building surveyors or inspect associated works, considering this to be the role of the commission. Councils therefore only investigate matters if there is a complaint from the public.
Feedback from the councils examined indicates that this reactive approach has arisen due to limited resources, lack of clarity over how far their powers extend to private building surveyors, and a reluctance to pursue enforcement action due to liability concerns. 
Councils have access to significant information relating to building permits lodged by private building surveyors, but there are no documented arrangements in place between the commission and councils to monitor surveyors’ performance and the system’s overall effectiveness. 
Thus significant opportunities exist for councils and the commission to work together more effectively to monitor the building permit system. 
Compliance of building permits with the Act and regulations
The Act requires a building surveyor to determine if proposed works comply with all statutory requirements before issuing a permit. However, significant gaps exist in council records to demonstrate that surveyors have adequately discharged this statutory obligation, and that approved works meet requisite building and safety standards.
Specifically, there was inadequate information on file for 96 per cent of the 401 permits examined to assess compliance with these requirements.
The regulations require an application for a building permit to contain sufficient information to show that the building work, if constructed as proposed, will comply with the Act and regulations. Hence this information should be evident in the documentation lodged by the surveyor with each permit at the relevant council. A failure to lodge this information is an offence under section 30 of the Act.
However, 72 per cent of domestic permits and 76 per cent of commercial permits did not contain sufficient information to demonstrate compliance with five or more required building technical or safety standards. Similarly, approximately 12 per cent of domestic permits and 27 per cent of commercial permits failed to show compliance with respect to 10 or more requisite standards. 
In addition to these critical information gaps, there was also insufficient evidence in 89 per cent of the 80 permits subsequently selected for more detailed examination to determine whether building surveyors had thoroughly assessed all lodged information.
Therefore, there is little systemic documentation that surveyors had sufficient information upon which to form a reasonable view that proposed building works complied with the Act and regulations prior to issuing the permits.
Regulating building surveyors
Approach to regulation
The absence of targeted, risk-based technical audits of building surveyors means the commission is unable to provide reasonable assurance of the integrity and reliability of the building control system.
Performance audit program
The commission’s performance audit program has not provided adequate scrutiny over the effectiveness of building surveyors’ work. Audits are not risk-based, targeted or sufficiently informed by rigorous analysis of reliable data on the performance of building surveyors.
The function of a performance auditor under the Act, is to examine work carried out by a registered practitioner, to ensure it has been competently carried out, does not pose any risk of injury or damage to any person, and to assure that the Act and the regulations have been complied with. However, the commission’s audit program neither comprehensively examines nor explicitly concludes on such matters. 
Specifically, audits primarily cover municipal building surveyors, whereas private building surveyors who issue the vast majority of permits each year are not routinely examined. Additionally, the audits focus almost entirely on administrative matters, while compliance with the more critical safety and technical issues is not systematically assessed. Hence, contrary to their intent, these audits do not comprehensively assess compliance with the Act, the competence of surveyors, or whether any safety risks have been satisfactorily mitigated. 
These issues were previously raised by our 2000 audit. That audit similarly found the commission’s performance audits were ‘paperwork reviews focused on administrative compliance that did not meet their statutory intent and thus rarely uncovered major issues’.
In the intervening 11 years little has changed.
In 2005 VCEC similarly found the rationale for the commission’s monitoring and enforcement strategy was unclear and that its effectiveness and efficiency could not be assessed based on publicly available information.
VCEC recommended the commission publish its rationale in annual reports but it has not done so. 
Additionally, the commission is not meeting its public target to audit each municipal building surveyor once every two years, and has no targets for auditing private building surveyors who issue the vast majority of building permits. Its lack of focus on these latter practitioners is a very significant gap in its audit program.
During this audit the commission asserted that it audited 98 per cent of all councils in the past three years, but had no evidence to substantiate this. Information available only shows 53 per cent of councils were audited. 
Late into the conduct of this audit, the commission also advised that its targets are based on its ‘audit continuum’ concept, which seeks to audit councils once every two‑year block, instead of once every two years. However, this concept misrepresents the commission’s performance relative to its public target, because it allows for up to four years to elapse between successive audits. 
Further, the commission’s performance auditors are not registered building surveyors. They are generalist investigators, typically drawn from the police, who do not come with, nor are they trained in, the technical skills needed to effectively audit the competency of building surveyors. The commission also had no policy to guide these investigators on the conduct of performance audits and there are no review and quality assurance arrangements to assure the effectiveness and quality of completed audits.
The commission initiated action to enhance its audit program during this audit.
Complaints management
Although the commission has a complaints policy and documented procedures, they do not detail sufficient arrangements for prioritising complaints or for improving the complaints system. There are no quality assurance standards for handling complaints and no performance measures. Further, the roles and responsibilities for monitoring and reporting on complaints management are unclear. The computerised complaints handling system has limitations and staff cannot use it effectively.
Almost two-thirds, 64 per cent, of complaint investigations are outsourced to generalist investigators but there are no clear guidelines, documented standards or procedures to assure the investigations are effectively handled.
There is also no evidence the commission reviews completed investigations regularly against defined quality standards. While external legal reviews of active investigations typically occur in 45 per cent of cases, there is insufficient assurance this is adequate in the absence of defined quality assurance and performance standards. 
The commission commenced a strategic review of its complaint management processes in 2011 following a review of its management of an investigation into a complaint, and of the board’s subsequent inquiry in 2009. This review concluded that the complainant was failed by the advice received from the commission and associated investigation, and also by the board’s handling of the inquiry. 
Both the commission and the board have since initiated action to address these matters.
Practitioner capability, registration and renewal
The board’s assessment process for registering building surveyors is extensive, but not well documented, nor is it supported by clear guidelines, criteria or quality review standards.
Specifically, while its processes for assessing surveyor competence could lead to a thorough examination, existing gaps in guidance and documentation reduce accountability for decisions, including assurance that assessments are soundly based.
The board has no documented guidelines or criteria for evaluating the practical experience of building surveyors, and similarly has no guidelines to decide a ‘pass’ or ‘fail’ in relation to the competency examination and practical assessment. The board agrees that better definition of ‘pass’ or ‘fail’ for assessment is necessary and intends to address this as a priority. The board has, however, also indicated that assessment may not always be best determined by a single threshold figure.
The Act does not require a practitioner to demonstrate they have maintained their skill and capability to the level necessary to competently discharge their duties. This is a gap in the current regulatory framework. Capability is assessed only at the initial application stage, and a surveyor will remain registered for life on payment of the annual fee and insurance cover, unless the board deregisters them or their insurance cover lapses or is withdrawn. 
The Department of Planning and Community Development is currently reviewing if there is a need to introduce compulsory continuing professional development for practitioner registration. This audit provides strong evidence in support of such an approach.
Greater scrutiny of the professional conduct of building surveyors, and better adherence by them to minimum competency standards and statutory requirements is required.

Recommendations
Number	Recommendation	Page	
1.	The Building Commission should:
·	expedite development of its monitoring and evaluation framework and clarify the targets, standards and arrangements for assessing the building permit system’s effectiveness, and the impact of related monitoring and enforcement efforts
·	conduct a fundamental review of the building permit system’s effectiveness to identify and resolve the longstanding and other system-wide performance issues 
·	develop guidance for building surveyors on the process for determining and documenting the value of building works and thus for accurately estimating the levy payable to the Building Commission
·	implement controls to prevent building surveyors from using levies collected as their working capital
·	systematically audit surveyors’ estimates of the value of building works to gain assurance they are soundly based and that it is mitigating financial losses arising from any incorrect valuations
·	develop and implement a strategy, in consultation with the local government sector, to enable more effective coordination with councils to monitor the performance of the building permit system and of building surveyors
·	clarify councils’ responsibilities for monitoring and enforcing the Building Act 1993 relating to private building surveyors in consultation with the Department of Planning and Community Development and relevant stakeholders. 	20	
2.	Councils should review and, where relevant, strengthen their monitoring and enforcement strategies to assure:
·	they are risk based, targeted and sufficiently informed by reliable data on the performance of the local building permit system and of the surveyors operating within it
·	that building works and associated permits comply with the Building Act 1993, the Building Regulations 2006  and the Building Code of Australia within their municipal districts.	20	
3.	The Building Commission, in consultation with stakeholders should:
·	develop standard templates and procedures to require building surveyors to adequately document their assessment approach and basis of their decisions
·	require building surveyors to demonstrate, using these templates and procedures, their consideration and acquittal of mandatory safety and technical requirements.	33	
4.	The Building Commission should strengthen its performance audit program to assure:
·	it meets its legislative remit to provide assurance that the work carried out by a registered practitioner has been competently carried out, does not pose any risk of injury or damage to any person, and to assure that the Building Act 1993 and the Building Regulations 2006  have been complied with
·	it is informed by rigorous analysis of reliable risk-based data on the performance of building surveyors
·	it includes a clear rationale and annual targets for ongoing comprehensive technical audits of both municipal and private building surveyors performed by qualified practitioners
·	it offers reliable information on whether building surveyors operating in both the domestic and non-domestic sectors effectively discharge their obligations to enforce compliance with the Building Act 1993 and the Building Regulations 2006  
·	it regularly undertakes and clearly documents reviews of both the program’s and individual audit’s effectiveness against defined quality standards.	50	
5.	The Building Commission should comprehensively assess, clearly document, and target via audit all identified major risks related to surveyors’ administration of the building permit system. 	50	
6.	The Building Commission should strengthen its complaints handling and investigation processes to assure:
·	complaints are systematically prioritised according to the risk of non-compliance with safety and technical building standards, and that this is clearly documented
·	they are governed by clear standards of effectiveness and efficiency, and that adherence to these requirements is regularly reviewed and monitored by senior management
·	investigators receive sufficient training to enable them to form appropriate judgments about technical building matters
·	clear quality assurance standards and effective controls are established for technical reports sourced from the Building Commission’s external panel to assure they have been competently prepared.	50	
7.	The Building Practitioners Board should:
·	develop criteria and guidelines for evaluating the competency of applicants to be registered as building surveyors and clearly document the basis of all of its related decisions
·	systematically verify a sample of the character declarations supplied by applicants for registration to gain reasonable assurance they are reliable.	55	
8.	The Department of Planning and Community Development, in consultation with stakeholders, should:
·	seek approval from the Minister for Planning to introduce a system of compulsory continuing professional development for building surveyors
·	seek approval from the Minister for Planning to prepare an amendment to the Building Act 1993 to make registration renewal contingent on building surveyors satisfying minimum compulsory continuing professional development requirements.	55	
Submissions and comments received
In addition to progressive engagement during the course of the audit, in accordance with section 16(3) of the Audit Act 1994 a copy of this report, or relevant extracts from the report, were provided to the Building Commission, the Building Practitioners Board, the Department of Planning and Community Development, Latrobe City Council, Melton Shire Council, Mitchell Shire Council and Monash City Council with a request for submissions or comments.
Agency views have been considered in reaching our audit conclusions and are represented to the extent relevant and warranted in preparing this report. Their full section 16(3) submissions and comments however, are included in Appendix B.