Another NSW Local Government Audit Highlights Procurement Risk

At the beginning of the COVID-19 outbreak, there was a concern that the massive disruption and change in working environments could lead to an increase in corruption and more mistakes being made in Australian public procurement.

Reassuringly, the recently published NSW Auditor-General’s Report on Local Government 2020 revealed that these concerns have proven unfounded. In fact, procurement-related findings decreased significantly from 205 in 2018-19 to 118 in 2019-20.

Room for improvement

There is, however, still room for improvement. The report highlights several areas of risk around probity, accountability, and transparency in procurement that could lead to unauthorised purchases, fraud, and value-for-money not being achieved.

Three councils were flagged in the Auditor-General’s report for the following high-risk breaches of procurement policy:

1. Lack of segregation of duties: A senior council officer had superuser access to the finance system while also being an authorised signatory for the bank account. This increases the risk of inappropriate transactions.
2. Delegation limits not enforced: A system-based workflow for approving purchase orders did not match the approved limits in the delegations manual, which meant procurement officers had the ability to revise purchase orders to amounts above their delegation without requiring approval.
3. Contract not put out to competitive tender: A council failed to subject a $250,000+ landfill management contract to a competitive tender in accordance with procurement rules.

Purchase order controls and ensuring accurate supplier information

Other findings that were common across NSW councils included poor purchase order controls, and a lack of review of supplier details.

• Auditors found that employees could approve their own purchase orders at 11 councils, leading to an increased risk of fraud and misuse of public money.
• Purchase orders were approved after the receipt of goods or services at 25 councils, increasing the risk of unauthorised transactions.
• 32 councils did not sufficiently review changes to supplier information including bank account details. This increases the risk of financial losses for councils through transactions paid to incorrect accounts.

The findings follow another NSW Audit Office report published in December 2020 titled Procurement Management in Local Councils, which revealed gaps in procurement practices including procurement needs inconsistently documented at the planning stage, inadequate staff training in procurement, no requirement to evaluate procurement outcomes, and discrepancies in contract values between contract registers and annual reports.

These local government procurement challenges are not limited to NSW. An equivalent report from the WA Auditor General also identified concerns with procurement policies and procedures not being followed, a lack of training for staff with procurement responsibilities, and approvals being made by staff without the appropriate authority to do so. Queensland’s Local Government Report 2020 similarly highlighted the need for appropriate approvals along with a lack of complete and up-to-date contract registers.

Automated compliance can be achieved

The most effective way to ensure compliance with procurement policy, purchase order controls and delegation limits (spend limits) is through automation using a trusted platform. Automation removes the opportunity for non-compliance associated risks including fraud, unauthorised purchases and poor value for public money.

Local councils should seek out a solution with built-in probity, compliance tools, and end-to- end visibility that reduces or eliminates the risk of the procurement challenges consistently identified by audit offices across Australia.

Explore VendorPanel to see how procurement software can help manage some of the risks mentioned in this post.