Corruption

Presentation by the IBAC, Victoria’s Corruption Watchdog

Corruption stinks worse than your shoe after taking an ill-trodden path across the local dog park.

At a recent IBAC presentation to Local Government industry stakeholders, IBAC spokesman Dr Stuart MacIntyre spoke about IBAC’s first two years in operation in Victoria. AFS & Associates’ Head of Internal Audit, Brad Ead was there.

IBAC has done some great work already:

  1. Review of Council Works Depots (May 2015)
  2. Review of Integrity Frameworks in Six Victorian Councils (March 2015)

It is in the midst of some high profile investigations at the moment too!

  1. Operation Ord – Department of Education and Training
  2. Operation Ross – Alleged misconduct at Ballarat Police Station
  3. Operation Fitzroy – Department of Transport and Public Transport Victoria

Stuart was joined by:
Melissa Cox, Senior Investigations Officer at the Ombudsman;
Tim Loughnane – Senior Director Financial Audit at the Victorian Auditor General’s Office; and others.

Q: What is corruption?
A: Corruption is more than what you think…

The obvious answer is: “The abuse of power or position to acquire a personal advantage” (Thanks Wikipedia)

But it includes:

  • Sharing of restricted information (including database details)
  • Unauthorised use of assets (i.e. trucks, graders, tools)
  • Staff, or related parties of staff, tendering for own contracts using privileged information
  • Inappropriate complaint handling – the Victorian Ombudsman’s most commonly received type of complaint
  • Fraud

IBAC’s Review of Integrity Frameworks in Six Victorian Councils document contains types of corruption and is a must read for all Audit Committee representatives. The focus is on the ‘risk areas’ contained within the report and applicable prevention strategies.

Impact of Corruption
Apart from the financial impacts, corruption breeds mistrust in business when dealing with government. This can undermine a whole economy. If you don’t believe me, listen to this podcast of what business is like in Honduras!

Prevention
The reports above contain excellent prevention strategies. I’ve listed below some of the less obvious ones.

  1. Deeper probity checks on new employees
  2. Look at individual spend patterns by employee rather than just aggregated spend by supplier
  3. Your staff code of conduct should be published on the internet. This demonstrates a culture of good governance. The organisation should be very open about what happens if you break the code of conduct.
  4. Education of staff – make sure its known that even being offered gifts must be acknowledged, and that merely not accepting them does not prevent you from investigation or perceptions of corruption
  5. Have a fraud prevention policy and plan incorporating fraud risk assessments and reporting processes (see VAGO’s 2012 Report)
  6. Keep a register of plant and equipment AND book it out when it is to be used, logging who is taking it, for what purpose and for how long.
  7. Keep a record of bulk consumables i.e. fuel and log consumption.
  8. Password sharing can lead to corruption. Stamp it out.

Detection
The more proactive you can be in auditing the area, the better the detection likelihood (and prevention ongoing). Detection from internal controls is estimated to represent 42% of all fraud detections. That’s why ensuring these exist and are effective via internal audit is important.
The percentage of fraud and corruption that is detected by whistleblowers is staggering. KPMG’s 2010 Fraud and Misconduct Survey quotes this at 45%.

One of the key take-aways was to consider engaging an outsourced provider for receiving anonymous whistleblower reports; this allows employees to ensure anonymity is protected.

The role of the Audit Committee
We know the Audit Committee’s role has moved from purely financial considerations to broader governance issues. Developing an internal audit plan now needs to consider corruption risks.

Key points from the presentation

  • Consider outsourcing a whistleblower reporting hotline. Your internal auditor may accept this responsibility.
  • A clear risk management framework can help councils identify risks associated with corruption. Make sure yours is effective.
  • Well-defined policies and regular risk assessments need to consider corruption risk
  • Continually remind staff and those charged with governance why conflicts of interest pose a corruption risk, how to make a declaration and the penalties of not declaring