Executive Services
July 2006
Blue Mountains City Council has a significant Capital Works Program (CWP) that contains not only the Annual CWP but individual projects that are significant Capital Works in their own right with both community and political sensitivities.
To remain within the Probity Guidelines developed by ICAC since the late 1990's the Council requires a position on Probity Audit. The Council has relied heavily on the ICAC publication 'Probity and probity advising' published in 2005. Not only has this document informed the current position on Probity Audit but recent Audit industry publications, discussions with our current Probity Auditor and reference to the BMCC Code of Conduct has provided general information on trends in probity audit requirements. Other Councils were also approached in relation to their Audit position and documentation.
This document outlines the Council position on Probity Auditing for the general Capital Works Program.
The term probity means integrity, uprightness and honesty. Although the term probity audit is normally used in the field, in actual fact the probity role is one of both advising and auditing.
For public officials and public sector agencies, creating and maintaining probity involves more than simply avoiding corrupt or dishonest conduct. It involves applying and complying with public sector values and duties such as impartiality, accountability and transparency.
Ensuring probity in public sector activities is part of every public official's duty to adopt processes, practices and behavior that enhances and promotes public sector values and interests.
Effective probity management is concerned with the procedures, processes and systems used rather than the outcome of an activity, undertaking or project. It should also be recognised that - despite good management of probity risks - mistakes, delays and disputes can arise. Similarly, even the best probity processes do not guarantee that a project or activity will be immune from problems or criticism.
Considering and addressing probity issues should be a normal part of any significant project being undertaken by an agency, regardless of whether a probity adviser is appointed. Addressing probity issues does not necessarily incur delays or additional costs if this is incorporated into the project planning process from the outset.
Dealing with probity issues early in the planning process of a public sector project can:
Probity involves more than just avoiding corrupt or dishonest conduct: it involves ensuring that often-complex public sector processes - such as procurement, disposal of assets, sponsorship and administration of grants are conducted in a manner that is fair, impartial, accountable and transparent as well as always in the public interest.
Probity plans are now part of the planning and management of many large, complex and/or potentially controversial projects. In some jurisdictions, they are mandatory for very large projects - in New South Wales, for example, state agencies are required to submit a probity plan as part of their reporting to Treasury on projects that are valued at over $10 million and/or are classified as high risk. These major projects have probity audit as a budget item.
There are five inter-related fundamentals that all probity advisers, project teams and agencies should keep in mind. The fundamentals should also provide the foundation for any probity engagement. The five fundamentals are:
This is achieved by fostering an open competitive environment in which proponents can make attractive, innovative proposals with the confidence that they will be assessed on their merits. Lapses in probity often end with one or more parties obtaining unreasonable financial gains at the expense of the public interest.
Value for money does not necessarily mean lowest price. Agencies need to consider non-price elements of proposals (including risk) and devise criteria that allow them to be evaluated.
This fundamental should also be considered in light of Triple Bottom Line (TBL) reporting for sustainability. TBL is a consideration in all major Capital Works projects.
Individuals and organisations involved in preparing and submitting proposals for large public sector contracts often invest considerable time, effort and resources in doing so. In return, they are entitled to expect impartial treatment at every stage of the process. If they do not consider the process to be impartial and honest they may withhold valuable ideas or be deterred from bidding in the future. Any form of bias, whether driven by personal interests or not, could jeopardise the integrity of the project.
There is a further risk that proponents who believe the process is prejudiced will commence legal action. Regardless of the outcome, this can cause delays and result in financial costs not anticipated in the project budget.
A large percentage of the matters reported to the ICAC involve an actual, potential or perceived conflict of interest. A conflict of interest is a conflict between the public duty and private interests of a public official where the public official has private interests which could improperly influence their official duties and responsibilities.
The community and potential proponents have a right to expect that public officials will make decisions that are not influenced by private interests. Similarly, when the private sector is engaged to perform public sector duties, there is an obligation to ensure that conflicts of interest are disclosed and effectively managed.
Agencies should also be aware that perceived or potential conflicts of interest can be as damaging as actual conflicts.
Accountability and transparency are related concepts. Accountability involves agencies being able to demonstrate and justify the use of public resources to an appropriate authority. This involves allocating and taking responsibility for past and expected performance. This necessarily involves keeping good records that leave an audit trail.
Transparency refers to the preparedness to open a project and its processes to scrutiny and possible criticism. This also involves providing reasons for all decisions that are taken and the provision of appropriate information to relevant stakeholders.
Demonstrating accountability and transparency gives proponents and taxpayers additional confidence in the decisions being made. It also reduces the opportunities for corrupt conduct and fraud.
Information can only be released, consistent with the fundamental principles of public accountability and transparency, which are fundamental to the work of public sector organisations and public officials. However, there is some information that needs to be kept confidential, at least for a specified period of time, in order to protect the integrity of the process and give proponents the confidence to do business with government. This information can include the content of proposals, intellectual property and proponents' pricing and profit structures. Importantly, much of the information relating to the project needs to be kept confidential up to the point where a contract is signed with the successful proponent. However, once this has happened, government guidelines require that certain sector accountability and transparency.
The Council should also consider the following issues when deciding on the need and the approach to engaging a Probity Auditor on a particular Capital Works Project:
A number of organisations and individuals now provide advice on probity issues to public sector organisations on a commercial basis.
In NSW, the Department of Commerce maintains a panel of standing offer contractors for the provision of "audit and audit-related services". Agencies can obtain quotations from a number of the contracted firms for probity advising services. Local councils may also access this panel. The Department itself also employs officers with expertise in dealing with probity issues and complex tendering and procurement processes. The Department also has RFT (Request for Tender) process review committees with a mandate to examine the probity and procedural aspects of tenders.
The engagement of probity advisers can be considered when:
Probity advisers should not be engaged on a 'set and forget' basis. The presence of a probity adviser should not give the project manager or the project team a reason for ignoring or side-stepping probity issues. The probity adviser should certainly be relied upon to identify problems and recommend solutions, but it is not necessarily his or her job to implement those solutions.
The Council needs to utilise the criteria outlined above to decide which projects would require a Probity Audit.
The Council has a number of options available for acquiring a Probity Auditor for each relevant capital project. These are as follows:
Whilst the first option is valid approach and ensures objectivity and transparency it is a costly approach for each project team and increases the Probity Audit budget within that project. For the same result and reduced cost the Council can enter establish a Panel of Probity Auditors for both Capital Works Projects and the undertaking of Organisational Audits that supplement the activities of the Internal Audit office.
The third option is also viable and provides similar results. However, this panel has been in operation for a number of years and does not provide costs for Probity Auditors operating in the Blue Mountains locality.
Therefore the most viable option for the Council is the second option as we can achieve improved results for the Council as can we select Probity Auditors who have extensive Local Government experience as well as a commitment to working in the Blue Mountains locality.
The BMCC Governance Model for Probity Audit has been adapted from the ICAC 2005 model and complies with that model. The customizations on the BMCC Governance Model are for Reporting through the Internal Audit Steering Committee (IASC) to the Council. The model is outlined in the following schematic:
This model has the Strategic Management of the Probity Audit undertaken within the IASC. The IASC Strategic Management includes such key functions as:
The Operational Management of the Probity Audit, as outlined in the ICAC documentation, resides with the Project Control Steering Group or Project Office once the Probity Audit Plan is signed-off. The high level activities of the Probity Audit with their associated timelines should be included in the Project Plan. Payments documentation should be aligned within the plan to sign-off of Probity Clearance Reports and documentation presented to the Internal Auditor for relevant authorisation.
The Probity Audit plan should also take into account the other elements of auditing that need to occur on Capital Works Projects as outlined in the following schematic:
The Audit Functions will vary relevant to the type of project but could include at a minimum:
The following recommendations on moving forward are for discussion at EMT: