Improving procurement and contract management processes

Improving procurement and contract management processes to increase compliance and reduce risk

Writer Sonali Cordeiro, Senior Probity Specialist - Peak Consulting 

QAO Audit Report 15: 2022-23 – The findings

On 22 June 2023, the Queensland Audit released the Local Government 2022 report which summarises the audit results of the 77 Local Councils in Queensland.

Queensland councils play a pivotal role in providing and maintaining a wide range of services, programs and infrastructure for their communities, spending approximately $8 billion on procuring goods and services. Considerable power is therefore vested in public officers of councils to source suppliers, manage contracts and authorise payment for goods, services and works – using public money. There is a need for strong controls and processes.

The audit focused on five councils (ranging from large councils in SEQ to a small remote Indigenous council) to assess the maturity of their procurement and contract management processes.

The assessment found that each council had some strong procurement and contract management practices, including adequate policies and procedures, technology systems and robust invoice approval practices (larger councils), but also identified some areas for improvement – as would be the case for almost every council with which Local Buy has worked.

Important Reminders

A consistent procurement-related theme in the report is that councils need to strengthen their procurement practices and be accountable for the spending of public funds and remediate the internal control weaknesses identified repeatedly over the years. These are:

• Value for money – inadequate documentation on the appropriate number of quotes/tenders obtained for the purchase of goods and services, therefore no demonstration of best price achieved.

• Risk of procuring incorrect goods, or goods at incorrect prices – goods and services procured before an agreement was entered into with suppliers, thereby exposing councils to terms and conditions disputes with suppliers (price and supply variation).
• Poor contract management practices – contract registers not being maintained or missing key information (e.g., start and end dates and values of contracts) had the potential to adversely impacted financial commitments planning and tracking, and risk of paying suppliers more than initially agreed.

The report’s findings also serve as a reminder that as custodians of public money, councils must ensure all procurement processes are conducted in accordance with procurement policy, good financial and contract management practices and in an open and transparent way. Failing to ensure adequate internal controls in the procurement and contract management processes and practices not only exposes the council to financial risk, but also the risk of fraud and corruption.

Our procurement team has the necessary skills and experience to ensure you meet procurement compliance requirements by implementing strong contract management processes. Read our article about using a procurement framework to ensure consistency and compliance here.

Good counsel for councils

The report includes a number of useful recommendations for addressing the internal control weaknesses found in council procurement and contract management practices.

Procure-to-Pay Maturity Model

The audit report suggests that all councils assess the maturity of their procurement and contract management processes using the QAO procure-to-pay maturity model. This assessment will help councils identify and implement practical improvements in their procurement and contract management processes.

Value for Money

Councils need to ensure they obtain value for money for the goods and services they procure by adhering to the quotation threshold requirements of their procurement policy; and ensure that they have the appropriate approvals to procure the goods and services.

Effective Contract Management

To effectively manage their contractual obligations, councils should ensure their contract registers are complete and contain up to date information.

Learn how Peak Services can become your Procurement Back Office to ensure contract governance is established in accordance with the contract terms.

Outstanding Actions from Previous Years

To improve contract management processes, councils should consider implementing some of the recommendations made to State Government entities in the QAO Report Contract Management for New Infrastructure (Report 16: 2021–22). The full list of recommendations can be found  here. The recommendations include:

• Revise internal policies, procedures, and guidance for managing infrastructure contracts.
• Clearly define and communicate the roles and responsibilities for managing contracts.
• Provide appropriate training and support to staff managing contracts
• Improve contract registers to ensure a complete record of all awarded contracts.
• Implement clearly defined processes and procedures to ensure all contract risks and issues are identified and effectively managed.
• Apply standardised processes and procedures for recording, evaluating, approving, and reporting on contract variations.
• Implement clearly defined processes and procedures for developing project design briefs.
• Assess, report, and where necessary act on, contractor performance.
• Implement appropriate processes and procedures for sharing lessons learned and better practices from contract management activities.

Case Study: IBAC Investigation 2019: Operation Royston

The following case study, which is one of many documented in the 2019 IBAC (Victorian independent broad-based anti-corruption commission) report on Corruption risks associated with procurement in local government, demonstrates how the lack of internal controls in procurement processes can expose a council to fraud and corruption risks.

IBAC investigation Operation Royston, undertaken in 2016, investigated allegations of fraud and misconduct concerning Lukas Carey – a manager at the City of Ballarat Council, regional Victoria. The allegations included subversion of procurement processes and failure to declare and manage conflicts of interest.

The City of Ballarat Council’s procurement policy requires at least one written quote or three verbal quotes, for services valued between $5001 and $15,000. However, the investigation did not find supporting quotes for large parts of the work for which Mr Carey engaged Company D – a company of which his wife was the sole director.

Despite in some instances Mr Carey making no attempts to obscure the activity, and in others making obvious attempts to mask it, internal investigations and processes detected no malfeasance. It was clear to IBAC investigators, however, that on multiple occasions Mr Carey had not obtained the requisite number of quotes to comply with council policy.

The investigation discovered Mr Carey illegally authorised payments in excess of $180,000 and obtained over $100,000 in financial benefits as a result. Mr Carey was charged, pled guilty to obtaining financial advantage by deception, and was sentenced to three years’ imprisonment.

The case study above and others contained in the IBAC report, highlighted a range of vulnerabilities relevant to local government procurement requiring Victorian local councils to review their procurement policies and processes and implement improvement strengthen internal controls including:

• Open and competitive sourcing in compliance with policy and legislation; and
• Robust information management processes which are auditable.

If you need assistance with any component of procurement within your council, please get in touch with us here.