Audit focuses on procurement fraud in Victorian departments

Victoria’s auditor general received 29 notifications relating to procurement fraud and conflicts of interest in state government departments in the past 18 months, resulting in a loss of more than $3 million.

Andrew Greaves

Between July 2022 and January 2024 government departments made 212 notifications to VAGO, of which 14 related to procurement fraud and 15 related to conflicts of interest, resulting in an estimated $3.3 million loss, according to a report released on Thursday.

The audit examined whether 10 state departments were using suitable fraud and corruption controls during procurement, with three of those selected for in depth analysis.

The fourteen supplier-related incidents include fraudulent bank card payments, fraudulent invoices and changing bank account details to receive a supplier’s payments.

The 15 conflict of interest notifications related to invoicing a personal business, failing to declare a conflict of interest and approving contract variations and time extensions when there was a conflict of interest.

Non-procurement-related notifications included arson, medical certificate fraud and falsifying requests.

Auditor Andrew Greaves concluded that there’s more work to be done to make sure fraud and corruption controls are doing the job they’re meant to.

“We concluded that the departments have further work to do to effectively manage the risk of procurement fraud and corruption,” he said.

Data analytics not being used

Only two departments were proactively using data analytics to detect fraud and corruption risks prior to awarding contracts, the audit found.

Of the eight that didn’t, three said they aimed to set up a data analytics program to test fraud and corruption vulnerabilities but were being roadblocked by competing priorities and a lack of resources.

The justice deparmtent and the  Department of Transport and Planning were the only departments that used data analytics to proactively detect fraud and corruption during the procurement process.

In the case of DJSIR, data analytics was used to compare employee data with other data sets such as vendor numbers and ABNs, and to match gifts, benefits and hospitality data with procurement data.

DTP’s data analytics testing includes checking active supplier details against cancelled ABNs and matching vendor addresses to employee addresses.

DTP started a pilot data analytics program in 2019 to proactively detect fraud and corruption risks and since then has acquired specialised analytic software to identify red flags.

Focus on three departments

VAGO looked at 18 cases of procurement fraud or corruption at the Department of Education; the Department of Justice and Community Safety; and the Department of Jobs, Skills, Industry and Regions from 2022 to 2024.

All 18 incidents were assessed by internal investigators, and DE and DJCS had 11 cases in which they determined that no formal investigations were needed.

DJSIR referred 4 of its 7 incidents to its internal workplace relations business.

DE’s and DJCS’s incidents were reported by individuals, while DJSIR was alerted to 4 of its 7 incidents by its data analytics program or routine compliance checks by its integrity team.

“This highlights the benefits of proactively assessing risks,” Mr Greaves said.

Other findings include:

  • While departments have processes for investigating and reporting fraud and corruption, most  rely on being alerted to a problem, for example by a staff member
  • Separation of duties is clear in departments’ policies, but this is not always confirmed in practice
  • All departments have policies to screen new suppliers, but their policies do not require staff to review ongoing suppliers
  • Departments continue with some procurements despite key documents not being approved

The report contains five recommendations for improvement including setting up a data analytics program to detect risks.

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