Weak procurement controls leave councils exposed

Local government is failing to ensure probity and value for money in their procurement practices, an audit suggests.

Ineffective and inconsistent procurement policies and poor oversight and documentation are hampering Western Australian councils’ procurement controls, an audit has found.

All eight of the councils audited were found to have “shortcomings” in their procurement practices, with most relating to poor controls, processes and documentation for tendering, purchase orders and approvals, according to the audit tabled yesterday.

While procurement practices at the councils were found to broadly meet regulatory requirements under the relevant legislation they were not adequate to address procurement risks within council, Western Australia’s Auditor-General Caroline Spencer found.

The controls, documentation and oversight of procurement activities needs to improve to ensure value for money in procurement practices, the auditor said.

With councils in Western Australia managing more than $40 billion in community assets and spending $4 billion annually on community services and infrastructure, ensuring value for money is a critical part of local government procurement practices, Ms Spencer said.

Jonathan Dutton, a procurement expert and consultant, told Government News that while the report’s findings are disappointing, such findings are rarely the result of staff “overtly flouting the rules.”

Jonathan Dutton

“More often it is a case of pragmatism and common sense overriding complex, opaque, confusing and sometimes contradictory requirements. And these rules are growing more complex as stakeholders demand ever more from procurement as an instrument of policy,” he said.

The rules, processes and procedures in local government procurement are “often too restrictive and too overbearing,” Mr Dutton said.

“The delegate thresholds are too low in my view – often around $150,000. These should be $500,ooo or $1 million. To allow procurement professionals the freedom to make the right commercial judgements unencumbered by unnecessary process.”

Councils not complying with own policies

While all of the councils audited had policies to support staff with procurement, these were not always complied with, according to the audit.

Five of the eight councils had instances were staff did not seek or record quotes in line with their own policies. Two local governments had purchases that should have gone to tender, but did not.

The auditor pointed to the prevalence of non-compliance as indicative of a “lack of understanding” by staff of these policies.

Mr Dutton says that councils should invest in clearer policies on using procurement as an instrument of policy, better systems including modern contract management and procurement systems, and staff training.

Poor oversight

Councils’ controls around approvals, duties and cross-checking invoices were also found to have weaknesses.

This vulnerability “exposes local governments to unnecessary procurement risks, such as improper use of funds or paying for goods and services not received,” Ms Spencer said.

Controls over the raising and approval of purchase orders could be improved, the audit says, while councils should strengthen their processes for checking goods and services when they’re received, with 36 invoices across eight councils not able to be verified against purchase orders, quotes or contracts.

These invoices included instances of councils being overcharged and undercharged, Ms Spencer found.

Conflicts of interest

Councils also need to better document procurement decisions and conflicts of interest, the audit revealed.

While all eight councils were found to be claiming exemptions from procurement policies, five did not have sufficient records to support sole supplier exemptions.

Seven councils could improve transparency around the tender process and conflicts of interest, the Auditor-General said.

Ms Spencer recommended that all councils, including those not audited, should review their policies, processes and controls against the areas focused on in the audit. The eight councils audited should also provide an action plan to address this first recommendation.

All of the audited councils have undertaken to overhaul their procurement policies.

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