The Victorian Auditor-General’s Office (VAGO) report “Assuring the Integrity of the Victorian Government’s Procurement Activities” examines procurement practices within Victorian government departments.

In this second instalment of our three-part blog series, we explore the report’s analysis of conflict of interest management in public sector procurement. A significant finding of the report is that departments lack sufficient processes for identifying, disclosing, and managing conflicts of interest, posing a significant risk to the integrity of procurement activities.

The Investigation

VAGO assessed departmental fraud and corruption controls for procurement against requirements of:

• the Australian Standard AS 8001:2021, Fraud and corruption control (the Standard)
• the Standing Directions 2018 Under the Financial Management Act 1994 (the Standing Directions)
• Guidance supporting the Standing Directions 2018 under the Financial Management Act 1994.

Australian Standard AS 8001:2021, Fraud and corruption control

The Standard outlines the minimum requirements for developing, implementing, and maintaining an effective fraud and corruption control system. It includes provisions for managing conflicts of interest. Departments and agencies also have conflict of interest requirements set out in their Conflict of Interest Policy, which aligns with the Victorian Public Sector Commission’s model conflict of interest policy and associated guidance.

While departments are not legally required to follow the Standard, the Standing Directions recommend that they ensure their fraud and corruption control policies and frameworks are consistent with it.

Relevant definitions from the Standard concerning conflicts of interest in procurement include:

• Conflict of interest: A situation where a person's business, financial, family, political, or personal interests could interfere with their judgement while performing their duties for an organisation.
• Corruption: Dishonest activity in which a person associated with an organisation (e.g., director, executive, manager, employee, or contractor) acts contrary to the organisation’s interests and abuses their position of trust to achieve personal advantage or benefit another person or organisation.

The Standard recommends that organisations:

• have a policy and/or procedure requiring  staff and tenderers to disclose actual, potential, or perceived conflicts of interest.
• monitor and actively manage declared conflicts of interest to reduce fraud and corruption risks.
• keep records of:

o  relevant business, financial, family, political or personal interests of staff that could conflict with their duties at work

o  actions they have taken to avoid, eliminate or manage any perceived, potential, and/or actual conflicts of interest.

VAGO noted the potential for misconduct or abuse of public office if a conflict of interest:

• is ignored or concealed
• influences an employee's decision.

Key Findings

Based on its analysis of 311 conflict of interest declaration forms across 27 procurements at the  three “deep-dive departments “(DE, DJSIR and DJCS), the VAGO report found that:

• All 10 departments have policies requiring staff involved in procurement processes to declare conflicts of interest.
• All 10 departments require conflict of interest declarations to be approved, with a management plan put in place if a conflict is declared.  However, of the 311 conflict of interest declaration forms reviewed:

o 136 were not approved (counter-signed)

o 66 were approved on the day the declaration was completed

o 93 were approved at least one day after the declaration was completed. Of these:

– 24 were approved more than 3 months later

– one was approved 7 months later.

– 16 were approved but did not specify when, so VAGO could not verify timeliness.

o The departments also did not have management plans for some declared conflicts. This means [VAGO] could not assess if the departments had considered the risk of these staff continuing to be involved in a procurement process.

o One department did not follow its processes for probity advisor reviews.

These are key issues that threaten the integrity of procurement processes. Approving documented conflict of interest management strategies in a timely manner is important because it can reduce the risk of unmitigated conflicts of interest during procurement. Additionally, it is important for reducing the risk of undisclosed real or perceived biases influencing procurement decisions. As VAGO notes, “If a conflict of interest is not declared and known, an employee could be biased towards a potential supplier and skew the evaluation process.”

The risk of fraud and corruption increases if conflicts of interest are not transparently disclosed and actively managed through documented strategies that are monitored.

Recommendations for Managing Conflict of Interest

To address these issues, VAGO made several recommendations aimed at improving conflict of interest management in procurement activities. In Recommendation Two of the report, VAGO recommends that all departments:

“Review and update their policies and procedures for procurement, conflicts of interest and maintaining vendor master files. This should involve reviewing and updating:

• policies and procedures when there has been a significant change to the department or how it operates
• conflict of interest policies to include timeframes for approving conflict of interest declarations
• conflict of interest forms to include a field to record the role of the declarer and approver.”

In summary, departments and agencies ensure that their conflict of interest policies provide:

• clear definitions and examples of conflicts of interest, both actual and perceived
• timeframes for declaring conflicts of interest
• timeframes for approving strategies to manage declared conflicts of interest
• requirement that conflict of interest declarations be reviewed and approved by independent managers/ advisors, who are named on the declaration form
• regular training to educate staff on identifying, disclosing and managing conflicts of interest
• clear oversight mechanisms to monitor compliance with conflict of interest policies.

Conclusion

The VAGO report underscores the importance of effective conflict of interest management in public sector procurement. By implementing the recommended measures, Victorian government departments and agencies can enhance the integrity and transparency of their procurement activities, reducing fraud risks, safeguarding public trust, and ensuring fair outcomes.

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A participant in the UN Global Compact, CourtHeath seeks to raise awareness about the sustainable development goals and the principles of the Global Compact with business and government organisations in Victoria. The elimination of all forms of discrimination in respect to employment and occupation is Principle 6 of the Global Compact. The Global Compact repudiates labour discrimination internationally.

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IMAGE: Used under licence from shutterstock.com

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