Inside the investigations -corruption risks in contract management

IBAC Deputy Commissioner Stephen Farrow speaks to why contract management in the public sector and police can be vulnerable to corrupt conduct, including exploring themes from IBAC complaints and investigations and how IBAC prevention resources, including a new e-module, can help guide strategies to corrupt-proof contract management processes.

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Meg: Hello and welcome to the latest IBAC podcast, IBAC is Victoria’s anti-corruption agency, and our role is to expose and prevent public sector corruption and police misconduct. My name is Meg Gillespie, today we’re going inside the investigations and exposing how corruption can occur within contract management. Along with the tools able to equip the public sector and police to prevent it.
Today I’m joined by IBAC Deputy Commissioner Stephen Farrow, welcome Stephen.
Stephen: Hi Meg, nice to be here.
Meg: Now you’ve worked on a raft of investigations over your five years with IBAC but there has been an area which continues to arise as a risk and that is contract management. Why is it do you think that contract management continues to be an area that is vulnerable to corrupt conduct?
Stephen: Well, every year the Victorian government spends many billions of dollars buying goods and services out in the private sector and often there’s a lot of focus on what happens at the initial engagement with the supplier – that’s going out to tender, or request for quote. That initial interaction and then the sort of signing of the contract. There’s sometimes less attention paid to what happens after that once the contract is up and running and that’s what we’ve found in a number of investigations is where there are real risks that can go under the radar, so it’s around decisions to extend the contract to vary the contract lengthen the term of the contract. These are all really important decisions and there should be and there often is a proper integrity structure around that but that’s sometimes where the attention lapses and that’s where there are vulnerabilities that people exploit.
Meg: And I know that this is a priority area for IBAC can you explain what that means and why that is?
Stephen: Well look we’re a body with finite resources as I said there’s many many billions of dollars of procurement buying of goods of services across the Victorian government, on top of all of the other work that falls within our jurisdiction so we have to be strategic about what we can investigate. A lot of our work is about finding ways to prevent corruption from occurring, toughening up the system so it’s much harder for people to engage in corrupt conduct, obviously investigations are really important part of our work but so we have strategic focus areas where we’ve identified through our intelligence, through investigations, consultation with the sector – areas that we think are particularly risky – and we’ll have a targeted approach to those, at least for a period, to try and really make some improvement. 
Meg: And what do you think really are kind of those key vulnerabilities or behaviours throughout the contract management process that you often find are most vulnerable?
Stephen: Well look we see a few different sorts of scenarios one is what some people call the land and expand scenario, so that’s where a supplier will get a contract initially, and often it will be a lower value contract, it might be that there’s a degree of urgency around procuring the particular goods or services, so there might be an exemption to the usual processes. And particularly if they’ve got someone inside the public body that’s the way that they get in, they get the contract, and then there’s the benefit of incumbency. Once you’ve got the contract it’s much easier then to work on expanding the scope, expanding the value, extending the term and that’s where we see the vulnerabilities really arise. So it’s come in a bit under the radar and then it’s expanded without the degree of scrutiny that might otherwise apply.
Meg: And are there any examples you might have from investigations that you’ve been involved in where corruption risks in this area weren’t managed and what happened? 
Stephen: Yeah well certainly the investigations are usually where we find that, often it’s because people are – it’s a natural human trait to give people the benefit of the doubt. So particularly if someone’s pushing for an exemption because they need something urgently, they might refer to you know it’s a big priority for the minister or someone senior. People involved might give the benefit of the doubt, well you know it’s not clear that the exemption’s warranted but I’m not going to ask too many questions. So one of the risks are round people not asking questions, not being sceptical about reasons that are given for certain things particularly when there’s a departure from process. And also the challenge is that often these are concealed relationships and so we have to be very mindful about potential red flags this is where process is such a key that process is everyone’s friend because good rigorous process that adhered to, there’s a culture of applying the process, means that there are multiple eyes on something, division of responsibility, it’s just much harder to get away with corrupt conduct. But conversely, where those things are lacking, then that’s where the risks arise and that’s where we’ve seen things fall over.
Meg: And are there any kind of examples that you could speak to?
Stephen: Yeah well so certainly we’ve had examples of that land and expand scenario where something has come in as something small and, and, where there are exceptions that have applied so that the usual competitive open process hasn’t applied and then the incumbency has meant that they’ve been able to expand. Something else we see if where there wasn’t any conflict of interest or relationship existing at the time of the original contract but in the course of managing the contract a relationship develops between someone in the supplier and someone in the government they form a friendship, often it’s a scenario where the person working in government might be looking at a career beyond government and  so they come to an arrangement where they’ll give them a favour in terms of their treatment over the contract and then it will be reciprocated when the person leaves the public sector and either gets a job with the organisation or with an associated company, or a consulting job, or there are lots of permeations of that theme. And it’s not just expanding the scope, extending, increasing the value – it’s also around things like performance under their contract. And so we have had examples where, for example, the person in government has colluded with and facilitated the supplier not providing some or all of the goods of services or not to the requisite standard so there is a financial benefit to the supplier. And as I say there’s an arrangement to reciprocate that. So, it’s not just as I say contract variations but it’s also level of performance under their contract, and that can be a real risk area, where they’re invoicing for things that either weren’t provided at all or weren’t provided fully.
One example I can talk about is Operation Daintree; this was one of our public reports. What happened in that case a union had a discussion with a ministerial staffer about developing a proposal to train some hospital security staff and following influence rom the ministerial staff the relevant government department went ahead and entered into a contract for that training, a big contract it was over a million dollars, and the entity that the government awarded that contract to was a company which had just been established by the union. And some people in the department who were involved had some real reservations about whether that new entity had the capacity to deliver that training and also some reservations about that process, it hadn’t been an open and competitive process. 
So our report identified a whole range of process the entering into and lead up to the contract, but it also focused on issues that arose once the contract was in place. Because what happened was in fact the entity didn’t have the capacity to provide the training, it wasn’t provided to an appropriate standard, the numbers of people who were trained was much lower than what had been expected, required. And there was involvement from ministerial staff that hindered or impinged the ability of the department staff who were responsible for administering the contract, from taking action under the contract to address those concerns. 
So it was really an issue where there were corruption risks at the inception of the contract, and then those risks carried through to the way the contract was managed and really compounded the problem. So it wasn’t just an issue around the entering of the contract but being able to manage risk as that contract unfolded over time.
Meg: And have you had any examples where misconduct or behaviour that could escalate to corruption was identified early through really really good robust frameworks?
Stephen: Yeah like I say usually really robust processes mean it doesn’t occur at all but one thing that is really gratifying - we get a lot of complaints and notifications to us, we sift through them, but often they are from people who’ve spotted something, they might be a more junior member of staff who’s seen something that doesn’t quite look right. And it’s really encouraging when we see someone come to us to say look I’ve seen this thing it doesn’t look right I’m concerned about it, it might be involving someone much more senior than them. But where they’ve been trained around the Public Interest Disclosures scheme, they know that it’s safe to come forward they know which avenues to go they can feel that they’ve got protection against retribution from coming forward – so we do see that, that’s something we see regularly, and often that’s what initiates our investigation is when someone does do that. So training, awareness, these are crucial things in terms of public sector bodies.
Meg: So where would you suggest that agencies, organisations, or anyone really should start when it comes to integrity in contract management?
Stephen: Look a great starting point is our website our engagement team put lots of resources there. So, there’s lots of e-learning modules, there’s written material, there’s lots of practical tools, information about the PID scheme and so on. So our website is a great resources, there’s lots of good resources of information across government, you know buying for Victoria, Victoria Auditor General’s Office. There’s lots of great resources out there to raise awareness around some of the integrity risks, how to deal with it. So those would be great starting points.
The other thing is really most of the time a public sector agency will have lots of policies, processes, it’s surprising how often people fail to check what the process is, fail to double check, ensure that they know what they’re obligations are, if someone’s not complying to question it, to call it out.
And also things like audits are so important because often it’s a pattern of behaviour, if someone doesn’t see something really obvious occurring, often it’s really when you go back and comb through a pattern of granting exemptions or invoices that are approved without appropriate scrutiny. If there’s not double checking by someone separate. Those sorts of things are really important, so I think attention to what we know are risk factors and really embedding it in the culture of the organisation.
Meg: And you mentioned a e-module that IBAC has recently launched as well, can you tell us a little bit about that and what it’s aiming to achieve?
Stephen: Well what it’s aiming to achieve, it’s targeted at people with financial delegations across the public sector so people who are involved not necessarily on a day-to-day basis but who through their work are involved in the sorts of things that were identified can present corruption risks. It’s a very practical resource, it has strategies things to watch out for, but also some concrete examples, it takes about 20 minutes it’s very user friendly. And we’d really encourage anyone whose work involves contract management, to have a look and to make use of it.
Meg: Definitely a good way to refresh everyone’s memory in terms of what integrity practices can be involved throughout the contract management process. What other work has IBAC done or continues to do in terms of helping prevent corrupt conduct or misconduct in this area?
Stephen: Well certainly we learn from our investigations, we can’t always publish what we do in terms of investigations, but we try to draw out themes, issues, and then speak to a range of forums across government – whether it’s the Chief Procurement Officer’s forum, whether it’s the prevention activities that we do – so I think this financial year we’ve done 121 prevention events already, so we speak to stakeholders across government to raise awareness, to draw attention to the things that we’re seeing and the things we think can be addressed. But also we’re not the subject matter in every topic, in terms of our jurisdiction, sometimes we’ll see something that’s really good that’s done well in one area and we’ll try and propagate that to other areas so that others can benefit from what we’re seeing works, things that seem to be getting traction, and addressing the risks that we’ve identified.
Meg: And if this discussion or this podcast raised any red flags for anyone listening and they think they might be aware of a contract or a process which maybe has not been managed to the best standard, what would you suggest they do?
Stephen: Well look definitely jump onto our website have a look at the materials particularly around the public interest disclosures act, because often one of the concerns people have is what might happen to them if they come forward. So have a look at that, call or email or jump on there’s an online form you can fill out – even if you don’t have all of the details, even if you’ve only got part of the story or it’s just an impression, at least if you let us know we can have a look at it, it might be that we don’t have enough to investigate, but it’s when multiple people come forward we start to see patterns and so every piece of information helps, so we’d encourage you to get in touch.
Meg: Thank you so much Stephen, it’s been great to learn from your work and investigations over the years and it’s so important to identify where corruption risks exist so we across the public sector are empowered to address them.
Thank you to everyone for listening.

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You can find any of the resources discussed, including IBAC’s contract management e-module, information on investigations, special reports, data, research, corruption prevention resources and more by going to ibac.vic.gov.au