What ‘follow the dollar’ powers mean for Victoria’s public contracts

By David Donaldson

Monday May 30, 2016

The Victorian Auditor General’s Office will finally be given the power to “follow the dollar” to investigate how public money is spent by private contractors, almost six years after the reform was recommended in a parliamentary inquiry report, as part of a suite of reforms passed last week.

The investigative powers of the Independent Broad-based Anti-corruption Commission will be significantly strengthened following the passage last week of the Integrity and Accountability Legislation Amendment (A Stronger System) Bill 2015.

It will be possible for the first time to make complaints to the Victorian Ombudsman over the phone thanks to the removal of the requirement they be lodged in writing. The need for complaints to be made in writing has acted as a barrier to public engagement with the Ombudsman, given that the vast majority of contacts are made over the phone.

The changes will also resolve jurisdictional issues between the state’s three main integrity bodies — VAGO, IBAC and the Ombudsman — by streamlining the referral of matters and information sharing.

Mandatory reporting provisions will be strengthened, with heads of departments and CEOs of local councils, amongst others, required to notify IBAC of any matter they suspect on reasonable grounds involves corrupt conduct.

‘Follow the dollar’ powers

The Bill expands the auditor-general’s powers to inspect how taxpayer funds are spent, giving it explicit powers to examine the effectiveness, economy and efficiency of activities performed on behalf of the public sector by non-public sector entities in the course of performance audits.

Restrictions on the auditor’s access to private and third sector records has increasingly become a problem for transparency and accountability as governments have moved towards increased use of outsourcing to deliver services in the past two decades.

Acting auditor-general Dr Peter Frost welcomed the changes, describing them as “a significant step towards a stronger integrity and accountability system” for the state:

“Victoria’s taxpayers have the right to assurance that publicly funded activities are performed efficiently, effectively and in accordance with the law, regardless of whether public money is spent by a department or through a contract. This Bill goes a long way towards closing this accountability gap and finally provides the Auditor-General with ‘follow-the-dollar’ powers. The changes to the Audit Act 1994 will enable the Auditor-General to consider and report on a much wider pool of programs and services, such as prisons operated under contract with the private sector, transport infrastructure built and operated under public-private partnerships, and community services operated by the not-for-profit sector.”

The auditor-general’s 2016-17 annual plan, due to be tabled in parliament in June, will include details of the first planned follow the dollar audits.

The reforms have been a long time in the making. In 2010 the parliamentary Public Accounts and Estimates Committee recommended the Act “be amended to assign an explicit authority for the Auditor‑General to access the systems and records of public sector contractors and their subcontractors pertaining to the delivery of services under contracts in the Victorian public sector.” It’s a topic that’s been raised many times by auditors-general, and during the 2014 state election campaign then-auditor-general John Doyle ruffled some feathers by publicly advocating for follow the dollar powers.

IBAC bolstered

Since IBAC was established, concerns have been raised by both the commission itself and stakeholders that its corrupt conduct jurisdiction is too narrow and its investigative threshold too high to enable it to investigate corruption effectively.

The changes will lower the investigative threshold. Currently IBAC can only look into “serious” corrupt conduct, but when the reforms come into force the anti-corruption body will be have the power to investigate all corrupt conduct. It will also be able to begin an investigation when it suspects corruption may have taken place, rather than when it is reasonably certain. Government MP Jacinta Allen said this removes the requirement IBAC “have prima facie evidence of a relevant offence, and reduces the amount of evidence that IBAC needs to gather, before it starts an investigation.”

The bill broadens IBAC’s jurisdiction by allowing IBAC to investigate corrupt conduct involving the common law offence of misconduct in public office. Allen explained:

This offence is a ‘catch-all’ offence that can be used to start an investigation where the conduct does not otherwise constitute an offence currently within IBAC’s corrupt conduct jurisdiction (i.e. statutory indictable offences and the common law offences of attempting to pervert the course of justice, perverting the course of justice, and bribery of a public official). The offence of misconduct in public office includes misconduct by act or omission. The misconduct may be intentional or reckless, but it must be serious enough to warrant criminal punishment, in light of the public officer’s role and responsibilities.

She listed some examples of misconduct in public office that IBAC may be able to investigate. These include where a public officer:

  • deliberately falsifies accounts to conceal or obtain a benefit;
  • enters into a secret commission or profit sharing arrangement with another person while acting in an official capacity;
  • colludes with other public officers to share profits with tender recipients and conceals the overvaluation of tenders;
  • uses their public office to deceive a member of the public to gain a financial advantage; and
  • misuses their power to harm, oppress or disadvantage a person.

Less serious examples of misconduct will continue to be dealt with by the employer.

The bill provides IBAC with discretion to determine whether it is worth following up a referral, allowing it to conduct preliminary inquiries to determine whether a matter should be dismissed, referred to a more appropriate body or fully investigated by IBAC.

Labor committed before the election to strengthen IBAC’s powers, describing it as a “toothless tiger”. Not everyone is satisfied the current round of reforms go far enough — former Supreme Court justice Stephen Charles argues IBAC’s powers will not match those of New South Wales’ Independent Commission Against Corruption and “will still be a toothless tiger”. The government acknowledges IBAC’s reach will not be as strong as its NSW counterpart, but says this is necessary to “avoid the problems” ICAC has experienced.

The Bill is the first part of the Victorian government’s plans to overhaul the state’s integrity system, with plans afoot for an extensive review of the integrity and accountability system.

The government announced last week it would merge the offices of the Privacy and Data Protection Commissioner and Freedom of Information Commissioner to create a new Office of the Victorian Information Commissioner, as well as shortening FOI response times. A bill to enact these changes will be introduced into parliament shortly.

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