Three key agencies are not fully complying with the NSW Procurement Board’s Direction for engaging probity practitioners, according to a report released today by the Acting Auditor-General for New South Wales, Ian Goodwin. They also do not have effective processes to achieve compliance or assure that probity engagements achieved value for money.

Probity is defined as the quality of having strong moral principles, honesty and decency. Probity is important for NSW Government agencies as it helps ensure decisions are made with integrity, fairness and accountability, while attaining value for money.

Probity advisers provide guidance on issues concerning integrity, fairness and accountability that may arise throughout asset procurement and disposal processes. Probity auditors verify that agencies' processes are consistent with government laws and legislation, guidelines and best practice principles. 

According to the NSW State Infrastructure Strategy 2018-2038, New South Wales has more infrastructure projects underway than any state or territory in Australia. The scale of the spend on procuring and constructing new public transport networks, roads, schools and hospitals, the complexity of these projects and public scrutiny of aspects of their delivery has increased the focus on probity in the public sector. 

A Procurement Board Direction, 'PBD-2013-05 Engagement of probity advisers and probity auditors' (the Direction), sets out the requirements for NSW Government agencies' use and engagement of probity practitioners. It confirms agencies should routinely take into account probity considerations in their procurement. The Direction also specifies that NSW Government agencies can use probity advisers and probity auditors (probity practitioners) when making decisions on procuring and disposing of assets, but that agencies:

• should use external probity practitioners as the exception rather than the rule
• should not use external probity practitioners as an 'insurance policy'
• must be accountable for decisions made
• cannot substitute the use of probity practitioners for good management practices
• not engage the same probity practitioner on an ongoing basis, and ensure the relationship remains robustly independent. 

The scale of probity spend may be small in the context of the NSW Government's spend on projects. However, government agencies remain responsible for probity considerations whether they engage external probity practitioners or not.

The audit assessed whether Transport for NSW, the Department of Education and the Ministry of Health:

• complied with the requirements of ‘PBD-2013-05 Engagement of Probity Advisers and Probity Auditors’
• effectively ensured they achieved value for money when they used probity practitioners.

These entities are referred to as 'participating agencies' in this report.

We also surveyed 40 NSW Government agencies with the largest total expenditures (top 40 agencies) to get a cross sector view of their use of probity practitioners. These agencies are listed in Appendix two.

There are no professional standards and capability requirements for probity practitioners

NSW Government agencies use probity practitioners to independently verify that their procurement and asset disposal processes are transparent, fair and accountable in the pursuit of value for money. 

Probity practitioners are not subject to regulations that require them to have professional qualifications, experience and capability. Government agencies in New South Wales have difficulty finding probity standards, regulations or best practice guides to reference, which may diminish the degree of reliance stakeholders can place on practitioners’ work.

The NSW Procurement Board provides direction for the use of probity practitioners

The NSW Procurement Board Direction 'PBD-2013-15 for engagement of probity advisers and probity auditors' outlines the requirements for agencies' use of probity practitioners in the New South Wales public sector. All NSW Government agencies, except local government, state owned corporations and universities, must comply with the Direction when engaging probity practitioners. This is illustrated in Exhibit 1 below.

Appendix one – Response from agencies

Appendix two – List of selected agencies

Appendix three – About the audit

The Hon. Troy Grant MP, Minister for Police and Minister for Emergency Services requested an audit under section 27B(3)(c) of the Public Finance and Audit Act 1983, to determine whether expenditure on overseas travel by the Law Enforcement Conduct Commission (the Commission) complied with section 12A of the Public Finance and Audit Act 1983.

On 9 November 2018, the Hon. Troy Grant MP, Minister for Police and Minister for Emergency Services (the Minister), requested an audit under s. 27B(3)(c) of the Public Finance and Audit Act 1983 (the PF&A Act) to determine whether the expenditure of $8,074.66 on overseas travel by the Law Enforcement Conduct Commission (the LECC) complied with s. 12A of the PF&A Act.

In forming my audit conclusion, I have reviewed documentation provided by the Minister and the LECC, made enquiries of LECC staff, and sought independent legal advice on key aspects of the PF&A Act and the Law Enforcement Conduct Commission Act 2016 (the LECC Act) and their interface.
 

In my opinion, the LECC did not comply with s. 12A of the PF&A Act because the Minister:

• had not delegated his authority to approve expenditure for overseas travel to an officer in the LECC
• had specifically declined approving a request from the LECC to incur expenditure on the travel in question.

Despite this, the LECC incurred the expenditure.

In my view, the LECC required the Minister’s approval to incur the overseas travel expenditure before it could legally spend funds for this purpose from its appropriation.

The LECC is an independent investigative body, funded by appropriation, to oversight NSW Police and the Crime Commission 

The Bill to establish the LECC was introduced to parliament following a review of the police oversight system.¹ The establishment of the LECC drew together functions previously undertaken by the Police Integrity Commission, the Ombudsman and the Inspector of the Crime Commission. It aimed to ‘remove overlapping responsibilities, inefficiencies and failures’ and ‘create a single civilian law enforcement oversight body’.² 

Part 4 of the LECC Act sets out the functions of the Commission as an independent investigative body. The objects of the LECC Act are summarised in Appendix one. The LECC Act provides that the Minister cannot direct the LECC on how to perform its functions. 

Notably, s. 22 of the LECC Act states:

The Commission and Commissioners are not subject to the control or direction of the Minister in the exercise of their functions.

For the financial year ended 30 June 2018, under s. 22 of the Appropriation Act 2017 (NSW), $21,195,000 was appropriated to the Minister for the LECC’s services. This provided the statutory basis for the sum in question to be drawn from the Consolidated Fund, but only in accordance with the PF&A Act.

The PF&A Act is the legislation that governs the administration of public finances

The PF&A Act determines how expenditure is to occur and sets out the conditions under which such expenditure can occur in NSW public sector agencies.The LECC is an agency within the NSW public sector.

Section 12A of the PF&A Act stipulates that:

A Minister to whom a sum of money is appropriated out of the Consolidated Fund for a use or purpose (whether by an annual Appropriation Act or other Act) may delegate to another Minister or to an officer of any authority, or authorise another Minister to delegate to an officer of any authority, the committing or incurring of expenditure from the sum so appropriated.

Section 12 of the PF&A Act also stipulates that:

Expenditure shall be committed or incurred by an officer of an authority only within the limits of a delegation in writing conferred on the officer by a person entitled to make the delegation.

The relevant ‘authority’ in this case was the Office of the Law Enforcement Conduct Commission (Office of the LECC) - a body which, under the Government Sector Employment Act 2013 (the GSE Act)³ employs the staff of the LECC.

Prima facie, as the LECC is funded by appropriation and is subject to the PF&A Act, its officers can only commit or incur expenditure with a delegation from the Minister.

The Minister did not delegate his right to approve expenditure on overseas travel

In April 2017, the Minister approved the LECC’s financial delegations under the authority vested in him by s. 12A of the PF&A Act. However, he reserved his right to approve any expenditure on overseas travel. This effectively required the LECC to obtain his approval for each instance of such expenditure.⁴ 

The Minister declined approval of a LECC request for an officer to travel overseas 

In August 2017, the Chief Commissioner sought the Minister’s approval to incur overseas travel expenditure. The Minister exercised his right under the PF&A Act to decline the request and confirmed this in writing:

Establishment of LECC being in its infancy, travel is not supported at this time. Operating priorities should be the focus at this time.

The LECC paid the overseas travel expenses without a delegation or Ministerial approval

In October 2017, despite the absence of a delegation or approval from the Minister to incur expenditure on overseas travel, the Chief Commissioner approved a total of $8,074.66 for the LECC’s Director of Covert Services to travel to, and attend an international conference.
 
The LECC booked and paid for the travel in four payments between October and December 2017. Over the same period the Chief Commissioner reimbursed the agency for these expenses from his personal funds. On 13 October 2017, the Chief Commissioner wrote to the Minister asking him to reconsider his decision. On 12 January 2018, in the absence of a response from the Minister, the Chief Commissioner directed the LECC’s finance officer to ‘repay the relevant costs to my account’.⁵ On 16 January 2018, the LECC’s Chief Executive Officer approved the reimbursement to the Chief Commissioner, which occurred on 17 January 2018. Appendix three provides further detail on the series of payments. 

The Chief Commissioner first disclosed he had been reimbursed for the expenses, without Ministerial approval, in March 2018. In August 2018, the Chief Commissioner made a further disclosure about the expenditure at Budget Estimates.⁶

The Chief Commissioner argues the overseas travel expenditure was properly incurred

The Chief Commissioner argues the LECC’s overseas travel expenditure was properly incurred because:

• the travel was undertaken in pursuit of the detective and investigative functions specified in s. 26(b)(i) of Part 4 of the LECC Act⁷  
• a specific reservation in public policy cannot be qualified by general rules of public policy.⁸ The Chief Commissioner argues s. 22 of the LECC Act is a specific provision that conflicts with the general provisions in ss. 12 and 12A of the PF&A Act. In his view, the conflict is resolved by applying the principle that a specific later provision effectively repeals an earlier general provision. In his view, the LECC Act contains a specific provision that the Minister cannot direct the LECC in exercising its functions, whereas the PF&A Act contains general provisions which deal with the spending of public money.

The Chief Commissioner believes the Minister’s decision⁷:

• was not made in the bona fide exercise of the power conferred on him by the PF&A Act as it interfered with the management of the LECC’s operating priorities
• and his failure to enquire into the operational situation of the LECC were not decisions a rational decision maker could have made
• was made for an improper purpose and was biased, in that the Minister had approved expenditure for a member of NSW Police to travel to the conference, but denied the same to a member of the LECC, which oversights NSW Police
• breached s. 22 of the LECC Act, because it directed the LECC Commissioners in the exercise of their functions.

The Crown Solicitor and Solicitor General advised the expenditure breached the PF&A Act

On 7 September 2017, the Crown Solicitor advised the Office of Police (part of the Department of Justice) that:

The Minister’s authority to determine whether or not to approve a particular expenditure from the amount appropriated from the Consolidated Fund for the purpose of the Commission under the Constitution Act 1902 and the PF&A Act is not affected by s.22 of the LECC Act. These have different spheres of operation. It is not unusual for otherwise independent bodies to be subject to restrictions with respect to the use of public moneys.⁹

Subsequently, the Crown Solicitor asked the Solicitor General to review the matter of her previous advice. On 14 December 2017, the Solicitor General concurred with the Crown Solicitor’s advice. He concluded that:

Although LECC has a high degree of independence under its legislation, it is a body operating in the public sector and within the context of the broad policies of the government of the day in relation to public administration... it is not a function of LECC or its Commissioners to deal directly with money appropriated to the Minister out of the Consolidated Fund.¹⁰

The Secretary of the Department of Justice forwarded the Crown Solicitor’s and the Solicitor General’s advice to the Chief Commissioner.¹¹ The Chief Commissioner continues to contest the Crown Solicitor’s and the Solicitor General’s advice.¹²

The Minister referred the matter to the Inspector of the LECC

In August 2018, the Minister referred the Chief Commissioner’s disclosure in Budget Estimates¹³ that he had been personally reimbursed for an expense concerning overseas travel by an officer of the LECC, to the Inspector of the LECC (the Inspector).¹⁴ The Inspector is the person, under s. 122 of the LECC Act, responsible for 'auditing the operation of the Commission for the purpose of monitoring compliance with the law of the State'. On 4 September 2018, the Inspector recused himself from investigating the Minister’s complaint.¹⁵ In his letter to the Premier dated 19 September 2018, he wrote ‘I informed the Minister for Police that I had acquired information in my capacity as Inspector of LECC (and in the discharge of my statutory functions) prior to receiving his letter of complaint…’. He further suggested to the Minister and the Premier that an Assistant Inspector be appointed to investigate the complaint under s. 121(1) of the LECC Act to give ‘proper and independent’ consideration to the Minister’s complaint.¹⁶ 

The Minister asks the Auditor General to audit the transaction’s compliance with the PF&A Act

An Assistant Inspector appointed under section 121 of the LECC Act can exercise any function of the Inspector, including ‘auditing the operations of the Commission’. The reasons why an Assistant Inspector was not appointed to investigate the matter are not apparent. Instead, on 9 November 2018, the Minister requested the Auditor General to conduct an audit of whether the expenditure complied with s. 12A of the PF&A Act.¹⁷

In forming my adverse conclusion, I considered the Chief Commissioner’s argument that s. 22 of the LECC Act prevailed over those sections of the PF&A Act that deal with spending public money, and:

• the principles of statutory interpretation that might apply when a potential conflict between a general provision in one Act and specific provisions in another exists
• whether an apparent conflict exists
• whether the Chief Commissioner was entitled to incur the expenditure without Ministerial approval
• whether the Minister was lawfully entitled to withhold approval for the expenditure from the Chief Commissioner.

The principles of statutory interpretation apply where potential conflicts exist between Acts

A basic principle of statutory interpretation is that all legislation be given its full scope and effect. Courts, and thereby other interpreters, are not at liberty to consider any word or meaning as superfluous. The starting point is that all words must be given some meaning and effect.¹⁸ If there is an apparent conflict between two Acts, the pieces of legislation should be read in such a way as to avoid that conflict by giving the words the construction that produces the greatest harmony and the least inconsistency.¹⁹

One way conflict can be avoided is to apply the approach that a later general provision does not override an earlier specific provision.²⁰ However, this approach is rebuttable, as a later general Act might also be said to qualify an earlier specific Act.²¹ The reverse can also apply, in that a later specific Act can be claimed to qualify or supersede an earlier general provision. In such a case, it is said that the later Act impliedly repeals the earlier. This is an easier case to make out because it is apparent the parliament has dealt with the specific instance and it would be reasonable to expect that it had considered any contrary general legislation. However, here again, the courts have qualified this approach by suggesting it should be presumed unlikely that a parliament would intend to contradict itself. If the specific Act was intended to qualify an earlier general Act, then the legislation would have spelt this out.

One must therefore always start from the premise that all words are to be given meaning and effect, and that meaning should enable both pieces of legislation to operate. It is only where the point is reached that it is not possible for both pieces of legislation to operate to their full extent that the approaches to resolving conflicts can be usefully invoked. The approaches may then be useful to determine which is the primary provision and which provision must give way to the requirements set out in that primary provision.

Is there an apparent conflict between the LECC Act and the PF&A Act that needs to be resolved?

No. The LECC Act deals specifically with the operational functions of the LECC, while the PF&A Act deals with the specific issue of expenditure by a delegate of the Minister. 

The Chief Commissioner argues that s. 22 of the LECC Act is a specific provision and should take precedence over general delegation provisions in the PF&A Act, namely ss. 12 and 12A. He argues this because s. 22 deals specifically with the operation of the LECC and prohibits the Minister from directing the LECC in the performance of its functions. In his view, this includes the administrative and financial functions impliedly invested in the LECC for it to perform the specific functions referred to in the LECC Act.

However, it can also be readily argued that s. 22 of the LECC Act deals with the general issue of Minister's directions to the LECC and the PF&A deals with the specific issue of expenditure by a delegate of the Minister. While the expenditure of funds may be essential for the LECC to perform its functions, that expenditure is controlled by the PF&A Act, as it controls all expenditure from the Consolidated Fund. The PF&A Act is the specific legislation that relates to expenditure.

The issues that have arisen can be resolved by looking at the effect of the two Acts in their application to the facts. In my view, the PF&A Act and the LECC Act can be applied to the facts under consideration as they deal with different issues and are thereby capable of separate operation. 

Was the LECC able to incur expenditure without Ministerial approval?

No. The PF&A Act applies to the LECC in the same way it applies to all NSW Government agencies. While the Minister had approved the LECC’s financial delegations under the authority vested in him by s. 12A of the PF&A Act, he reserved his right to approve all expenditure on overseas travel. This effectively required the LECC to obtain his approval for each instance of such expenditure. As the Minister did not approve the overseas travel request, the Chief Commissioner was not legally able to authorise the expenditure.

The PF&A Act determines how expenditure is to occur and sets out the conditions under which such expenditure can occur in New South Wales public sector agencies. Expenditure can ‘only be committed or incurred by an officer of an authority within the limits of a delegation in writing conferred on the officer by a person entitled to make the delegation’.²²

Was the Minister lawfully entitled to withhold approval of the overseas travel expenditure?

Yes. If one accepts the premise that the PF&A Act determines the basis on which public money can be spent, it follows that the Minister could exercise the discretion reserved to him by financial delegation and withhold approval of the overseas travel expenditure for the LECC officer.

Section 22 of the LECC Act prevents the Minister from directing the LECC to send (or not to send) an officer to a conference. However, the Minister did not direct the LECC as to whether the person should or should not attend the conference. Rather, he exercised the responsibility given to him to determine how public funds were to be spent.

The appropriation to the LECC provided funding to the delegate of the Minister to support the performance of the agency’s functions. However, the expenditure of money for overseas travel was governed by ss. 12 and 12A of the PF&A Act. This gave the Minister discretion to approve or refuse to approve expenditure for overseas travel on a case by case basis. It follows from this that the Chief Commissioner was not entitled to spend money for overseas travel, even though in the Commissioner’s view it was beneficial to the performance of the LECC’s functions.

It may be suggested that the Minister’s refusal to provide funding for a particular function may have the same effect as directing an agency not to perform that function. NSW’s constitutional structure of government establishes that public money can only be spent in accordance with legislation and if expenditure requires a Minister’s approval, that approval establishes the ability of an agency to spend that money. That said, in reserving approval for certain types of expenditures, care should be exercised not to unduly interfere with the legitimate functions of independent agencies.

This assurance audit is a ‘direct engagement’ whereby the Auditor‑General provides the Minister and parliament with reasonable assurance about whether $8,074.66 spent on overseas travel by the LECC complied, in all material respects with s. 12A of the PF&A Act.

My audit was conducted in accordance with applicable Standards on Assurance Engagements (ASAE 3100 ‘Compliance Engagements’).

In conducting my audit, I have complied with:

• the independence requirements of Australian Auditing and Assurance Standards
• ASQC 1 ‘Quality Control for firms that Perform Audits and Reviews of Financial Reports and Other Financial Information, Other Assurance Engagements and Related Service Engagements’
• relevant ethical pronouncements.

Parliament promotes independence by ensuring the Auditor‑General and the Audit Office of New South Wales are not compromised in their roles by:

• providing that only parliament, and not the executive government, can remove an Auditor‑General
• mandating the Auditor‑General as auditor of public sector agencies
• precluding the Auditor‑General from providing non‑audit services.

I have reviewed documentation provided by the Minister and the LECC, gained an understanding of the LECC’s controls and processes for approving and making expenditure and made enquiries of LECC staff. I have also:

• gained an understanding of the relevant pieces of legislation and case law
• reviewed the advice of the Crown Solicitor and the Solicitor‑General
• sought independent legal advice on key aspects of the PF&A Act and the Law Enforcement Conduct Commission Act 2016 (the LECC Act) from an acknowledged expert in statutory interpretation
• conducted interviews with key persons
• reviewed the documentation listed in Appendix four.

Appendix one - Legislated functions of the LECC

Appendix two - Timeline of events

Appendix three - The transactions

Appendix four - Interviews and key documents

NSW Government agencies engage consultants to provide professional advice to inform their decision‑making. The spend on consultants is measured and reported in different ways for different purposes and the absence of a consistently applied definition makes quantification difficult.

The NSW Government’s procurement principles aim to help agencies obtain value for money and be fair, ethical and transparent in their procurement activities. All NSW Government agencies, with the exception of State Owned Corporations, must comply with the NSW Procurement Board’s Direction when engaging suppliers of business advisory services. Business advisory services include consultancy services. NSW Government agencies must disclose certain information about their use of consultants in their annual reports. The table below illustrates the detailed procurement and reporting requirements.

We examined how 12 agencies complied with their procurement and reporting obligations for consultancy services between 1 July 2016 and 31 March 2018. Participating agencies are listed in Appendix two. We also examined how NSW Procurement supports the functions of the NSW Procurement Board within the Department of Finance, Services and Innovation.

This audit assessed:

• agency compliance with relevant procurement requirements for their use of consultants
• agency compliance with disclosure requirements about consultancy expenditure in their annual reports 
• the effectiveness of the NSW Procurement Board (the Board) in fulfilling its functions to oversee and support agency procurement of consultancy services. 

Appendix one - Response from agencies

Appendix two - List of selected agencies

Appendix three - Performance auditing

A report released today by the Auditor-General for New South Wales, Margaret Crawford, presents key findings from four years of performance audits. The report findings are presented around six areas of government activity including planning for the future, meeting community expectations for key services, investment in infrastructure, managing natural resources, ensuring good governance and digital disruption.

In this report, we present common findings and lessons from the past four years of performance audits, and offer insights to the public sector on elements of effective performance. We have analysed the key findings and recommendations from 61 performance audits tabled in the NSW Parliament between July 2014 and June 2018, spanning varied areas of government activity. We will also use this report to help determine areas of unaddressed risk across all parts of government, and to shape our future audit priorities.

Governments play an important stewardship role. Their decisions need to consider intergenerational equity by ensuring that investment strategies are sustainable. Governments also need to consider the impact of their decisions on different parts of the community. We recognise that governments face challenges in delivering programs and services, targeting complex social issues with finite resources.

Governments are changing how they deliver services to respond to citizen needs and deliver greater value for money. In this section, we reflect on audits that looked at how government entities are planning their activities to meet the needs of the community into the future.

State and local government exist to provide services to citizens, and citizens are playing a greater role in defining what services they want or need. Expectations about consultation, ease of access, timeliness, and customisation of services are rising. Governments face challenges to continually improve the way they plan and deliver services to meet these expectations. Governments also need to provide quality services for a growing and ageing population whilst working within a constrained financial environment.

Over the past four years, our performance audits have assessed aspects of State and local government services, including education, health services, disability support, corrective services, and many others. In this section, we draw together common findings that government entities should reflect on when providing services to the community.

The NSW Government’s 2018–19 Budget forecasts an $87.2 billion infrastructure investment program over the next four years. Infrastructure investment of this size carries significant opportunities and risks. Competition for resources is high and maintaining the capability to manage and deliver projects effectively is challenging. Governments also need to plan effectively to ensure infrastructure built today will meet future needs.

Over the past four years, we have looked at some of the ways NSW Government agencies justify and prioritise projects for funding, work with contractors to deliver projects, and track and report on progress. In this section, we draw together common findings from our audits that government entities should consider when planning future infrastructure projects.

Governments face challenges in balancing the use of natural resources to meet diverse interests, while supporting a sustainable natural environment for the future. They need to supply communities with water, produce energy, protect natural habitats, and support farming, industry, and economic development.

Some of our recent audits have considered how government agencies are managing natural resources and protecting the environment for future generations. In this section, we have drawn together common findings across our audits that government entities should consider in managing the environment and natural resources.

A range of checks and balances is needed to support public confidence in government decision making. To maintain trust, government agencies should act transparently, and in accordance with relevant legislation and policy. This is particularly important as the public sector increasingly engages with external partners to deliver services and provide a more contestable environment.

Good governance arrangements should result in improved service delivery and more effective and efficient use of resources. Our audits have looked at many different elements of governance, including making sure the necessary processes and workplace cultures are in place to help government entities achieve their aims. In this section, we have drawn together various aspects of governance that government entities should consider.

The global increase in digital technology provides governments with opportunities to interact with citizens in more immediate and responsive ways than was previously possible. Data can be used in powerful ways such as predicting future demand for services, targeting interventions, responding to crises, and evaluating outcomes. Governments face challenges in doing this while maintaining secure digital environments that protect citizen interests, privacy, and autonomy.

Our audits have assessed some of the ways that government entities are incorporating digital change into their work. In this section, we draw together common themes that governments could consider in protecting their digital assets, or expanding their digital capabilities.
 

Appendix one – Performance audits 2014 to 2018

Appendix two – Performance auditing

Appendix three – About this report