Corruption risks identified by IBAC in relation to public sector boards include:
Conflicts of interest
To maintain integrity and public trust, it is important that all boards have policies and systems to identify and appropriately manage conflicts of interest. Having a conflict of interest is not in itself corrupt conduct. However, when board members have private interests in the resource or organisation being managed by the board, this could improperly influence, or be seen to influence, their decisions or actions. Integrity issues arise and the potential for corruption exists when there is a failure to properly identify, declare and manage the conflict of interest.
Theft and misappropriation of funds
The most significant risk relevant to small volunteer boards (such as COMs and cemetery trusts) is their vulnerability to theft and misappropriation of funds. Many of these small boards have little interaction with, or active oversight by, their responsible government departments. Many boards struggle to fill board positions and the financial management and governance expertise of members may be limited. All these factors can contribute to the risk of theft or misappropriation of funds.
Bribery and inducements
Members of public sector boards can be susceptible to offers of gifts, benefits and hospitality or even bribes from businesses in return for lucrative contracts or favourable treatment. Board members often have considerable authority to award contracts or allocate funds. These decisions must be made in the best interests of the community and consistent with public sector values and guidelines, with appropriate management of conflicts of interest.
For example, IBAC has completed two investigations into allegations of attempted bribery within cemetery trusts – Operation Wyong and Operation Denmark. Demand for cemetery plots with specific characteristics that meet religious or cultural requirements makes cemetery trusts a potential target for bribery. This is especially so in metropolitan Melbourne, where the number of plots is limited.
Boards are entrusted with public money and assets that should be used only in the public interest. Smaller boards whose members have little experience and oversight from their governing departments are vulnerable to adopting inappropriate practices, which may facilitate and mask corruption.
The Victorian Auditor-General’s Office (VAGO) previously identified this as a major concern for cemetery trusts who run a commercial business yet may have little understanding of the governance framework within which they operate. Inappropriate practices identified include providing commissions on cemetery sales, loans to staff and inappropriate use of cemetery assets.1
Audits are not compulsory for most COMs and cemetery trusts. Anomalies in the procurement process may be noticed if an independent audit of a COM or cemetery trust’s finances is conducted. Volunteer boards such as cemetery trusts and COMs for crown land are not bound by the policies and standards of the Victorian Government Purchasing Board, although they are encouraged to use the standards as a guide.
Many of these boards are located in regional areas where cash transactions are common. There is a risk that boards may approach local vendors with whom they have an existing relationship and pay cash for services. This may help the vendor avoid income tax and proper record keeping. It can also lead to complications during investigations where there are limited records of transactions and poor record keeping, and vendors may be reluctant to assist investigators for fear of being identified as engaging in tax fraud.
Department of Education support and oversight of school councils
The Department of Education has advised IBAC that it recognises the vulnerabilities of school councils and provides support and oversight arrangements to the sector.
In particular, school councils must comply with the Finance Manual for Victorian Government Schools, which sets out financial management policies and requirements for schools. The Department’s School Council Financial Assurance program reviews the existence and effectiveness of finance-related governance activities undertaken by school councils. The program covers about 450 schools a year through agreed procedures and schools’ internal audits.
In addition to financial policies and the audit program, school councils have access to detailed advice and guidance on purchasing goods and services for their school, including step-by-step procurement guidelines.
All school council members, including student members, are offered face-to-face training at the local level. Training is delivered across Victoria by a third-party provider using the Improving School Governance package. The package’s five modules (Governance, Finance, Strategic Planning, Policy and Review, and School Council President) improve the knowledge, understanding and skills of school council members, school council presidents and school principals. Other resources available to school councils include a skills and expertise guide and a self-assessment tool.