governance bulletin - issue 13 december 2016 - dlgsc.wa…€¦ · web viewthis publication has...

Governance Bulletin - December 2016 editionIssue 13

Welcome from the Director GeneralWelcome to the third issue of the Department of Local Government and Communities’ (the department) Governance Bulletin for 2016. This issue has a special focus on lessons learned arising from a recent report of the Corruption and Crime Commission (CCC) into governance issues at the Shire of Dowerin (the Shire). The report followed an investigation into the misappropriation of more than $600,000 in Shire funds over a period of four years and subsequent public examination of the circumstances that enabled the embezzlement to occur undetected.

The CCC identified a lack of internal policies and procedures to prevent fraud, exacerbated by a lack of understanding among elected council members as to the extent of their role in overseeing the administrative aspects of the Shire’s operations.

This bulletin looks at the issues raised by the CCC and explores how council members can take steps to ensure that appropriate checks and balances are in place to mitigate the risk of fraud. It also looks at how a greater understanding by council members of their legislative role can address any potential confusion about where their relationship with the administration begins and ends.

I hope you find the content beneficial and continue to be a part of our readership.

To provide suggestions and to add or update your email address, please contact us at [email protected] or by telephone on 6551 8700.

Jennifer MathewsDirector General

: Governance Bulletin – December 2016 edition

mailto:[email protected]

ContentsWelcome from the Director General..................................................................................1

Lessons Learned – The recent report of the Corruption and Crime Commission on a matter of governance at the Shire of Dowerin...............................................................3

Why is it necessary to understand the governance role of council?..........................3

How were events at the Shire of Dowerin possible?..................................................3

Don’t the rules prevent council involvement in administration?.................................6

What is the appropriate relationship between councils and administrations?............7

What lessons can all council members learn from recent events?............................7

Upcoming elected member training*...........................................................................10

Legislation update: Changes to the Local Government Act 1995................................10

Updated Integrated Planning and Reporting (IPR) guidelines.....................................12

Key compliance dates.................................................................................................13

This publication was prepared by:

Department of Local Government and Communities Gordon Stephenson House, 140 William Street, PERTH WA 6000 GPO Box R1250, PERTH WA 6844

Telephone: (08) 6551 8700 Fax: (08) 6552 1555 Freecall (Country Only): 1800 620 511

Email: [email protected] Web: www.dlgc.wa.gov.au

This publication has been produced with accessibility in mind and is available in PDF and Word formats on the department’s website. All or part of this document may be copied. Due recognition of the source would be appreciated. For translating and interpreting assistance, please contact Translating and Interpreting Service (TIS) on telephone 13 14 50.


http://www.dlgc.wa.gov.au/


Lessons Learned – The recent report of the Corruption and Crime Commission on a matter of governance at the Shire of DowerinA recent report of the Corruption and Crime Commission (CCC) into governance problems at the Shire of Dowerin (the Shire) has highlighted issues of crucial interest for the entire sector.

Earlier this year, a CCC investigation culminated in the conviction of the former Chief Executive Officer (CEO) of the Shire for stealing as a public servant. More than $600,000 from Shire funds were misappropriated over a period of four years. This prompted a further inquiry by the CCC into how the circumstances arose that allowed such fraud to occur for so long without detection.

In its report released on 10 October 2016, the CCC detailed an ongoing series of failings in both administrative processes at the Shire and the elected council’s governance and oversight of those processes. The report noted that the Shire had learned its lessons, however, it also highlighted the need for other local governments to review and monitor administrative processes. Critically, the report emphasised that the experiences of the Dowerin Shire Council (the council) and its administration provide a cautionary tale for all local governments across the State.

Why is it necessary to understand the governance role of council?

The Local Government Act 1995 (the Act) and its regulations provide a governance framework that mandates council’s responsibility to govern the local government’s affairs.

In its report, the CCC noted a general assumption that the CEO would reliably report to council members what they needed to know. The department agrees that the CEO’s reporting function is pivotal, but council members also need an understanding of the level of inquiry needed to maintain adequate oversight of the affairs of the local government. The events that occurred at the Shire can provide valuable insights for other councils.

How were events at the Shire of Dowerin possible?

A fundamental aspect of the CEO’s ability to misappropriate funds for so long was the absence of financial policies to guide financial management processes and the lack of an administrative structure that facilitated compliance.


“There were few financial policies in place while Mr Alcock was CEO. Dowerin had no corporate credit card policy. Mr Alcock retained the credit card statements and did not provide them to the finance manager”1

“Standard risk mitigation is to have checks and balances. A routine financial precaution is to require two people to authorise a payment. In times gone by, this was achieved by having two signatories on a cheque account. The modern equivalent is an electronic token with accompanying password”2

“When Ms King went on leave they emailed the CEO the location of the tokens and where they could find stored passwords. So the supposed precaution was missing.”3

This enabled the CEO to assume full control of procedures that should have been separated between positions within the organisation.

Submissions made on behalf of the President and Deputy President of the Shire stated that the Act and its regulations do not contemplate the council acting as a ‘check and balance’ on the adequacy and accuracy of the financial reports presented to it by the CEO, nor the financial management of the local government generally. The CCC rejected this submission:

“Council is to ensure that there is an appropriate structure for administering the local government. Council is to employ a suitably qualified CEO and annually review the CEO’s performance. The CEO must review the financial management systems and procedures regularly (not less than once every four years) and report the results of the review.”4

Further, the Shire was operating without a proper audit committee. Under the Act and the Local Government (Audit) Regulations 1996 (Audit Regulations), this committee must consist of three or more members and at least three (and a majority) of the members must be council members. Neither the CEO nor any employee can be a member of the committee.

The Shire did have a ‘finance and audit’ committee however the CEO and Finance Manager were members, and it did not perform the legislative functions of an audit committee. The ‘finance and audit’ committee that existed at the time discussed only the

1 ‘Report on a Matter of Governance at the Shire of Dowerin’ (Corruption and Crime Commission, 10 October 2016) [87].2 Ibid [88].3 Ibid [88].4 Ibid [22].


payment of accounts. The council was unaware that the ‘finance and audit’ committee had to be separate. As with policy development and review, functions legitimately given to council and the audit committee were not performed, they were assumed to be entirely operational and not a responsibility of the audit committee.

“As a part of its oversight function, a council is required to form an audit committee. This is an important role because auditors report to the audit committee not the CEO. Dowerin never established an audit committee. It had a nominal Finance and Audit Committee but it exercised no audit functions. The auditors knew the Council was non-compliant but did nothing. They effectively reported to Mr Alcock”5

The department’s ‘Local Government Operational Guidelines Number 09 – Audit in local government’ states the role of an audit committee is to:

support council in fulfilling its governance and oversight responsibilities in relation to financial reporting, internal control structure, risk management systems, internal and external audit functions and ethical accountability

critically examine the audit and management reports provided by the external auditor – the committee would then determine if matters raised in the reports require action to be taken by the local government and ensure that appropriate action is implemented

receive and authorise the report relating to the audit prepared by the CEO that is to be sent to the Minister.

The department’s operational guideline contains both a model ‘terms of reference’ for a local government audit committee and a model ‘minimum standard audit specification’ for use by the committee when considering the scope of a local government’s annual audit.

5 ‘Report on a Matter of Governance at the Shire of Dowerin’ (Corruption and Crime Commission, 10 October 2016) [117].


Important to note: The CCC observed in its report that council members needed to be aware of the fact that: “attention needs to be paid to the scope of work contracted with the auditor, an audit may not detect fraud, and it is the council’s responsibility to have robust policies and procedures to mitigate the risk of fraud.”6

Don’t the rules prevent council involvement in administration?

Due to the separation of responsibilities for councils and CEOs under the Act there is a misconception that a solid barrier exists between these two parts of the local government. However, the Act provides the context in which they can work together.

Important to note: The CCC’s report identified the misinterpretation of regulation 9 of the Local Government (Rules of Conduct) Regulations 2007 (Rules of Conduct) as a source of confusion for the council in relation to their roles. This provision restricts council members from undertaking a task that ‘contributes to the administration’ of a local government.

The separation of responsibility may cause confusion as to the extent to which the council can enquire into the operations of local government as was noted by a witness to the examination.

“The issue of operational, the separation of roles in the Act, is quite often used as shields by CEOs. “Butt out, that’s now operational,” so some elected members, particularly those who haven’t been to training or haven’t any widespread knowledge of local government, they may have concerns, but don’t know how to go about dealing with it.

“In my view where the issue of concern relates to the governance of the Shire, elected members have a legitimate right to be involved and ask questions.”7

6 Ibid [182].7 ‘Report on a Matter of Governance at the Shire of Dowerin’ (Corruption and Crime Commission, 10 October 2016) [31], quoting Mr Gary Martin, A/CEO, Shire of Dowerin.


What is the appropriate relationship between councils and administrations?

Section 2.7 of the Act states that the council is responsible for the performance of a local government’s functions, then specifies the roles of:

overseeing the allocation of finances and resources determining the local government’s policies.

A key responsibility within council’s strategic decision making role is to approve the annual budget. There are also legislative provisions that necessitate budgetary reporting to council at particular times, and it is therefore incumbent on council to provide regular and ongoing oversight of how finances are allocated. This does not extend, however, to operational or day-to-day decision making.

Policy development and review is as much the responsibility of council as budgeting, and has a clear impact at the operational level. While administrative procedures fall within the realm of the CEO and senior employees, the Act intends that those procedures, wherever appropriate, be guided by council policy. Although there is no legislative requirement for policies to be reported or reviewed at particular times, it is important that council reviews these policies regularly, to ensure that they provide for the necessary procedures, controls and safeguards described elsewhere in this bulletin.

What lessons can all council members learn from recent events?

Some of the questions that every council should consider are:

1. Do we have policies in place to govern the use of credit cards? The importance of this was noted in the September 2016 edition of this bulletin, and is also covered in the department’s ‘Local Government Operational Guidelines Number 11 – Use of Corporate Credit Cards’.

2. Do we have adequate policies in place to provide internal financial controls and mitigate the risk of fraud, including monthly reconciliation of all bank accounts?

3. Are these policies supported by procedures that ensure adequate security for financial transactions, such as authorisation of payments by more than one person?

4. Are we giving consideration to the CEO’s periodic reviews of financial management systems and procedures as required by regulation 5 of the Financial Management Regulations?


5. Do we have an audit committee established in accordance with Part 7 of the Act? Does it have appropriate terms of reference? Refer to the model ‘terms of reference’ in the department’s ‘Local Government Operational Guidelines Number 09 – Audit in local government’.


6. Are the audit committee and council satisfied with the scope of the local government’s annual audit? Refer to the model ‘minimum standard audit specification’ in the department’s ‘Local Government Operational Guideline Number 09 – Audit in local government’.

7. Most vitally, do we have an appropriate awareness of our responsibilities as council members under the Act and its regulations? Have we sought opportunities for education and training to improve our understanding of our role in ensuring good governance?

In its report, the CCC noted the difficulty in fulfilling the responsibilities of a councillor ‘without some knowledge or training’.8

“Being a councillor enables a person to participate in decisions affecting their community but it comes with the responsibility to understand the duties and requirements. The DLGC publishes extensive guidance for elected members. It funds WALGA through Royalties for Regions to undertake training courses in rural regions. Elected members represent the interests of electors, ratepayers, and residents of the district but are also part of a council that governs the affairs of the local government and is responsible for its functions.”9

The CCC’s report observed that a council’s primary duty of governance can be assisted by training. Council members’ expertise required to perform their roles can be enhanced through training by emphasising what they really need to know.

The reality is that greater legislative understanding can address much of the confusion among council members regarding their relationship with their administration – most importantly where that relationship begins and ends.

8 ‘Report on a Matter of Governance at the Shire of Dowerin’ (Corruption and Crime Commission, 10 October 2016) [69].9 ‘Report on a Matter of Governance at the Shire of Dowerin’ (Corruption and Crime Commission, 10 October 2016) [83].


Upcoming elected member training*WALGA is continuing its program of elected member training with the support of the ‘Royalties for Regions’ Country Local Government Fund. Training dates for late 2016 and early 2017 are below.

Seminar date Topic and location

1 December 2016 Better Planning Decisions (Karratha)

2 December 2016 Sustainable Asset (Infrastructure) Management (Karratha)

1 February 2017 Understanding Financial Reports and Budgets (Esperance)

2 February 2017 Sustainable Asset (Infrastructure) Management (Esperance)

9 February 2017 Understanding Financial Reports and Budgets (Albany)

10 February 2017 Sustainable Asset (Infrastructure) Management (Albany)

16 February 2017 Better Planning Decisions (Kalgoorlie)

17 February 2017 CEO Performance Appraisals (Kalgoorlie)

27 February 2017 Better Planning Decision (Beverley)

28 February 2017 Sustainable Asset (Infrastructure) Management (Beverley)

* For more information, please contact Ms Jacqui Dodd, training services manager at WALGA on 9213 2000.


Legislation update: Changes to the Local Government Act 1995The Local Government Legislation Amendment Act 2016 recently passed both Houses of Parliament and will come into effect in two stages. Amendments focused on reducing red tape, improving flexibility and empowering local governments to work collaboratively in service delivery.

The following provisions are expected to take effect in mid-November, following gazettal:

Amendments streamline the Local Government Standards Panel’s (the Panel) complaints process by allowing the Panel to dismiss frivolous, trivial, misconceived or vexatious complaints. It will also allow complainants to withdraw complaints they have made to the panel. This should allow the Panel to deal with more serious complaints in a timelier manner.

The electoral offence relating to defamatory statements during elections has been deleted from the Local Government Act 1995 (the Act) as complaints are more appropriately dealt with under the Defamation Act 2005.

The local law making process under section 3.12 of the Act has also been simplified to remove the automatic invalidation of local laws where the legislated process has not been stringently followed. This means that as long as the section 3.12 process has been ‘substantially’ complied with, local laws will not be found invalid for minor errors in that process.

Departmental Circular 28-2016 was released to all local governments on 16 November 2016 to give further detail on the amendments and their effective dates.

The remaining amendments relate to the introduction of the regional subsidiary model. This allows two or more local governments to form a body to jointly provide a service or carry out an activity – without the level of compliance required of a regional local government. A discussion paper seeking feedback on the regional subsidiary proposal was circulated to all local governments for comment in September 2016. Those comments have been analysed and are informing the development of regulations. The regulations will provide the legislative framework under which regional subsidiaries may be established.


http://www.dlgc.wa.gov.au/Publications/Pages/Circular-28-2016.aspx

Updated Integrated Planning and Reporting (IPR) guidelinesFollowing the valuable input received from local governments at the recent Integrated Planning and Reporting (IPR) workshops, the department has updated the suite of planning and reporting guidelines.

The revised guidelines will assist local governments with progressing towards the development of the second major strategic community plan and supporting documents.

The input from the 70 local governments and key sector stakeholders who participated in the recent IPR Workshops resulted in extensive improvements to the guidelines.

The following publications have been updated and are now available on the department’s IPR web page:

Framework and Guidelines Advisory Standard Long Term Financial Plan Guidelines Asset Management Guidelines.


Key compliance dates

Compliance date Requirement to be met

By 31 December 2016 Auditor to examine local government’s accounts and annual financial report, and prepare audit report.

Within 30 days of completion of audit Auditor to provide copy of local government’s audit report to Minister for Local Government, to mayor or president, and to CEO.

Within 30 days of receipt of audit report

Local government to submit copy of its annual financial report to Department of Local Government and Communities.

By 31 December 2016 (or within two months of completion of audit report if it is not available in time for annual report to be accepted by 31 December)

Council to accept annual report.

Between 1 January and 31 March 2017

1. Local government’s administration to complete legislative compliance audit.

2. Local government’s audit committee to review compliance audit and report to council.

3. Compliance audit to be adopted by council.

4. Compliance audit return and copy of minutes confirming its adoption by council, to be submitted to Department of Local Government and Communities.

If you require further information related to the topics covered in this bulletin, you are welcome to call or email the Local Government Advisory Hotline on 1300 762 511 or [email protected]



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