The Honourable Lisa Neville, Minister for Environment, Climate Change and Water

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1 Office of Living Victoria Independent Review Sponsor: Circulation: The Honourable Lisa Neville, Minister for Environment, Climate Change and Water Adam Fennessy, Secretary Department of Environment, Land, Water and Planning Dr Emily Phillips, Deputy Secretary Water and Catchments

2 Contents Executive Summary... 1 Scope of review... 1 Key findings... 1 Key lessons learnt Office of Living Victoria Reviews of the Office of Living Victoria Procurement and Contract Management Living Victoria Fund...24 Appendix 1 Review Scope...29 Appendix 2 Key milestones in Office of Living Victoria activities...31 Appendix 3 Office of Living Victoria Organisation Structure...32

3 Executive Summary Scope of review The Minister for Environment, Climate Change and Water commissioned Des Pearson to conduct an independent review of administrative practices within the former Office of Living Victoria to: build on the recent OLV review reports to address any additional procurement or conflict of interest matters warranting attention more specifically, determine whether: procurement initiatives delivered value for money and achieved stated outcomes grants provided through the Living Victoria Fund were subject to adequate governance arrangements and delivered the stated outcomes establish a baseline for the future administration of the Living Victoria Fund. Key findings The findings of this review are consistent with prior reviews of OLV and have presented similar challenges. In particular, poor records management has resulted in limited documentation being available to demonstrate contract management processes have been applied and to confirm that procurement activity achieved its desired outcomes. A number of additional matters have come to attention which are summarised below and discussed in more detail in sections 3 and 4 of this report. Key finding Section(s) Procurement / contract management 1. Lack of workforce planning and robust rationale for the creation of positions and engagement arrangements during the establishment and ongoing operational phases of OLV resulting in extensive and prolonged use of contractors, agency staff and secondees which incurs a premium over the use of VPS employees 2. Lack of clarity in contracts in respect to the deliverables / inputs to broader pieces of work (e.g. strategic advice) provided by suppliers renders the confirmation of delivery of services and value for money judgements difficult 3. Expenditure on agency staff and professional services for individuals appears to be higher than equivalent VPS / Executive Officer pay rates indicating that a more cost effective method of resourcing could have been implemented 4. Two instances where people were engaged as consultants through a company structure before being further engaged through a second consulting arrangement or government agency staff arrangements resulting in duplicate payments 5. Four instances where OLV paid for goods or services which are more typically borne by the supplier / contractor (out of pocket expenses for computer software, legal fees and coaching support) 6. Lack of robust contract management arrangements including: Setting clear specifications / outputs Ensuring that payments are made in accordance with contract terms and conditions Sub-optimal contractor performance is managed in accordance with contract requirements Maintaining documentation in respect to contractor performance e.g. copy of deliverables & , 3.3.9, & , 3.3.6, 3.3.7, 3.3.8,

4 Key finding Section(s) Governance and administration of the Living Victoria Fund 7. Alignment between purpose of the Living Victoria Fund, specific objectives of Rounds 1 and 2 of funding applications and associated eligibility criteria to give confidence that the grants awarded would contribute toward achieving the objectives of the Living Victoria Fund not clearly set out 8. Evaluation criteria at neither an individual grant nor overall program level to measure achievement of objectives and demonstrate value for money for the public purse not developed 9. Risk assessment in respect to the governance and administration of the grant program to identify gaps in proposed processes and controls which may have strengthened administrative arrangements not performed 10. Due diligence in respect to the financial sustainability and reputation of grant applicants for both Rounds 1 and 2 (particularly in relation to private sector and community group applicants where the risk of insufficient funding to complete the project / reputation risk is higher) was not undertaken 11. Funding Agreements were not always dated meaning it is not possible to confirm that initial payments to all proponents were not made prior to finalisation of Funding Agreements 12. Conditions to be met to trigger milestone payments were not supported by a robust rationale to demonstrate appropriate administrative rigour 13. Sufficient documentation to support milestone payments was not retained on grant administration files meaning that some milestone payments may have been made even though milestones were not met & Key lessons learnt This review has highlighted the need for Victorian Public Sector managers to ensure that there are robust processes in place in respect to: Governance Ensure that, when establishing an Administrative Office within a government portfolio, there is clarity within both the Administrative Office and the host Department in respect to: o Governance arrangements o Administrative arrangements e.g. procurement, contract management, human resources, records management, budget and financial management. Complement high level business plans with supporting tactical and operational plans and identified performance indicators to enable periodic assessment of achievements against plans. Records management Maintain clear, complete documentation to support the organisation s decision making and management processes 2

5 Procurement / contract management Clearly define the deliverable or required inputs particularly when engaging consultants to deliver advice or input to a broader piece of work Establish trigger points to review accounts payable and payroll data for potential overlap of engagement / duplicate payments when staff engagement arrangements change e.g. from contractor / agency staff to permanent / fixed term Victorian Public Sector employees Understand the implication of employment arrangements e.g. employee versus agency versus contractor particularly in start-up organisations where there may initially be significant reliance on temporary and engagements where there is a combination of deliverables i.e. for a person in a role and provision of specific deliverables Validate all elements of contractor related costs (e.g. expenses, supplementary costs, etc.) to ensure payment for goods and services are appropriate Grant administration Set out the alignment between the purpose of grant programs and the applications and associated eligibility criteria in order to demonstrate how grants awarded will contribute toward achieving program objectives Establish evaluation criteria at a program and individual grant level to measure achievement of objectives and demonstrate value for money for the public purse Complete comprehensive risk based financial and reputational due diligence on grant applicants including seeking confirmation of maintenance of insurance appropriate to the circumstances Set clear and relevant conditions to be met for milestone payments to demonstrate appropriate administrative rigour and to protect the public dollar Ensure basic administrative processes are complied with 3

6 1. Office of Living Victoria 1.1 Establishment of the Office of Living Victoria On 22 May 2012, under Section 11 of the Public Administration Act 2004, the Governor in Council established the Administrative Office of the Office of Living Victoria (OLV) within the then Department of Sustainability and Environment (DSE), now the Department of Environment, Land, Water and Planning (DELWP). OLV was established by the Government in response to independent advice contained in the Living Melbourne, Living Victoria Implementation Plan issued by the Living Victoria Ministerial Advisory Council. At its creation, OLV s role was to drive the Integrated Water Cycle Management (IWCM) reform agenda outlined in the Government s Living Melbourne, Living Victoria policy through the coordination of urban water planning and working with stakeholders and the broader community. This is summarised in the following three strategic objectives articulated in OLV 2012 Business Strategy: Integrating urban planning and water cycle management planning at a city / regional scale Embedding IWCM in the design and construction of Victoria s precincts and buildings Delivering an informed and common understanding of IWCM principles and practices across all key organisations and communities. 1.2 Key milestones Following its establishment, the role of OLV grew to include assuming responsibility for economic reform within the water sector, oversight and implementation of the suite of actions set out in Melbourne s Water Future (draft released July 2013). OLV assumed responsibility for water sector governance, legislation and policy from the Department in November 2013 and leading the implementation of the government s Fairer Water Bills initiative announced in January Key milestones in OLV activities are set out in the timeline in Appendix Organisation Structure In November 2012, OLV had 32 positions on its organisation chart. At the time of integration with the Department on 1 July 2014, this figure had increased to 109 positions. Positions were filled through a combination of Victorian Public Sector (permanent and fixed term), contractors, agency staff and secondees 1. 1 In November 2012, the 32 positions comprised 7 VPS employees, 10 contractors, 7 agency staff, 7 secondees and 1 vacancy. For 1 July 2014, the OLV organisation chart does not distinguish between VPS employees, contractors, agency staff and secondees. 4

7 The OLV organisation structure was broadly aligned with OLV s responsibilities after the announcement of the Fairer Water Bills initiative in January 2014 i.e. economic reform, implementation of integrated water cycle management and water sector governance supported by two corporate divisions and headed by the Office of the Chief Executive Officer as set out in the diagram below (and presented in more detail at Appendix 3): Office of the CEO Expert Advisor Economic Reform Planning and Projects Policy, Governance and Legislation Corporate Services Communications and Stakeholder Source: Department of Environment, Land, Water and Planning OLV s significant use of contractors, agency staff and secondees is reflected in its expenditure profile which is discussed below and in more detail in section 3 of this report. The extensive and prolonged use of contractors, agency staff and secondees which incurs a premium over the use of VPS employees may, in part, be due to a lack of workforce planning and robust rationale for the creation of positions and engagement arrangements during the establishment and ongoing operational phases of OLV. (Finding 1) 1.4 Financial This review focused on the period 1 July 2012 to 30 June 2014 during which OLV incurred total non-payroll related expenditure of $19,290,017 2 over 3,363 payments to 295 suppliers. 1.5 Abolition of OLV On1 July 2014, under Section 11 of the Public Administration Act 2004, the Lieutenant-Governor, as the Governor s Deputy, abolished OLV as an Administrative Office. The functions, staff and resources of the former OLV were brought under the direct control of the Department of Environment and Primary Industries (DEPI), now the Department of Environment, Land, Water and Planning (DELWP) as a separate business division. Following the abolition of OLV as an Administrative Office, a number of key members of OLV s executive management resigned including the Chief Executive Officer (14 July 2014) and Head of Office (25 July 2014). On 12 December 2014, the Government abolished the Office of Living Victoria. The functions of the former OLV have now been absorbed into DELWP s Water and Catchments Group. 1.6 Legacy issue to be resolved Whilst OLV was abolished, there remains a key legacy issue to be resolved in respect to the Living Victoria Fund, specifically the decision whether to sign Funding Agreements totalling $4.5M with 13 proponents where the application has been assessed and approved but the Department has yet to counter-sign Funding Agreements. 2 Source: DELWP ORACLE general ledger. 5

8 This review has identified a number of lessons learnt which should be addressed prior to the finalisation of contracts between the Department of Environment, Land, Water and Planning and grant applicants. Specifically, the Department should: Reconfirm the alignment of the grant applications with the objectives of the grant program to better demonstrate how the grants awarded will contribute toward achieving program objectives Complete financial and reputation due diligence checks on the five private sector ($1,206,902) and one community sector ($230,537) proponents to confirm their financial viability i.e. ability to fund relevant elements of the works and that they do not present a reputation risk to the Department i.e. opaque ownership structure, history of non-ethical practices etc. Revisit the milestones which trigger payments to provide greater certainty that the agreed milestones better reflect the delivery of intended benefits e.g. completion of physical works Revisit milestone monitoring processes to ensure that milestone achievement is appropriately validated e.g. on-site inspections by Department staff or other agreed mechanisms Ensure compliance with basic administrative processes (e.g. dating of contracts). 6

9 2. Reviews of the Office of Living Victoria 2.1 Outcomes of prior reviews OLV has been subject to a number of previous reviews including the internal auditors of the former DEPI, the Ombudsman Victoria, the Victorian Auditor General s Office and an internal review commissioned by the Secretary of the former DEPI. The focus and outcomes of these reviews is summarised below: 1. Internal Audit (April 2014) the internal audit report Office of Living Victoria considered opportunities to improve governance and related arrangements at the Office of Living Victoria with a focus, amongst other areas, on processes and controls in place within OLV in relation to contract management and approval of applications for funding from the Living Victoria Fund (LVF). The report noted a significant limitation in its scope due to the lack of availability of procurement and contract management files. Despite this significant limitation, the internal audit identified two issues in respect to contract management specifically a lack of documentation to support required contract management activities and a lack of reconciliation of available documentation to confirm the completeness and accuracy of contract registers. The internal audit also identified three issues in relation to the approval of LVF grant applications specifically non-compliance with conflict of interest requirements, failure to resolve issues raised by the probity auditor and lack of documentation to support consultation with the Department s Legal Counsel in respect to specific contractual arrangements. 2. Ombudsman Victoria (August 2014) the Ombudsman s report Investigation into allegations of improper conduct at the Office of Living Victoria focused on procurement and contract management practices and specifically considered 12 contracts entered into by the Office of Living Victoria (OLV). In her report, the Ombudsman noted, amongst other matters, that the investigation was hampered by the poor quality of the contract files and associated documentation. 3. Victorian Auditor General s Office (February 2015) as part of the audit of the DEPI financial statements (which encompassed OLV), the Victorian Auditor General s Office (VAGO) performed additional audit procedures focused on, amongst other matters, financial management practices and specific detailed testing of expenditure incurred on general operations, expenditure incurred on consultants, contractors and employees and grants and transfer payments out to third parties. The VAGO Management Letter identified 10 issues including: inadequate financial management practices, incomplete register of private interests, shortcomings with procurement practices, poor records management, shortcomings with recruitment practices and potential non-compliance with the Whole of Victorian Government Staffing Services Panel. 4. Internal Review (September 2014) - The internal review commissioned by the Secretary of the former DEPI was undertaken upon the integration of OLV into the Department to gain an understanding of OLV processes and governance arrangements, alignment with departmental finance, procurement, human resources and integrity policies and the current status of contracts. The review identified examples within OLV of non-compliance with a number of the relevant departmental policies. As a result, an action plan was developed to address the areas of non-compliance and to ensure that all departmental policies and procedures were complied with. The action plan was fully implemented. 7

10 2.2. Outcomes of this review Consistent with earlier reviews, this review has also been limited by poor record keeping and has been exacerbated by current staff generally not having been involved, nor being privy to, the governance process during the period subject to review. Further while OLV finalised a Business Strategy 2012, there was not an evident systematic approach to reporting progress in achieving the stated objectives and priority actions. A subsequent draft Strategy and Business Plan was not finalised prior to the abolition of the OLV. There was not however an obvious alignment between this draft and the 2012 strategy document. Combined with limited reporting of OLV achievements in the departmental annual report, this means there is a limited basis for assessing OLV s achievements. Specific findings are detailed in the following sections of this report. 8

11 3. Procurement and Contract Management 3.1 Overview Between 1 July 2012 and 30 June 2014, OLV incurred total non-payroll related expenditure of $19,290,017 3 over 3,363 payments to 295 suppliers. This review focused on transactions relating to suppliers to whom OLV paid more than $25,000 over these two financial years. This equates to $18,019,822 over 2,658 payments (93% of expenditure). To focus on key areas, the expenditure of $18,019,822 was split into 22 categories 4 set out in the diagram below: $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $- OLV Expenditure by Category Source: DELWP ORACLE general ledger 3.2 Approach For each of the categories noted above, transactions (under each category) were compared to relevant benchmarks and where transactions fell outside the expected range (either by nature or amount), further investigation was undertaken. For example, in relation to Legal Advice, it was confirmed firstly that the suppliers were members of the Victorian Government Legal Services Panel ( the Panel ) for the type of services rendered and secondly that the amounts invoiced were consistent with the Panel rates. Where transactions related to providers that were not on the Panel, further investigation was undertaken by reference to detailed invoices, discussions with experienced and authoritative personnel and records from OLV. 3 Source: DELWP ORACLE general ledger. 4 Whilst not mapped to the DELWP Chart of Accounts, there is a broad alignment of expenditure categories. 9

12 3.3 Findings For 10 of the 22 categories identified above, comparison of transactions against relevant benchmarks confirmed that the expenditure incurred fell within the expected range adopting the following approach: reference to benchmarks of costs incurred by the Department for general office support expenditure e.g. cost of IT equipment and CenITex recharges required for running an office with OLV s headcount assessment of reasonableness by appropriately experienced and authoritative departmental personnel and other personnel for communications and stakeholder engagement expenditure e.g. costs of running a high profile state based advertising campaign As a result, no further investigation was undertaken. The table below sets out the ten categories and, for information purposes, the total expenditure, the number of invoices and the number of suppliers considered as part of this review. Category Total Amount Total Invoices (credit notes) General Office Support Costs Invoice amount range Total Suppliers Office Relocation $371, (0) $594 - $300,000 2 IT Costs $208, (1) $22 - $23,760 2 Office Minor Works $128, (0) $205 - $56,969 3 CenITex $75, (0) $654 - $14,348 1 Fleet Hire $26, (0) $42 - $1,485 1 Catering $25, (0) $8 - $825 1 Sub-Total $835, (1) $8 - $300, Communications and Stakeholder Engagement Advertising $703, (2) $118 - $208,476 2 Living Victoria Fund Launch $115,280 2 (0) $10,395 $104,885 1 Sponsorships $88,000 2 (0) $38,500 - $49,500 1 Workshop Facilitation $25,356 3 (0) $7,876 - $8,671 1 Sub-Total $931, (2) $118 - $208,476 5 TOTAL $1,767, (3) $8-$300, Source: DELWP ORACLE general ledger The sections below set out the categories where issues have been identified, detailed analysis of the expenditure in each of these categories and the approach to acquitting the scope of work. 10

13 3.3.1 Professional Services Consultancy OLV incurred expenditure of $5,904,679 in relation to Professional Services Consultancy costs between January 2012 and June The expenditure of $5,904,679 comprises 186 invoices and 2 credit notes from 30 different suppliers with individual invoices ranging from $198 to $252,838. Invoices were obtained for all transactions and (where possible) matched to the relevant contract. Review of the descriptions detailed on the DELWP Oracle general ledger, invoices and contracts (where available) identified 86 different projects / activities undertaken by professional service providers. The projects / activities have been analysed and aligned to the OLV organisation structure (refer section 1.3) as follows: OLV division Projects / Activities Amount Office of the CEO 14 $735,355 Economic Reform 14 $1,481,108 Corporate Services 4 $ 231,391 Planning & Projects 23 $1,402,426 Policy, Governance & Legislation 15 $1,548,998 Systems Analysis 5 $282,178 Communications and Stakeholder 8 $155,741 Insufficient information available to determine classification 3 $67,482 TOTAL 86 $5,904,679 For each of these project / activities, this review sought the final output (e.g. report, presentation, etc.) provided by the professional service provider, in order to confirm that the work had been completed. Of the 86 different project / activities the final output could only be obtained for 28 projects / activities (representing $2,068,181 or 35% of Professional Services Consultancy expenditure). Whilst some of the expenditure undoubtedly contributed to an outcome e.g. commercial and financial advisory services to support the delivery of stage 2 of the Fairer Water Bills initiative, it is difficult to determine, based on available evidence, whether the consulting input resulted in tangible outcomes. (Finding 2) The table below sets out key initiatives / outcomes undertaken by the Office of Living Victoria and, where relevant, the number and value of Professional Services - Consultancy activities / projects relating to these OLV projects, the amount where an output was delivered (as noted above) and the amount where, based on available records, it has not been possible to confirm what was contracted to be delivered / actually delivered. OLV initiative / outcome Projects / Activities (suppliers) Total Amount Amount where an output was delivered Balance where unable to confirm delivery of contracted output Economic reform agenda 5 (3) $205,996 - $205,996 Establishing Office of Living Victoria 10 (5) $391,839 $151,160 $240,679 11

14 OLV initiative / outcome Projects / Activities (suppliers) Total Amount Amount where an output was delivered Balance where unable to confirm delivery of contracted output Fairer Water Bills 2 (1) $692,870 - $692,870 Financial related advice 3 (2) $171,036 - $171,036 Integrated Water Cycle Management Strategy 17 (11) $1,577,162 $243,616 $1,333,546 Living Ballarat 3 (3) $152,940 $128,940 $24,000 Living Victoria Fund 5 (2) $118,384 $55,949 $62,435 Melbourne s Water Future 5 (4) $196,294 $11,226 $185,068 Office of Living Victoria Strategy 2 (2) $179,054 - $179,054 Water Act Review 1 (1) $50,600 - $50,600 Water Authority Projects 6 (3) $339,772 $339,772 - Water Policy Reform 3 (1) $150,346 - $150,346 Water Regulation 3 (1) $96,213 $89,448 $6,765 Water Sensitive Cities 1 (1) $635,350 $635,350 - Other (e.g. Research, Workshop facilitation, people management) 20 (9) $946,823 $412,720 $534,103 TOTAL 86 (49) $5,904,679 $2,068,181 $ 3,836,498 As noted above, whilst some of the expenditure undoubtedly contributed to an outcome / initiative, based on available records, it is not possible to determine whether individual projects / activities undertaken by suppliers were completed in accordance with the defined scope or whether the services provided represented good value for money for expenditure representing $3,836,498. Further, the specific issue was identified where a Professional Services Consultancy supplier was engaged and paid by OLV to provide coaching services totalling $5,500 to another Professional Services Consultancy supplier engaged by OLV. It is accepted practice that these kinds of costs should be borne directly by the supplier. (Finding 5) In relation to the coaching services provided above, the description of the services on the invoice indicates that the service was necessary to address concerns with the attitude of the supplier. If management had concerns with the performance of a supplier, these should be managed through contract management arrangements. (Finding 6) Agency OLV incurred expenditure of $3,875,330 in relation to Agency staff costs between July 2012 and June The expenditure of $3,875,330 comprises 1,992 invoices and 12 credit notes from 4 different suppliers with amounts ranging from $10 to $64,287. All four providers are included on the Victorian Government Staffing Services Panel. Review of the descriptions detailed on the DELWP Oracle general ledger identified 81 different individuals to whom the invoices related. 12

15 For each of the 81 individuals, the following was determined: An average rate (hourly, daily or weekly) of pay based on review of relevant invoices An annualised agency salary calculated A comparative Executive Officer (EO) total package amount/ Victorian Public Sector (VPS) annual salary based on the following description of the role (where available), position of the role on the organisation chart, EO/ VPS grade of the officer where the position was subsequently filled by a permanent EO/ VPS employee EO/ VPS pay grades published on the Victorian Public Sector Commission (VPSC) website application of a 30% or 40% 5 uplift to account for relevant payroll on-costs (i.e. superannuation, work cover levy and payroll tax), agency rates and GST. For 27 of the 81 individuals there was insufficient documentation available to confirm either the period which the invoices related to and the rate of pay or the role undertaken by the individual and therefore the equivalent EO / VPS grade. These individuals represented $537,914 (14%) of the total Agency expenditure. For the remaining 54 individuals (represented $3,337,416 of the total agency expenditure), the annual agency salary was benchmarked against the comparative EO total package/ VPS annual salary. For 17 individuals, the annualized agency salary relative to the comparative EO total package/ VPS annual salary was within the expected range. These individuals represented $893,438 (23%) of the total Agency expenditure. For 37 individuals, the annualized agency salary was greater than the comparative EO total package/ VPS annual salary. The table below sets out the agency salary as a percentage of the comparative EO total package/ VPS salary by range, and the number of individuals which fall in to each range: Agency salary as a percentage of the comparative EO package/ VPS salary Number of individuals Grade (range) Number of working days engaged by OLV (range) 101% - 149% 25 VPS 3 EO days 150% - 199% 10 VPS 3 EO days Greater than 200% 2 VPS days TOTAL days Based on the information available and test methodology applied, the estimated additional cost of the 37 individuals noted above is approximately $645,307 over and above the costs had these individuals been employed under EO / VPS contracts. This represents 17% of total Agency expenditure. (Finding 3) It is recognised that, to recruit people in to positions at short notice (which may have been necessary in early phases of the establishment of OLV), a cost premium is to be expected. 5 The 30% or 40% uplift was calculated based on the Department s allowance for agency staff costs over and above the EO total package / VPS salary respectively (exclusive of on-costs). 30% was used in the case of EO s to recognise the inclusion of superannuation within the total package amount. 6 Victorian Public Sector Salaries and Executive Officer Remuneration bands source from data on Victorian Public Sector Commission 13

16 However, 19 (which represents $421,642 of the $645,307) of the 37 individuals noted in the table above were in position for a period greater than 3 months (60 working days) which is generally accepted as adequate time to source personnel with the required experience either through the EO / VPS recruitment process or, failing that, a market process. On this basis, OLVs use of agency staff warranted more disciplined management action to demonstrate cost effective and responsible use of resources both in the establishment and ongoing operation of OLV. (Finding 1) Three instances were identified where, based on the invoice details, duplicate payments occurred when individuals engaged through agency based arrangements moved to permanent / fixed term employment with OLV, however, these have previously been identified as part of an internal review and amounts recovered through payroll Professional Service Individuals OLV incurred expenditure of $2,843,833 in relation to Professional Services Individuals between August 2012 and June The expenditure of $2,843,833 comprises 103 invoices and one credit note from 13 suppliers with amounts ranging from $5 to $104,771. Review of the information recorded on the DELWP Oracle general ledger identified 17 different individuals to whom the invoices related. Based on invoices details, for each of the 17 individuals, a daily rate of pay was calculated. Daily rates ranged from $875 to $3,140 per day. When compared to current market rates (including those agreed through the Victorian Government Commercial and Financial Advisory Services Panel), the daily rates paid by OLV do not appear to be excessive. However, of the 17 individuals identified, 11 of them had roles that appeared to be staff positions (e.g. Program Manager, Executive Director, Economic Advisor, etc.). Had these positions been filled by alternate means e.g. EO / VPS employees or agency staff, OLV was likely to have achieved a better value for money outcome (notwithstanding the issues noted in above). Based on the information available and test methodology applied, the estimated additional cost of the 11 individuals noted above is approximately $591,249 over and above the costs had these individuals been employed under VPS contracts. This represents 21% of total Professional Services Individuals expenditure. (Finding 3) Whilst it may have been necessary to engage with professional service suppliers to obtain appropriately skilled individuals in the short term, 5 (which represents $398,620 of the $591,249) of the 11 individuals noted above were engaged for a period equivalent to 3 months (60 working days) or more, including 3 individuals performing an Executive Director role. As noted in above, 3 months is generally accepted as adequate time to source personnel with the required experience either through the EO / VPS recruitment process or, failing that, a market process (to confirm that the current rate is competitive). In the one instance where there was documentation to show that the rate charged for the individual was compared to the equivalent VPS salary to support the procurement decision, the actual agreed daily rate was comparable to the equivalent VPS salary. On the basis of the evidence above, OLV management should have been more mindful of the value for money component when filling roles, specifically considering the use of VPS employees, agency staff and secondees. Further, when consultants are required to fill roles over an extended period of time, management should be able to demonstrate a robust market test was conducted. (Finding 1) 14

17 Further two instances were identified where, based on the invoice details, potential duplicate payments occurred. These relate to: one consultant engaged through a company structure moving to agency based arrangements. The estimated amount of this duplicate payment is $4,476 (representing 2 days). (Finding 4) one consultant engaged through a company structure operating through a second consulting arrangement. The estimated amount of the latter potential duplicate payment is $10,890 (representing 6 days). (Finding 4) Secondment VPS OLV incurred expenditure of $1,445,062 in relation to the secondment of staff from other agencies between October 2012 and June The expenditure of $1,445,062 comprises 51 invoices from eight Victorian public sector entities (e.g. water authorities and local councils) with invoice amounts ranging from $1,541 to $100,485. Review of the information recorded on the DELWP Oracle general ledger identified 17 different individuals to which the invoices related. For each of the 17 individuals, the following was determined: An average rate (hourly, daily or weekly) of pay based on review of relevant invoices An annualised salary calculated A comparative VPS annual salary based on the following description of the role (where available), position of the role on the organisation chart, VPS grade of the officer where the position was subsequently filled by a permanent VPS employee VPS pay grades published on the Victorian Public Sector Commission (VPSC) website application of a 40% 7 uplift to account for payroll on-costs (i.e. superannuation, work cover levy and payroll tax), agency rates and GST. For 5 of the 17 individuals there was insufficient documentation available to confirm: period which the invoices related to and therefore the rate of pay role undertaken by the individual and therefore the equivalent VPS grade. These 5 individuals represented $307,346 (21%) of the total expenditure on secondments. For the remaining 12 individuals (representing $1,137,716 of total secondment expenditure), the annual secondment salary was benchmarked against the comparative VPS annual salary. For 8, individuals the annualized agency salary relative to the comparative VPS annual salary was within the expected range. These individuals represented $610,390 (42%) of the total Secondment VPS expenditure. For 4 individuals, the annualized secondment salary was greater than the comparative VPS annual salary. The table below sets out the secondment salary as a percentage of the comparative VPS salary by range and the number of individuals: Secondment salary as a percentage of the comparative VPS salary Number of individuals Grade (range) Number of working days engaged by OLV (range) 101% - 133% 4 VPS 3 VPS days 7 The 40% uplift was calculated based on the Department s allowance for agency staff costs. 15

18 Given the secondment salary as a percentage of the VPS comparative salary is a maximum of 133% and the short term nature of the secondment (less than 3 months), this additional cost represents an expected premium and is not of significant concern. Consultation with experienced and authoritative personnel noted that, factoring in availability of qualified staff and secondments being a preferred option to fill roles, it was not unreasonable that a higher graded employee was appointed in to a role in the short term. Based on the analysis performed, for the four individuals identified above, seconded employees do not appear to have been more than one grade above the substantive grade into which they were seconded at OLV and therefore the expenditure does not appear unreasonable Office Rental OLV incurred expenditure of $842,034 on the rental of office space and related services (e.g. parking) between May 2013 and June The expenditure of $842,034 comprises 57 invoices with invoice amounts ranging from $100 to $174,400 from four different suppliers. OLV entered in to rental contracts for two office locations Melbourne (Lonsdale Street) and Ballarat (Federation University). The costs incurred in relation to the Melbourne office (including parking space rental) totalled $797,543 (34 invoices). Contracts associated with these services were negotiated through the Department of Treasury and Finance with invoices paid directly to the supplier by OLV. No further investigation into these costs was undertaken on the basis that OLV was not directly responsible for establishing these arrangements and had no role in determining the price paid. The remaining $44,761 (23 invoices) relates to the rental of the Ballarat office space for the period May 2013 and June Copies of all invoices and available supporting records were obtained. However, a copy of the lease agreement could not be found due to poor record management practices. As a result, it was not possible to determine the value for money by comparing the cost per metre 2 against government benchmarks. Furthermore it was noted that, at the time of establishment of the lease arrangement (May 2013), government agencies were required, for leases with a total value less than $250,000, to validate the rental value either with the Valuer-General Victoria (VGV) or directly with a member of the Victorian Government Valuation Services Panel (VSP). The Valuer-General Victoria (VGV) confirmed that they were not consulted during the establishment of this lease and there are no transactions with any suppliers on the VSP indicating that this requirement was not met Demonstration House and Interactive Products Between April 2013 and May 2014, OLV incurred expenditure of $355,746 on both physical and interactive simulation house to demonstrate how integrated water cycle management can be applied to Victorian households. The expenditure of $355, 746 comprises 11 invoices with amounts ranging from $1,361 to $148,408 from two suppliers. Expenditure on the physical demonstration house to support the Right Water campaign totalled $82,450 representing the initial construction (four sided house with corrugated roof and guttering including LED water course and digital graphics), subsequent storage and installation at various metropolitan and regional locations including Southern Cross Station, Melbourne International Flower and Garden Show 8 Nicholson Street, Ballarat, Bendigo and Geelong. It has been established that the demonstration house exists, was used at various locations and was well received. Given its bespoke nature, the expenditure does not appear unreasonable. 16

19 OLV engaged a contractor to deliver two interactive products (interactive house and spatial mapping of local government areas) for a contracted value of $89,960. There are a number of unusual features in this arrangement, specifically: invoices and correspondence indicate that instructions relating to the delivery of the products were issued by an OLV contractor rather than an OLV employee the supplier of the interactive products was engaged and paid ($22,336 including travel expenses of $4,336) for the creation of coding scope of works for an interface between IWCS [integrated water cycle systems] system model and website application for general public access prior to being engaged to deliver the interactive products indicating prior knowledge of the scope of work / specifications prior to OLV testing the market, an unfair advantage 8 variation of $134,917 of which specific costs were incurred as a result of changed specifications ($18,439 was incurred to adapt the concept, design, create and implement new assets and elements) / delays in confirming specifications ($13,200 was incurred to keep a programmer on standby until the design was confirmed) and $54,843 in actual additional coding costs. Invoice descriptions indicate that there was poor planning resulting in a waste of public dollars. Final expenditure on the two interactive products totalled $273,295. Due to lack of supporting documentation, it is unclear whether final interactive products were ever delivered, delivered to specification and how or if it was used by OLV to promote integrated water cycle management. (Finding 6) Promotional Video OLV incurred expenditure of $256,959 on promotional videos and apps to demonstrate key concepts and benefits of integrated water cycle management between February and July The expenditure of $256,959 comprises 5 invoices with amounts ranging from $23,015 to $98,703 with one supplier. OLV commissioned three promotional videos: impact of flushing the toilet on Victoria s water resources - $20, second use of storm water - $22, second general video promoting integrated water cycle management - $64,130. The supplier was also engaged to deliver an ipad app promoting integrated water cycle management implementation. Again, there are a number of unusual features in this arrangement: the supplier was engaged and paid $22,375 in March 2013 to consult, design, develop and specify requirements to construct an ipad app for IWMS implementation prior to being engaged to design and build the ipad app one invoice for $85,729 in July 2013 included three line items ($52,879) indicating that revisions to the original specification were requested and a variation ($14,850) to the contracted amount was paid as a result of OLV variation project paused. These invoice descriptions indicate that there was poor planning / scope management resulting in a waste of public dollars. Due to the lack of supporting documentation, it is unclear whether the promotional videos and ipad app were ever delivered, delivered to specification and how or if used by OLV to promote integrated water cycle management. 8 Previously reported by the Victorian Ombudsman. 17

20 3.3.8 Stationery OLV incurred expenditure of $250,253 on stationery between March 2013 and June The $250,253 comprises 404 invoices and 10 credit memos from three suppliers with amounts ranging from $1 to $13,823 (GST inclusive). Expenditure totalling $53,753 (107 invoices and 3 credit notes) and $61,008 (211 invoices and 5 credit notes) related to services provided by suppliers engaged through the Victorian Government Multifunction Devices and Printers Panel and Stationery and Office Products State Purchase Contract respectively. This expenditure was confirmed by the Infrastructure Services Division as broadly consistent with Departmental expenditure on similar products. The remaining $135,493 (87 invoices and 1 credit note) relates to services provided via the Victorian Government Print Management Services 9. The Print Management Services supplier was able to confirm all transactions were provided and sourced from the market in a competitive manner. Whilst consistent with the expenditure profile of an agency being established, two groups of payments, four totaling $22,196 in July 2013 and another four totaling $21,930 in June 2014 were identified which appear to include at worst duplication or at best poor planning of print runs. However, no relevant documentation has been found to enable a firm conclusion to be drawn. (Finding 6) Legal Advice OLV incurred expenditure of $150,107 on legal advice between May 2013 and June The expenditure $150,107 comprises 36 invoices from three different suppliers ranging from $294 to $17,788. All three suppliers were members of the Victorian Government Legal Services Panel. Of the $150,107, $68,607 paid to two suppliers relates to the provision of legal advice in respect to the preparation of Funding Agreements, management of Freedom of Information requests and other general legal advice. The nature of the services provided appears reasonable in the context of the activities undertaken by OLV. However, one supplier provided services to OLV in respect to Intellectual Property and Technology, a category of advice for which it should not have been contracted through the Victorian Government Legal Services Panel. This review focused on invoices relating to this supplier (eight invoices totalling $81,500). The legal advice provided related to the negotiation of the intellectual property provisions of a contract within the Professional Services Individual category of expenditure. Whilst the expenditure in relation to this supplier appears reasonable, review of invoices received from the company contracted to provide the Professional Services Individual services identified that OLV were invoiced and paid $6,377 in relation to the contractor s legal fees (also refer section 3.4.3). There is no documentation as to the circumstances under which this reimbursement (which would not normally be considered a reasonable payment to a contractor) was made. (Finding 5) Office Furniture OLV incurred expenditure of $119,251 on office furniture. The expenditure of $119,251 comprises 26 invoices and 4 credit notes between the period May 2013 and August 2013 from 3 suppliers. The invoice values ranged in value from $275 to $20,858 and relate to both the purchase and hire of office furniture. Review of all invoices received from the suppliers identified that the nature and timing of the transactions appear consistent with the establishment of a new office and the rates charged for 9 The Victorian Government Print Management Services is the central contract for the provision of print management services for the sourcing of printed items and the provision of related print management services. 18

21 specific items e.g. chairs, desks etc. are broadly consistent with the rates obtained by the Department s Infrastructure Services Division for office fit outs managed within the Department. However, OLV may have achieved better value for money outcomes for the purchase of office furniture (14 invoices totaling $82,207 from 2 suppliers by parceling up their requisitions into a package and going to tender to get a more competitive rate. These purchased items of furniture remain in use by the Department. The remaining transactions (12 invoices and 4 credit notes totalling $37,044 from one supplier) relate to the hiring of furniture which is typically, over time, more expensive than the outright purchase of such goods. This is indicative of poor planning which resulted in sub-optimal value for money outcomes Travel OLV incurred expenditure of $44,450 on travel between August 2012 and June The expenditure of $44,450 comprises 70 invoices and 5 credit notes with amounts ranging from $13 to $6,359. All travel expenditure was arranged through and paid to the Victorian Government Travel Services Manager. This review focused on overseas travel expenditure 5 invoices and three credit notes totaling $15,518 relating to the travel arrangements of two employees and one contractor. All 5 invoices and 3 credit notes were obtained. Two invoices and three associated credit notes totalling $4,701 related to the relocation costs for an Executive Officer. Whilst the Victorian Public Service Executive Employment Handbook allows for necessary and reasonable expenses in relation to relocation costs there is insufficient documentation to confirm these costs are consistent with entitlements agreed during the recruitment process. Nevertheless, the cost of the flights and accommodation appears reasonable compared to typical economy flight / hotel costs. Two invoices totalling $4,458 related to flight and accommodation costs for a contractor required to travel to Melbourne from overseas. Whilst an itinerary for the contractor s visit which has approved by the Head of Office has been provided, no documentation is available to confirm whether these costs were occurred by OLV in accordance with the terms and conditions agreed with the contractor. Nevertheless, the cost of the flights and accommodation appears reasonable compared to typical economy flight / hotel costs. The remaining invoice ($6,359) related to the attendance by the former Chief Executive Officer at an international water industry conference in South Korea which also appears reasonable Executive Coaching OLV incurred expenditure of $26,400 relating to Executive Coaching paid between September and November The expenditure of $26,400 comprises two invoices each for $13,200 from the same supplier. The services related to an Executive Coaching Program for [an Executive Officer] for the period 3 September 2013 to 2 December 2013 (Invoice 1) and 3 December 2013 to 2 March 2014 (Invoice 2). The supplier was not included on the Department s Coaching Panel or the Victorian Government Coaching Development Panel. The Department s People and Culture Branch were unable to locate a Personal Development Plan (PDP) for the relevant Executive Officer. As a result, it was not possible to confirm whether the need for coaching had been identified through a formal performance development process. 19