PROCUREMENT WORKING GROUP FINAL REPORT

Transcription

1 PROCUREMENT WORKING GROUP FINAL REPORT Background In May 2010, the Western Australian Corruption and Crime Commission alerted the South Australian Crown Solicitor s Office, who subsequently advised the Auditor General, SA Police and the State Procurement Board (Board), to a scheme involving the purchase of printer cartridges at inflated prices, with the offering of inducements to public servants. In July 2010 and again in October 2010, the Board subsequently wrote to public authority chief executives, pursuant to the Board s advisory function under section 12(1)(h) of the State Procurement Act 2004, in order for them to undertake appropriate action to check any purchases made from the printer cartridge company and to determine whether appropriate procurement policies and practices were being adhered to. Public authority chief executives were informed of this matter because they are accountable for undertaking procurement operations in accordance with the object of the State Procurement Act 2004, namely obtaining value in the expenditure of public money, providing for ethical and fair treatment of participants and ensuring probity, accountability and transparency in procurement operations. In June 2011, the Victorian Ombudsman s report Corrupt Conduct by Public Officers also highlighted the business practices of a particular company that offered inducements to Victorian procurement officers in purchasing printer cartridges at inflated prices. In August 2011, senior agency finance officers were advised by Treasury and Finance to be aware that the printer cartridge company in question was still attempting to sell their products to government by offering illegal inducements to staff, and to ensure agency practitioners were aware of the scam. Establishment of the Procurement Working Group Allegations of inappropriate printer cartridge purchases were raised in the Budget and Finance Committee on 21 September The Premier subsequently referred the matter to the Auditor-General and SA Police. On 22 September 2011, the Chief Executive, Department of the Premier and Cabinet (DPC) wrote to all other agencies seeking an urgent review of procurement practices, particularly in relation to computer consumables. On 1 November 2011, the Minister for Finance established a Procurement Working Group (PWG) to coordinate the investigations being undertaken in agencies and resolve any impediments to the gathering of information. The PWG was also empowered to ensure cases were referred to the appropriate authority and recommend whole of government actions that could be taken to enhance government controls and processes. The PWG comprises senior representatives from DPC, Shared Services SA, the Department of Treasury and Finance, the State Procurement Board and the Crown Solicitor s Office. Further to the focus on printer cartridges, PWG was also advised of the existence of a loyalty program provided by all three suppliers on the SA Health General Food Provisions lead Procurement Working Group Final Report March 2012 Page 1 of 6

2 agency panel contract. The loyalty program appears to provide incentives and potential personal benefits such as gift cards to users of the contract. To ensure that all inappropriate purchases are able to be addressed, the PWG amended its Terms of Reference to allow the consideration of other related procurement categories or matters that are referred to it. The PWG Terms of Reference is provided as Attachment One. Ernst & Young Review On 7 November 2011, the PWG appointed Ernst & Young (EY) to undertake an independent examination of the appropriateness of the steps taken to date and processes underway in relation to allegations of inappropriate purchases of computer consumables across government. EY were also asked to report on any inadequacies, risks, issues or improvement opportunities in relation to these processes. A copy of Ernst & Young s final and supplementary report is provided as Attachment Two. EY s supplementary report concluded that: Since the procurement issues were raised in the Budget and Finance Committee on 21 September 2011, the government reacted with a strategy that was not inappropriate. In particular, the establishment of the Procurement Working Group provided an accountable and overarching mechanism capable of facilitating the flow of information not only outwards to public authorities but also back to a central point in a timely manner. The EY report provided an assessment of the key factors which may have contributed to the situation developing, namely: a lack of an initial coordinated and consistent whole of government response, perhaps due to uncertainty about who was responsible on a whole of government basis; a lack of follow up to the original correspondence sent to public authorities; and the non-existence or breaches of a system of internal controls within some public authorities around the procurement process. The EY report provides a number of recommendations these were considered by the PWG and incorporated into the final actions listed below. Key Actions Taken The PWG has implemented a series of actions to strengthen good procurement and financial management processes across government. These include: gaining Cabinet approval to establish a new mandated across government stationery contract commencing 1 September 2012, to be adopted by all public authorities; exhorting all public authorities, as an interim measure, to opt in to the current DTF lead agency stationery contract or the Office of the Chief Information Officer printer and photocopier contract (for the purchase of consumables), where their existing contractual arrangements permit; the State Procurement Board taking a leadership role in co-ordinating responses to future issues that negatively impact on the Government achieving the objectives of the State Procurement Act 2004, particularly obtaining value for money and maintaining ethical practices; Procurement Working Group Final Report March 2012 Page 2 of 6

3 reminding all public authority chief executives of their responsibilities in complying with Government financial management policies (including Treasurer s Instructions), of having effective financial authorisation and control systems in place, and ensuring that all staff exercising a financial delegation understand their role; the Commissioner, Public Sector Employment, writing to public authority chief executives highlighting the importance of the Government s Code of Conduct for Public Sector Employees and providing suggestions for lifting the profile of the Code amongst employees; including a statement on all purchase orders and standard contract documents used by government agencies seeking a commitment to ethical practices by the supplier and allowing for the possible termination of the contract, without notice, for any breaches; and updating the State Procurement Board s website and the Government s Tenders and Contracts web site to include information notifying suppliers to the government s expectations in relation to the ethical practice of suppliers. List of Suspect Suppliers The PWG has focused significant effort on ensuring all public authorities undertake a thorough investigation of printer cartridge purchases to find any evidence of unethical practices. To assist in this analysis, the list of eight suspect suppliers originally identified by the Western Australian Corruption and Crime Commission and the Victorian Ombudsman was expanded to 21 as a result of investigative work undertaken by the Crown Solicitors Office who conducted a search of company records, cross directorships and shareholder records related to the original company mentioned in the Western Australian investigation. This list was used by SSSA to identify all purchases made by client agencies from suspect suppliers dating back to June A list of these suspect suppliers, together with a copy of each invoice relating to the purchase of printer cartridges from these 21 companies, collated from data held centrally in Shared Services SA, has been provided to public authorities in order for them to conduct a comprehensive review of their purchasing activities and to determine and investigate the full extent of their purchases from these suspect companies. Correspondence sent to Public Authorities On 5 December 2011, as a follow up to previous correspondence, the State Procurement Board, on behalf of the PWG, wrote to all public authorities requesting that they investigate purchases of printer cartridges undertaken since June 2009 and provide their findings to the PWG. Copies of invoices held by Shared Services SA identifying purchase activity from suspect suppliers were provided to client public authorities. Preliminary investigations by the PWG have identified a number of printer cartridge purchases by South Australian public authorities from suspect suppliers with the analysis indicating that these public authorities have paid, on average, close to three times the price at which the goods could have been obtained through the current lead agency stationery contract. The State Procurement Board correspondence also made reference to the loyalty program operated by suppliers on the SA Health General Food Provisions Contract and requested that purchases made from the contract are checked to ensure that appropriate procurement and government policies and practices are being adhered to. Procurement Working Group Final Report March 2012 Page 3 of 6

4 The State Procurement Board correspondence highlighted the importance of chief executives communicating to all their staff affirming the high standards of professional conduct expected of every public sector employee in South Australia as expressed in the Government s Code of Ethics for the South Australian Public Sector. The correspondence also reiterated that any personal or private benefit gained in relation to procuring from a supplier is improper and that such behaviour may lead to disciplinary or criminal sanctions. A sample copy of the letter to public authorities is provided as Attachment Three. Public Authority Responses Most public authorities have now responded, with a summary of their responses provided as Attachment Four. In summary, the responses indicate that: eleven public authorities purchased printer cartridges from suspect suppliers to the value of approximately $1,205,000; eight public authorities (out of a total of 58) have found evidence of gifts or prepaid purchases of printer cartridges; approximately $5,500 of gift cards have been identified (plus an inventory list of physical goods outlined in the summary); and approximately $227,000 worth of printer cartridges were paid for in advance, in contravention of Treasurer s Instructions. Specific findings from several key agencies are highlighted below. Due to the holiday closure of schools over January, the Department of Education and Child Development (DECD) had asked schools to conduct a through investigation of their printer cartridge purchases from the commencement of the new school year, with 20 schools (out of 980) yet to respond. The remaining 20 school reports are expected to be received shortly. DECD advised in their interim report covering 960 schools that: 43 gifts (relating to 27 schools) have been identified, with a value yet to be determined; and printer cartridges costing $22,802 were paid for in advance, in contravention of Treasurer s Instructions. Whilst not excusing such behaviour, the Victorian Ombudsman noted in his June 2011 report that schools sometimes treated gifts received as the property of the school to be used for school purposes. The DECD Internal Audit and Internal Investigations Unit are investigating these occurrences and will consider further action appropriate to the findings. SA Health has also provided an interim report and advise that: 52 gifts valued at $2,410 in total have been identified; and printer cartridges costing $181,779 were paid for in advance, in contravention of Treasurer s Instructions. SA Health is continuing to investigate the extent of their purchases across all of their metropolitan and regional locations. Procurement Working Group Final Report March 2012 Page 4 of 6

5 The Department of Primary Industries and Regions SA has provided an interim report and advise that: a $200 Bunnings voucher and two movie tickets have been identified, with other instances of gifts returned or used for work purposes; and 4 toner vouchers with an undetermined value, paid for in advance, in contravention of Treasurer s Instructions. A final report is expected by 16 March 2012 which will be forwarded to the CSO for consideration, pending results of the independent investigation. Disciplinary Actions To date, a number of disciplinary actions have been taken by public authorities. SA Health has terminated one staff member. The conduct of this staff member, and two others, were referred by the Crown Solicitor s Office (CSO) to the Anti-Corruption Branch of the South Australia Police which recently referred these matters and one matter below in DPC to the Office for the Director of Public Prosecutions seeking advice as to whether criminal charges should be laid. The Government Investigations Unit (GIU) of the CSO is currently investigating five matters in SA Health. Approximately 12 other matters in SA Health will be investigated by the GIU, and 24 matters will be investigated by SA Health internally. The DECD internal audit/investigations unit are currently investigating the instances identified. The Special Investigations Unit of DECD are also currently investigating two significant matters. The Department of Planning, Transport and Infrastructure (DPTI) has identified 48 current and former employees as having procured printer toner cartridges from the suspect companies between 2007 and 2011, 27 of which were in Service SA which is now part of the Department of the Premier and Cabinet (DPC). Five of these matters are currently being investigated by the GIU, approximately 17 of them will be investigated by the GIU, and the balance as of 2 March 2012 referred back with advice to DPTI and DPC for internal investigation and management. Except for the matters in Service SA, only two employees in DPC who have procured printer toner cartridges from the suspect companies have been referred to the CSO. These employees are in the Aboriginal Affairs and Reconciliation Division of DPC, one of which has been suspended from duty, and both have been referred to the Anti Corruption Branch for investigation. These matters will be investigated by the GIU, if required, on receipt of the evidence collected by the Anti Corruption Branch. The Department of Further Education, Employment, Science and Technology (DFEEST) has sent a caution/warning letter to three staff, with two cases referred to other public authorities (who are the current employers of the staff members involved) for action. The Crown Solicitor s Office is providing oversight to agencies, as requested, ensuring that the approach to disciplinary action is, as far as possible, consistent across the public service. It should be noted that receiving a gift is conduct that is not necessarily amenable to disciplinary action. For example, there may be a distinction between those who have received gifts and converted them to their own benefit and those who have given them to the agency. Furthermore, in several cases, managers had approved the receipt of gifts. Procurement Working Group Final Report March 2012 Page 5 of 6

6 SA Health Food Services Loyalty Program SA Health has commenced investigations into the provision of gifts and incentives as part of the SA Health General Food Provisions lead agency panel contract, which is also used by other public authorities. On 8 November 2011, SA Health wrote to all three suppliers (namely PFD Food Service, Bidvest Food Service and John Lewis Food Service) requesting that they cease this practice immediately. All three suppliers have responded confirming that their loyalty programs now exclude all public authorities. Unlike the toner cartridge situation, there is no evidence that these contracts involve inflated prices but revolve around the offering of gift cards to staff (for example, for Coles, Bunnings, Caltex) as a reward for selecting the particular supplier, possibly as a means of increasing their share of the contract. The interim report from SA Health (28 February 2012) indicates that the total redeemed rewards from Bidvest Food Service and John Lewis Food Service is approximately $29,000, with the scope extending to 46 SA Health related entities. Instances relating to PFD Food Service appear to involve only one isolated gift (value undetermined) although further information from PFD is expected which may reveal further instances. SA Health has outlined a range of next steps and will provide a further update in due course. Conclusion This matter has been an unfortunate and complex episode for the South Australian Government and public authorities caught up in the inappropriate purchase of printer cartridges from suppliers behaving perhaps not illegally, but certainly unethically. Nevertheless, as a result of the work undertaken by the Procurement Working Group and the support of Minister O Brien, this matter has provided an opportunity to strengthen the financial, procurement and human resource practices of public authorities. The new across government stationery contract (which Cabinet has mandated for use by all public authorities), greater awareness by public authorities of their financial management responsibilities and by suppliers of the Government s expectations in relation to the ethical practices of suppliers will play an important part in ensuring such practices do not recur. The PWG is satisfied that there are effective processes in place through public authority governance structures and the CSO to deal with any matters relating to ongoing investigations and possible breaches. Analysis of spending information held by Shared Services SA indicates that public authority spending from suspect suppliers has ceased. Quarterly spending reports will continue to be provided to the State Procurement Board for monitoring purposes for at least two more quarters. The State Procurement Board will continue to monitor outstanding responses by public authorities as well as co-ordinating responses to any future procurement related issues that may arise. The State Procurement Board is also aware that an investigation is being conducted by the Auditor General and has provided relevant background information to assist the investigation. Procurement Working Group Final Report March 2012 Page 6 of 6