what is probity audit

Probity auditing: When, why and how 1© ICAC

PPPPPPPPRRRRRRRROOOOOOOOBBBBBBBBIIIIIIIITTTTTTTTYYYYYYYY AAAAAAAAUUUUUUUUDDDDDDDDIIIIIIIITTTTTTTTIIIIIIIINNNNNNNNGGGGGGGG::::::::

WWWWWWWWhhhhhhhheeeeeeeennnnnnnn,,,,,,,, WWWWWWWWhhhhhhhhyyyyyyyy aaaaaaaannnnnnnndddddddd HHHHHHHHoooooooowwwwwwww

December 1996December 1996December 1996December 1996

This publication is available in other formats for thevision impaired upon request. Please advise of formatneeded, for example large print or as an ASCII file. Thispublication is available on the ICAC website in HTMLformat. www.icac.nsw.gov.au

ISBN 0 7310 7272 3

© December 1996 – Copyright in this work is held by the Independent CommissionAgainst Corruption. Division 3 of the Commonwealth Copyright Act 1968 recognisesthat limited further use of this material can occur for the purposes of ‘fair dealing’, forexample; study, research or criticism etc. However, if you wish to make use of thismaterial other than as permitted by the Copyright Act 1968, please write to theCommission at GPO Box 500, Sydney NSW 2001.

This report and further information about the Independent Commission AgainstCorruption can be found on the Commission’s website at www.icac.nsw.gov.au

http://www.icac.nsw.gov.au/


CCCCCCCCOOOOOOOONNNNNNNNTTTTTTTTEEEEEEEENNNNNNNNTTTTTTTTSSSSSSSS

CHAPTER 1 -INTRODUCTION 3

CHAPTER 2-WHAT IS A PROBITY AUDITOR? 4

CHAPTER 3-LIMITING THE USE OF PROBITY AUDITORS 5

3.1 Reasons given for using a probity auditor 5

CHAPTER 4-DECIDING TO USE A PROBITY AUDITOR 8

4.1 Criteria for use 8

CHAPTER 5-FINDING A PROBITY AUDITOR AND THE TERMS OF THEIR ENGAGEMENT 9

5.1 Testing the market 95.2 Terms of reference 95.3 Selecting a probity auditor 10

CHAPTER 6-SCOPE OF WORK 11

CHAPTER 7-WHAT HAPPENS IF A PROBITY AUDITOR CRITICISES A PROCESS ORDECISION? 13

CHAPTER 8-PROBITY PRINCIPLES 14

8.1 Best Value for Public Money 148.2 Impartiality and Fairness 158.3 Deal with Conflicts of Interest 158.4 Accountability 15

CHAPTER 9-CONCLUSION 17

BIBLIOGRAPHY 18

ACKNOWLEDGMENTS 19


CCCCCCCCHHHHHHHHAAAAAAAAPPPPPPPPTTTTTTTTEEEEEEEERRRRRRRR 11111111 --------IIIIIIIINNNNNNNNTTTTTTTTRRRRRRRROOOOOOOODDDDDDDDUUUUUUUUCCCCCCCCTTTTTTTTIIIIIIIIOOOOOOOONNNNNNNNIn recent years there has been an increased focus on the issue of probity in the NSWpublic sector. This has been prompted by many factors including the exposure of corruptor unethical practices and the move towards more open and accountable government .Organisations such as the Auditor- General, Ombudsman and the IndependentCommission Against Corruption (ICAC) have also increased the focus on the need forprobity in the public sector. In addition, the community is now better informed aboutgovernment and its operations. The public sector is expected to be able to demonstratethat best value for money is being achieved when public money is being spent. Theprocesses used by the public sector must be fair and impartial and best practice methodsmust be followed to ensure efficiency and effectiveness.

NSW public sector agencies are required to follow rigorous policies and procedures forprocesses such as procurement, disposal of assets and contracting out. They are requiredto develop and implement Fraud Control Strategies to minimise the risk of fraud andcorruption. The Ombudsman, Auditor-General and the ICAC play an important role inensuring that allegations of improper conduct are investigated. These requirements haveplaced additional responsibilities on public sector agencies to act with integrity and tohave probity as a prime consideration in all projects.


CCCCCCCCHHHHHHHHAAAAAAAAPPPPPPPPTTTTTTTTEEEEEEEERRRRRRRR 22222222--------WWWWWWWWHHHHHHHHAAAAAAAATTTTTTTT IIIIIIIISSSSSSSS AAAAAAAA PPPPPPPPRRRRRRRROOOOOOOOBBBBBBBBIIIIIIIITTTTTTTTYYYYYYYY AAAAAAAAUUUUUUUUDDDDDDDDIIIIIIIITTTTTTTTOOOOOOOORRRRRRRR????????A probity auditor is typically an individual (or organisation) who is engaged to observeand review a complex government project, generally in relation to a procurementprocess (for example, lease or tender). Agencies use probity auditors to verify that theprocesses followed are consistent with government regulations, guidelines and bestpractice principles. A probity auditor provides an independent opinion on probity issuesthat may arise during the process and confirms, in writing, whether the concludedprocess has or has not met all probity requirements. If probity requirements have notbeen met, the probity auditor identifies the reasons and provides a written report.

In NSW, probity auditors (or probity advisers as they may also be known) have beenused by public sector agencies on a range of projects including the Southern SydneyRailway, CityWest development (Pyrmont/Ultimo redevelopment), M4 motorway,development of Olympic facilities, leasing of the RAS Showgrounds and the Walsh Bayredevelopment. The increased use of probity auditors by public sector agencies todemonstrate their adherence to probity requirements has been a recent phenomenon.Their use has coincided with the shift by government towards contracting out,privatisation and the increased involvement of the private sector in providinginfrastructure previously provided solely by government.


CCCCCCCCHHHHHHHHAAAAAAAAPPPPPPPPTTTTTTTTEEEEEEEERRRRRRRR 33333333--------LLLLLLLLIIIIIIIIMMMMMMMMIIIIIIIITTTTTTTTIIIIIIIINNNNNNNNGGGGGGGG TTTTTTTTHHHHHHHHEEEEEEEE UUUUUUUUSSSSSSSSEEEEEEEE OOOOOOOOFFFFFFFF PPPPPPPPRRRRRRRROOOOOOOOBBBBBBBBIIIIIIIITTTTTTTTYYYYYYYYAAAAAAAAUUUUUUUUDDDDDDDDIIIIIIIITTTTTTTTOOOOOOOORRRRRRRRSSSSSSSS

The ICAC does not advocate the routine use of probity auditors. Probity auditors shouldonly be used by government agencies as the exception rather than the rule.

Recent investigations by the ICAC into various projects that used probity auditors raisedseveral problems regarding the role and functions of probity auditors and their usegenerally. These problems include:

� agencies relying solely on the findings of a probity auditor to demonstrate probitywhen they should already have in place systems which incorporate probity principles

� agencies using probity auditors inappropriately as a form of 'insurance' and as apossible scapegoat should problems emerge and to evade their accountability asmanagers

� agencies and probity auditors having differing views on the probity auditor's role.This is often the result of there being no formal written contract or terms of referencefor the work to be undertaken by the probity auditor, and poor ongoingmanagement of the relationship

� the use of probity auditors by public sector agencies to justify their decision todepart from a competitive process and to negotiate directly with one bidder

� the questionable impartiality and independence of the probity auditor. (for example,probity auditors being coerced to support management's line or having a conflict ofinterest)

� the procedures used to find and engage a probity auditor not conducted accordingto NSW government policy on the engagement and use of consultants (such as notadvertising and relying on word-of-mouth)

� the same few people (or organisations) being used repeatedly to undertake probityaudits

� the appointment of inappropriately qualified people as probity auditors for projects

� inadequate documentation and reporting by probity auditors

� the appointment of probity auditors at inappropriate stages of the project (forexample, too late in the process or when things go wrong).

Calls for a greater degree of probity should not result in the unnecessary growth of anew consultancy industry in probity auditing. It is inappropriate for public funds to bespent on private consultants such as probity auditors every time a public sector agency isinvolved in what it sees as a difficult project. Public sector agencies should already havethe skills or access to appropriate resources to ensure probity, both within the agency orelsewhere in the public sector. There is a risk that by using probity auditors agencies willfall to develop appropriate internal standards of probity or foster internal expertise.Instead, agencies may rely on 'contracting in' such expertise.

3.1 Reasons given for using a probity auditor3.1 Reasons given for using a probity auditor3.1 Reasons given for using a probity auditor3.1 Reasons given for using a probity auditorThe reasons most commonly cited by agencies for using a probity auditor are that:


� the complexity (size and cost) of the project requires outside assistance

� it provides reassurance to the community and those wishing to do business with thepublic sector that the outcome can be trusted

� having a probity auditor helps to avoid problems

� they provide an objective, independent view on the probity of the process

� it minimises the potential for litigation These reasons are discussed in more detailbelow.

The complexity (size and cost) of the project requires outside assistance

Complexity alone is not sufficient justification to use a probity auditor. Agencies shouldbe capable of carrying out their charter even if it involves, for example, the developmentof major infrastructure projects. If agencies believe that they do not have the resourcesor skills to undertake such projects, they should first seek technical advice. Agenciesshould consider other solutions to ensure probity by calling on the expertise of otherpublic sector agencies. The NSW Treasury, Audit Office, Premier's Department, andDepartment of Public Works and Services are available to provide advice and assistanceto public sector agencies.

Furthermore, as part of its corruption prevention function the ICAC provides free adviceto public sector organisations on the probity considerations of any project. Iforganisations are unsure how to proceed, or are planning a complex or controversialproject, they should consult with the Commission early in the process to identify anddeal with any possible concerns regarding probity. This is reinforced by the Premier'sMemorandum 93-34, which encourages agencies to approach the ICAC for advice at anearly stage on major development proposals.

To provide reassurance to the community and those wishing to do businesswith the public sector that they can trust the outcome

It is emphasised that probity must be an integral part of any process and not be a lastminute consideration. Agencies should have in place systems, policies and proceduresthat can withstand public scrutiny and are consistent with existing government policy.Public sector agencies should ideally have their

own internal standards of probity and not have to rely on 'contracting in' such expertise.Consequently, agencies must ensure that their staff are familiar with probity issues andare sufficiently trained in NSW government policies and procedures. Agencies shouldalso have a corruption prevention plan in place aimed at minimising the risk ofcorruption and promoting probity.

The ICAC has encountered some organisations using a probity auditor as @insurance'.This can be an excuse for poor management practices. A probity auditor is just oneoption that management can use to help them with their responsibilities. To this end, aprobity auditor provides management with advice, evaluation, recommendations andinformation concerning the activities they have been required to review. Using a probityauditor can never absolve management from their responsibilities regarding probity.

A probity auditor helps to avoid problems

Probity auditors are no guarantee that problems will not occur. In some instances, theinappropriate use of probity auditors has actually created problems.


To provide an objective, independent view on the probity of the process

Probity auditors are generally paid for their services by the public sector agency whichemploys them. This relationship can create the appearance of divided loyalties, real orotherwise. This financial relationship raises questions regarding the probity auditor'sindependence. The ICAC has found examples of where a probity auditor has beenreluctant to recommend to agencies that they abandon or recommence a process thathas 'gone wrong' or could be subject to criticism. This may be the result of the probityauditor having more loyalty towards the agency than to the need for probity. A solutionto this situation may be the establishment of a panel of vetted probity auditors, currentlybeing considered by the Department of Public Works and Services. Accessing probityauditors from a central pool can help to keep the engaging agency at arm's length and toavoid capture.

Another option which agencies should consider before seeking outside assistance is toappoint an internal probity auditor to oversee large or complex projects. For example,an agency could select someone from within the public sector, whether from within theirown organisation or from another public sector agency, whose job it is to overseeprobity matters for a particular project.

To minimise the potential for litigation

Probity auditors should not be used to transfer risk from the public sector agency tosomeone else. Management is still accountable for the decisions they make. Probityauditors should not be seen as a way of avoiding litigation by disgruntled bidders at theexpense of having sound processes.


CCCCCCCCHHHHHHHHAAAAAAAAPPPPPPPPTTTTTTTTEEEEEEEERRRRRRRR 44444444--------DDDDDDDDEEEEEEEECCCCCCCCIIIIIIIIDDDDDDDDIIIIIIIINNNNNNNNGGGGGGGG TTTTTTTTOOOOOOOO UUUUUUUUSSSSSSSSEEEEEEEE AAAAAAAA PPPPPPPPRRRRRRRROOOOOOOOBBBBBBBBIIIIIIIITTTTTTTTYYYYYYYYAAAAAAAAUUUUUUUUDDDDDDDDIIIIIIIITTTTTTTTOOOOOOOORRRRRRRR

As mentioned previously, only in exceptional circumstances should agencies engage anexternal probity auditor. However, the ICAC recognises that with some projects, publicsector agencies have found probity auditors to be a useful way of ensuring compliancewith probity obligations and as a corruption prevention strategy. Consequently, theICAC acknowledges the necessity of providing assistance to those organisations whouse, or are intending to use a probity auditor. Agencies intending to engage an outsideprobity auditor must also be able to justify the decision as part of their generalaccountability for public expenditure.

4.1 Criteria for use4.1 Criteria for use4.1 Criteria for use4.1 Criteria for useThe ICAC has identified the following criteria that agencies should consider carefullybefore deciding whether a probity auditor is required. They are not prescriptive, all-inclusive or compulsory, but are intended to help agencies when making a decision onthe value of using a probity auditor for a particular project. Probity auditors can beconsidered for use when:

1. The integrity of the project may be questioned.

2. There has been a history of controversy, litigation (for example, in the past anunsuccessful bidder has sued and now wants to be considered).

3. The project is politically sensitive and vulnerable to controversy (for example,lease of public assets to the private sector).

4. It is anticipated that there may be an in-house bid and independent scrutiny isessential to avoid the perception of bias and favouritism.

5. There are high stakes involved for bidders (for example, bidders are required tooutlay substantial resources and costs to prepare and submit a bid).

6. It is an innovative project where bidders are likely to be concerned aboutprotecting their ideas (intellectual property). The project may involve a comparisonof proposals that are not like-to-like (for example, where the specifications for anexpression of interest are not prescriptive and focus on the outcome rather thanhow the outcome is achieved, and subsequently generate a wide range ofresponses).

7. The project is very complex, such as build, own, operate, transfer (BOO/BOOT)schemes; joint projects between the public and private sectors; substantialgovernment funding involved; there is high risk to both parties and people want tobe sure the process is proper.


CCCCCCCCHHHHHHHHAAAAAAAAPPPPPPPPTTTTTTTTEEEEEEEERRRRRRRR 55555555--------FFFFFFFFIIIIIIIINNNNNNNNDDDDDDDDIIIIIIIINNNNNNNNGGGGGGGG AAAAAAAA PPPPPPPPRRRRRRRROOOOOOOOBBBBBBBBIIIIIIIITTTTTTTTYYYYYYYY AAAAAAAAUUUUUUUUDDDDDDDDIIIIIIIITTTTTTTTOOOOOOOORRRRRRRR AAAAAAAANNNNNNNNDDDDDDDDTTTTTTTTHHHHHHHHEEEEEEEE TTTTTTTTEEEEEEEERRRRRRRRMMMMMMMMSSSSSSSS OOOOOOOOFFFFFFFF TTTTTTTTHHHHHHHHEEEEEEEEIIIIIIIIRRRRRRRREEEEEEEENNNNNNNNGGGGGGGGAAAAAAAAGGGGGGGGEEEEEEEEMMMMMMMMEEEEEEEENNNNNNNNTTTTTTTT

This section provides information about the role and responsibilities of probity auditors,their engagement and use within the NSW public sector. The information provided willalso be of use to individuals and organisations who offer probity auditing services.

5.1 Testing the market5.1 Testing the market5.1 Testing the market5.1 Testing the marketIf, after considering the issues raised previously, agencies decide that they will engage aprobity auditor, this should be undertaken in the same manner as for any otherconsultant or government contract for services. This means making a decision on acompetitive basis, depending on the state of the market and in line with the NSWGovernment Guidelines on the Engagement and Use of Consultants.

These guidelines require agencies to select the best person(s) for the job in a way that isopen, fair and impartial. Selection criteria should be developed in advance and potentialcandidates asked to show, in writing, how they meet the predetermined criteria. Thenumber of bids or quotes sought will depend on the agency's estimate of the totalamount that will be paid to the selected probity auditor.

5.2 Terms of reference5.2 Terms of reference5.2 Terms of reference5.2 Terms of referenceOnce a probity auditor has been selected, the probity auditor and the agency shouldagree on the terms of the engagement before the project commences. The ICACrecommends that the agreed terms be recorded in a formal consultancy agreement. Inthe agreement, the role of the probity auditor should be clearly defined in case theposition of the probity auditor is called into question. A suitable model agreement iscontained in the annex to the Guidelines for the Engagement and Use of Consultants.Whether or not this form of agreement is used, the essential terms contained should beaddressed. The terms should:

1. Establish the probity auditor's role within the process.

2. Define the scope of the audit.

3. Authorise full and free access to records, personnel, meetings and premises. Theprobity auditor must also have the prerogative to take notes from, and makecopies of, documents relevant to the probity audit.

4. State the probity auditor's fees, reporting time lines, and expected completion dateof the contract.

5. Specify the reporting relationships.

NB. The terms of reference should state to whom in the agency the probity auditoris required to report. This may include an appropriate delegated officer or theproject manager. It is important, however, that the probity auditor also has directaccess to the Chief Executive Officer, the Minister if relevant, investigative bodiessuch as the ICAC, Ombudsman, and Audit Office, particularly if they perceive thatthe process being followed is not proper.

6. Define the ownership of the probity auditor's working papers and all supportingmaterial related to the probity audit.


7. Specify what arrangements will be made to retain the probity auditor's materialduring and after the audit and how it will be secured.

5.3 Selecting a probity auditor5.3 Selecting a probity auditor5.3 Selecting a probity auditor5.3 Selecting a probity auditorPublic sector agencies have often found it difficult to find and select a probity auditor.The following selection criteria prepared by the ICAC are intended to assist agencieswhen choosing a probity auditor. Probity auditors should be selected using the followingcriteria:

Knowledge and Skills

� have proven experience in an operational field relevant to the process they areauditing. (However, a probity auditor should not assume any operatingresponsibilities.)

� have knowledge of probity issues (Refer to Section 8.0)

� have an awareness of NSW government procurement policy and principles(including tendering processes and the associated legal requirements)

� have knowledge of what may constitute corrupt conduct or other improper conduct

� have the ability to analyse complex issues

� possess high level interpersonal skills and be able to communicate effectively bothorally and in writing.

Independence and Objectivity

� be objective and independent of the agency's activities.

� This independence permits probity auditors to perform their work freely andobjectively and allows them to give unbiased judgements. They should beindependent of all organisations who are potential bidders and are being consideredfor the project. Without independence, the work of the probity auditor iscompromised.

Professional Competence and Due Care

� be able to demonstrate due professional care and diligence when performing audits.Probity auditors should exercise reasonable skill, care and judgment in performingtheir duties.

Integrity

� be of good character and have high ethical and moral principles that are supportedby personal and professional referees.

� Organisations can request performance evaluations of any previous audits or similarwork that the person(s) may have undertaken as evidence of their expertise andability.

Confidentiality

� understand that the process may involve politically and commercially sensitivematters and be able to maintain confidentiality of information. They must be willingto sign a confidentiality agreement as one of the terms of their contract.


CCCCCCCCHHHHHHHHAAAAAAAAPPPPPPPPTTTTTTTTEEEEEEEERRRRRRRR 66666666--------SSSSSSSSCCCCCCCCOOOOOOOOPPPPPPPPEEEEEEEE OOOOOOOOFFFFFFFF WWWWWWWWOOOOOOOORRRRRRRRKKKKKKKKTypically, the types of projects where public sector agencies have used probity auditorshave been large scale infrastructure projects. Depending on the size, cost and complexityof a project, it may not be necessary for a probity auditor to undertake each task. Thefollowing description has been written from the perspective that the project beingaudited is for tendering and construction of a large infrastructure project. Thisdescription is intended to provide a guide and should be adapted according to theproject and the organisation's needs.

In January 1996 the Infrastructure Partnerships Services Unit in the NSW Department ofPublic Works, released its Infrastructure Partnerships Implementation Guidelines. Theguidelines incorporate details on the probity issues to consider in infrastructurepartnerships and were prepared in consultation with the ICAC. The role of the probityadviser (auditor) in such projects is addressed specifically in the guidelines. Agenciesundertaking a large infrastructure project should also consult these guidelines. Broadly,the role of a probity auditor should encompass the following:

� examine and eliminate information and processes

a. Act as an independent observer and comment on all relevant processes from beginning toend, and at key stages throughout including:

� general and individual briefing sessions with potential bidders

� briefing meetings and evaluation committee meetings

� key working committee sessions

� direct negotiations with bidders.

b. Scrutinise the process to determine whether relevant government guidelines andappropriate policies are being followed and that best practice has been followed.

c. Ensure that the process has been impartial and fair with no party being given advantageover another or unfairly discriminated against.

d. Provide information to those wishing to do business with the organisation on the probityof the process.

e. Ensure that all relevant participants in the process are aware of their responsibilities todisclose conflicts of interest.

f. Observe debriefing sessions with bidders.

g. Review and assess all relevant documentation to ensure accountability (for example,cheek that decisions have been recorded, and any departures from established procedureshave been approved).

h. Monitor the procedures used by the agency to protect confidential information.

i. Identify Whether the process has been applied consistently according to the pre-established evaluation model.

� advise on the management t of probity issues that may arise

j. Conduct a risk assessment and identify possible probity issues that may arise before theprocess commences (for more detailed information on risk assessment, refer to the ICAC'spublication Practical Guide to Corruption Prevention: Module 2-Corruption RiskAssessment and Management).

k. Provide advice to the organisation and interested parties on how emerging issues can beresolved or managed (for example, conflicts of interest). However, it must be emphasisedthat the probity auditor is not part of the decision making process.


l. Assist with improving the level of decision making if the circumstances warrant this.

m. Observe and document the process followed and document and report any probity issuesthat may arise.

n. Liaise with other agencies if appropriate (for example, Treasury, ICAC, Premier'sDepartment).

� documentation and reporting to the organisation

o. Obtain, analyse, interpret and document information to support the outcomes of the audit.

p. Submit reports to management based on predetermined contract milestones, or asrequested, or when considered necessary, to provide a record of the process confirmingthat probity has been observed.

q. Document matters, obtain sufficient and appropriate information to support anyconclusions on which reports are based, and identify any areas where information hasbeen withheld by the organisation.

r. Prepare a signed, written final report describing the organisation's performance whenconducting the process.

The report should present the purpose, scope and results of the probity audit andinclude an expression of the probity auditor's opinion. Reports should highlightsignificant findings and recommendations and inform management of any majordeviation from the approved process and the reason for those deviations.


CCCCCCCCHHHHHHHHAAAAAAAAPPPPPPPPTTTTTTTTEEEEEEEERRRRRRRR 77777777--------WWWWWWWWHHHHHHHHAAAAAAAATTTTTTTT HHHHHHHHAAAAAAAAPPPPPPPPPPPPPPPPEEEEEEEENNNNNNNNSSSSSSSS IIIIIIIIFFFFFFFF AAAAAAAA PPPPPPPPRRRRRRRROOOOOOOOBBBBBBBBIIIIIIIITTTTTTTTYYYYYYYYAAAAAAAAUUUUUUUUDDDDDDDDIIIIIIIITTTTTTTTOOOOOOOORRRRRRRR CCCCCCCCRRRRRRRRIIIIIIIITTTTTTTTIIIIIIIICCCCCCCCIIIIIIIISSSSSSSSEEEEEEEESSSSSSSS AAAAAAAA PPPPPPPPRRRRRRRROOOOOOOOCCCCCCCCEEEEEEEESSSSSSSSSSSSSSSSOOOOOOOORRRRRRRR DDDDDDDDEEEEEEEECCCCCCCCIIIIIIIISSSSSSSSIIIIIIIIOOOOOOOONNNNNNNN????????

An important role of probity auditors is to report any act or omission they have observedin a tendering process that affects, or may affect, its integrity. This role must be agreedat the outset and form part of the probity auditor's terms of engagement. Agencies musttake measures to address a probity auditor's criticisms or risk receiving an adversereport. This could have an effect on the completion of the project.

Where government projects are involved, the community is entitled to have confidencein the probity auditor's report. Therefore, the probity auditor must have a solid basis forforming his or her opinion about the integrity of a process. Probity auditors must havefull and free access to all aspects of the process they are engaged to audit. Probityauditors should not be engaged only when a crisis arises, as they will be unfamiliar withthe process and unaware of what has taken place beforehand. This will make it difficultfor the public sector to rely on the work of the probity auditor, or for the community tohave faith in the government agency's capacity to manage the project.

The probity auditor should have direct access to the chief executive of the governmentagency concerned should matters worthy of comment arise. If the matter is not resolvedto the probity auditor's satisfaction, the parties should accept that the probity auditor hasthe right to take the matter further. This may include reporting to the relevant Minister,Audit Office, Ombudsman, ICAC or other appropriate body.


CCCCCCCCHHHHHHHHAAAAAAAAPPPPPPPPTTTTTTTTEEEEEEEERRRRRRRR 88888888--------PPPPPPPPRRRRRRRROOOOOOOOBBBBBBBBIIIIIIIITTTTTTTTYYYYYYYY PPPPPPPPRRRRRRRRIIIIIIIINNNNNNNNCCCCCCCCIIIIIIIIPPPPPPPPLLLLLLLLEEEEEEEESSSSSSSSThere are four essential principles to promote probity. Public sector organisations andprobity auditors should consider these principles throughout all stages of the process.These include:

� best value

� fairness and impartiality

� deal with conflicts of interest

� accountability.

8.1 Best Value for Public Money8.1 Best Value for Public Money8.1 Best Value for Public Money8.1 Best Value for Public MoneyObtaining value for money is enhanced when there is open competition and the marketis tested regularly. Processes that are intended to attract responses from the marketplace(for example, expressions of interest, calls for proposals and tendering) may lead to pooroutcomes for a project if not conducted appropriately. Impartial, open and competitiveprocesses are an important stepping stone in achieving value for money.

While it is essential that probity auditors remain independent, objective and not involvedin the decision making process, they can comment on whether the organisation has inplace a procurement process that helps to achieve best value for the public dollar and isconsistent with best practice according to current government policy. A factor that needsto be considered is whether the organisation has tested the market sufficiently to ensurean adequate level of competition. This will help to ensure that those who are capable ofundertaking the project have had the opportunity to submit their interest and beconsidered for the work.

For a more detailed explanation of market testing methods, procurement and disposalpolicies, and probity considerations, probity auditors and public sector organisationsshould refer to the following:

NSW Government publications

� Service Competition Policy

� Procurement and Disposal Guidelines

� Guidelines for the Engagement and Use of Consultants

� Private Sector Involvement in Public Infrastructure

� Capital Project Procurement Manual

� Code of Practice for the Construction Industry, and Code of Tendering for theConstruction Industry

ICAC publications

� Pitfalls or Probity

� Contracting for Services: The Probity Perspective

� Practical Guide to Corruption Prevention (Module 12 -Purchasing).


8.2 Impartiality and Fairness8.2 Impartiality and Fairness8.2 Impartiality and Fairness8.2 Impartiality and FairnessPotential bidders for large public sector contracts often invest considerable time, effortand resources when preparing and submitting bids. In return, they are entitled to expectimpartial treatment at every stage of the process. If they do not consider the process tobe impartial and honest they may be deterred from bidding in the future---competitionwill be lessened and the best value for money may not be achieved.

By having transparent, open processes, organisations can help to minimise opportunitiesfor fraud or corruption. This also gives bidders and the public confidence in theoutcome. Probity auditors should review the organisation's decision-making processes todetermine whether the process is clear and well structured, and that decisions are basedon pre-established criteria consistently applied by people with no personal interest in theoutcome.

8.3 Deal with Conflicts of Interest8.3 Deal with Conflicts of Interest8.3 Deal with Conflicts of Interest8.3 Deal with Conflicts of InterestThe community and potential bidders have a right to expect public sector staff andelected officials will perform their duties in a fair and unbiased way and that thedecisions they make are not affected by self interest or personal gain.

Conflicts of interest arise when public officials are influenced, or appear to beinfluenced, by personal interests when doing their job. Public officials should not benefitpersonally from decisions involving expenditure of public money. A conflict of interestmay also occur where a relative or close friend is a party to the arrangement or maybenefit from it (even indirectly).

Probity auditors and organisations should take measures to identify actual or potentialconflicts of interest before the process commences. They should also recommend howany conflicts of interest that may arise can be dealt with. For example, anyone who mayhave a connection with any of the bidders and may stand to gain from the outcomeshould not be involved in the evaluation and selection process in a way that allows themto influence the outcome. Those involved in the process should also be informed of theirobligations to disclose conflicts of interest. Probity auditors themselves should ensurethat they do not have a real or potential conflict of interest, as with any other publicofficial.

Potential providers of goods or services also need to be made aware of the requirementto disclose any potential conflicts. Potential bidders should be informed of thisrequirement as early as possible, such as in the initial tender or expression of interestdocuments. Furthermore, bidders should be advised that failure to disclose any actual orpotential conflicts of interest may provide the organisation with grounds for terminatingthe contract. For more detail on the strategies that can be used to prevent conflicts ofinterest and to help resolve any conflicts that occur, refer to the ICAC publicationPractical Guide to Corruption Prevention (Module 9-Conflicts of Interest).

8.4 Accountability8.4 Accountability8.4 Accountability8.4 AccountabilityPublic sector agencies should have appropriate mechanisms in place to show that theyare accountable for their practices and the decisions that are made. Accountabilityrequirements can reduce opportunities for corruption and save time, money, resourcesand problems in the long term. Mechanisms can include the agency keeping detailedrecords throughout the process such as minutes of meetings, the reasoning behind anydecisions made, who made those decisions and any departure from establishedprocedures being approved by senior staff not directly involved in the process.Maintaining detailed records can be a way of proving that the process followed was


legitimate if any questions or complaints are raised later. Probity auditors should reviewan agency's accountability requirements and advise on what mechanisms areappropriate.

Public sector agencies may sometimes wish to ask only one firm or person to bid ornegotiate directly with a firm. This may arise for example, if there is only one supplier,or there are concerns regarding intellectual property over an innovative idea. To satisfyprobity requirements in these cases, the probity auditor should scrutinise the negotiationprocess to determine whether the organisation can show that the outcome reflects goodvalue and impartiality. The NSW Government Procurement and Disposal Guidelines,and the ICAC publication Practical Guide to Corruption Prevention (Module 12-Purchasing) should be consulted in these instances as they provide more detail on howthese issues should be managed. The reasons for the action taken should be fullydocumented.


CCCCCCCCHHHHHHHHAAAAAAAAPPPPPPPPTTTTTTTTEEEEEEEERRRRRRRR 99999999--------CCCCCCCCOOOOOOOONNNNNNNNCCCCCCCCLLLLLLLLUUUUUUUUSSSSSSSSIIIIIIIIOOOOOOOONNNNNNNNIt is not possible for this document to cover every possible scenario or dilemma that mayarise when using a probity auditor. However, the options raised and the issuescanvassed can be adapted for use by individual agencies to fit the circumstances of theirparticular project. They are not intended to be used as a rigid set of rules and areintended to complement other existing guidelines and procedures and agencies' goodmanagement practices.

If agencies have questions or issues regarding probity and/or the use of probity auditorsnot covered in this material, advice is available from the Corruption Prevention Sectionof the ICAC by contacting the Corruption Prevention Duty Officer on (02) 9318 5999.


BBBBBBBBIIIIIIIIBBBBBBBBLLLLLLLLIIIIIIIIOOOOOOOOGGGGGGGGRRRRRRRRAAAAAAAAPPPPPPPPHHHHHHHHYYYYYYYYNSW Independent Commission Against Corruption publications:

1. Pitfalls or Probity, Tendering & Purchasing Case Studies, ICAC, June 1993

2. Contracting for Services: The Probity Perspective, ICAG, May 1995

3. Practical Guide to Corruption Prevention, ICAC, March 1996

NSW Government Guidelines, Policies, Codes, Manuals and Regulations:

4. Fraud Control: Developing an Effective Strategy, Volumes 1, 2 & 3, Audit Office ofNew South Wales, 1994-Available from Premier's Department.

5. Procurement and Disposal Guidelines: A guide to inviting, assessing and selectingtenders and other offers, NSW Premier's Department, 1995

6. Capital Project Procurement Manual, NSW Construction Policy Steering Committee,1993-Available from the NSW Department of Public Works and Services.

7. Guidelines for the Engagement and Use of Consultants, NSW Premier's Department,1996

8. Competitive Tendering and Contracting Out Guidelines, NSW Premier'sDepartment, 1992

9. Total Assets Management Manual, NSW Department of Public Works and Services,1992

10. Public Sector Management (Stores and Services) Regulation 1988

11. Infrastructure Partnership Implementation Guidelines, NSW Department of PublicWorks and Services, January 1996

12. Code of Practice for the Construction Industry and Code of Tendering for theConstruction Industry, NSW Construction Policy Steering Committee, July 1996-Available from the NSW Department of Public Works and Services.

13. Guidelines for the Engagement and Use of Consultants, NSW Premier's Department,1996

14. Service Competition Policy, NSW Premier's Department, 1995


AAAAAAAACCCCCCCCKKKKKKKKNNNNNNNNOOOOOOOOWWWWWWWWLLLLLLLLEEEEEEEEDDDDDDDDGGGGGGGGMMMMMMMMEEEEEEEENNNNNNNNTTTTTTTTSSSSSSSSProject Manager

Leigh Elliott

Project Team

Chris Leeds

Tiffany Blackett

Vic Baueris

Anita Hansen

ICAC Internal Review

Margaret Brodie

Roy Waldon

Robert Lang

External Review

John Eden, NSW Department of Public Works

Glen Monkton, NSW Department of Public Works

Rory O'Connor, Institute of Internal Auditors Australia

John Howard and Theo Vermeulen, Public Employment Office

Malcolm Richardson, Premier's Department

Christine Lithgow, Roads and Traffic Authority

Stephen Horne, The Audit Office

John Koutsis, Railway Services Authority of NSW

what is probity audit

Documents

nsw public sector

probity auditor criticises

public sector agencies

public sector agency

large infrastructure project

public sector organisations

probity auditor helps

public sector