2021 is an election year for NSW Local Government, and the provisions of the NSW Local Government Act 1993 require that all Councils review their full suite of Integrated Planning and Reporting (IP&R) documents within nine months of the election. This includes:
These legal requirements can be onerous and resource intensive, but when done well, can offer Councils significant opportunities to improve their performance in a range of ways.
Streamlining current plans and strategies
A lot of work is likely to have been done already, so before you design your new plans the best place to start is with your current plans and strategies. It is not uncommon for a Council to have 30 or more plans and strategies that have been developed over many years, some of which are rarely or never reviewed, renewed or referred to. The IP&R implementation process provides an effective means of centralising and reviewing these documents to assess which of them need to remain active, which of them need no longer exist and which of them may be incorporated into documents within the IP&R framework.
Whole-of-term planning and greater Councillor involvement
The structure of the Delivery Program with its four-year outlook coincides with each Council term. It provides the basis for Councillors to plan and oversee activities and projects that they can initiate to address the Community Strategic Plan (CSP)’s long term goals. Throughout the Delivery Program and the related processes of document review and renewal, IP&R continues to provide Councillors with ongoing opportunities to exercise true civic leadership by being more visionary and refocusing their thinking from the near term to a point well beyond the horizon.
Sound resource planning
Asset maintenance and renewal is the greatest area of expenditure for every Council. However, it is fair to say that most Councils struggle to maintain a comprehensive, up-to-date register of assets, their condition, and related maintenance programs. Similarly, while expenditure on Council’s workforce establishment is significant, workforce planning decisions are often made on an ad hoc basis. IP&R requires Councils to review their resourcing systems and structures, identify any capacity gaps and make informed resourcing decisions that factor in the extent and urgency of identified deficiencies.
Broader staff involvement in achieving higher aims and objectives
In many councils, tasks surrounding medium and long-term planning have typically been managed by a small proportion of staff at mid-management level. This often results in a lack of effective communication and broad organisational awareness of the Council’s long-term goals and priorities. Staff not involved in these processes will therefore carry out their duties without any higher context or purpose. IP&R provides Councils with valuable opportunities to raise awareness and involve staff at every level in the long-term planning processes.
Enhanced capacity to report on achievements
Each of the plans within the IP&R framework are required to contain objectives, goals and measures that align with the community goals as described in the CSP. This offers Councils the opportunity to review the data they collect in reporting their performance and to furnish management, Councillors and the community with meaningful reports regarding Council’s achievements and changing aspirations.
Enhanced public image and support
The local government sector across NSW struggles at times to maintain a positive image and strong public support. The IP&R process provides Councils with valuable opportunities to draw in communities, local businesses, other government agencies and local media to work closely with them in developing the CSP. The process also affords Councils an opportunity to showcase their achievements and to provide insights into the challenges, restrictions, and limitations they have to address in their day-to-day operations.
The two critical times where Council can realise the benefits described above are:
Centium has a proven track record of working with Councils to assist in planning and delivering their IP&R framework. As a first step, Centium can work with Council to review existing plans and reports. We can then design a consultation and engagement process that is not only legislatively compliant, but also delivers tangible and measurable benefits to Council.
Importantly, Centium’s Council experts provide:
Centium provides integrated planning consulting. Discover how we can help today by contacting us for a free consultation.
It would be difficult to find a person who would not agree that 2020 was a difficult year. It was a year of challenge, uncertainty and risks, many of which could not be foreseen.
As we settle into 2021 – a year that must be better than 2020 – it is important to consider emerging risks and test the design of controls. This is especially important as organisations resume new and "normal" business-as-usual patterns.
At Centium, we have spent some time reviewing Audit Office reports, scanning the media, researching industry issues, and brainstorming ways in which various sectors can minimise their risks. Here we're sharing our research and recent experiences by suggesting which topics and areas will be of most relevance this year when it comes to risk management and internal audit.
We're hoping that this will provide "food for thought" for audit and risk professionals as they prepare and/or recast annual work plans across Government and the private sector.
By now, our State Government colleagues would have read the new Internal Audit and Risk Management Policy for the General Government Sector (TPP 20-08). This policy refreshes previous policy guidance and strongly aligns with better practice standards and frameworks.
It's both reassuring and exciting to see that the new policy promotes the need for a positive and comprehensive risk culture, clear accountabilities for managers and decision-makers, and consideration of contemporary risks associated with cyber security and climate change.
Based on our research, our suggestions for internal audit hot topics in 2021 are as follows:
2021 promises to be a big year with the postponed Local Council elections due to be held in September. With this election comes a new cycle of Integrated Planning and Reporting, including community strategic planning, delivery plans, operational and resourcing plans.
Councils are probably aware that the NSW Office of Local Government plans to release the Risk Management and Internal Audit Framework in 2021. This principles-based framework will include changes to existing legislation, regulation and internal audit guidelines.
In this context, Councils should review their existing risk management and internal audit activities to consider new directions, priorities, and emerging risks. Based on our research, Centium's suggestions for Local Government internal audits include:
2020 was a difficult year for small to medium businesses, many of whom relied upon Job Keeper and other Government assistance to survive. For many, the recovery phase will be equally as challenging as they find new "normal" ways of operating and meet ever-changing operating requirements.
Our high-level suggestions for small-medium businesses, noting the difficulties in predicting across the immense range of industry groups, are as follows:
An effective assurance framework enables well-run organisations to identify and manage risks, make informed decisions, improve their internal systems and processes, and ultimately enhance their business.
One of Centium's key differentiators is our approach to risk and assurance projects, including routine and complex reviews. We use proven methodologies and always consider our client's context, geographic and regional issues, operating model, objectives, and challenges.
Centium offers an independent and practical perspective. Importantly, we create strong partnerships with our clients to build capacity, improve organisational resilience and facilitate ownership of outcomes.
Click here to see our range of Risk & Assurance services. Click here to talk to us about how we can help.
Most public sector organisations know that a robust Probity Plan is an essential aspect of major procurement, and that it is critical to ensuring transparent and defensible decision-making. Yet there is no immediate and obvious “reward” associated with the development of a Probity Plan.
So, what is the incentive? Simply, to avoid risk and reputational damage. Without a robust Probity Plan you are essentially “playing chicken” with every major procurement move you make – the consequences of not having a plan are significant.
There have been a spate of high profile cases, reported widely in the media, which underscore the need for quality, rigorous and strategic probity planning. The Commonwealth Government’s “once in a generation” second airport for Sydney is a recent case in point.
The headlines should have heralded the achievement of important milestones in the construction of this economically vital piece of infrastructure. Instead, the significant achievements of the project have been overshadowed by the media and political storm surrounding the purchase of land for the airport. Reportedly, the Federal Government paid ten times the value for land in what has been described as a "significant and unusual transaction".
A robust, quality and embedded probity plan built into the procurement process might have mitigated this risk for the government. This could and should have been an opportunity for organisational and reputational reward of the government, instead of a barrage of negative media reports which will most likely plague the project for years to come.
While this is certainly a high profile case involving reputational and political risk of the highest stakes, such failures of probity planning are far more common than sometimes seem apparent. For example, a quick survey of IT investment and procurement across a range of disparate organisational contexts highlights the risks of ineffective probity planning:
In each instance, building clear probity structures into the front end of procurement would have mitigated possible risks and produced positive outcomes for each organisation. Such examples highlight the need not only for quality probity processes but for trusted and experienced probity advice.
Is the potential risk to your organisation worth foregoing expert advice?
Probity can be defined as complete and confirmed integrity, uprightness, and honesty. Upholding the highest standards of probity and integrity enables organisations to safeguard procurement activities to ensure those activities and processes are robust and can withstand scrutiny.
Probity is critical to an organisation’s ethical decision-making and incorporates the principles of accountability, impartiality and transparency. As the possible impacts of poorly conceived or implemented probity planning can be dire, it is important that organisations consider probity planning before commencing procurement or other potentially high-risk activities. However, once the “genie is out of the bottle”, “the bird has flown” and/or the “final act has begun”, it is too late to retro-fit probity into the procurement process.
Seeking the assistance of a qualified and experienced probity advisor can be of immeasurable benefit to your organisation.
In many ways, the “reward” of seeking, co-planning and implementing robust probity processes and principles in your organisation are best measured by what does not unfold as a result of ineffectively planned procurement.
The value of engaging specialist advice lies in the ability of having a trusted advisor and partner who can foresee possible unintended consequences that are not always obvious. An advisor who both simultaneously understands your unique organisational context and who also has the ability to view potential risks with a critical lens can be of huge benefit. A good probity advisor also works with you to build internal future capacity.
A quality probity plan should involve a thorough risk analysis and include a wide range of identified controls. These might typically be:
Centium offers transparent, activity-based probity advisory and auditing services for a variety of transactions, including procurement, divestment, re-contracting and recruitment. Our bespoke Probity Methodology ensures that key probity elements are incorporated in every aspect of your transaction – i.e. Transparency, Accountability, Fairness, Value-for-Money, Issue Management and Conflict of Interest Management.
An organisation’s procurement function can be its key business strategy enabler. We provide our clients with best practice and market leading experience to improve the efficiency and effectiveness of the procurement function and thereby enhance the financial performance of the business
As a first step, Centium Probity will work with you to review existing policies and documents and present recommendations including efficacy of existing controls and proposed changes to improve the overall standard of service.
Importantly, Centium will ensure procurement, contract administration and project delivery projects provide:
Click here to read more about Centium’s Probity & Procurement services. Click here to talk to us about how we can help.
In December 2019, the NSW Ombudsman's Office finalised an investigation about a Public Interest Disclosure (PID) concerning the actions of Broken Hill City Council. The investigation found the Council had acted contrary to law by holding public functions in 2016 and 2017 in the incompletely refurbished Civic Centre before gaining the required occupation certificate.
For public safety reasons, the use of a building without the necessary occupation certificate is strictly prohibited by the Environmental Planning and Assessment Act 1979 (NSW) (EP&A Act).
As well as finding that the Council's actions in using and allowing others to use the Centre were wrong, the investigation highlighted a systemic problem: The Council was responsible for enforcing its own compliance with the EP&A Act, as well as other regulations. The Council took no enforcement action against itself for its own breach of the EP&A Act.
Following the investigation, the Ombudsman surveyed all councils across NSW and found that such conflicts of interest were not uncommon.
Instances such as this highlight the inherent challenges when Councils adopt the dual roles of “Poacher’ and “Gamekeeper”. Whilst most, if not all of Council’s roles, policies, procedures and responsibilities are usually well documented and understood by Council staff, there may be instances where some processes are not treated with the same degree of rigour.
This may include instances that:
Whilst not common, unless these potential Conflicts are recognised and managed professionally and transparently, there is a real potential for reputational damage and/or financial loss. Councils can address this potential risk by ensuring they have comprehensive and current Legislative Compliance and Corporate Risk registers in place.
You can find further information about this in the Ombudsman's special report to parliament titled 'An inherent conflict of interest: councils as developer and regulator' available here.
The Acting Ombudsman, Mr Paul Miller, also recently called on the State Government to finalise its proposed whistleblowing reforms, so the public sector can build a culture that encourages public servants to speak up when they see wrongdoing.
During the pandemic, there have been reports that more whistleblowers have come forward. This may be due to employees feeling more comfortable to speak out while working from home and away from their normal workplace.
This could mean that these employees are working in an organisation that does not have well documented or understood reporting processes and protocols in place. Worse still, there may be a culture of “shooting the messenger” rather than proactively dealing with received complaints or alleged misconduct in a manner that supports those that report such activity.
Organisations that do genuinely value transparency and actively encourage their staff to report any alleged instances of fraud, misconduct or other Code of Conduct breaches are usually those who score highest in workplace culture audits and surveys (such as the NSW People Matter Employee Survey). These organisations become well known as preferred workplaces and therefore attract a wider and better qualified pool of potential employees.
Centium's Ethical Conduct & Investigations team has over 30 years of experience working with private and public organisations investigating PIDs in the public sector and whistleblower reports in the private sector.
We also have conducted comprehensive reviews of organisations’ internal reporting processes and practices and made recommendations to improve these. Chris Wheeler, a former NSW Deputy Ombudsman, is a key member of that team.
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Effective from 01 December 2020, Centium has restructured the business away from a unit trust structure to a private company structure.
This change was purely to achieve a stronger legal foundation for future growth and expansion of the business. Click here for further information
It’s the season when lots of us – but by no means all of us – give gifts. It’s also the season where others bear gifts too.
This is a wonderful thing. But is it wonderful if you are a public official, a senior manager in a commercial business, or any employee where the gift may compromise your position and your integrity?
In the personal sphere, gifts are a wonderful thing. But in our working lives, they are far more problematic. Is the gift – or benefit as it is most often described in policy documents – just a token of respect or does it come with unspoken strings attached? Does the gift compromise you and your organisation? Is it a “gift”, or is it really a “benefit” intended to subtly influence your decision making?
There is an easy and transparent solution to this subtle and complex problem. Ask yourself three simple questions:
The best way for organisations to manage this risk is to have a clear and frequently communicated Gifts and Benefits Policy. This policy should also clearly articulate the values of the organisation and a readily accessible Gifts and Benefits Register. The key is to manage this risk in a transparent way that protects the reputation of the organisation.
Ultimately, the gift is not the problem. How the gift is managed is the greatest problem.
We hope you enjoy the gift-giving season - without the unintended consequences and worries that it can create.
If you would like help or advice to reduce your organisation’s risks associated with gifts and benefits, Centium can offer you the “gift” of assurance and experience. Click here to talk to us about how we can help.
After 2020, Year of the Pandemic, we are all looking forward to a Happy Holiday Season and spending time with our families and friends. We deserve it!
But scammers and spammers won’t be taking a break. Their ‘market focus’ will switch to the personal affairs and business of all those at home or on a holiday break. In fact, scammers and spammers have already been very busy this year.
Since the outbreak of COVID-19, The Australian Competition and Consumer Commission (ACCC) Scamwatch Service has reported:
Centium aims to raise awareness of these threats and protect our valued clients during the “silly season”. Here are some handy hints in this regard:
Centium has a long history of providing cyber security services. In our view, there are two threats of which you should be very aware: Phishing and Ransomware.
To understand how best to identify and handle them, please view our short three-minute video below.
Click here to see Centium’s cyber security services. Click here to talk to us about how we can help.
And from Centium, we wish you a happy Holiday Season, stay cyber-safe and all the best for the 2021 New Year!
Thanks to recent policy reviews and changes to legislation, local councils now have the potential to make better use of internal audit processes as a means to improve management, governance and performance. The historic focus on the ‘conventional’ functions of internal audit around risk, financial management and sound corporate governance is now widening to address other elements of the performance and accountability of councils as democratic, elected bodies serving local communities.
Centium has recently commissioned a research paper by Adjunct Professor Graham Sansom which describes the varied ways in which internal audit can be scoped and implemented. The paper outlines moves towards a ‘creative’ approach that puts more emphasis on improvement, self-regulation and community-focused governance.
Given the potentially very broad scope of internal audit now identified in legislation, and the limited resources available for this function, questions of balance and priorities loom large. What package of internal audit activities deliver the most value to a council’s operations – and to the community that the council serves?
Management of risk, together with appropriate internal controls and processes to ensure legislative compliance, probity and sound corporate governance, constitute the foundations of what might be termed ‘conventional’ internal audit. Properly conceived, risk management can and should be a value-adding process, not only finding solutions to actual or potential problems but also identifying opportunities that can be grasped by taking calculated risks.
Monitoring and review of council’s financial management controls, including fraud prevention activities, is another cornerstone of internal audit. As many councils grapple with the mismatch between community needs and demands for infrastructure and services on the one hand, and limited resources on the other, effective and appropriate use (and oversight) of available funding is essential.
In several states, audit committees are now expected to play a significant role in monitoring the outcomes of strategic and corporate planning processes, service reviews and performance monitoring and improvement. This was the key change made in the 2016 amendments to the NSW Local Government Act, complementing the earlier legislation of ‘Integrated Planning and Reporting’ requirements in 2009. A great deal of information is being collected that can be used to benchmark the performance of councils against similar counterparts, whether across-the-board or in specific areas of service delivery or governance. This information can subsequently form the basis for programs or projects to bring about required improvements.
The guiding principles now being incorporated in local government Acts blend established thinking about sound corporate governance (meeting statutory requirements, ethical administration, accountable and transparent decision making, handling complaints, etc.) with newer concepts of community governance (robust local democracy, active citizenship, community engagement, etc.). One is primarily focused on the council organisation, the other on its external relationships, especially its citizens and electors. "Good governance” needs to combine the two, with meaningful accountability to the local community as a common task and goal.
All elements of internal audit are concerned with the quality of governance. But the challenge posed by recent legislation is to move beyond a model that is largely inward-looking, to one that ensures local councils work more effectively as democratic entities. This is consistent with the requirements for councils relating to performance monitoring and reporting discussed above, as well as those for strategic planning, service reviews and closer engagement with the community and key stakeholders. Councils need to adapt to changing community needs, be more accountable for their actions, and play a stronger role as a partner in Australia’s system of government.
There is now widespread agreement that audit committees should have a majority of independent members with relevant expertise and an independent chair. The role of councillors in audit committees remains open for discussion, with a decision expected from NSW OLG in early-mid 2021.
An expanded role for internal audit would highlight the need to ensure its freedom from unwarranted interference by the elected council and senior management, whilst at the same time building effective working relationships. In the final analysis close cooperation and trust amongst the key players – the committee chair, the chief executive and the internal auditor (or chief audit executive) are indispensable.
Internal audit and the audit committee must be adequately resourced. Historically, all forms of audit in local government have been under-funded, largely due to competing priorities, but perhaps also because the value of informative audits that can lead to more efficient and effective operations – and thus better outcomes – was not understood. Nevertheless, the fact remains that in the great majority of councils resources are scarce relative to needs.
Any moves to expand internal audit and the role of audit committees will therefore have to be phased-in over an extended period, as now proposed in NSW. By the same token, however, councils would do well to consider:
The remit of audit committees and the scope of internal audit functions is set to expand. Moroever, the mix of functions and activities appears certain to change significantly with the emergence of a distinctive approach to internal audit attuned to the particular characteristics of local government. Particualry, its complex relationships with both state governments and diverse local communities.
More wide-ranging internal audit, coupled with more independent and authoritative audit committees, offers the potential to enhance both the operations and status of local government. It can ‘shift the dial’ to improvement and added value. This does not mean abandoning traditional core elements of internal audit such as risk, compliance, probity and financial management. However, it will require incremental moves to make room for activities such as oversight of the implementation of strategic and corporate plans, performance monitoring and service reviews. Those moves may involve finding additional resources or adjusting priorities within existing budgets.
Centium has over 30 years' experience working with government organisations in ensuring that internal audit presents a balanced picture of performance that identifies both weaknesses and strengths, whilst pointing to avenues of improvement. More than constructing ‘defences’ against risks, we adopt an approach that encourages innovation and embraces future opportunities.
You can read the full research paper and its findings here. To find out more about Centium and how we can help, click here.
It's been a big year for all of us, but especially for the 20 Councils in NSW that were amalgamated in 2016. These Councils have faced additional challenges that were brought to the public’s attention via some recent adverse media coverage:
The NSW government's controversial council merger policy is in crisis, with the 20 amalgamated councils losing $1.03 billion in three years and ratepayers facing hikes in rates and cuts in services. And as some merged councils battle for survival, others are under fire for overspending and mismanagement of questionable projects.
SMH 31/10/20
The reality of creating these merged Councils has precipitated the need for new approaches to almost everything - from strategies and policies to creating teams and organisation structures, new identities and branding. It has also resulted in new approaches to community relations, systems and service standards, and creating new operational procedures for delivering programs and initiatives.
The recent negative press referred to above blamed the merged Councils for their financial woes. But blaming the Councils for their financial losses doesn’t factor in the almost complete reinvention that needs to happen in order to create the new Council. In fact, history shows that the claims of financial savings that are often made by proponents of amalgamation are often over-inflated.
For example, McKinlay Douglas (2006) reports that amalgamations in South Australia in the mid-1990s were projected to save $150m per annum. But in practice, the changes saved only $19m. The Queensland Treasury Corporation (QTC) also reviewed the 2007-2008 amalgamation process, which reduced the total number of councils from 157 to 73. The QTC found that the costs were substantial, reporting a total cost of $184.71m across the 24 Councils involved.
Unfortunately, some of rationale given by state governments for amalgamations set up unrealistic public expectations of financial savings that may never be delivered. This is not because of mismanagement, but rather because of the practical realities involved in their implementation, including:
The good news is that amalgamations have delivered and will continue to deliver some exciting benefits for those Councils and their communities. The post-amalgamation business process reengineering that many Councils have conducted has also highlighted previously unidentified risks and blind spots. Many of these had the potential to negatively impact on the previous Councils’ financial and community service performance capabilities.
Merged Councils offer more ‘clout’ in advocating for their communities, with more political strength and influence as a result of their size. Finding new ways to operate and harmonise their policies and procedures tends to generate innovation and improvements. The creation of bigger councils generates improved purchasing power, more equitable delivery of services and the capacity to employ more specialist staff. This in turn has resulted in these Councils being able to deliver more cost effective and improved services and programs to their communities.
Centium is pleased to be working with the amalgamated councils in identifying and addressing the inevitable challenges of creating new council entities and in realising the exciting new possibilities of a larger new council. We will continue to work in partnership with our merged Council clients to consolidate and deliver on their new strategic vision, to identify and address their operational and reputation risks and to reengineer key processes.
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References
McKinlay Douglas Limited (2006) Local Government Structure and Efficiency, report prepared for Local Government New Zealand
Queensland Treasury Corporation (2009) Review of Local Government Amalgamation Funding Submissions: Final Summary Report, prepared for Department of Infrastructure and Planning – Local Government Services
It is a crazy time for auditing!
Sixteen months ago one of our team was fortunate enough to attend the International IIA Conference in Anaheim, Southern California… IN PERSON! FOR REAL!
Three informative and thought-provoking days, real face-to-face networking, real meals with other people, real hand shaking – and real networking.
One of the presentations at the July 2019 Conference focussed on the top enterprise level risks perceived by Fortune 500 Chief Executive Officers. While cyber security topped the list, the notion of a global pandemic did not make the Top 10.
No – a pandemic did not make any real list of risks!
Fast-forward ten months: The world is in lock-down and Centium (and our valued clients) have all learned to work from home.
We have all had to change. We have all had to find a way to be successful in the new normal. We have all had to adjust.
Here at Centium we have adjusted our systems and processes to facilitate remote auditing – with many advantages. For example:
Most importantly, along the way, we have met pragmatic, innovative and hardworking people who have collaborated with us to get the audit done – often under difficult circumstances – even when they have been locked down or unable to readily access their premises. These are our valued clients; working through the craziness and keeping their organisations safe at a time of unprecedented uncertainty and risk.
Of course, this new way of “now working” has many advantages.
Despite the many advantages of “now working”, we are looking forward to an improved and phased way of auditing that will exceed our clients’ expectations. We are looking beyond COVID-19, and beyond now, to a hybrid model of delivery that will achieve increased efficiencies and outcomes for our clients. The future beyond “now working” is a shared model of the remote, the digital and the personal. The future is exciting!!
It is exciting because a combination of remote and onsite fieldwork is cost-effective and can enable a deeper understanding of the business and/or activities subject to the audit. Co-location with our clients allows us to check and monitor specific controls first hand. Team dynamics and culture are also an invaluable adjunct to planned testing.
A return of blended on and offsite fieldwork will see us resume a more self-sufficient approach to auditing. Currently our clients are assuming a greater share of document/evidence collection. When we can be back onsite for some of the time, we can work together to map processes, interrogate systems and records, look for patterns, photocopy or download records, and seek immediate clarity regarding business processes. We will also be able to provide assurance that we have seen original documentation, reports and related.
A shared model of working will allow us to work with you in new and exciting ways. While we have been innovative in our approach to fieldwork, there remain some activities where technology cannot replace onsite inspection and observation. This is particularly pertinent for our WHS auditors, in those situations where observation is critical and/or where client records are only available in hard copy.
At Centium, we pride ourselves on our partnership approach with a variety of clients across sectors, agencies and industries. We believe that face-to-face contact – as well as a hybrid approach – can be more conducive to building strong partnerships and understanding people rather than simply systems and controls.
The world beyond “now working” is exciting! Whether now or in the future, and whatever the approach (the old way, the “now way”, or the “new way”), we will partner with you, as always, to find the best way and exceed your expectations.
Click here to see our range of services. Click here to talk to us about how we can help.
Recent reports and trends show that bad behaviour has increased during the COVID-19 pandemic. The changed circumstances and unprecedented events we've experienced have not only increased the opportunity for misconduct, they have also led to an increase in the emotional states that drive individuals to commit it.
Nurturing our people, implementing better internal controls, and carrying out fair and effective investigations of misconduct are critically important to protect our employees, our assets, and our brand.
How has the Pandemic affected employee behaviour?
Misconduct involving fraud and other bad behaviour has three main elements: pressure, opportunity, and rationalisation, often called the Fraud triangle. The unprecedented economic and social conditions resulting from the COVID-19 pandemic have intensified the effect of these factors:
Pressure can arise from personal or family health or financial issues and desire to maintain lifestyle or relationships, as well as organisational norms and expectations such as complying with policies and procedures and meeting KPIs and targets. These factors or perceptions about them can cause people to act dishonestly or irrationally. During the pandemic, there have been added pressures, including:
Opportunity can arise when there are financial or other pressures on employees and system weaknesses or inadequate internal controls. Working remotely, reduced supervision and time to research ways to defraud present many such opportunities. Working from home increases the use of work-related communication through email and instant messaging. The seeming informality and intimacy of these channels frequently lead to staff communicating inappropriately with their colleagues. Sometimes employees also access sexually explicit or other offensive material and share it with co-workers and others using their employer's equipment and systems.
Rationalisation completes the triangle. It was recently noted in a Board Agenda article that "the chaos and uncertainty of the Pandemic is likely to motivate individuals and businesses to rationalise their nefarious activities"'. Decreased wages or commissions and lack of positive interaction with and support from supervisors may lead to employees feeling that their employers do not care about them. Conversely, in some cases, increased or intrusive supervision can be oppressive. Either of these can lead to disaffection and a sense of entitlement.
What forms of misconduct are at risk of increasing?
Due to the pandemic and its many implications, each of the three elements of the fraud triangle have created the right environment for some forms of misconduct to increase within organisations. Some of these include:
Dishonest intentions
In April, the Washington Examiner reported that data compiled by Google showed that in late March, the number of users looking for information on how to start a fire grew by 125%. The article drew from this that there was an increasing number of people who were contemplating arson and fraudulent insurance claims as a way to alleviate financial pressures. It can therefore be assumed that dishonest intentions have increased generally.
Payroll fraud
Payroll fraud is common and often goes undetected in ordinary times. But we are now living in extraordinary times, where remote working is the norm. Working from home increases the opportunity for staff involved in payroll to make payments to terminated or fake new employees.
Theft of time
Remote working also facilitates the most common type of payroll fraud, stealing time during working hours. Examples of this are:
Rationalisation plays a large part here. The dishonest employee tells themself that they do outstanding work, contribute more to their organisation than they get from it and that they have made up or will make up the time spent on non-work activities.
Procurement fraud
The pandemic has created unprecedented disruption and challenges in maintaining supply chains, particularly in the health sector. The need for emergency purchase of life-saving medications and personal protective equipment (PPE) has created significant opportunities for circumventing procedures and delegations and possible collusion in obtaining overpriced, substandard, or non-existent goods and services. Payments made by staff working remotely using credit cards create a further vulnerability and simple schemes such as creating fake suppliers and invoices are made easier.
Sexual harassment
On 27 August, ABC News reported: "Victoria's equal opportunity Commissioner has reported that sexual harassment complaints are up about eight per cent since the COVID-19 Pandemic hit Australia."
On the face of it, working remotely would seem to reduce opportunities for workplace sexual harassment. But sexual harassers have adapted to technology. They use work-related online meetings, telephone calls, text messages and instant messaging and to reach out to, groom and eventually harass their victims. If their advances are rebuffed, or their inappropriate comments are called out, some desist, but others deluge their targets with continual sexually explicit images and abusive messages. Some victims report hundreds of such messages each day for sustained periods.
Additionally, anecdotal evidence suggests that working from home and the distance from the office this creates, as well as being separated from the alleged perpetrator, has seen an increase in the number of historic complaints of sexual harassment in the workplace.
Cyber smearing
Cyber smearing is a further danger. This involves disaffected employees or other malicious actors anonymously posting or disparaging rumours and statements about an organisation.
How do we manage the risks?
Leadership
Benevolent and robust leadership that is committed to and exemplifies ethical behaviour is critical during crises such as the pandemic. Good recent examples include executives forgoing salary and benefits and continuously engaging with their workforce during the pandemic. Conversely, recent instances of extravagant rewards to executives have brought community and government criticism of the recipients.
Ethical Culture
An ethical culture will reduce the risk of fraud and corruption. The Ethics & Compliance Initiative states: "There are people who act with integrity regardless of the situation they are placed in, and others will always act out of self-interest. The vast majority of people are somewhere in the middle, guided by those around them. In ethical cultures, they will hold the line, and in ethically compromised companies, they will violate the norms. Company culture makes an enormous difference in employee conduct."
Ethical framework
Organisations need to provide their employees with clear policies setting out acceptable standards of ethical behaviour, clearly defined fraud control responsibilities and adequate resources for managing fraud. Employees must be trained to a level that they can articulate their obligations of ethical behaviour and their organisation's position on fraud. The NSW Audit Office publishes a useful Fraud Control Improvement Kit.
Nurture our employees
Employees who feel they are valued and supported are less likely to engage in fraud or bullying and harassing behaviour. We need to promote a positive work environment and treat everyone fairly and with respect. Most organisations have employee assistance programs (EAP). Ideally, those programs should do more than provide crisis intervention. The better ones proactively engage with employees and provide resources to promote wellness.
Proactive fraud prevention measures
The NSW Independent Commission Against Corruption (ICAC) has provided guidance on measures that Government agencies should take to reduce the risks of fraud during the pandemic while employees are working remotely. These measures would also be useful for private sector employers. They include:
Proactive detection measures
Passive detection methods take longer to bring fraud to attention. Internal audits, management reviews, whistleblower hotlines and effective employee monitoring mechanisms are vital.
Effective and fair investigations of misconduct
In situations such as the pandemic, there can be a tendency to postpone investigations of allegations of misconduct due to other competing priorities and resource constraints or even to take no action. Early triage of all allegations is essential to determine what if any investigation action to take. Only competent and objective investigators should be assigned to make the necessary enquiries, and procedural fairness must be accorded to all parties. It is also important that the investigations are substantively fair (based on objectively ascertainable facts) and would appear so to any reasonable observer.
Start promoting ethical & safe workplaces
COVID-19 pandemic has not only changed the incidence of organisational misconduct but has also impacted the Fair Work Commission's process of decision making when handing down judgments. as well as their approach to unfair dismissal. There has already been at least one occasion this year where the FWC has delivered a significant message to an employer that the industrial relation landscape has changed as a result of the pandemic.
It's safe to say that COVID-19 has not only changed the work environment but the whole framework of organisational operation in which we sit. And this is not something that will end when 2020 does.
Implementing better internal controls, creating an ethical culture and a supportive organisation will be especially important for reducing misconduct and improving business outcomes well into the future.
Centium has over 30 years' experience working with private and public organisations in investigating ethical conduct issues and assessing or implementing new frameworks to effectively manage and mitigate risks. Click here to see our range of services. Click here to talk to us about how we can help.
About the Author
Peter Mulhall is Centium's Director of Ethical Conduct and Investigations. He is a former government regulator, people and culture director, mediator and lecturer in human resources management. He has been conducting and managing investigations into high profile and sensitive matters for the last 25 years.
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