In December 1996, the Independent Commission Against Corruption released a report on the use of probity auditors by public sector agencies, entitled Probity, Auditors: When, Why and How. (see www.icac.nsw.gov.au) Probity auditors are most commonly used by the Government in the context of procurement or development processes. Investigations undertaken by the ICAC have revealed a number of problems with the use of probity auditors by public sector agencies.

While there are circumstances in which it remains appropriate to employ an independent person to verify that processes followed by an agency are consistent with Government regulations and best practice principles, probity audits should not be used as an ‘insurance policy' to avoid accountability for decisions made, or be allowed to become a substitute for good management practices. The use of probity auditors should be the exception rather than the rule. The ICAC's report explains when the exception arises.

Each public sector agency should have internal mechanisms in place to ensure that probity considerations are routinely taken into account in their decision making processes, so that all decisions can withstand public scrutiny. Agencies should also ensure that staff are familiar with probity issues, and sufficiently trained in relevant NSW Government policies and procedures. Further, in appropriate circumstances agencies may consider using existing resources within the NSW public sector (Treasury, The Audit Office, Premier's Department, the Department of Public Works and Services, and independent bodies such as the ICAC), before deciding to employ a probity auditor.

The ICAC has recommended criteria that should be used by public sector agencies in determining whether a probity auditor should be engaged. The ICAC has also suggested guidelines for selecting probity auditors, determining the scope of a probity auditor's work (including terms of reference for the conduct of the audit), and general principles of probity which public sector agencies and probity auditors should consider throughout a project. Agencies should consider these recommendations, summarised as follows, and integrate them where appropriate with existing management practices.

Criteria for determining whether to engage a probity auditor

It may be necessary to engage a probity auditor:

• where the integrity of the process may be called into question
• where the project is politically sensitive and/or potentially controversial
• to avoid a perception of bias/favouritism
• where the project is extremely complex
• where there were substantial costs involved in preparing submissions or there is substantial Government funding involved.

Guidelines for selecting a probity auditor, and establishing the terms of his or her engagement

Like other consultants, probity auditors should be selected competitively, and on merit. They should have an appropriate level of knowledge and skill (including knowledge of relevant Government policies); be independent and objective; be able to demonstrate professional competence and good judgment; be of good character; and be willing to enter into a confidentiality agreement as part of their contract.

Once selected, written terms of reference should be established, in which the role of the probity auditor and the scope of the audit should be clearly defined. The ICAC report provides extensive guidelines for defining the scope of a probity auditor's work (attachment ‘A'). The ICAC also recommended that agencies undertaking large infrastructure projects consult the guidelines developed by the Department of Public Works and Services (Infrastructure Partnerships Implementation Guidelines).

The ICAC recommended that agencies use the model agreement contained in the annexure to the Government's Guidelines on the Engagement and Use of Consultants. However, at minimum, terms of reference should also authorise the auditor to have full access to records, personnel, meetings and premises; state the auditor's fees, reporting time-lines and the expected completion date of the audit; specify to whom the auditor is to report; define ownership of the report (including working papers and supporting materials); and specify arrangements to secure the materials during the audit.

Please bring this Memorandum to the attention of Chief Executive Officers in your administrations, and request that they review current practices in light of the ICAC report. The ICAC has advised that, should agencies need further information on the use of probity auditors, the ICAC's Corruption Prevention Section can be contacted on (02) 9318 5999.

Bob Carr
Premier

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ATTACHMENT A

It is the role of a probity auditor to:

• Examine and evaluate information and processes

• a) Act as an independent observer and comment on all relevant processes from beginning to end, 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 and appropriate 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 advantage over another or unfairly discriminated against.

• d) Provide information to those wishing to do business with the organisation on the probity of the process.

• e) Ensure that all relevant participants in the process are aware of their responsibilities to disclose conflicts of interest.

• f) Observe debriefing sessions with bidders.

• g) Review and assess all relevant documentation to ensure accountability (for example, check that decisions have been recorded, and any departures from established procedures have 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 of probity issues that may arise

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

• k) Provide advice to the organisation and interested parties on how emerging issues can be resolved or managed (for example, conflicts of interest). (However, it must be emphasised that 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 on any probity issues that may arise.

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

• Document information and report 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 as requested, or when considered necessary, to provide a record of the process confirming that probity has been observed.

• q) Document matters, obtain sufficient and appropriate information to support any conclusions on which reports are based, and identify any areas where information has been withheld by the organisation.

• r) Prepare a signed, written final report describing the organisation's performance when conducting the process.

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