Fraud and Corruption Control—Local Government

Tabled: 19 June 2019

2 Fraud and corruption controls over councillor entitlements and expenditure

Residents and ratepayers elect councillors to serve their communities. Councillors are responsible for setting the overall direction of the council and take an oath that they will perform their role impartially, to the best of their ability, and in the best interests of the municipality.

The Act provides for councillors to receive support from councils including an allowance, resources and facilities, and the reimbursement of expenses incurred while performing councillor duties.

Councillors must model appropriate behaviour. As highly visible community leaders, they must hold themselves to the highest standard of integrity and foster a culture of zero tolerance for fraud and corruption. Any perception of excessive entitlements may damage public trust and the maintenance of a culture of integrity.

As with any type of council expenditure, the provision of entitlements to councillors may constitute a fraud and corruption risk for which councils need adequate controls. Fraud and corruption risks over councillor entitlements can include councils:

  • approving councillor expense claims or entitlements not required for official council business or for councillors to perform their roles
  • approving councillor expenses not supported by adequate documentation
  • misreporting councillor expenditure.

2.1 Conclusion

Audited councils are not consistently applying important fraud and corruption controls over councillor reimbursements and entitlements.

Audited councils do not consistently require and adequately scrutinise supporting documentation to confirm that councillor expenditure is valid. Shepparton, Strathbogie and Wyndham have also failed to comply with a legislative requirement to accurately report councillor expenditure in their annual reports. These control weaknesses expose councils to the risk of fraud and corruption and may damage public trust and reduce transparency.

2.2 Fraud and corruption controls

Councils decide the level of support they provide to elected councillors based on what the council can afford, and what their communities would accept as reasonable. Councillors seeking benefits outside of their entitlement may be a fraud and corruption risk. Some examples of fraud and corruption risks over councillor support include councillors seeking reimbursement for:

  • petrol costs for private mileage
  • meals for their families or friends
  • items that have nothing to do with their official council duties
  • something that the council has already provided.

Councillors must also consider how their community may perceive entitlements that appear excessive or where there is no clear business purpose, such as:

  • expensive meals
  • additional financial allowances
  • alcohol at council meetings.

To control for these risks, we assessed whether:

  • councils had clear policies outlining the level of support to which councillors are entitled, and the process for how councillors can claim these entitlements and reimbursements
  • councillor reimbursements and entitlements are supported by documentation that confirms they are for genuine council business and details the beneficiaries of the expense
  • standing entitlements and support that councillors receive are not excessive and meet community expectations.

Policy and process

The Act requires councils to adopt and maintain a policy that prescribes the types of councillor expenses the council must reimburse, and the procedures councillors must follow for reimbursements.

The policy should also outline the support a council will provide to councillors and mayors, including access to resources and facilities.

All audited councils have a policy detailing the support they provide to councillors and the mayor, which are available on the councils' websites. The policies vary in what entitlements they provide, such as different rates for mileage reimbursements and printing entitlements.

All council polices also outline the process by which a councillor can request a reimbursement of expenses. We assessed the councillor reimbursement forms and noted a good practice example at Wyndham that requires councillors to certify that their claims accord with the relevant legislative provisions. This may also help councils to hold councillors accountable if they fail to meet their obligations.

Documentation to support reimbursement claims and approvals

Under the Act, councils must reimburse councillors for expenses if the councillors:

  • apply in writing to the council for reimbursement of expenses
  • establish in their application for reimbursement that the expenses 'were reasonable bona fide Councillor out-of-pocket expenses incurred while performing duties as a Councillor'.

The Act defines councillor duties as 'necessary or appropriate for the purposes of achieving the objectives' of the council.

However, the audited councils do not always approve councillor reimbursements in line with these requirements. For example:

  • from 12 councillor reimbursement claims we reviewed at Shepparton, the council was unable to provide the reimbursement claim forms for three approved transactions
  • from 20 councillor reimbursement claims we reviewed at Strathbogie, we identified six examples where the councillor had failed to detail the business reason, or council event, for which the expense was incurred.

In some instances, the audited councils state with confidence that, in the absence of supporting documentation, they can confirm that the expenses were business related. However, incomplete or missing documentation means full public scrutiny cannot be applied to the transactions as the business reason and who benefited is not evident. Shepparton advised that it has now implemented a business rule where it will not process councillor reimbursements for payment without the relevant forms and conducts ad hoc 'spot checks' of councillor reimbursements.

The case study in Figure 2A outlines an example of how documentation gaps limited our ability to confirm whether reimbursements were bona fide and who benefited from the expense.

Figure 2A
Inadequate reimbursement documentation

We reviewed a reimbursement for $110 paid by Wellington to a councillor. The description on the reimbursement form was 'reimbursement for meal'. The documentation did not detail:

  • who consumed the meal
  • the business purpose of the meal (the receipt reflected that the meal appeared to be for a number of individuals and included alcohol).

When we made enquiries, the council reviewed this councillor's calendar and advised that: '[this councillor] paid total bill for dinner although the names of attendees have not been detailed, it appears that there were 3 attendees.' The council also advised that the claim was in the context of the councillor's attendance at a business conference, although this was not evident in the supporting documentation.

Source: VAGO, based on Wellington data.

There is no evidence that the above case study indicates fraudulent expenditure. However, the supporting documentation should have detailed the business reason for the expense and the beneficiaries.

Mileage reimbursement

Reimbursement of mileage costs for councillors to attend council meetings, functions and events is to ensure that there is no financial disincentive to becoming a councillor and performing official duties. As such, the audited councils' policies provide for the reimbursement of mileage to support councillors when they use their private vehicles.

Given the significant distances travelled by councillors, particularly in regional Victoria, mileage reimbursement amounts can be significant. The Act requires councillors to prove that their reimbursement claims are bona fide. Therefore, the council should require some level of supporting documentation for mileage reimbursement claims, such as a logbook with odometer readings, and a description of the council meeting or function attended.

Figure 2B details the supporting documentation required by councils for mileage reimbursements according to their councillor reimbursement policies and councillor reimbursement expense claim forms.

Figure 2B
Supporting documentation for mileage according to policy

Council

Evidence requirement for supporting documentation in policy

Requirement in claim form

Shepparton

Logbook

  • Date
  • Details of claim
  • Amount claimed
  • Attach tax invoice/receipt/logbook

Strathbogie

Receipt or tax invoice

  • Date
  • Purpose of travel
  • Kilometres travelled

Wellington

No stated requirement

  • Date
  • Destination
  • Reason for trip
  • Distance travelled
  • Vehicle cylinder size

Wyndham

'appropriate records '

  • Destination
  • Kilometres travelled
  • Attach tax invoice and receipts

Source: VAGO, based on council policies.

Wyndham and Wellington need to improve their guidance to councillors. Wyndham's policy and claim form does not require councillors to detail their purpose for their travel, and Wellington's policy does not state what supporting document the council requires for mileage claims.

Figure 2C shows the mileage reimbursement rates for councillors according to council policies. The audited councils use three different sources for the rates, meaning councillors are provided with varying levels of support. This decision is at the audited councils' discretion, but they should consider public perception in determining these rates.

Figure 2C
Mileage reimbursement rates for councillors according to council policies

 

Shepparton

Strathbogie

Wellington

Wyndham

Cents per kilometre

66 cents

97 cents

72 to 88 cents

80 to 97 cents

Source of rate

Australian Tax Office (ATO)

Victorian Local Authorities Award 2001

Royal Automobile Club of Victoria (RACV)

Victorian Local Authorities Award 2001

Note: The award rates differ depending on engine sizes. Strathbogie does not check engine sizes and pays all claims at the highest available rate.
Source: VAGO, based on council data.

Shepparton

Shepparton's policy states that councillors must support their claims for reimbursement with a logbook, which the council can provide on request. The councillor reimbursement claim form also requires the attachment of a 'Tax Invoice / Receipt / Copy of Log Book'. We selected five mileage reimbursement claims and found that even though none of the claims we reviewed had any supporting documentation, the council processed all five claims.

We also identified that Shepparton reimbursed three of the five claims in error, at a rate of 99 cents per kilometre, instead of the 66 cents in their policy. The council explained that the claims were processed in error at the council employee Enterprise Bargaining Agreement (EBA) rate, instead of the stated councillor reimbursement policy rate. The overpayments ranged from $43 to $126.

Shepparton advised that it has now provided councillors with logbooks and a new reimbursement form. We have confirmed that the new form outlines the evidence that councillors need to provide to obtain a reimbursement and alerts administrative staff who process these claims to the requirements.

Strathbogie

Strathbogie uses the Victorian Local Authorities Award 2001 to reimburse councillors for mileage at a rate of 97 cents per kilometre and does not check engine sizes, which could result in a lower rate being applicable (80 cents per kilometre).

Strathbogie does not have clear requirements for supporting documentation for mileage claims, and does not, for example, require councillors to provide odometer readings. While Strathbogie's councillor reimbursement policy requires that councillors provide 'a receipt/tax invoice for any expenditure', its associated claim form does not require councillors to provide evidence in support of mileage claims. None of the 10 approved mileage claims we reviewed provided any tax invoices or receipts. While we found that six claims included details about the council event the councillors attended, four claim forms only stated the date and locations travelled between, without providing any detail on the actual business purpose for the travel.

We found one instance where Strathbogie reimbursed a councillor $1 018.50 over a three-week period. In support of these mileage reimbursements, the councillor noted the kilometres travelled and the travel purpose. However, the councillor did not provide a tax invoice or receipt to support any of these reimbursements, which is a requirement under the council's policy, but not on its councillor claim form. Strathbogie does not require councillors to provide odometer readings to confirm the number of kilometres travelled.

In response to our findings, Strathbogie stated that it is committed to providing councillors with training to reinforce its policy requirements for reimbursements and ensure that councillors understand that any claim for reimbursement must be reasonable.

Wellington

Wellington uses the RACV vehicle expense rate to reimburse councillors for mileage. These rates vary depending on the size and type of the vehicle, and RACV revises them each year. The RACV rates for 2017 were 6 to 22 cents higher than ATO rates. The council states that the ATO rate does not provide a fair reimbursement rate, as it does not consider engine size or reflect the true expense in using a private vehicle for council business.

Wellington requires councillors to submit a reimbursement form that lists the date, cylinder size, distance travelled, reason for the trip, and destination. It does not require councillors to provide other supporting documentation, such as a logbook or odometer readings for mileage reimbursements or a receipt to confirm spending on fuel. However, the council advises that it takes steps to ensure that claims for mileage are for council business as follows:

  • The support officer who books and records councillor meetings and events in a diary checks the entries against the councillor claim forms.
  • The council uses Google Maps to confirm distances travelled.

We reviewed seven claims for mileage reimbursement. Wellington provided the reimbursement forms for all claims, which listed the destinations, kilometres travelled and the business purpose.

Wellington's claim form states that councillors should complete reimbursement claim forms at the end of every month and that claims submitted later than three months after the expense is incurred will not be paid. This is to enable appropriate scrutiny so that the business purpose for travel can be easily confirmed. We identified two paid claims from our review of 20 approved reimbursements where the councillors submitted these claims outside of this timeframe. Figure 2D outlines this.

Figure 2D
Delayed claims for reimbursement

We identified one reimbursement claim for mileage of 3 698 kilometres with a total claim value of $2 662.56.

A councillor submitted the claim form in April 2017 and it covered the period November 2016 to April 2017.

The council acknowledged this delay and noted that it was an isolated incident.

We identified a second claim for reimbursement for a different councillor who submitted a claim in September 2018, for the period July to September 2018 for $1 652.78.

Wellington stated in response to these findings that:

  • the council endeavours to receive travel reimbursements from councillors by the end of each month
  • there are times when councillors (primarily for personal reasons) forget to lodge claims
  • the council tries to be flexible with this arrangement.

The council noted that it had added a monthly calendar reminder in each councillor's diary to help reduce delays and that it can 'only ask/remind Councillors to submit claims'.

Source: VAGO, based on Wellington data.

Wyndham

Wyndham uses the Victorian Local Authorities Award 2001 rates to reimburse councillors for mileage. The council is of the view that this rate is consistent with its EBA and ensures councillors receive the reimbursement as council staff. As a metropolitan council, Wyndham has fewer claims for mileage reimbursements.

Extra entitlements

Meals and alcohol

Councils may provide meals for councillors when council meetings extend through normal meal times or when they require councillors to travel for councillor business. In rural councils, councillors may travel significant distances to attend council meetings.

In our testing of credit card transactions, further described in Section 3.3, we noted transactions at two of the four audited councils and we provide examples in Figure 2E.

Figure 2E
Expenditure for councillors

Council

Audit findings

Wellington

  • $1 349.90 at a local restaurant for a dinner for newly elected councillors, with 23 people in attendance, including four executives and councillors' partners.
  • Purchases made on behalf of councillors and described in documentation as 'meeting supplies' and 'catering', including:
    • a case of wine purchased for $171
    • two transactions of eight cans of pre-mixed alcoholic drinks.

We note in response to these transactions that the council has stated that councillors do not consume alcohol during work hours.

Wyndham

  • $113.50 transaction at a local restaurant for a lunch between the CEO and two councillors, including three glasses of wine.
  • $166.50 transaction at a local restaurant described as a 'catch up lunch' between the CEO and two councillors, including six glasses of wine.

Source: VAGO, based on council data.

The transactions listed above are not instances of fraud or corruption. However, they are instances where councils have provided benefits to council staff and councillors that their own policies do not necessarily support and are not transparently reported back to their communities.

Wyndham has acknowledged that such expenditure, where material, should be included in the reporting of councillor expenses for greater transparency. Wyndham advised it will review its guidelines on councillor expenses to capture expenditure more broadly.

When entitlements exceed stated policy, have unclear business purposes, or councils do not transparently report these expenses to ratepayers, councils risk losing their communities' trust.

Additional financial allowances

Councillors should not receive additional payments unless they can prove they incurred an expense for official council business. For example, this would include a reimbursement of accommodation or meals costs where the councillor attended approved council business and provided supporting documentation.

We noted the following practice at Wyndham in the form of a printing allowance, which Figure 2F describes.

Figure 2F
Councillors receiving printing allowance

Wyndham's councillor reimbursement policy states that the council will provide each councillor with an $800 lump sum per year 'hard copy printing allowance' to purchase a printer, paper and toner. The council does not require councillors to provide evidence as to how they spend the $800 printing allowance and pays the money directly to the councillor.

We note that:

  • councillors can use the printers at the council offices
  • the council provides councillors with laptop computers and electronic copies of meeting papers
  • under its policy, the council will also reimburse councillors for printing costs, in addition to the printing allowance.

The council details the $800 printing allowance in the councillor reimbursement policy, which is available for public inspection. However, it is an additional financial allowance as opposed to an actual reimbursement, which means Wyndham councillors are receiving the maximum allowance plus an $800 lump sum.

Source: VAGO, based on Wyndham data.

In comparison, Shepparton, as a better-practice example, provides no printing allowance or reimbursements to councillors. Shepparton provides its councillors with tablets and the ability to use printers at council offices. The council does not consider that any further printing entitlement is necessary.

For any payments or reimbursements, councils must collect documentation that confirms that councillors are using this money for genuine council business.

Perception of 'double-dipping'

Councils need to carefully consider how residents and ratepayers may perceive their actions in providing equipment, as well as reimbursing councillors for similar items or resources. Councils need to ensure that there is not a perception of 'double-dipping' or excessive entitlements.

Figure 2G shows an example of Strathbogie reimbursing a councillor's entire private telephone bill, despite the council already providing and covering the costs of a work mobile telephone.

Figure 2G
Councillor provided with a mobile telephone and reimbursed for home telephone bill

The council issued a councillor with a work mobile telephone. In addition to the provision of a work mobile, the council's policy also provides for a maximum reimbursement of $100 per month for 'Council business' telephone calls on their private mobile or home telephone.

Between 31 August 2015 and 31 March 2018, the councillor claimed reimbursements for their home telephone and internet totalling $3 474.23.

Reimbursement forms show that the councillor had not itemised the telephone bills for reimbursement purposes, as required by policy. The council approved all these reimbursement claims.

Source: VAGO, based on Strathbogie data.

We understand that the council did not approve one reimbursement claim submitted by the councillor for telephone charges in March 2018 and the councillor has not sought reimbursement for their private home or internet charges since this time.

In response to our draft report, Strathbogie advises that it is reviewing its policy and that it has sought to recover these inadvertent overpayments.

Mayoral fuel cards

We completed analytics over fuel card use by mayors at Shepparton, Wellington and Wyndham. We were unable to complete analytics for Strathbogie, as transaction times, odometer readings and the volume of fuel purchased was not available to enable analysis. For the councils we were able to complete analytics for, we identified no fuel card misuse by the mayors.

2.3 Reporting councillor expenses in annual reports

The Regulations require councils to detail in their annual report a breakdown of each councillor's expenses in five categories:

  • travel
  • car mileage
  • childcare
  • information and communication technology
  • conference and training expenses.

Reporting of councillor expenses in annual reports provides transparency and enables external scrutiny of councillor expenses.

We reviewed council annual reports for 2017–18 to determine if the audited councils comply with this legislative requirement. Only one of the four councils fully complied with the Regulations as detailed in Figure 2H. This illustrates not only a breach of the Regulations, but also limits opportunity for external scrutiny.

Figure 2H
Council compliance with annual reporting requirements for councillor expenses

Council

Compliance with councillor expenses in 2017–18 annual reports

Non-compliance

Shepparton

Not compliant

The council has not detailed in its annual report the councillor expenses in the five required categories.

Strathbogie

Not compliant

The council has reported the total expenses paid per councillor, instead of reporting the five required categories.

Wellington

Compliant

N/A

Wyndham

Not compliant

The council has combined the travel category with the training and conference category.

Source: VAGO, based on council annual reports for 2017–18.

In addition, Wellington and Wyndham are not currently capturing the instances we identified of council staff purchasing meals and alcohol for councillors in Figure 2E as councillor expenses, reporting these back to the community.

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