Compliance in 2021-22

Under the Financial Management Act 1994 (FMA), the VGPB is responsible for monitoring compliance by departments and specified entities with its supply policies.

The VGPB uses several mechanisms to monitor procurement performance and compliance with the supply policies, including compliance reporting, accreditation, audits, performance measures and complaints.

Changes to compliance reporting

Following the expansion of the VGPB’s remit to include a further 125 agencies, the VGPB has changed compliance reporting to enable effective monitoring across more organisations. For the first time, VGPB policy requirements have been incorporated into the annual Standing Directions 2018 (SD) compliance reporting process.

From 30 June 2022, departments and specified entities will assess compliance with VGPB policies through Standing Direction 4.2.1.2 – Agencies subject to VGPB coverage. Concessional arrangements were put in place for 2021–22, with organisations assessing compliance against Standing Direction 4.2.1.2 as at 30 June 2022. Full year compliance reporting will begin from 2022–23.

This new approach to compliance monitoring is the same for all departments and specified entities, both existing and expansion agencies. It elevates compliance with VGPB policy requirements to become a core part of the Victorian Government’s ongoing financial management compliance monitoring process.

Attestations under the Standing Directions are made by the Accountable Officer (Secretary, CEO or equivalent) typically following a review of relevant evidence by the organisation’s audit committee. Each requirement in the Standing Directions is also subject to an internal audit at least every four years.

Organisations’ attestation information from 2021–22 will be available to the VGPB in late 2022 and outcomes reported in the VGPB Annual Report each year beginning 2022–23.

This year’s report includes compliance information from the following departments and accredited agencies:

• Department of Education and Training (DET)
• Department of Environment, Land, Water and Planning (DELWP)
• Department of Health (DH)
• Department of Families, Fairness and Housing (DFFH)
• Department of Jobs, Precincts and Regions (DJPR)
• Department of Justice and Community Safety (DJCS)
• Department of Premier and Cabinet (DPC)
• Department of Transport (DoT)
• Department of Treasury and Finance (DTF)
• Cenitex
• Major Transport Infrastructure Authority (MTIA)
• Victoria Police.

Any reference to ‘departments and accredited agencies’ or ‘organisations’ in this section refers only to the 12 departments and agencies listed here.

Non-compliance reported in 2020–21

In the VGPB Annual Report 2020–21, four organisations reported non-compliance with VGPB policy requirements. As at 30 June 2022, three organisations have fully addressed their reported non-compliance, and one organisation has partially addressed the reported non-compliance with one action still in progress, as detailed in Table 2.

Table 2: Actions taken to address compliance reporting at the end of financial year 2020–21

VGPB accreditation

The VGPB policies require newly established departments and some specified entities to apply for and obtain VGPB accreditation. Accreditation involves an organisation providing the VGPB with evidence demonstrating compliance with the goods and services supply policies. If the VGPB is satisfied with the evidence of compliance, the agency becomes accredited and subject to the ongoing VGPB audit program.

Where machinery of government changes result in the creation of new departments or significant changes to an existing organisation’s procurement function, the newly formed organisations are required to submit a new accreditation application.

Three organisations have been preparing accreditation applications during 2021–22 for assessment by the VGPB. DH, DFFH and MTIA will all submit accreditation applications in 2022–23.

Agencies subject to the VGPB expansion are not required to apply for accreditation.

Audits

Once an organisation is accredited by the VGPB, ongoing compliance is monitored through annual attestation and the VGPB audit program. The VGPB requires departments and accredited agencies to include procurement audits in their internal audit schedule, share the reports with the VGPB and report back to the VGPB on progress in addressing audit recommendations.

The VGPB audit program has four primary objectives:

• verify compliance with the VGPB policy framework
• minimise procurement risks by ensuring they are well managed
• identify and implement process improvements as part of a continuous improvement focus
• provide a feedback loop to the VGPB to monitor the audit program for any issues.

A new VGPB audit approach came into effect on 1 July 2021, shifting from broader audits covering all VGPB policies to audits focused on an organisation’s most significant procurement risks and improvement opportunities. Audits will also happen more frequently, taking place twice every three years instead of once every three years.

The new approach reflects the increased maturity of organisations that have been operating under the current VGPB framework since its introduction in 2013.

Table 3 describes the VGPB audit program over the 3 years from 2021–22 to 2023–24. The table lists for each organisation when the most recent VGPB audit was completed, and when audits will be undertaken during the years 2021–22 to 2023–24.

Table 3 Audit program schedule from 2021 to 2023-24

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Audits in 2021–22

DJPR completed the first of its two audits in June 2022. The audit identified three areas for improvement in contract management, asset disposal and variation disclosure. Agreed management actions have been set out for each of these areas with estimated completion by Q2 of 2022–23.

DTF and DJCS both began audits in Q4 of 2021–22. Findings will be reported in next year’s annual report (2022–23).

Complaints

The VGPB policy framework requires that a complaints management process be in place that sets out the process and procedures for investigating and resolving complaints. Departments and accredited agencies investigate and resolve complaints in line with their complaints process. If the complainant is dissatisfied with the outcome, they may refer their complaint to the VGPB for review.

Six complaints related to procurement activity were reported in 2021–22. DET, DH and Victoria Police all received one compliant and DoT received three. All complaints were investigated in line with the organisation’s complaints procedure. Of these, five were resolved, and one was escalated to the VGPB to investigate.

The escalated complaint was made to Victoria Police in relation to tender documentation and process. It was referred to the VGPB for resolution in June 2022 after the complainant was dissatisfied with the outcome from Victoria Police’s investigation. The outcome will be reported in the VGPB Annual Report 2022–23.

Resolution of complaints from 2020–21

At the end of the previous financial year (30 June 2021), two complaints were under review by the VGPB. These reviews were completed in early 2021–22 and concluded that there was no evidence of non-compliance with VGPB policies.

One complaint related to a procurement carried out by Victoria Police. While the VGPB investigation concluded that Victoria Police had complied with VGPB policy in undertaking the tender process, the VGPB did recommend a change to Victoria Police’s procurement risk management strategy for future tenders. Victoria Police has addressed this recommendation.

The second complaint related to how DTF had communicated with the market before releasing a tender. The VGPB investigation, which was supported by a probity adviser, concluded that DTF had complied with VGPB policy.

Performance

Departments and accredited agencies track their procurement performance each year against five performance measures and report these to the VGPB:

1. Value created from department procurement activity
2. Managed spend
3. Increase/decrease in procurement activity
4. Supplier satisfaction
5. Planned procurement activity as a percentage of actual procurement activity

Notes relating to performance measure reporting

Organisation’s procurement profiles vary in complexity, size and model. Individual results cannot be compared with other organisations.

DH and DFFH were established through machinery of government changes on 1 February 2021. Scores for 2019–20 and 2020–21 were reported through the former Department of Health and Human Services, so DH and DFFH have identical scores for these two financial years.

Performance measure 1: Value created from department procurement activity

This measure seeks to quantify savings generated by procurement as a percentage of contracted spend. It is the value of direct expenditure savings (and potential expenditure avoided) of the department’s procurements conducted during the financial year, as a percentage of the total value of the organisation’s contracted spend during the financial year.

Results are based on financial and non-financial values, so are influenced by several factors including the procurement profile and operating model (centralised/decentralised), reporting mechanisms in place and the type of procurements undertaken (i.e., high-value projects where savings can be significant). These, together with non-financial benefits such as process improvements resulting in cost reductions and avoidance of supplier price increases will influence the outcomes of this measure and the opportunities that exist to negotiate savings.

Results will also be impacted as the organisation’s procurement function matures or where procurement capability grows.

In 2021–22, four organisations saw an increase in value created through procurement, attributing improvements to process and reporting improvements and/or implementing a category management model. These organisations also noted that the development of tools, templates and further training for procurers helped drive improvements.

Seven organisations saw a decrease in this measure compared to the previous year. Some organisations reported that results were affected by difficulties in accurately recording data due to increased workload and strain placed on procurement functions during the COVID-19 pandemic, but noted that improvements in data collection processes were planned for the coming year.

Table 4: Value created as a consequence of department procurement activity

Note: The Major Transport Infrastructure Authority could not track this measure in 2020–21 but rolled out a new financial and contract management system in late 2021 which has enabled it to track this information.

Performance measure 2: Managed spend

Managed spend is a measure of the level of centralisation or central oversight of procurement. It is the proportion of goods and services procurement spend reviewed or undertaken by an organisation’s central procurement governance unit.

In 2021–22, eight organisations saw an increase in managed spend compared to the previous year and one organisation (Cenitex) has maintained 100 per cent managed spend since 2019–20. Two organisations reported that the increase was driven by an organisational change to increase centralisation of procurement, while one agency reported it was driven by new procurement systems which enabled more efficient central review of procurements. The reduction in managed spend for DJCS followed a policy change to increase the value threshold for procurements which can be conducted by business units to allow the central team to focus on high-value strategic procurements and detailed category analysis.

The remaining organisations saw changes in managed spend independent of policy change, reflecting year-to-year changes in the balance of higher value/complexity procurements, which are undertaken or overseen by central teams, and lower value/complexity procurements, which are not.

Table 5: Managed spend

Performance measure 3: Increase/decrease in procurement capability

Organisations assess their capability at the end of each financial year using the VGPB capability assessment tool. The increase or decrease is then measured year-on-year to show the change in organisational procurement capability.

In 2021–22, five organisations reported an increase in their capability score compared to the previous year, attributing the improvement to staff training, and improved technology, policies and guidance.

Two organisations reported significant decreases in their capability score in 2021–22. DoT’s reduced capability score followed the findings of a recent audit report, and a period of significant staff turnover. Victoria Police also reported a decrease in capability, which it attributed to resourcing challenges. Both DFFH and DH also reported a decrease in their capability, however their year-on-year capability score remain high.

Table 6: Procurement capability increase/decrease

Note: 2020–21 was the first year that the Major Transport Infrastructure Authority reported directly to the VGPB. Capability was measured last year but no increase or decrease could be reported until this year. The Authority previously reported procurement data through the Department of Transport.

Performance measure 4: Supplier satisfaction

The supplier satisfaction assessment is based on a survey sent to suppliers either at the end of the procurement process or at the end of the quarter or financial year.

The survey is conducted with successful and unsuccessful suppliers to measure their satisfaction with the procurement process and service provided by the organisation’s procurement function and seeks feedback to inform improvements.

In 2021–22, seven organisations reported an improvement in unsuccessful supplier satisfaction, compared to the previous year. Three of these organisations reported that a focus on improved supplier communications has driven this improvement. Supplier feedback received this year provided valuable insights to each participating organisation to support continuous improvement. Common areas noted for improvement included clarity of specification, supplier debriefing and timeliness.

Table 7 presents the results of the supplier satisfaction survey in 2021–22. The table lists the level of satisfaction score as a percentage for successful suppliers and unsuccessful suppliers for each organisation.

Table 7 Supplier satisfaction survey in 2021-22

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Performance measure 5: Planned procurement activity as a percentage of actual procurement activity

The VGPB policies emphasise forward planning and transparency and include a requirement for departments and specified entities to create and publish a forward procurement plan on their websites. This measure seeks to assess the level of forward planning by measuring the number of planned procurements documented in an internal forward activity plan against the number of market approaches undertaken during the financial year.

In 2021–22, seven organisations reported an improvement in planned procurement activity compared to the previous year. Key drivers included a reduction in emergency procurements responding to the COVID-19 pandemic and increased communication and engagement between procurement units and other business units.

Three organisations reported a significant decrease in planned procurement activity in 2021–22 (≈20 per cent) for the following reasons:

DJPR attributed this to procurements related to the COVID-19 response and the Victorian Government’s Commonwealth Games bid.

DELWP decreased the dollar threshold for recording procurement activity on its forward activity plan making it difficult to compare results from this year and last.

For Cenitex, several planned procurements were cancelled or deferred, and unplanned procurements increased due to Cenitex responding to the changing needs of government.

Table 8: Planned procurement activity as a percentage of actual procurement activity

* Incorrectly reported as 45.0% in 2020–21.