Corruption Matters - May 2017 - Issue 49

The potential cost of weak program design

A poorly designed program of capital works can make it much harder to control functions such as procurement and project management. A recently released ICAC investigation report provides a good example of how these opportunities can be corruptly exploited.

Aerial view of the Australian outback

An investigation conducted by the ICAC examined a number of allegations relating to a series of capital works projects. These projects involved the upgrades of NSW courthouses and were part of a 10-year, $250 million program of works.

The ICAC ultimately found that an assistant director of the former NSW Department of Attorney General and Justice improperly awarded almost $1.3 million of work to two companies. While these companies were paid for this work, most of the work was not completed.

This corrupt conduct was facilitated by a variety of systemic weaknesses. For instance, the scopes and budgets of projects were constantly changing, project records were of poor quality, vendor master file controls were weak and the verification of completed work was limited.

But some of these systemic weaknesses were actually products of poor program design. For instance, marked changes to the scopes and budgets of projects arose in part because the initial scoping that was performed to support the program was very limited. This led to an increased need to re-scope and/or re-cost projects once they had commenced.

Project scopes and/or budgets also needed to be frequently changed because “escalations” were not built into the program’s budget. Capital works performed years after they are planned usually cost more than originally budgeted because of inflation and asset deterioration. Budgetary escalations are designed to compensate for this increased cost by adjusting project budgets accordingly. A failure to include such escalations increases the likelihood of budget blowouts and scope changes, in turn creating a range of corruption opportunities.

Another example of the negative effects of poor program design was that a failure to adjust the program in response to a changing business strategy and operational environment made the verification of completed work more difficult.

During the implementation of the program, the Department of Attorney General and Justice ┬ádecided to increasingly deliver justice services remotely, which decreased the need for physical courthouses to be used. Additionally, there was a reduced demand for justice services in inland regional NSW because of a population shift towards coastal NSW. Such changes in an organisation’s business strategy and operational environment are inevitable over a 10-year period.

However, the program of work was not sufficiently adjusted in response to these changes, ostensibly because there was no effective mechanism to adjust it in this manner. This resulted in upgrades being performed on non-operational courthouses. In addition to being a less than ideal use of public funds, it can be difficult to verify the delivery of such work because there are less interested parties that may be aware of potential under-delivery. This ultimately increases the risk of fraud.

Overall, the ICAC’s report, Investigation into the conduct of a senior officer of the NSW Department of Justice and others, demonstrates that corruption risk factors, such as loose project budgets and scopes and inadequate verification of work, can all arise from poor program design. In addition to increasing the likelihood that a program delivers its intended outcomes, improved program design can help manage these risks.

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