Definitions
Explanation |
|
BLA |
Business Licensing Authority |
CAV |
Consumer Affairs Victoria |
EPA |
Environment Protection Authority |
ESV |
Energy Safe Victoria |
ICAC NSW |
Independent Commission Against Corruption New South Wales |
LRD |
Victoria Police Licensing and Regulation Division |
NSW |
New South Wales |
OECD |
Organisation for Economic Cooperation and Development |
Regulatory capture |
Regulatory capture is the process by which regulatory agencies or their employees inappropriately identify with the interests of the client or the industries they are tasked with regulating |
RTA |
Roads and Traffic Authority |
VAGO |
Victorian Auditor-General’s Office |
VBA |
Victorian Building Authority |
VCEC |
Victorian Competition and Efficiency Commission |
VCGLR |
Victorian Commission for Gambling and Liquor Regulation |
VO |
Victorian Ombudsman |
VPSC |
Victorian Public Sector Commission |
1 Overview
This report provides an overview of the corruption risks associated with public regulatory authorities in Victoria. It explores the causes of these risks, the factors that drive corruption risks in these authorities, and potential prevention, reporting and detection measures.
Regulatory authorities are responsible for ensuring the proper delivery of vital services in Victoria that impact on our safety and the good running of the State. This includes, for example, undertaking inspections and licensing for firearms, overseeing building regulations, ensuring the safety of energy services, and the regulation of gambling and liquor activities.
This report was informed by an analysis of IBAC findings from investigations and research, consultation with key regulators and information from other integrity agencies in Victoria and nationally.
Regulation of business and community activities is a key public sector function, undertaken by a range of public bodies. Regulation applies to individuals, community organisations and business, in various forms, from complying with legislative requirements through to self-regulation. The regulatory functions undertaken by public bodies should serve the public interest by helping to achieve economic, social and environmental objectives.
There is no standard model for a public regulatory authority in Victoria. Some public bodies have regulation as one of numerous functions they undertake, while others focus solely on regulation. There are significant differences between regulators in terms of functions, size, budgets and governance. For simplicity, we refer to Victorian public regulatory authorities as 'regulators' or 'regulatory authorities' throughout this report.
IBAC’s role includes informing the public sector and community about the risks and impacts of corruption, and ways it can be prevented. IBAC’s intelligence and research reports like this report, help raise awareness of corruption risks and drivers to assist public sector agencies to identify corruption, and to expose and prevent it.
In this report, IBAC has identified certain corruption risks that are particularly relevant to public regulatory authorities and those with regulatory functions. These risks include mismanaged conflict of interest, bribery, and fraudulent reporting.
Although this report highlights corruption risks that are most relevant to public regulatory authorities, this does not equate to a finding that corruption is occurring in these bodies. Nor does it mean that these bodies are not already taking steps to mitigate these corruption risks. IBAC also notes that not all of the risks and drivers identified in this assessment apply to all public regulatory authorities. However, these risks are highlighted so that regulators can make informed assessments of the risks facing the sector and apply prevention and detection strategies that are appropriate for their organisations.
1.1 Key corruption risks
- Victorian public sector regulatory authorities face particular corruption risks due to the nature of their work. Responsibilities for inspections and licensing, combined with high degrees of discretion and access to sensitive information provide opportunities for corruption to occur.
- The mismanagement of actual, potential and perceived conflicts of interest is a heightened corruption risk for regulatory authorities. This is particularly the case where regulatory officers work collaboratively with the industries they regulate, and for regulatory bodies that receive revenue from the industries they regulate. Complaints and notifications received by IBAC in relation to regulators have highlighted mismanaged conflicts of interests as a key corruption risk for regulators.
- The boards of regulatory authorities face risks around actual, potential or perceived conflicts of interest, with board members often having close links to the regulated industries. While such links or experience may be desirable from an operating perspective, the conflicts that emerge need to be carefully considered and properly managed.
- Inspectors have high levels of discretion and autonomy. These factors can increase risks associated with employee misconduct and corruption, especially when employees conduct inspections unaccompanied.
- Many employees of regulatory authorities have high levels of access to sensitive personal and business information, sometimes with relatively low levels of accountability. The inappropriate accessing and use of sensitive information is a significant corruption risk that has been frequently detected in IBAC’s investigations across the public sector.
- Regulatory authorities’ employees based in regional locations may face heightened corruption risks in relation to identifying and managing conflict of interest. Conflicts of interest are more likely to arise in smaller communities because of the greater chance of regulators knowing the individuals or organisations they are regulating. IBAC also found that when corrupt conduct does occur in regional offices, it may be more difficult to detect and report because regulatory officers may be geographically remote from management oversight.
- IBAC identified that reporting of regulatory outcomes varied across regulators. There was particular variation in the breadth of information being reported back to the regulated entities. There is evidence to suggest a lack of transparency by regulators can enable misconduct and corruption, and also hide it when it does occur.
1.2 Key prevention and detection strategies
This report also provides information on prevention and detection strategies currently being used by some Victorian public regulatory authorities. This highlights good practices occurring across the sector which could be considered for wider application.
- All public bodies should have robust frameworks in place to prevent and detect actual, potential and perceived conflicts of interest. This includes proactive and clear policies for identifying, declaring and managing all conflicts of interest, and to have a gifts, benefits and hospitality policy and an associated public register.
- To mitigate corruption risks associated with inspections and ensure greater accountability, regulators should consider specifying that high risk inspections must be conducted by at least two inspectors.
- To prevent information misuse, regulators should have robust information security management and training for all employees that addresses the value of sensitive information held and how it could be misused.
- Transparent public reporting by regulators is an important way of assuring the community that these public bodies are operating with integrity. Improved transparency and reporting of regulators' performance and decision making may also help reduce the risk of corrupt conduct going undetected.
- Taking a risk-based approach to regulation ensures that regulatory activities are well targeted and make the best use of resources. It is also a way of increasing transparency and reducing the risks of corruption and misconduct by employees of regulatory bodies.
- Joint inspections of business practices or premises by different regulatory authorities represent a good practice that helps improve both the quality and integrity of regulatory action. Joint inspections improve the transparency of decision making by different regulators and provides regulators with increased oversight and understanding of each other’s practices. There is scope for this approach to be applied more broadly.
- As for all organisations, it is important for regulators to have sound processes for recruiting and vetting employees. All public bodies, including regulators, should maintain high standards of integrity in recruitment and baseline screening practices.
IBAC encourages public regulators to consider the issues outlined in this report and to tailor corruption prevention strategies to best suit their particular risk profile, noting not all measures will be suitable for all regulators.
1.3 Methodology
1.3.1 Scope and definitions
IBAC identified 55 Victorian regulatory authorities as suitable for the scope of this assessment. The selected regulatory agencies were based on the former Victorian Competition and Efficiency Commission’s (VCEC) 2013 biennial report on the Victorian regulatory system, which listed 59 regulators.1 While other departments and public bodies may undertake some regulatory activities as a normal part of business, these public bodies have not been included in this assessment due to differences in how they report on their regulatory functions. These public bodies may still benefit from reviewing their practices in light of IBAC’s findings in this report.
Of the 55 regulatory authorities assessed, 19 were classified as ‘major regulators’ by VCEC. This is because of the substantial difference in the resources available to them and the breadth of their operations compared with the smaller regulators. This report uses the VCEC’s definition of a major regulator.
1.3.2 Information sources
This assessment draws on data from 1 January 2011 to 31 December 2017 and is compiled from an analysis of IBAC intelligence, complaint and notification holdings, and information from police and integrity bodies, as well as a review of academic literature and reports from similar interstate, Commonwealth and international bodies.
IBAC also gathered information from a range of sources, including consultations with integrity bodies, and completed an in-depth look at six individual regulatory authorities to review risks specific to certain regulatory functions. These six reviews are in chapter 5 and were developed in consultation with the relevant agencies
WHAT IS A REGULATORY AGENCY? In a 2013 report, the Victorian Competition and Efficiency Commission defined a regulatory agency as: ‘… a state government entity (either independent or within a department) that derives, from primary or subordinate legislation, one or more of the following powers in relation to businesses or occupations: inspection; regulatory advice to a third party; licensing; accreditation; and standards monitoring and enforcement. Entities which do have some regulatory functions, but are not considered government business regulators are excluded, such as: local government; water corporations; organisations external to government with delegated powers (for example, the Law Institute of Victoria); third party auditors; and Commonwealth and interstate regulators.’ Victorian Competition and Efficiency Commission, The Victorian Regulatory System, September 2013 |