Compliance in 2022-23

Under the 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 its supply policies. The VGPB reviews annual compliance reporting for all VGPB agencies and investigates any complaints escalated by suppliers in relation to the procurement process. For departments and accredited agencies, the VGPB also has an accreditation process and audit program, and performance measures which are reported in VGPB annual reports.

Compliance reporting in 2022-23 and beyond

Following the expansion of the VGPB’s remit to all agencies subject to the 2018 Directions, agencies were given a one-year transition period, to 30 June 2022, to align their procurement policies and practices with the VGPB framework. From 30 June 2022, VGPB requirements were embedded into the existing annual 2018 Directions compliance reporting process which VGPB entities already complete as part of their existing governance and compliance process.

This approach enables the VGPB to efficiently monitor compliance across all VGPB entities, providing visibility of compliance gaps and actions being taken to address those gaps. It has elevated compliance with VGPB policy requirements to become a core part of the Victorian Government’s ongoing financial management compliance reporting process.

Starting this year, the VGPB annual report will include a summary of outcomes from compliance reporting one year in arrears. This year’s report includes compliance information from:

• the 13 departments and accredited agencies
• 113 of the 119 expansion agencies (TAFEs report by calendar year – their data will be included in the 2023–24 annual report)
• 32 portfolio agencies (existing non-accredited VGPB agencies).

See goods and services mandated agencies for a full expansion list.

Departments and accredited agencies

Any reference to ‘departments and accredited agencies’ in this section refers only to the 13 departments and agencies listed here:

• Department of Education (DE)
• Department of Energy, Environment and Climate Action (DEECA)
• Department of Families, Fairness and Housing (DFFH)
• Department of Government Services (DGS)
• Department of Health (DH)
• Department of Jobs, Skills, Industry and Regions (DJSIR)
• Department of Justice and Community Safety (DJCS)
• Department of Premier and Cabinet (DPC)
• Department of Transport and Planning (DTP)
• Department of Treasury and Finance (DTF)
• Cenitex
• Major Transport Infrastructure Authority (MTIA)*
• Victoria Police

*MTIA has been reporting to the VGPB as a separate agency from 2020–21 in anticipation of submitting an accreditation application in early 2023–24.

Non-compliance reported in 2021-22

The 2018 Directions compliance checklist includes 18 mandatory policy requirements from the VGPB’s goods and services supply policies. See Aligning with the goods and services supply policies for a full list of policy requirements.

Two types of non-compliance can be reported should a department or agency not meet a VGPB policy requirement in the 2018 Directions:

• A compliance deficiency is an attribute, condition, action or omission that is not fully compliant with the VGPB requirements.
• A material compliance deficiency is a compliance deficiency that a reasonable person would consider as having a material impact on the agency or the State's reputation, financial position or financial management.

Non-compliance reported by VGPB departments and accredited agencies

In 2021–22, 12 of the 13 departments and accredited agencies reported full compliance with VGPB supply policies, equivalent to 98.7% compliance. One agency reported 3 compliance deficiencies as detailed in Table 2. As at 30 June 2023, the agency had fully addressed one reported non-compliance with activities in progress to address the remaining 2.

No departments or accredited agencies reported material compliance deficiencies, as shown in Table 3.

Table 2: Compliance deficiencies reported by VGPB departments and accredited agencies in 2021–22

Table 3: Material compliance deficiencies reported by VGPB departments and accredited agencies in 2021–22

Non-compliance reported by VGPB expansion agencies

Overall, the compliance reporting results mark a significant achievement for all VGPB expansion agencies and have established a very encouraging benchmark for future reporting.

In 2021–22, expansion agencies reported 96.2% compliance (Table 4). A total of 77 compliance deficiencies were reported by 32 agencies, out of 2,034 compliance requirements across the 113 expansion agencies. No material compliance deficiencies were reported (Table 5). This is a significant outcome given the large number of expansion agencies and the considerable effort required to meet compliance.

The VGPB will continue to engage with agencies to better understand how it can provide targeted support to assist with compliance, including through existing capability-building activities.

Most compliance deficiencies reported by expansion agencies were in the following areas:

• contract management, monitoring and disclosure processes
• supplier engagement activities
• publication of agency annual procurement activity plans
• procurement capability, particularly in relation to contract management activities.

The VGPB notes that some compliance deficiencies are expected each year, even for departments that have been following the VGPB policy framework since its introduction in 2013.

Table 4: Compliance deficiencies reported by VGPB expansion agencies in 2021–22

Table 5: Material compliance deficiencies reported by VGPB expansion agencies in 2021–22

Non-compliance reported by portfolio agencies (existing non-accredited agencies)

In 2021–22, portfolio agencies reported 99.8% compliance. One compliance deficiency was reported by one agency from a total of 576 compliance requirements across the 32 portfolio agencies (Table 6). One material compliance deficiency was reported by one portfolio agency (Table 7).

Table 6: Compliance deficiencies reported by portfolio agencies in 2021–22

Table note: While Victoria Police is a portfolio agency under DJCS, it is accredited and reports directly to the VGPB. Victoria Police's data is reported under departments and accredited agencies in Tables 2 and 3.

Table 7: Material compliance deficiencies reported by portfolio agencies 2021–22

The VGPB accreditation and audit program

VGPB accreditation assesses how well a department or agency’s procurement strategy and policies align with VGPB policies. Obtaining accreditation is a comprehensive process that requires agencies to thoroughly review, revise and submit documentation that demonstrates their alignment to VGPB policy requirements. Documentation must be supported by the agency’s internal auditor and audit and risk committee. An accreditation application may be requested by the VGPB or voluntarily submitted by a VGPB agency. Once an agency is accredited by the VGPB, accreditation is maintained by participating in the VGPB audit program. A program of regular audits provides an additional level of VGPB oversight to accredited organisations.

In February 2023, the VGPB implemented a new approach to accreditation to ensure it remains fit-for-purpose and effectively targets risks. Departments and agencies will only need to undertake VGPB accreditation when they have experienced a major change to their procurement function. This new approach will significantly reduce the administrative burden of accreditation, enabling VGPB resources to continue to monitor compliance with policy and process through the existing VGPB audit program.

Accreditation applications

‘As a new department, achieving VGPB accreditation was an important milestone. It presented an opportunity to enhance the department’s procurement governance framework and validate procurement as a core business function with a strategic focus aligned with the department’s vision and values.’

Danielle Wise
CPO at the Department of Families, Fairness and Housing

Three applications for accreditation were submitted to the VGPB in 2022–23. DH and DFFH, established in 2020 following a machinery of government change, had their VGPB accreditation applications approved in February 2023. The third application, voluntarily submitted by V/Line, was approved pending V/Line addressing some VGPB feedback. This is expected in early 2023–24.

The VGPB anticipates a VGPB accreditation application from MTIA early in 2023–24.

Following machinery of government changes in January 2023, a new Department of Government Services (DGS) was created. The VGPB has invited DGS to seek accreditation. DGS is expected to prepare an application for VGPB accreditation in 2024.

‘The creation of the Department of Health and the VGPB accreditation process was a valuable impetus to review and refresh the department's procurement framework and provide the new department with a clear and ongoing strategic direction for procurement and probity.’

Elisha Curcio
CPO at the Department of Health

Table 8 notes:

* DE completed 2 2022–23 audits fulfilling the audit requirements for the 2021–24 audit cycle.

** DJCS did not complete an audit in the previous 3-year cycle and is therefore required to complete 3 audits during the current 3-year cycle.

Table 8 explained:

DGS, V/Line and MTIA will begin the audit program once their accreditation is complete.

The scope of most audits in 2022–23 was focused on the risk areas specific to each organisation. The VGPB notes that contract management and disclosure was included in the scope of 7 out of 11 audits, highlighting the opportunity for realising improvements across the entire procurement lifecycle.

Four of the 11 audits completed this year had a broad scope in line with the previous audit approach, each reviewing at least 3 of the 5 VGPB supply policies.

The overall risk rating assigned to all the 2022–23 audits was ‘opportunities for improvement’ (or equivalent) and noted the need for continuous improvement to ensure full compliance and positive outcomes. Common findings across departments and accredited agencies included:

• management and appropriate disclosure of conflicts of interest
• recording and monitoring key contract information
• retention of procurement process documentation
• management of financial delegations, particularly when acting management arrangements are in place.

Management actions to address findings are tailored to each department/accredited agency to effectively address risk areas. Common management actions in 2022–23 included updating procedures and policies to ensure clarity in the requirements of the procurement process, increased reporting on performance and compliance, and increased automation and system controls to ensure compliance.

There was an increase in the use of data analytics to complement existing sample testing in 2022–23 with results showing it had a positive impact in detecting non-compliance and opportunities for improvement. The updated VGPB audit guidance requires data analytics to be a part of the audit process from 2023–24 onwards.

Two audits were completed to support the applications for VGPB accreditation by DFFH and DH. These audits reviewed each department’s policies and procedures and noted full compliance with all VGPB policy requirements.

Complaints

The VGPB policy framework requires departments and agencies to have a complaints management system in place that sets out the process and procedures for investigating and resolving complaints. Departments and 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.

One complaint related to a procurement carried out by the Department of Education was referred to the VGPB in 2022–23. The VGPB investigation found no evidence of non-compliance with VGPB policies.

Resolution of complaints from 2021-22

At the end of the previous financial year (30 June 2022), one complaint was under review by the VGPB. This complaint related to a procurement carried out by Victoria Police. The VGPB review was completed in August 2022 and found no evidence of non-compliance with VGPB policies.

Performance

Departments and accredited agencies track their procurement performance each year against 5 performance measures and report their results to the VGPB. The 5 performance measures are:

1. Value created from department procurement activity
2. Managed spend
3. Procurement capability
4. Supplier satisfaction
5. Planned procurement activity as a percentage of actual procurement activity

Note that departments and accredited agencies have procurement models and profiles that vary in complexity and size. These differences should be taken into consideration when making comparisons between results.

DGS was newly established on 1 January 2023 bringing together the service delivery functions held by DPC, DTF and other government departments. DGS will begin performance reporting in 2023–24.

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 organisation’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 influenced by several factors including the organisation’s procurement profile and operating model (centralised/decentralised), reporting mechanisms in place and the types of procurements undertaken (for example, 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, influence the outcomes of this measure and the opportunities that exist to negotiate savings. Results will also be impacted as the organisation’s function matures or where procurement capability grows.

Organisations reporting an increase in value created through procurement attribute the improvement to a targeted focus on key areas of the procurement process and better tracking of benefits. These organisations also noted that the implementation of procurement systems, more aggregated sourcing activities and an increase in capability being applied to more procurements helped drive improvements. See Table 9.

Organisations reporting a decrease in this measure from the previous year attribute this to machinery of government changes, a reduction in central reporting of savings for lower value, lower risk procurements and manual data capture processes.

Table 9: Value created from department procurement activity

Table 9 note: DEECA, DJSIR, DTP and DTF underwent machinery of government changes in 2022–23 that impacted their ability to measure and report meaningful results on certain performance measures. Results were not reported for performance measures 1, 2 and 5 for these departments and are denoted by ‘n/a’ in the tables.

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.

Organisations that increased their managed spend (Table 10) attributed this to greater consolidation of sourcing activities, more direct involvement of procurement experts in a wider array of procurement activities, and more engagements being managed through internal procurement systems. Cenitex has a centralised model where all spend is overseen by the procurement function.

Organisations reporting a reduction in managed spend attribute this to changes in reporting methodology and machinery of government changes leading to the realignment of functions.

Table 10: Managed spend

Table 10 note: DEECA, DJSIR, DTP and DTF underwent machinery of government changes in 2022–23 that impacted their ability to measure and report meaningful results on certain performance measures. Results were not reported for performance measures 1, 2 and 5 for these departments and are denoted by ‘n/a’ in the tables.

Performance measure 3: Procurement capability

Organisations assess their capability at the end of each financial year using the VGPB capability assessment tool.

Results in 2022–23 are consistent with previous years (Table 11). Organisations are continuing to prioritise increasing procurement capability by focusing on better risk management, process improvements such as updating templates and procedures, and increasing the focus on procurement capability and training.

Table 11: Procurement capability

Tabel 11 note: Prior to 2022–23, results were reported as a percentage change (increase/decrease) from the previous year’s score. Starting from 2022–23, the actual procurement capability score will be reported as a percentage. Scores for 2020–21 and 2021–22 have been updated to the same format for consistency.

Performance measure 4: Supplier satisfaction

The supplier satisfaction assessment is based on a survey sent to suppliers following a procurement process. 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 2022–23, 5 organisations reported an improvement in unsuccessful supplier satisfaction, compared to the previous year (Table 12). The main drivers behind the improvements were increased clarity in go-to-market documents and improved communication with suppliers, particularly where procurement processes exceeded planned and communicated timelines.

Supplier feedback received this year provided valuable insights to each participating organisation to support continuous improvement. Common areas noted for improvement included clearer specifications, supplier debriefing and timeliness.

Table 12: Supplier satisfaction survey

Table 12 note: Each department / accredited agency determines the methodology to select the sample for the survey and the sample size may vary from year-to-year. A zero or nil response may reflect that all unsuccessful suppliers that responded were not satisfied with their overall procurement experience, or no responses were received.

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 organisations to create and publish a forward procurement plan on their websites. This measure assesses 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 (Table 13).

Organisations reporting an improvement in planned procurement activity compared to the previous year cited increased engagement with key business units to update the procurement activity plan regularly and promoting early identification of procurements requirements to help with better forward planning.

Table 13: Planned procurement activity as a percentage of actual procurement activity

Table 13 note: DEECA, DJSIR, DTP and DTF underwent machinery of government changes in 2022–23 that impacted their ability to measure and report meaningful results on certain performance measures. Results were not reported for performance measures 1, 2 and 5 for these departments and are denoted by ‘n/a’ in the tables.