26 September 2023

Audit finds project pay controls ‘insufficient’

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A performance audit of the effectiveness of three State Government entities’ controls when paying subcontractors found they were insufficient and exposed contractors with potential non-payment for State Government construction projects.

In her report, Payments to Subcontractors Working on State Government Construction Projects, the Auditor General, Caroline Spencer noted that large construction firms won major Government construction projects worth many billions of dollars, and then engaged local subcontractors to deliver much of the work.

While the three entities audited – Finance, Main Roads and Western Power – had implemented project bank accounts (PBAs), their effectiveness had been eroded by weak controls.

“Before paying money into PBAs, State entities do not do enough to check that information provided by head contractors is accurate,” Ms Spencer said.

“Entities have also accepted incomplete and erroneous head contractor statutory declarations without follow-up.”

She said making a false statutory declaration was a serious offence and might be a warning sign about other compliance problems with the head contractor, an issue the Government entities must promptly address.

“Entities rely on complaints to alert them to instances of head contractors not paying their subcontractors,” Ms Spencer said.

“However, not all entities provided subcontractors with clear and discrete ways to raise complaints,” she said.

“Subcontractors told us they fear reprisal and loss of work if they complain.”

She said entities that relied on complaints without other complementary controls such as spot checks of head contractor payment performance, would not know the extent of subcontractor payment issues or be able to effectively address them.

Ms Spencer said more central entity whole-of-Government leadership was required.

“This sits with the Department of Finance given its whole-of-Government procurement leadership responsibility and significant experience delivering billions of dollars of construction projects,” she said.

The Auditor General said her report included recommendations that aimed to strengthen the controls and thus the effectiveness of PBA reforms.

“They do not seek to encroach on the State’s commercial arrangements to deliver building and constructions projects, or intervene in the head contractor and subcontractor commercial relationship,” she said.

The Auditor General’s 20-page report can be accessed at this PS News link and the audit team was Aloha Morrissey, Jordan Langford-Smith, Adam Dias, Justin Fairhead and Daniel Franks.

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