Australian local government corruption and misconduct

Author:Aquinas John Purcell
Position:CPA Australia
Pages:102-118
SUMMARY

Purpose - This paper aims to focus on corruption and misconduct evidenced from local government investigation reports in Australia, New Zealand and the UK. Design/methodology/approach - A corruption and misconduct taxonomy was developed and the audit committee’s role was empirically tested. Findings ... (see full summary)

 
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Australian local government
corruption and misconduct
Aquinas John Purcell
CPA Australia
Abstract
Purpose – This paper aims to focus on corruption and misconduct evidenced from local government
investigation reports in Australia, New Zealand and the UK.
Design/methodology/approach – A corruption and misconduct taxonomy was developed and the
audit committee’s role was empirically tested.
Findings – The empirical ndings exhibited low support for audit committees overseeing corruption
and misconduct allegations. The respondents generally considered that the chief executive was the
appropriate person to manage investigations.
Practical implications – The ndings from the local government investigations and the empirical
research emphasises the signicance of culture and ethical practices to mitigate against corruption and
misconduct. A culture of zero tolerance of corruption and misconduct was one of the best ways of a
council demonstrating its integrity.
Originality/value – This paper offers a local government perspective on the behavioural factors
which provide the organisational conditions for corruption and misconduct to become the norm.
Keywords Local government, Corruption and misconduct
Paper type Research paper
Introduction
This article extends the observations of Purcell (2012) in relation to his behavioural
explanation of the preconditions for corruption and misconduct to “germinate” in local
government. He used “germination” metaphorically to indicate his support for Punch’s
(1996, p. 214) proposition that to understand white-collar crime, “it is essential to grasp
that the business organization is the weapon, the means, the setting, the rationalization,
the offender and the victim”. In explaining the reasons for corruption, he was inuenced
by Marnet (2008, p. 9) who considered that there the focus should be on managerial
behaviours themselves, the behavioural traits of individuals not observing accepted
societal norms and the “socio-psychological effects of group decision-making on
judgement and decision quality”.
The KPMG (2013) Australian and New Zealand biennial bribery and corruption
survey reported that fraud had cost the respondents at least AUD 373 million in
2010-2012. Whilst it can be difcult to quantify the total cost because of undetected or
unreported frauds, they stated that the major public sector fraud categories were
tendering, cash and payroll. It was reported that corruption represented approximately
30 per cent by value of all reported public sector incidents. KPMG (2013, p. 36) stated
that two of the contributing reasons for corruption were lack of senior management
commitment to ethical conduct and the “inherently unethical nature of the industry in
which the organisation operates”. Conversely, Perry (2001, p. 7) noted that one should be
careful in trying to estimate the levels of corruption and misconduct in Australia,
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm
JFC
23,1
102
Journalof Financial Crime
Vol.23 No. 1, 2016
pp.102-118
©Emerald Group Publishing Limited
1359-0790
DOI 10.1108/JFC-10-2013-0060
because the data pertaining to corruption and misconduct via the courts was
“quantitatively uncertain, and qualitatively an imperfect part of the totality”. Guesses as
to the levels of corruption and misconduct can include unreliable quantitative data and
the “rest can be rumours, memory, patterns of behaviour and lifestyle” (Perry, 2001,p.7).
This research reviewed 84 local government investigation reports from Australia,
New Zealand and the UK which provided examples of corruption and misconduct. The
reports did not explain the behavioural reasons that allowed the incidents to occur.
Whilst there can be many reasons for individuals to engage in these behaviours, for
example, greed, the exertion of power and excitement of risk taking, the current author
was inuenced by Friedrichs (1996, p. 241) who considered that explanations of
white-collar crime all have a basic proposition of aberrant behaviours and that the
“ultimate complexity and diversity of white-collar crime precludes the possibility of any
single comprehensive theory or explanatory scheme”. This was the catalyst to reect
upon the behavioural antecedent corruption and misconduct conditions in local
government and behavioural theory which argues that multiple factors can impact the
governance of organisations, participants and stakeholders, for example: power and
self-interest, decision-making, leadership, organisational culture and group dynamics
(Cutting and Koumin, 2000;Leung and Cooper, 2003).
This presentation considers that a behavioural perspective provides a mirror
through which corruption and misconduct in local government can be more effectively
understood. This author has reected on corruption and misconduct from an
organisational behavioural (Gettler, 2005a;Long, 2008;Marnet, 2008;Punch, 1996) and
individuals’ (Friedrichs, 1996;Cavaiola and Lavender, 2000) perspective as compared to
a governance/compliance and risk models and considers that this provides an
alternative approach to absorb the antecedent factors that allow corruption and
misconduct to “germinate”.
Corruption and misconduct
Transparency International (2012) considered that corruption is “the abuse of entrusted
power for private gain. It hurts everyone who depends on the integrity of people in a
position of authority”. Corruption and misconduct can thrive in secrecy, but the antidote
is transparency. Fraud, on the other hand, is an “intentional act by one or more
individuals among management, those charged with governance, employees, or third
parties, involving the use of deception to obtain an unjust or illegal advantage”
(Auditing and Assurance Standards Board, 2011, p. 10). This might seem like a
difference of no distinction, but fraud relates to obtaining property by deception or by a
nancial advantage, as well as the creation and the use of false documents, for example
sections 81-83A of the Crimes Act (1958) (Victoria). Public sector corruption and
misconduct relates to corruption by ofcials (Gerasimova, 2008) in addition to the fraud
sub-categories of corrupt conduct, asset misappropriation and fraudulent statements
(Association of Certied Fraud Examiners, 2010). Misconduct applies to councillors who
are expected to act impartially, with integrity and not seek or grant favours (Section 76B
Local Government Act 1989). Corruption and misconduct requires the actions of two
parties, namely, the ofcial and the “offeror”. Within the seven State and Territory
Crimes Acts in Australia, the giving or offering for doing something or not doing
something in relation to the agent’s principal could give rise to a charge of corruption. In
addition, persons who aid, abet, solicit or incite may also be charged with corrupt
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Australian
local
government
corruption

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