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Auditor slams LGA’s indemnity contract management

Sep 10, 2015

South Australia’s Auditor-General has handed down a scathing report into the Local Government Association’s management of its indemnity schemes, including potential overpayments and “unauthorised” variations of contract arrangements.

The 32-page report examined the accounts, management and cost-effectiveness of two local government indemnity schemes and their manager – Local Government Risk Services, an entity of Jardine Lloyd Thompson.

Tabled in state parliament this week, the report reviewed the LGA Mutual Liability Scheme (MLS) and the Workers’ Compensation Self-Insurance Scheme (WCS).

Among the “key shortcomings” identified in the report by Auditor-General Andrew Richardson were:

  • A lack of a contract management policy framework.
  • Informal monitoring and evaluation of contract performance.
  • Uncertainty and potential overpayment of the schemes’ manager’s remuneration fees.
  • Unauthorised variations of contractual arrangements.
  • A lack of documented delegations of authority.

Newly-appointed LGA chief executive Matt Pinnegar, who recently replaced longstanding chief Wendy Campana, has written to member councils about the report.

In his message, he says the LGA has accepted all the recommendations of the Auditor-General and will also look at establishing an audit committee to “strengthen governance governance arrangements for the Schemes and our Association”.

“The Schemes and their benefits are an important part of the LGA’s sector wide support that is provided to its membership and the Auditor-General has focused on very important contract management work that will further improve the value provided by the LGA in relation to the schemes,” Pinnegar’s letter says.

The audit revealed what it described as inadequate contract management practices by the LGA in relation to the contract with Jardine Lloyd Thompson.

The report says the former LGA CEO managed the schemes’ manager’s contracts without administration support from within the LGA.

There were also no management plans or systems in place to guide “effective management” of contracts with Jardine Lloyd Thompson.

The report noted an air of informality in the working relationship between the former LGA CEO and the LGRS general manager and accurate records of formal meetings were not kept.

The report also found there were opportunities to improve non-compliance with the schemes’ rules about providing reports to the LGA Board and managing perceived conflict of interest.

The report found there was a lack of documentation and assessment process in managing the schemes’ risks.

The Auditor-General recommended a contract management policy framework and the scheme be modernised to ensure it “continued to be managed and administered in a value-for-money, efficient and transparent manner”.

All recommendations from the review of the schemes, which collectively manages outstanding claims of $30.8 million and have total assets of $121.6 million, have been accepted by the LGA.

“Specifically, LGASA has acknowledged the examination findings regarding the shortcomings in contract management and there is an opportunity to modernise the scheme arrangements,” the report stated.

The report called on another review to be held by December 2016.

“This would provide a timely opportunity to confirm that LGASA’s actions effectively address the reported matters and, if applicable, emerging issues particularly where the services have not been subject t to market testing.”

Changes to the Public Finance and Audit Act 1987 gave the AG the power to examine the cost-effectiveness of publicly funded bodies, including local government indemnity schemes.

The report noted that the schemes did prove “contribution stability for member councils where the insurance market can be volatile”.

The WCS actuary had estimated total savings from the WCS of about $220 million since 1986, based on the related WorkCover rate and this had increased to about $236 million by June 30 2014.

The MLS began in 1989 to provide assistance, including legal representation and discretionary grants, to members with their potential and actual civil liabilities and operates with the support of the Treasurer.

According to the report, both the MLS and WCS have performed well with continued steady growth.

During a four-year period from 2010, MLS accumulated funds have increased by $2.4 million, or 10 per cent, to $26.9 million by the end of the 2013-14 financial year.

Over the same period investments had increased by 7 per cent to $30.5 million.

The review stated outstanding claims liability had decreased by 25 per cent to $13.9 million for the same period.

During the same four-year period, WSC accumulated funds increased by $7.8 million, or 36 per cent, to $29.6 million and investments have increased by $7.7 million [20 per cent].

Jardine Lloyd Thompson describes itself on its website as one of the world’s leading providers of insurance, reinsurance and employment benefit related advice, brokerage and associated services.

It has offices in the United Kingdom, Asia, Europe, New Zealand, Middle East, Africa and the United States.

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