Chris Hutchins | Contract Compliance 101: how to avoid the public purse paying the piper

It's important to note that both Defence and KPMG have denied these allegations. But issues of financial irregularities going through to the keeper are prevalent across the country, and many of these issues can be easily avoided by effective process. It's Contract Compliance 101 - yet many organisations are failing the class.

Effectively, for any work between a supplier or employee and any organisation, an agreement needs to be struck, usually in writing, about such matters as hourly rates, work hours, the scope of work and more. Yet an important part of the process is the confirmation of the completion of services as well. Often, this is left to the behest of the supplier, with a level of trust involved that the supplier, employer or employee is entering their time accurately.

The latter, in many traditional engagements between supplier and organisation, has been undertaken manually. To cite very basic examples, an employee or supplier will fill in a time sheet, or "bundy on and bundy off" at the start and the end of a shift. Yet increasingly these simple checks and balances have fallen by the wayside, relying on detailed auditing well after the fact.

We're seeing this regularly among major organisations we work with. To cherry pick four major organisations we work with across the region in retail, finance and supply chain, between FY20 and FY23 they encountered 10,268 contract compliance irregularities requiring correction. This highlights that the issue is more common than people think, and the scale of the problem doesn't discriminate by sector.

In the case of KPMG, an unnamed former defence contractor alleges repeatedly finding financial errors in invoices favouring the firm, and that "every KPMG invoice reviewed was incorrect", with allegations (again, denied by Defence and KPMG, for the record) that the consultancy also charged for work that was never completed. Now, without knowing the agreements, some may include provisions for work done, as opposed to work completed, though it's impossible to determine from the reporting.

Regardless, if you look beyond headlines and focus solely on process, what often happens in instances of this scale is that invoices go through for payment and are often paid straight away - a common occurrence when large-scale organisations with hundreds of suppliers are inundated with invoices. But often this is done without a confirmation that the work has been done or, if it has, it was done to the hours agreed to. It's missing that final check prior to payment, an additional yet vital step in the contract compliance process.

Now, for an organisation as large and with as many suppliers as a government agency, if a step this vital is overlooked it can lead to a snowball effect in which all of its suppliers could be overcharging, leading to millions in budget spent on, effectively, nothing. And when it's a government agency that is the one being overcharged, in the end it's the public purse that pays the piper.

Yet all of this can be - and should be - avoided.

Simple additional steps should be enacted to prevent issues like these from happening - these steps need to be undertaken both at the time of the work being done and invoiced, and well before any irregularities identified have reached a critical enough mass to make headlines.

When you're dealing with dollar amounts in the millions and, in the case of some government agencies, billions, a scope of work needs to be mandatory, and these works must be checked for completion prior to an invoice being submitted; this ensures that only invoices that have been rubber-stamped by the recipient of the service can be paid.

Next, all invoices should be cross-referenced with contracted terms so that all rates that have been charged are accurate. It's an additional, yet necessary, level of contract compliance that ensures all potential payments are going through another filter to identify any instances of underpayment or overcharging.

Finally, all agreements should be consistent and recorded. Many organisations suffer from casual agreements done through business software, mixed with a random PO drafted out of nowhere, a rogue email no one else has seen, a text or even a conversation between two parties. But when the magnifying glass is out to review a scope of work and completion of work, what can they do to cross-reference all of those myriad sources, particularly if agreements number in the hundreds? There are technologies that can pull all of that data together, though ideally this is done with consistency from the ground up.

But how do we avoid instances such as those alleged in the 4 Corners expose? Simply put, there needs to be greater oversight, particularly when it comes to the public purse. In an ideal world, the government deploys an independent body to oversee contract compliance for its agencies. It could be a third-party supplier or it could be an independent government agency set up to tackle instances like this. It needs to be at arm's length of the government agency itself and the supplier to mitigate any perceptions of favouritism.

Ironically, this is something that big consultancies would typically undertake, but given the headlines consultancies have attracted recently, this is likely off the table as an option.

Something as vital as contract compliance is so often overlooked these days that stories of overcharges from suppliers are becoming all too commonplace. And it's only when the dollar figures of these instances of wastage hit the headlines that we begin to see the scale of the problem - one that should be so easily avoided.