Disposal of goods and property
Public sector agencies that regularly dispose of depreciated, redundant or excess stock need to ensure they have standardised methods to manage the disposal of unwanted resources in a transparent and accountable manner.
Goods to be disposed of are public resources and, even if redundant or depreciated, may still have financial value for the agency. Consequently disposing of goods should be carefully planned and conducted in a way that obtains value for money for the agency and reduces opportunities for exploitation by individual employees, private persons or organisations.
Some of the formal requirements that may apply to your agency can be found in the NSW Government Procurement Policy, which is issued subject to the Public Finance and Audit Act 1983, and The Code of Practice for Procurement, January, 2005, NSW Treasury.
In addition, the State Contracts Control Board (SCCB) establishes thresholds for the disposal of surplus or unserviceable goods (excluding motor vehicles). Local councils are bound by the Local Government Act 1993, sections 55 and 716, and Part 7 of the Local Government (General) Regulation 2005.
The improper disposal of goods and property can constitute corrupt conduct as defined in the Independent Commission Against Corruption Act 1988.
A risk assessment of how a public sector agency manages the disposal of goods and property is likely to identify some or all of the following corruption risks:
- An employee deliberately undervaluing agency assets that are to be disposed of with the aim of purchasing the items for him/herself.
- An employee responsible for arranging the disposal of goods directing the contractor to make the payments directly to him/her.
- An employee involved in conducting an in-house tender for the disposal of goods providing information about tender prices to a potential tenderer prior to the completion of the process.
- An employee destroying records concerning the disposal of goods to cover his/her corrupt activity.
- An employee deliberately over-ordering resources to use the 'surplus' for personal gain
- An employee regularly misappropriating goods.
Managing corruption risks
As a minimum your agency should:
- Introduce policy and procedures for the disposal of goods and property that contain elements listed in the Policy Development Guide and Checklist (see Tips and tools below).
- Include in the policy sanctions for any breach of the policy and procedures.
- Review the policy every two years.
- Refer to the disposal of goods and property in all relevant corporate documents such as codes of conduct.
- Develop policies and procedures about the use of specific types of resources such as vehicles or communication devices.
- Train all relevant employees in the policy and procedures to ensure they are aware of their accountabilities.
- Include the disposal of goods and property as a risk to be assessed in the agency's internal audit and corruption risk management processes.
Risk management strategies
Following your risk assessment of the disposal of goods and property you should consider these risk management strategies:
- Conducting regular reviews of the procedures for ordering goods and services to check for compliance.
- Where appropriate, making arrangements with suppliers that unused goods can be returned.
- Segregating duties in the decision-making process when disposing of goods.
- Keeping goods secure and consistently applying an asset control system for the valuation and storage of goods.
- Obtaining appropriate external valuation of resources prior to disposal.
Record-keeping and reporting strategies
- Keeping details concerning the date of purchase of resources, length and condition of warranty, maintenance and repairs undertaken, and other related information for consideration in the valuation and disposal of goods.
- Conducting and recording regular inventories of goods.
- Keeping a checklist of each stage in the disposal process including the decision to dispose, valuation of items, and who approved the disposal of the goods, plus the method of disposal – for example, through public advertisement, auction, or in-house tender.
- Keeping a record of the external valuations.
- Maintaining a register of all the assets held by the agency.
- Regularly auditing the asset register to ensure no items have been improperly disposed of.
- Referring to the underpinning legislation and government policies.
- Putting asset maintenance systems in place to determine and report on when goods become surplus and/or unwanted and what their monetary value is at that point.
Local councils disposing of their own land should:
- consider using a competitive process notwithstanding the absence of a statutory requirement to do so
- in the absence of a competitive process, consider at least two valuations based on the land's "highest and best use" and
- clearly document reasons for disposing of land at below market price.
|Case study 1 - Disposal of public housing properties|
The ICAC investigated various circumstances between 1999 and 2005 relating to the sale of surplus properties from two public housing schemes.
The investigation found that an employee of the authority responsible for arranging the sale of surplus real estate knowingly concealed conflicts of interest and numerous frauds, and received profits. The conflict involved appointing a real estate agent to sell the properties (and perform other public functions) even though he had an ongoing friendship with the real estate agent and had received personal benefits from him.
The real estate agent arranged for the properties to be sold to persons he knew. Within a relatively short time the real estate agent was engaged by these purchasers to resell the properties which were eventually sold for prices totalling 32% more than the prices previously paid for them with the profits being shared by the real estate agent and his associates.
The ICAC noted that the employee's position meant that he had both monopoly and control of the sales process which together provided the opportunity to engage in corrupt conduct and share in the profits from the sale of the surplus properties. The ICAC's recommendations were aimed at strengthening these processes and improving transparency.
|Case study 2 - Disposal of public assets|
The ICAC investigated allegations that an employee of an energy provider had acted corruptly in regard to the disposal of decommissioned electrical transformers (the copper in these is valuable as a scrap metal). The employee was responsible for organising the competitive tender process for the disposal, including receiving expressions of interest, assessing them and selecting the successful tender.
The ICAC found that on 19 occasions the employee advised the successful tenderers that they could pay for the transformers by making out a bank cheque payable to the employee himself. He then created false receipts, which he forwarded to the successful tenderers, and kept the financial proceeds of the 19 transactions for his own use. They amounted to $391,856.
When the employee's conduct came to light the energy provider terminated his employment. The ICAC made findings of corrupt conduct and he was ultimately convicted of criminal offences and sentenced to a period of imprisonment.
Frequently asked questions
In what situations can a state agency enter into a direct negotiation with the private sector to dispose of an asset?
|Disposal by direct negotiation is permitted in certain circumstances. The Total Asset Management Guidelines - Asset Disposal Strategic Plan, from NSW Treasury, states that "direct negotiation may occur without public competition where it can clearly be shown that there are no other purchasers". In all cases, the current market value for the asset must be obtained by the State Valuation Officer or an independent valuer.|
Is it acceptable for agencies to dispose of goods by in-house tender?
|This may be acceptable for goods of a low value where the costs of externally advertising and selling the goods would exceed the value of the goods being sold. This could include individual or small amounts of redundant office furniture, and courtesy gifts of a token amount that the agency has received. However, there will always be corruption risks associated with in-house tenders. The ICAC recommends that agencies conduct an assessment of the corruption risks and implement a policy and procedure prior to conducting in-house tenders.|
- Developing a statement of business ethics, June 2004
- Chapter 7 of Corruption risks in the NSW development approval process: discussion paper, September 2007.
- Scrap and Low-Value Asset Disposal – A Best Practice Checklist, Crime and Misconduct Commission (Qld), March 2002.
- Total Asset Management Guidelines - Asset Disposal Strategic Plan, (TAM0604), NSW Treasury, June 2006
- NSW Government Procurement Policy, NSW Treasury, July 2004
- Code of Practice for Procurement, NSW Treasury, January 2005
- Government Tendering Guidelines, NSW Department of Commerce, November 2005.
Relevant ICAC investigations
- Crime and Corruption Commission (Queensland), www.ccc.qld.gov.au
- Corruption and Crime Commission of Western Australia - www.ccc.wa.gov.au
- NSW Treasury - www.treasury.nsw.gov.au
- NSW Department of Commerce, Office of Public Works, State Contracts Control Board (includes latest procurement thresholds) www.dpws.nsw.gov.au