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CORRUPTION AND CRIME COMMISSION
OF WESTERN AUSTRALIA
COMMISSIONER J. McKECHNIE QC
TRANSCRIPT OF PROCEEDINGS
AT DOWERIN ON THURSDAY, 28 JULY 2016
COUNSEL: MS M. HARRIES and MS I. O’BRIEN
28/7/16 Page 1` THE COMMISSIONER: Please be seated.
THE ASSOCIATE: The Commission is about to conduct a number of examinations for the purposes of an investigation under the Corruption, Crime and Misconduct Act 2003. The general scope and purpose of the Commission’s investigation is to determine whether the policies, practices and operating environment of the Shire of Dowerin were sufficient to detect and prevent serious misconduct by the former CEO and to expose any misconduct risks identified.
THE COMMISSIONER: I have separately considered whether an examination should be held in public for each witness to be called. There are slightly different considerations in respect of each witness. For each witness to be examined in public there is obviously a potential for prejudice and an infringement of their privacy. Moreover, unlike adversary proceedings, there are limited opportunities for a witness to publicly challenge another witness who may give adverse evidence.
Following two Court of Appeal decisions, I am satisfied, however, that the potential prejudice does not outweigh the benefit of the public examinations. Set against the privacy provisions is also the benefit of public exposure and public awareness of an important issue. Specifically, considerations which I have had regard to are (a) that the people of Dowerin deserve to know how the chief executive officer was able to steal a significant amount of money from a small community with a limited budget; (b) the openness, avoid suspicion and rumour; (c) the need to expose the widespread effect that such a breach of trust has on local community services; (d) a desire to rebuild public confidence and trust that this will never be allowed to happen again; (e) publicity can change community attitudes about what is acceptable conduct in public office; (f) other local governments may learn what went wrong in Dowerin and what policies and procedures need to be in place to avoid it happening to them; one of the Commission’s functions is to provide information to public authorities about ways to prevent serious misconduct; (g) public examinations such as this encourage others who may be aware of similar conduct to come forward; (h) exposing serious misconduct helps to improve the integrity of the public sector generally, and it is good that the Commission’s tasks themselves are open to public scrutiny.
Having weighed those benefits against the potential for prejudice and privacy, as I say, I consider it is in the public interest to open these examinations to the public. However, at any time I may close a specific public examination and continue that examination in private if I consider that the balance shifts.
In relation to these examinations, I appoint Ms Michelle Harries and Ms Ilona O’Brien as counsel assisting the Commission.
28/7/16 Page 2` THE ASSOCIATE: Witnesses may be called for examination before the Commission for all sorts of reasons. Many witnesses are called whose own account is not in question. They may be called because they can assist the Commission by giving information about events, circumstances, systems, procedures or the activity of other persons.
The examination of a person before the Commission is but one part of an investigative process, the purpose of which is to get to the truth of the matter. The Commission is not bound by the rules of evidence and can exercise its functions with as little formality and technicality as possible. It will conduct its examinations as an investigative inquiry and not as an adversarial contest such as applies in court, and may inform itself on any matter in such manner as it thinks fit.
An investigation is an open-ended and very often unpredictable process and is essentially one that is intended to be instrumental in discovering the facts which once assessed by the Commission in conjunction with all the material available to it, forms the basis for its subsequent opinion concerning misconduct and any recommendations it might make.
All mobile devices must be off or on silent while an examination is in session. No audio or visual recording, including photography, is permitted. For reasons of fairness to witnesses, as well as the safety of those in this part of the building, the media will not be permitted to use cameras or to conduct interviews in the precincts of this room.
The Commission may make non-disclosure orders from time to time. Compliance with them is essential in maintaining the integrity of the Commission’s work. Thus the Commission will view any contravention of these orders by the media as extremely prejudicial. The Commissioner will take whatever action at his disposal to ensure that non-publication orders are complied with.
THE COMMISSIONER: There are at present no non-publication orders made. I will now invite Ms Harries to make some opening remarks.
HARRIES, MS: Why is the Commission holding these public examinations in Dowerin? Almost $600,000 was stolen from the people of Dowerin by the chief executive officer of their Shire, Mr Dacre Alcock. Why wasn’t this noticed? How was such a significant theft hidden in plain sight? What could have and should have been in place to prevent such a theft. Over the next two days the Commission will call witnesses in an attempt to find the answer to these questions. These examinations are being held in Dowerin to allow witnesses to assist the Commission’s inquiry without leaving the district. Additionally, the location of the examinations makes it possible for the Dowerin community, who are here today, to hear first-hand about a matter that
28/7/16 Page 3` directly impacted on their community.
Further, the community of Western Australia needs to be assured that other local governments who are responsible for spending significant public funds are also aware of what wrong and are making the changes needed to prevent this kind of conduct happening again in the future. For four years, between 2011 and 2015, almost $600,000 was progressively stolen on 665 occasions by Mr Alcock. He has pleaded guilty and he is to be sentenced in the District Court on 30 September 2016.
In June 2008 the Shire of Dowerin employed Mr Alcock as its CEO. He was the CEO here for seven years, and by all accounts he was an integral part of this Dowerin community and a significant amount of trust was placed in him by the Shire to perform his functions and duties as a CEO.
Dowerin is a small farming community of approximately 700 people in the eastern wheatbelt region of WA, 156 kilometres north-east of Perth. The annual budget of the Shire records a projected income for the 2015-2016 financial year to be approximately $2.9 million. In the context of a small rural community with a limited budget, the loss of almost $600,000 is of course significant. This money has not been repaid and as a result community services planned to be provided by the Shire have inevitably been halted or delayed.
Following a notification from the then acting Shire President Mr Graham Ralph and the finance manager Ms Sonia King, the Commission investigation, with great assistance from current staff and councillors at the Shire and also other experts, established the theft of funds by Mr Alcock predominantly, it would appear, to fund a gambling addiction. 567 payments to gambling companies were made by Mr Alcock using his Shire credit card. Evidence will be produced that indicates that Mr Alcock ensured that his credit card statements were not accessible and were not acquitted by the finance manager.
98 electronic fund transfers were made from two Shire bank accounts, the municipal fund and also trust funds, into personal bank accounts of Mr Alcock for which he was the sole account holder. Evidence will be produced that indicates that Mr Alcock made these transfers using other staff members’ pin numbers and bank authorisation tokens, including those of a retired staff member, and that he concealed these transfers in a number of ways, that Mr Alcock changed creditor bank account details within the Shire’s accounting system to his personal bank account numbers in order to divert Shire money into his personal bank account. On other occasions records indicate that Mr Alcock prepared false invoices purporting to be from creditors that contained instructions for payments to be made into his personal bank account.
Further records indicate that on many occasions Mr Alcock
28/7/16 Page 4` concealed transfers to his bank account by allocating the expense within the Shire’s accounting system to general expense accounts such as road maintenance and also GST.
Mr Alcock clearly did the wrong thing and he went to great lengths to hide his actions.
These examinations will consider what checks and balances were in place and why they failed to detect this conduct, and also what should have been in place, but was not. The purpose is to enable the Commission to identify what went wrong and to report and make recommendations about ways to prevent serious misconduct, rather than to lay blame.
Local governments are established as a body corporate, with the elected councillors occupying a role like a board of directors, sharing a similar relationship as a board of directors with their CEO. The elected councillors hold overall responsibility for the good governance of the local government.
In particular, the Council is responsible for the financial affairs of a local government.
The Council is responsible for employing and supervising the CEO, with the CEO being responsible for supervision of all other staff and the day to day management.
In practice the CEO does, or supervises, most of the work of the Shire so it is important for a Shire to have good checks and balances on the CEO.
These checks and balances need to be rigorous and not for the sake of appearance.
When Mr Alcock stole money from the Shire of Dowerin the following checks and balances were in place:
Monthly and annual reporting to council regarding financial affairs and minutes kept; Financial procedures, although undocumented, for employed staff to follow; External auditing of accounts annually; Reporting of financial affairs of the Shire of Dowerin to the Department of Local Government; Regular meetings of the Finance and Audit Committee of the Shire; Annual performance review of the CEO by the Shire; A review of the Shire's financial management systems was conducted in December 2014; and Annual completion of the Shire's Compliance Audit Return which indicated that the Shire had met both financial and non-financial requirements under the Local Government (Audit) Regulations 1996 (regulation 13).
These checks and balances clearly failed in this case. These examinations will consider why.
28/7/16 Page 5`
Evidence will be led that councillors, who are volunteers, and often in the country are busy farmers getting on with the business of running their farms, may not have had the knowledge they needed to properly manage the finances of the Shire. There is evidence that on the part of some there is a reluctance to attend training, and that the cost of training is often considered prohibitive, and consequently, significant trust is placed on the expertise of the CEO and external auditors.
Evidence will be led that the CEO was, as required under the Local Government Act, the direct link to Council and other staff who fell under the supervision of Mr Alcock felt that they had no ability to frankly inform Council about their concerns regarding his performance.
Evidence will be led that the annual performance review of the CEO was conducted solely by elected councillors and was based only on their perception of Mr Alcock's performance, judged predominantly on his performance at regular council meetings.
Evidence will be led that although there were some undocumented internal controls present within the Shire, such as, the requirement for two persons to electronically authorise payments out of Shire accounts, these bank tokens and passwords were sometimes shared.
Evidence will be led that there were few financial policies in place while Mr Alcock was CEO. For example, there was no corporate credit card policy. The Shire has one now. The current policy requires the CEO's corporate credit card statement to be approved by the Shire President. There was no independent review of Mr Alcock's credit card use. He solely determined what information was put before council. If such a policy had been in place it may have been more difficult for Mr Alcock to hide his gambling expenditure on his Shire credit card.
Evidence will be led that auditors required the Shire to undertake that the records it provided for auditing were a fair presentation free from material misstatement whether due to fraud or error. In this case Mr Alcock was the direct conduit of information to the auditors. Auditors were not provided the opportunity to meet with councillors to discuss the results of the audit. The Shire’s finance and audit committee was not established, nor did it function as an audit committee is required to by the legislation. For example, the CEO or employee is not to be a member of an audit committee; the purpose is to ensure that deliberations and recommendations of the committee are independent and autonomous.
Until Mr Alcock’s departure, he was a member of the Shire’s finance and audit committee. Evidence will be led that there was no review conducted, as required by the legislation, of the appropriateness and effectiveness of
28/7/16 Page 6` the Shire’s systems and procedures in relation to risk management and internal control and legislative compliance. This was required to be done every two years. The results of this review were meant to have been given to the independent audit committee.
Evidence will be led that Mr Alcock produced a delayed and flawed review of the Shire’s financial systems, which council relied upon in December 2014. Further evidence will be led that the annual compliance audit returns were prepared by Mr Alcock and were misleading. Evidence will be led that the annual compliance return was a self-assessment conducted by Mr Alcock, and that each return completed by him during the period was flawed.
Oversight by the Department of Local Government was thwarted, because correspondence that was sent to the Shire President at the Shire never in fact found its way to him. It is suspected that Mr Alcock, who had access to the Shire’s PO box, had removed credit card statements which recorded his gambling on his Shire credit card and also removed this letter from the PO box so that the Shire President was unaware of the DLG’s correspondence.
There appears to have been limited and delayed follow-up by the DLG. The report of the Royal Commission into the City of Wanneroo in 1997 made the point that local governments, at both the elected member and management levels, cannot be relied upon to maintain proper standards and a proper level of service to the community without strong and constant supervision from the Department of Local Government.
In short, the evidence seems to suggest that a rigorous checking process was not in fact in place and also that the checks set up by legislation achieved the appearance of oversight when in fact there was very little. The evidence suggests that this was manipulated by Mr Alcock to facilitate his offending.
Corruption by public officers can be insidious in its nature and damaging in its consequences. CEOs in local government are given access to public moneys which enable them to perform functions for the broader public good of the community that they serve. There is a significant element of trust that accompanies such responsibilities. The public expects, and has a right to expect, that such trust will not be abused.
If any public officer improperly takes advantage of his or her office and obtains a personal benefit, there is a serious breach of trust and such conduct undermines public confidence in the instrumentalities of this state. For this reason it is important that government bodies are vigilant for signs of corrupt behaviour, but equally important that corruption risks are recognised and strategies and procedures are put in place to minimise those risks.
Some corruption risks of course will be more obvious than
28/7/16 Page 7` others. Those that have access to spend public moneys need to be subject to adequate supervision and also robust auditing requirements. Often the public officer involved in corrupt conduct will make a concerted effort to conceal what they are doing. The consequence is that this conduct can prove very difficult to detect, as it was in this case.
Following Mr Alcock’s resignation, a substantial forensic audit was conducted by financial accounting practitioner Mr Ron Back who was engaged by the interim Shire CEO, Mr Gary Martin. Mr Back will give evidence that policies and procedures were lacking at the Shire of Dowerin; that there was a lack of training for staff about accounting systems and also for councillors about financial requirements, that the council had failed to establish an audit committee as required, a separation of duties and internal controls were non-existent for many of the accounting and compliance functions, bank reconciliations had not been consistently undertaken, internal controls such as the segregation of duties were non-existent with regard to Mr Alcock’s corporate credit card transactions and also Mr Alcock controlled the processes and accounting functions and suppressed involvement by other staff. All Shire credit cards were automatically paid in full each month, giving Mr Alcock access to another $5000 each month.
In his report Mr Back concludes there was a complete breakdown of internal controls associated with the payment of accounts and credit cards over a prolonged period of time. The former CEO had complete control of accounting systems and processes and was able to access security devices that would allow him to make electronic funds transfers to his own bank account.
The former CEO’s control over the composition and presentation of financial reports allowed for these transactions to be concealed or omitted within the payment listings that were presented to council. In cases where items were listed or included in supporting documents, invoices and statements had been altered or falsified to remove any reference to the unauthorised transaction. This process commenced in 2011 and continued to October 2015.
On 26 November 2015, this State’s Public Accounts Committee tabled a report in Parliament entitled Improving Local Government Accountability. In representations made to the Committee by the Department of Local Government, the Department classified the Shire as having a medium compliance risk profile and it was one of 24 local governments out of 139 that was classified as medium or high risk.
Mr L’Estrange MLA, the chairman of the Public Accounts Committee, said in his foreword to the reports:
For the 2014-2015 financial year it has been estimated that Western Australia’s 140 local governments will receive a combined total of
28/7/16 Page 8` $1.9 billion from rate revenues, with a further 282 million coming into the sector via the Local Government Grants Commission. While it is important that elected councillors and local government employees are held sufficiently accountable for the manner in which these moneys are spent, the reality is that WA’s local governments have tended to avoid the degree of scrutiny applied to agencies in other tiers of government.
In 2006 the Public Accounts Committee first recommended that the Auditor-General be given authority to audit the audit returns submitted by local governments to the Department of Local Government. This recommendation was again repeated in 2015. In a report on misconduct risk in local government procurement tabled in parliament in February 2015, this Commission supported the view that the Auditor-General be given audit responsibility for local government.
Circular 3 of 2016, prepared by the Minister for Local Government, the Honourable Tony Simpson MLA, indicated to all local governments that the government’s intention is to amend the Local Government Act to allow for the Auditor-General to take responsibility for local government financial audits. This Commission supports such an amendment to the Local Government Act.
The other matters relevantly noted by the Public Accounts Committee in the 2015 report were: a notable inconsistency in the level of detail and general quality of financial audit reports prepared for local government. This issue was highlighted in 2006, but does not appear to have been the focus of any meaningful corrective action for over nine years.
A compliance audit return process that is ultimately undermined by the fact that responses from individual local governments are not subject to verification or independent scrutiny, a lack of rigour and seemingly inconsistent approach by the Department in its monitoring of and following up of local governments regarding compliance with statutory requirements, a lack of transparency across the sector around the findings of financial audits and lastly, a lack of transparency on the noncompliance among local governments with regard to key statutory requirements.
Commissioner, in these hearings it is intended to focus on the policies, practices and operating environment that enabled this serious misconduct to occur at the Shire between October 2011 and October 2015, but the lessons learned may be equally be applicable to other local governments and also other public instrumentalities, particularly those in rural areas where there is reliance upon smaller numbers of public officers to get the job done and there is a significant level of trust placed in them to perform their roles ethically and in the public interest.
28/7/16 Page 9` What is concerning is the number of inquiries conducted not only by this Commission but also inquiry panels, Royal Commissions and Parliamentary Committees which have made recommendations in the local government context, many of which have yet to be actioned. The result is this type of conduct is able to continue and to continue undetected for lengthy periods of time, having a significant effect both financially and in more indirect ways on the trusting local communities.
Fairly recently, in 2012, as a result of a Commission investigation, the former CEO of the rural Shire of Murchison was charged with 123 counts of corruption and 17 counts of stealing and he received a term of imprisonment. At that very time, Mr Alcock was stealing funds at the Shire of Dowerin and the Commission’s investigation at Murchison did nothing to deter his conduct nor were any changes made at the Shire of Dowerin to strength its controls over its finances.
It’s envisaged that the public examinations will be heard by the authorities of this state and this will go some way to identify this and provide a platform for the Commission to make recommendations in an attempt to prevent future similar serious misconduct. The public nature of these examinations may also encourage those who are aware of similar conduct by public officers, either in local government or elsewhere, to come forward and provide information to the Commission and lastly, while there may be checks and balances in place, the evidence in this investigation highlights the importance of them being applied with the appropriate level of rigour.
An aspect of the Commission’s serious misconduct function is that it’s the Commission’s role to provide information and to make recommendations to public authorities about ways to prevent serious misconduct. The objectives of these examinations are not only to expose past conduct but to establish that positive basis for recommendations. Where corruption risks exist, it’s prudent to develop strategies to address and counter those risks.
This public examination is anticipated to run for two days with a number of witnesses who will give evidence about the role of the CEO; the legislative framework relevant to that role; the financial management at the Shire over the period and the lack of policies, procedures and training; the credit card acquittal process, the funds transfer authorisation process; the nature and effectiveness of routine audits; how the theft occurred and how it was discovered; the effect on the Shire, councillors and people of Dowerin; and, importantly, what measures have put in place by the new CEO, Ms Andrea Selvey, to prevent future serious misconduct.
Commissioner, I now ask for a short adjournment for administrative reasons before I call the first witness.
28/7/16 Page 10` THE COMMISSIONER: Very well, five minutes.
HARRIES, MS: Thank you, sir.
THE COMMISSIONER: We will adjourn for five minutes.
______
THE COMMISSIONER: Please be seated. Yes.
HARRIES, MS: Commissioner, the first witness is Mr Dale Metcalf.
METCALF, DALE ELLIS sworn:
ELLIS, MR: Commissioner, I seek leave to represent Mr Metcalf during this examination.
THE COMMISSIONER: That leave is granted.
ELLIS, MR: And I also seek leave, if this an appropriate time, to represent another witness who is being called today, Mr Graham Ralph.
THE COMMISSIONER: I have considered that and will grant leave for you to do that and at the conclusion of counsel’s examination, I will give you the opportunity to ask any questions you wish of Mr Metcalf.
ELLIS, MR: Thank you, Commissioner.
HARRIES, MS: Mr Metcalf, could you please state your full name for the record?---Dale Ellis Metcalf.
Thank you. Mr Metcalf, you are an elected member at the Shire of Dowerin. Is that correct?---Yes.
When were you first elected?---July 2003.
And currently you are the Shire President. Is that right? ---Correct.
How long have you held that position?---Since November 2017.
How many members do you have on your council?---Eight.
I understand that Mr Alcock was appointed as CEO as Dowerin and he started in about June 2008. Is that correct?---Yes.
And - - -?---It might have been July but it’s 2008.
Mid-2008; Mr Alcock resigned in October 2015, as you know, following the investigation of the theft, so he was in the role then for approximately seven years, is that right, and during that entire period you were the Shire President? ---Yes.
28/7/16 Page 11` Following Mr Alcock’s departure, Mr Gary Martin was the acting CEO for a period I think a few months, from November 2015 to March?---Early November to the council meeting in March, which I think may have been 15 or 16 March.
Your current CEO is Ms Andrea Selvey and she was appointed and started in March this year. Is that correct?---She started in March.
And so it’s right to say then that you have worked with each CEO?---I beg your pardon?
It’s right to say then you have worked with each CEO? ---I’ve worked with each CEO. I’ve worked with five.
Mr Metcalf, you have got a folder in front of you and that has got some tabs on the side. There are some papers in there that I am going to refer you to, so you will have a moment to have a look at them. The first - I won’t unless you feel that you need to look at it - is just to talk to you generally about the role of council and the legislative requirements around that. First of all, would you agree that the Local Government Act provides that one of the functions of a local government is to provide good government?---Yes.
You don’t need to look at anything just yet. I will let you know as soon as you do and if you feel that you need to look at a piece of legislation to which I’m referring, just let me know and I will let you know what tab it’s at. The role of council is also set out in the Local Government Act, so perhaps now if you turn to tab 2 and that’s barcode 0362. This is section 2.7 of the Local Government Act Western Australia and you see there that that outlines that the role of council is:
To govern the local government’s affairs and is responsible for the performance of the local government functions.
And then subsection (2) also says:
Without limiting the above, the council is to oversee the allocation of the local government’s finances and resources and determine local government policies.
Does that accord with what your understanding of what the role of council is in broad terms?---In broad terms, the clarification being: oversee the allocation of local government finances and resources as a result of reports brought to council by the CEO for us to debate and then accept or reject. The CEO has the position that he has to supply us with the necessary equipment to carry out those functions.
And we will go through those in a moment. Do you accept that the legislation clearly though provides the responsibility of council to be the oversight, to be the
28/7/16 Page 12` supervision if you like of the finances and how they’re spent?---Yes.
Under the legislation, the council is therefore responsible ultimately for the financial affairs of the local government but you have made some reference to the various ways and mechanisms in which that is in fact performed. So one of the ways, is it not, is that the local government is responsible for setting an annual budget and approving that?---The budget is formed by the staff; by the CEO, the finance officers, by the staff. The works manager has input. They put together the budget. Then they bring it to council for review and we check the allocations. We check what extra funding that is required for any extra asset purchased or whatever, so the actual body of the budget is performed by the staff. That’s operational.
So in relation to then all financial matters, the bulk of the work, as I understand your evidence, is that it’s done by the staff of the Shire. Then that material is provided to the council. The councillors get to see that material. They get to have a meeting about that material. They are able to ask questions about that material and form views about it and then decide whether to approve and adopt that material or not. Is that correct?---Yes.
And so a similar process occurs, I understand, in relation to conducting a mid-year budget review. That’s a requirement under the Act and similarly for receiving and approving monthly financial statements, so those come before the Shire every month?---Every month we can approve what comes – in this situation, we approved what came before council.
Yes?---In my statement, I made the comment that we approved all payments or something to that effect, which is incorrect. We approve all payments brought before council, so there’s payments that didn’t come to council.
You are making referring there, Mr Metcalf, are you, to a statement that you provided to the Commission for the prosecution of Mr Alcock. Is that correct?---Yes.
In any event, as I understand it, the other financial requirements are that there’s monthly financial statements to the council. Attached to those are a list of accounts. Is that correct?---No. The monthly statement of accounts states the payee, what it’s for and the amount and the electronic transfer number.
I will show you an example of that later, so you can explain that. At this point, I am just seeking to go through the requirements in the local government legislation in terms of what material gets prepared by your staff and then given to the Shire, so that would be the monthly financial statement and then separately to the monthly financial statement, as I understand it, is a list of accounts?---The list of accounts in the folder at the
28/7/16 Page 13` end of the table.
Then there’s also an annual financial report that has to be prepared. Is that right?---Yes.
Mr Metcalf, how regular are council meetings?---Every month except for January.
We have spoken about the staff that council has to assist in the day to day management of the operations and the primary staff member would be the CEO. Is that correct? Sorry, if you can just answer verbally for the purpose of the transcript?---Yes.
Thank you. The CEO attends council meetings once a month. Is that correct?---Yes.
Are there any other staff that regularly attend council meetings?---The finance officer and the works manager.
Currently the finance manager I think is Ms Sonia King. Is that correct?---Yes.
And the works manager is Mr Steven Geerdink?---Geerdink.
The CEO’s functions are set out in the Local Government Act. If you could have a look at tab 5 in the folder in front of you, and the barcode number is 0368, this is section 5.41 of the Local Government Act and you will see there that the CEO’s functions are clearly set out in the legislation and they include:
Advising the council in relation to the functions of the local government and ensuring advice and information is available to the council so that informed decisions can be made for council decisions to be implemented, manage the day to day operations of the local government, liaise with the President and speak on behalf of the local government if the President agrees.
I think you have got another page: “Be responsible for employment, supervision, et cetera, of employees; (h) is:
To ensure that the records and documents of the local government are properly kept and then perform any other function as specified.
Does that accord with your understanding of what the role of the CEO is?---The CEO is to, yes, carry out those activities and make council aware of what the requirements are.
If you can have a look at tab number 10, which is barcode 0377, this is a regulation in the local government financial management regulations and it sets out the CEO’s responsibilities in relation to financial management. Are you aware of this provision, Mr Metcalf? It’s a detailed
28/7/16 Page 14` provision in relation to financial management, so perhaps if I just go through it?---Yes.
So the CEO’s duties are: “To establish - - -?---Sorry, where - - -
Tab 10.
THE COMMISSIONER: Tab 10?---10, yes.
HARRIES, MS: And it’s regulation 5 and it’s up on the screen too?---Sorry, yes. So the CEO’s duties are”
To establish sufficient systems and procedures for the proper collection of all money owing, for the safe custody and security of all money collected or held by the local government, for the proper maintenance and security of financial records, to ensure proper accounting for the municipal or trust fund in relation to –
And it includes there expenses paid – “To ensure proper authorisation for the incurring of liabilities and the making of payments” – and I will skip over some of those – “To assist in the preparation of budgets and budget reviews.” Then if we just go over the page, subsection (2):
The CEO is to ensure that the resources of the local government are effectively and efficiently managed, assist the council to undertake reviews of fees.
And the last part is:
Undertake reviews of the appropriateness and effectiveness of the financial management, the fees and procedures of the local government and report to the local government.
Again, I will take you to that a bit later. Do you understand what subsection (2)(c) is a reference to? ---(2)(c)?
Yes, the last one that we just looked at?---There is – every four years, there should be a review of the financial systems.
Mr Alcock provided such a review to council I think in December 2014. Is that correct?---Yes.
And council relied on that?---Yes.
I understand then that when Acting CEO Gary Martin was at the Shire, he asked for that review to be done again by Mr Ron Back. Does that accord with your understanding? ---Yes.
In summary then, would you agree that it’s fair to say that
28/7/16 Page 15` the CEO’s role was to manage the financials and report to council?---The CEO has complete control over the operations of the Shire.
Yes, and he reports to council in relation to that?---Yes, he is supposed to report to us.
And it’s at that point that council has the oversight role in those council meetings over the financials that are reported. Is that correct?---We have the oversight on what is reported to us.
Your role as Shire President is also set out in the Act. If you go to tab 2, Mr Metcalf, and it is barcode 0362 and it’s section 2.8. You will see there the role of President is spelt out in the Act with subsection (1)(f) referring to your liaison role with the CEO, so you’re really, as I understand it, the link between the staff and the council. Is that correct?---Yes.
Does that section accord with your understanding of what your role is?---Yes.
I am going to take you now to your dealings with Mr Alcock, so what was your level of day to day contact with him over the period when he was working here?---I saw him frequently. Could be three days a week that I would call him and discuss any issues that he had or any issues I had thought about and we had, I would say, a very good relationship in discussing the affairs of the Shire.
So were those just informal arrangements or was there any standing regular meeting that you had with him?---No.
But in any event, the contact was pretty regular?---And frequently he would come up to my house. If he had something that was an issue, he would come up and we’d discuss it.
THE COMMISSIONER: Could I just ask do you live in the town or out of town?---I live in town now.
HARRIES, MS: You worked with him for seven years and clearly had regular contact with him, not only informally but also in Shire council meetings. What view at the time - without the knowledge that you obviously have now but what view did you have of his performance at the time? ---When he first came, it was the typical new broom sweeps clean and it was quite remarkable how the council lifted and the activities seemed to improve and that was probably the case for four years and then there was – and I didn’t personally notice because I’d see him all the time. Some of the other councillors on once a month contact were saying “The performance is going down” and it wasn’t until after I’d been on this overseas trip and came back I realised that he was changing.
What was communicated to you in terms of the reason behind
28/7/16 Page 16` the view that his performance was going down?---Longer to do tasks or ignoring them and, you know, a lot of it was only minor, the tweaking of doing things and it wasn’t done.
So as a result of those conversations, did you have any concerns?---No.
That was because of the nature of the contact that you were having with him?---Yes.
So is it fair to say that as a result of your contact with him, you formed a view at the time without this knowledge that he was competently performing his job?---Yes.
I understand that the performance review of the CEO has to be conducted annually by council. Is that correct?---Yes.
And that in fact occurred over the period that Mr Alcock was CEO?---Yes.
Could you just please describe how that process takes place?---There’s about six sections in the performance review. That’s the form or the pages that we - ever since I’ve been on council, it’s been the same review material.
Would you like to look at one as you’re explaining? If I just take you to tab 19 and the bar code is 0413, this is an extract of the minutes of a council meeting on 19 June 2012. Tab 19, Mr Metcalf. Have you got that? It’s on the third page of this document, there was obviously a CEO performance review and I think the document you’re referring to is attached there. Is this the document that you’re talking about?---Yes.
So this is the document that’s been used at the Shire of Dowerin the entire period that you’ve been there?---Ever since I have been there that’s been the - - -
And you don’t know the source of the documents?---No.
But in any event, every year when the annual review of the CEO takes place this is the document that is used by the Shire?---Yes.
Is there anything outside of this document that’s used? ---No.
So there’s no external consultants - - -?---No: no.
- - - or interviews with staff or anything of that nature?---No.
Can you just explain the process. I understood from speaking to you at an earlier time that this document was provided to each councillor for them to fill in. Is that correct?---It was provided to each councillor, usually the June meeting because the performance review was done in the
28/7/16 Page 17` July meeting and my request was that all councillors fill this in independently and then come to the July meeting with the completed assessment and that was the situation for seven out of eight.
So one councillor sometimes hadn’t or routinely hadn’t filled that in?---Generally refused.
Was that filled in by that councillor at the July meeting? ---Yes.
So by the July meeting every councillor had filled in this form?---I wouldn’t say that it was a hundred per cent every councillor, but pretty close.
Then as a result of the information in this form, so the form is about seven pages and it includes a range of issues such as resource management on page 1, people management on page 2, there’s the people management up on the screen; information management, personal management, and I think those are all the areas that are covered. So is it fair to say then that the councillors who filled this form in fill the form in based on their perception of the CEO’s performance?---Yes.
Is it fair to say that in relation to some of the areas they may not have direct knowledge about his performance in a particular area, for example, how he interacts with staff?---That was always a concern, because when we did this it was quite robust discussion and that was a major concern because we could not honestly assess his communication skills with the staff, at what level or how involved he was with both inside and outside staff and we had to just make the best assessments on an individual basis.
Mr Metcalf, once you had received all of those responses from the councillors, is it correct that you tallied the responses into one document?---I tallied them all up into one document and then we would discuss that outcome.
Discuss it between yourselves or also with Mr Alcock?---No, between ourselves initially and then I would convey to the CEO the outcomes. But also, the comments are made – each section there would be two, maybe three comments about that section by the different – the perception of different councillors. They would make their comment and that would be recorded and he would get a complete copy of that.
To the best of your recollection, were there ever any comments made in relation to Mr Alcock’s performance that would have given cause for concern about his ability to put correct financial information – ability and willingness to put correct financial information before the Shire? ---No, there was not - - -
Was Mr Alcock active in the local community?---Yes.
28/7/16 Page 18` How so?---I suppose the best example is this building; he was very instrumental in pushing that this building be brought to fruition and he was quite active in that, in both the planning and the construction and the Commissioning.
Mr Metcalf, in relation to this building are you now aware, having seen the forensic audit conducted by Mr Ron Back, that some of the funds earmarked for this building were in fact the funds that Mr Alcock directly transferred into his own personal account?---I can’t say that I have.
You don’t have an awareness of that at this - - -?---I can’t pinpoint that, an exact action being taken.
That will be covered at a later time with Mr Back when he gives his evidence, but if you have no further knowledge I won’t take that any further at this time. Ms King was appointed as finance manager and I just want to ask you some questions about that. When Mr Alcock was first appointed as CEO, is it the case that Mr Rex Adams was the deputy CEO?---He was deputy CEO and finance manager.
Is it the case that Mr Adams also attended council meetings in that role?---Yes.
Did he also attend the finance committee meetings in that role?---Finance committee meetings were pretty scarce back then.
How often?---Well, finance committee meetings were only really to vet the accounts and sign the cheques.
Prior to the monthly council meeting?---Yes.
Did they not occur prior to every council meeting over this period?---There was not a finance committee that actually discussed finances. The finance committee was looking at the accounts and the payment of them.
But there was a committee?---There was a committee.
Who was on the committee when Mr Alcock was first appointed? You can’t recall?---I would - - -
Have you been on the committee?---Yeah, I can – I believe it could have been Councillor Phillip Metcalf, but there would have been someone else but I don’t - - -
Were you on the committee?---Yes.
Sorry, you said that it met infrequently so is it the case that the committee didn’t meet before each council meeting?---For some – for a while it didn’t and then we had – it was more formally constituted; not formally but it was constituted that we had more regular meetings.
That was during Mr Alcock’s tenure?---Yes.
28/7/16 Page 19`
Initially when Mr Rex Adams left the Shire in September 2011, he wasn’t replaced. Is that correct?---That’s right.
And initially Mr Alcock trialled performing the role himself?---Yes.
As an additional set of responsibilities to his role?---Mm.
Then in May 2012 the Shire advertised for a position of finance manager. Is that right?
Sorry, if you can just answer orally, Mr Metcalf?---Yes.
Thank you. That was regarded as a senior position, I believe, from looking at the minutes where that was discussed. Is that correct?---Yes.
I might just show you briefly the document at tab number 69 which is document 0436. That’s an advert that was put out for the position of finance manager/accountant.
THE COMMISSIONER: Which tab?
HARRIES, MS: Sorry, 69.
You will see that advert, the applications closed for it, it’s at the bottom of the page, in May 2012 and the only other thing I wanted to draw your attention to is the title is obviously Manager Finance/Accountant and the salary package range is 114,362 upwards. You see that?
Does that accord with your recollection?---No, I don’t recall - - -
Seeing that?---No.
The Shire had an administration officer at the time who was Ms Sonia King when this job was advertised and she was ultimately the successful applicant for it. Is that right?---Yes.
Are you aware whether Ms King has any financial management qualifications or had at the time that she was appointed? ---No. As far as I know she had very limited financial management - - -
Are you able to say why it is that she was appointed? Were there not many applicants for the position?---The CEO had a lot of faith in her ability and I have to say that his faith was correct, because her ability to pick up finances was extraordinary.
That was based on your interactions with her, that you found her ability to be very good?---Very good.
THE COMMISSIONER: Did you interact with her yourself? ---Pardon?
28/7/16 Page 20`
Did you interact with Ms King yourself?---On occasions. Were you referring - - -
When you assessed her ability as very good, is that because of things Mr Alcock said or your own observations?---My own observations.
HARRIES, MS: When Ms King was on maternity leave, she went on maternity leave from November 2014 to August 2015, did anybody take over her responsibilities while she was gone?---No.
So is it fair to say that Mr Alcock took on those additional tasks at that time also?---Look, you’re taxing my ability to recall. I don’t believe anyone was designated. The staff in general probably took up some of the slack: that’s operational.
When you say it’s operational, can you just describe a little bit more what you mean by that?---Well, the functions of the Shire is the management of the affairs of the community and the finances. That’s all operational and that’s not for council or councillors.
Mr Metcalf, is that distinction between operational being the role of the staff and the oversight being the role of the council, is that something that practically causes some lack of clarity for councillors in terms of what they can become involved in?---We cannot be involved with the managerial. So as much as you might like to, you cannot be involved in the managerial side or the operational side of the outfit which is the Shire, the Shire part.
For example, in this particular case it appears that Ms King wasn’t replaced when she went on maternity leave. If the financial responsibilities of the staff, in terms of preparing information to come to council, was affected so that the reporting of information to council was affected and council weren’t able to properly oversee the finances of the Shire, is that an example of where this distinction between not being involved in day-to-day operations and needing to be involved might become a bit blurred? ---Possibly, but what came to council was what we normally received anyway.
So there were no concerns when - - -?---There was no concerns, because the financial reports came through as per usual.
Thank you. Now I’m just going to ask you some questions about the source of Shire funds and the accounts. Is it correct to say that the source of Shire funds is rates, grants, levies, fees, that type of thing?---Yes.
Is it correct that Shire funds are required under the legislation to be held in a municipal fund or in particular circumstances a trust fund or a reserve?---Reserve.
28/7/16 Page 21`
Is it correct to say that the money held in the municipal fund is really the working account of the Shire?---That is the working account.
Are you aware that there are obviously strict rules under the legislation regarding spending from those accounts?---I can only – the expenditure has to be authorised or endorsed; depending on whether it’s in the pipeline or it’s gone out of the pipeline, one or the other, it has to be endorsed or moved by council to receive that that expenditure is correct.
I won’t take you to the section unless you need me to but do you agree that the legislation says that municipal funds can only be spent if budgeted for, unless they are incurred in a financial year prior to the adoption of the budget or authorised by an absolute majority of council?---Figures outside the budget, providing they’re endorsed by an absolute majority or items brought before council that are not in the budget can be endorsed by council with an absolute majority.
Then the money can be spent?---Then the money is spent, yes.
Payments can only be made from a municipal or trust fund if the local government has delegated to the CEO the exercise of the powers to make those - - -?---He’s got delegated authority to make the payments.
Or otherwise if the payment was authorised by resolution of council. I might just put that up, Mr Metcalf. It’s tab 12 for your purposes and bar code 0424. This is an extract of the Local Government (Financial Management) Regulations and it’s regulation 12 and there is outlined the requirements for payments from the municipal fund or trust fund:
A payment may only be made from the municipal fund or trust fund if there has been a delegation or otherwise if it’s been authorised in advance by a resolution of council.
Then you see subsection (2):
The council must not authorise a payment from those funds until a list has been prepared under regulation 13 – and that is the reference to the list of accounts that comes before council every month. Is that correct?---Yes.
I’ll just take you - - -?---Well, there is the other point.
Sure?---Council must not authorise a payment from those funds until a list prepared under regulation 13.2, but
28/7/16 Page 22` expenditure already taken and submitted to council is endorsed.
So that the expenditure has already happened?---Yeah, is that the next - - -
That’s the next - - -?---That’s the next part.
Yes. If I take you to regulation 13, if you just turn over into tab 13 and, sorry, that is bar code 0425, this section or regulation of the financial management regulations outlines the detail that has to be in that list of accounts that comes before council. So, “In the event that local government has delegated to the CEO,” which you say in this case had occurred?---Yes.
The power to make payments from the municipal fund or trust fund, the list of accounts paid by the CEO is to be prepared and it has to show the payee’s name, the amount of the payment, the date of the payment and sufficient information to identify the transaction. You’re nodding, Mr Metcalf, so that’s correct?---Yes.
Is that in fact the information that was contained in the list of accounts that came before council?---That comes – the accounts that come before council always have those. Identification of the transaction might be a little scanty at times, bought five plugs for basins and it cost $500, so we ask what else is in that account.
And then you would look at the hard copy document - - -? ---Yes.
- - - that was also available for council with the invoices and such attached. Is that correct?---Yes.
I understand that happened on a regular basis in council? ---That happened on a regular basis.
Then if you just look at subsection (3), then the list that’s been prepared must be presented to council at the next ordinary meeting of council after the list is prepared. So would you agree then that the payments can be made by the CEO from those accounts so long as there has been a delegation and then the required information is provided to council at the next meeting?---Yes.
Thank you. Mr Metcalf, when you were first Shire President in your statement to the Commission you stated that there was a manual process for approving payments and that the process then changed from manual to electronic. Can you explain what your role was in the manual system for approving payments?---All the accounts would be presented and with a green slip for each account, so you had the invoices and the statement and then pinned to that was a green slip that had the explanation of who – what the account – who the payee was, what it was for, the filing number and so forth; a box to tick if I was happy with the
28/7/16 Page 23` statement and with the invoices, a box to tick that I had checked it and then sign the cheque. There was a second signatory and that could either be another councillor or the CEO, but it was a manual system where everything was done and I would think it could be 9, 10 or 12 accounts a year, would be put to one side, not checked, not signed, want further explanation because either there was a perceived mistake or the expense seemed a bit abnormal. There would be different reasons, and that would need further clarification before we would sign that cheque, so in council, most times when there was a query regards an account I could answer that because I’d already vetted the statements or the invoices.
Is it fair to say then that in the manual system you saw the payments and the proof sitting behind the payments before they were authorised to in fact be paid?---Yeah. We saw them all before they were authorised to be paid. They then went to council later in the day.
Can you describe what your role in the current electronic system is by the time you see the evidence of the payments – they have in fact already left the Shire’s bank accounts?---The agenda item and the motion is usually for council to endorse – the wording is “endorse the payments”. So that sort of gives us the clue that they’ve already gone.
Do you have any knowledge of who in fact prepared the financial statements and the monthly list of accounts that came to council over the period that Mr Alcock was CEO? ---No.
So you wouldn’t be able to say whether it was Mr Alcock who had prepared them or once Ms King was appointed whether she had prepared them. You didn’t have that level of knowledge?---I don’t know who actually prepared them.
Did you receive them before the council meeting, the financial statements? Were they all attached to the agenda?---They were in the agenda, yes.
So councillors could have a look at them before they came to the meeting?---Yes.
I will just put up.an example of one. It’s in tab 18, and the barcode is 0404. This is a copy of an agenda for a council meeting at the Shire of Dowerin on 21 July 2015, and the monthly statement of financial activity starts on the second page of the document. You will see there’s a page number at the bottom, page 78. It goes from page 78 to page 90, so there’s 12 pages, and there’s quite a lot of financial detail within those 12 pages. Mr Metcalf, what were you looking for in those? What was the bottom line for you when you were checking those financial statements? ---On page 79 it was looking at the running total, because we have there, as you can view, the budget, the revised budget, the year-to-date budget and the actual, and it was
28/7/16 Page 24` looking at the progress of the expenditure or the income as opposed to the budget, how we were tracking, and some items – by August or September some items are - virtually a hundred per cent of budget has already gone, and that raises a flag, but then that could be insurance, and all the insurance is paid early in the year. Those are the ones tracked – and look at the reserves.
Is that on page 84, the summary of - - -?---Reserves, 83 and 84, and the transfers - - -
What were you looking for in the reserves and the transfers?---Just any movement, and there shouldn’t be. The only movement in those should be if the council had endorsed the purchase of some equipment or had to do something that required payment from a reserve. It could be the sewerage pump needed replacing. That would then – normally it didn’t come out until later in the year, but just out of curiosity I would check those.
Mr Metcalf, how did you develop the ability to read the financial statements and know what you were looking for? ---Intuition.
So no formal training in relation to them?---I’ve got limited mentality and no academic skills whatsoever.
That seems very unfair. In relation to the financial statements, did you feel comfortable that you understood them?---I had a stage where I wasn’t comfortable, that I had difficulty – I felt that I had difficulty following them because previously I had no issues and now I don’t know why I felt that way for a couple of years, but I sort of floundered a bit, but really they’re no different.
The format of them didn’t change in that time?---No, and we’ve got more information, which over the years I’d asked for. We didn’t always have year-to-date budget, and I requested way back that we wanted a running total of what’s happening, and then also we wanted the variance, and all these things have come in now to make it much easier to follow just what is happening, so if there’s a major expenditure – in transport if there’s a major blow-out, why. Well, of course it could have been, like this year, there’s been rainfall events that have made more work for the outside crew to repair roads, so that expenditure has gone up. Want an explanation – why has it gone up?
Do you run any financial statements like this for your farm?---Totally different. I’m not a farmer now.
If I just take you to page 92 of the document, this is an extract from the same agenda, and this is the list of accounts that marries with the financial statements. Is this a typical example of the list of accounts that would come before council?---Yes.
And you see there that those areas that we looked at that
28/7/16 Page 25` were required to be followed in the regulations, the payee’s name, the amount of the payment, the date of the payment and some other information to identify the transaction – that’s covered, would you agree, in this document?---Yes.
On the left-hand side you see that the heading at the top is Check/EFT. What did you understand that code to be? ---Electronic transfer number. How that operates I have no idea.
Did you understand that it was a number automatically generated by the system when a payment was made?---Yes. That was my presumption, similar to cheque numbers.
Did you ever look at those numbers?---Yes, sometimes.
Would you know, for instance, and we will hear evidence from Mr Back about this later on today, to check whether those numbers were in sequence?---I have to admit that I did note that - - -
You didn’t know?---I did note.
You did note?---I did note that there was a missing number on a couple of occasions and I just presumed that was, okay, a mistake, redone.
I see. Did you ask questions about that?---No. I’m not cynical enough.
THE COMMISSIONER: Are you now? ---No, not my nature.
HARRIES, MS: If we just scroll down to the bottom of that page, you will see this is an example where sequencing is out of order. It’s between the second-last and third-last?---Yes.
EFT 3408, and then it goes EFT 3410. Do you now appreciate that that’s an indication that not all information - - -?-- -I’m very aware now, because in my business I used to check the cheque numbers against the statement, and of course what happened was many a time you would wait until the next statement to get a cheque number because they hadn’t been presented, and that was sort of the thinking here too, but it’s electronic; I shouldn’t have thought that.
Would there be any reason why you would compare a financial report from one month to the next? Did you ever, as a matter of practice, pick up last month’s report and compare it with this month’s report?---I have done that.
Because again we will hear evidence from Mr Back about this later on, but in this particular case the EFT number finishes at 3411. You will see it at the bottom of the page; actually that’s not the end of it. In any event, the EFT numbers finish for this list of financial accounts, and
28/7/16 Page 26` there’s a substantial number of EFT numbers that are missing between the - - -?---I wouldn’t have noticed that.
Did you ever check any of the figures to see whether they added up or was that something you took as a given in the paperwork?---Which figures?
The figures that were presented in the monthly financial statements?---I did on occasions check tallies but there’s a program – the computer has got a program.
So you relied on that?---That program captures everything and brings out the balances.
Were you aware that Mr Alcock and others at the Shire had corporate credit cards, or Shire credit cards?---Had credit cards, yes.
Issued by the Shire?---Yes.
Did you understand that all of that expenditure would appear on the monthly statements that came before council? ---Never gave it a thought.
Would you expect that any expenditure of Shire funds would be presented in that list of accounts to the Shire, to the council every month?---Yes.
So is it fair to say then – you say you never gave it any thought – your expectation was that all expenditure would be before the Shire?---Before – the works manager’s card – there would be a line item in the list of accounts for he, and I’m pretty sure that Sonia King had – there was an occasional entry for the use of their credit cards.
So you recall actually seeing information about – their names and their credit card expenditures rather than - - -?---The short explanation – like there is on, was it, 92 – of what it was for.
So occasionally you did see some credit card transactions coming through?---I did see that, yes.
THE COMMISSIONER: Could I just understand what you would see. Let’s take a hypothetical example: the works manage uses a credit card, say, five times in a month to purchase various things. Would you have expected to see in the accounts the five purchases or would you just have expected to see works manager expenditure and the total?---It would be one total because it was automatically withdrawn from the municipal fund by the bank, so there’d only be the one entry. Knowing our works manager, he’s very particular to make sure that we are aware of what he’s done.
I was just using that as a hypothetical example?---Yes.
So if he had purchased five items of equipment he may have told you that, but you wouldn’t have picked that up on the
28/7/16 Page 27` statement?---Wouldn’t have picked up what it was.
Thank you?---There would be a brief explanation but he would provide the invoices.
Would they be in the folder?---They would be there, yes.
HARRIER, MS: Mr Metcalf, just so I’m clear, are you saying that you would expect there to be the total transaction that would appear in this list of accounts with a description that it was a credit card?---Yes.
And then separately you would have the paperwork available with the supporting transactions underneath?---The paperwork would be - yes.
Were you aware of what checks were in place at the Shire for credit card use at the time that Mr Alcock was CEO? ---No checks.
Did you know if there was a policy?---There was no policy.
You know now that there was no policy but at the time did you know?---No.
Did you ask generally about what policies were in place within the staff area? Did you have any knowledge of the policies that were in place for the Shire at the time that Mr Alcock was CEO?---Policies in relation to?
Financial matters such as purchasing policies, delegation, credit card - - -?---There’s a purchasing policy, a financial policy. There’s about six policies. The purchasing policy was really, I think, the only one related to finance.
So that was the only one you were really aware of during the time that Mr Alcock was here. While Mr Alcock was CEO were you ever concerned – you said in the last two years you felt it was a little bit more difficult to look at the financial statements. Did you ever have concern that something didn’t appear to be correct or that figures didn’t add up? Was there any alarm bell that rang for you over that period?---Nothing triggered my suspicion.
Did you know that Mr Alcock had complete control over the financial management system?---That was a concern.
It was a concern?---It was a concern that the CEO has excessive power in everything.
That this particular CEO had excessive power over everything or just generally?---Under the Act all CEOs have got excessive power.
However the Act and the Regs also require policies and procedures to be in place. If they weren’t in place, that’s really the basis of my question. If Mr Alcock was
28/7/16 Page 28` able to subvert the normal processes that may be in place, control over that power if you like, would that have been of concern to you, if you’d known that?---No. The concern is that it’s the CEO’s role to bring a report to council with a recommendation, and that report could be on governance or finance or whatever, but it’s the CEO’s role to be the architect of a report, bring it to council for debate and then for council to ratify it, endorse it. It’s not council’s role to go and create the policy. So if the CEO doesn’t come to council, doesn’t bring the council the policies required for good governance, is it the role of council to follow up or to know or to have any idea of what is supposed to be done.
Mr Metcalf, I understand the point that you are making, and I’m going to take you to a piece of Regulation in a moment but that wasn’t actually the question I was asking you. What I was asking is: if, for example, you had been aware that Mr Alcock had access to two bank authorisation tokens and therefore could authorise payments entirely himself, would that have been a matter of concern for you?---It would have been, yes.
And if you had had information that Mr Alcock was a super user of the accounting software system so that he could, for example, all on his own make changes to the creditor details for accounts that were to be paid, would that have been of concern to you?---Yes.
But it obviously wasn’t something that you were aware of at the time?---No, not aware.
So clearly your evidence is that you trusted Mr Alcock and you trusted that the information he was providing was correct?---Yes.
It appears that local governments are required under the legislation to develop proper procedures and processes for the payment of accounts. I will just take you to tab 11, which is barcode 0378. Just scroll down to regulation 11 on the bottom of the first page. So this is regulation 11 of the Local Government (Financial Management) Regulations, and it states in subsection (1):
A local government is to develop procedures for the authorisation of and payment of accounts to ensure that there’s effective security for and properly authorised use of cheques, credit cards, computer encryption devices and passwords, purchasing cards and any other devices or methods by which goods, services, money or other benefits may be obtained.
Then if we just go over the page and there’s petty cash systems as well, and:
The local government is to develop procedures for the approval of accounts to ensure that before payments of an account, a determination is made that the
28/7/16 Page 29` relevant debt was incurred by a person who was properly authorised to do so.
Were you aware of these regulations and the role of the council in terms of overseeing and making sure those policies and procedures were in place?---Not to the point that that makes.
Yes. It is fairly detailed clearly. Do you think that is an issue that could really be rectified by mandatory training for councillors so that they were aware of these provisions?---It’s hard to believe that 35 or 40 hours of training for councillors is going to create a major change when a CEO has done four years of university or higher education and ongoing education.
So you’re assuming that the proposal for mandatory training of 30 or 40 hours. I’m just talking about it really in general terms as a concept without specifying the period of time. Perhaps, you know, in many professions there’s ongoing professional development. Would you see any benefit in ongoing, updating and training of councillors so that they are better equipped to ask the questions of the person who provided them with advice?---Yes, there’s a need. I’m not personally trained.
THE COMMISSIONER: Sorry, I just missed what you just said?---I said I’m not personally trained, but my wife might think differently.
The thing about this regulation, and others, is that it would appear to me, and I’m putting this to you for comment, that there is a role for council in ensuring that they develop these procedures, not the drafting; that’s his job, but that council could require him to develop these procedures. Did you see your role that way?---I really have to state that I was quite ignorant of the scope of procedures and government matters that were required; operate on commonsense and logic. It doesn’t always work.
HARRIES, MS: Mr Metcalf, as you are aware, Mr Back conducted a forensic audit and he concluded that there was a complete breakdown of internal controls associated with the payment of accounts and credit cards over a prolonged period of time. Do you have any comment in relation to that view?---The processes and procedures that were in place while Dacre Alcock was there are really probably no different to what they were 20 years ago. I don’t think they diminished but I can’t really say. I can only assume that the same processes were used and handed on.
Sure, but then arguably that’s then more a situation of luck that this hasn’t happened before. Would you agree that improvements can be made moving forward?---Tremendous improvements have already been made.
We will talk about those in a moment too. I just wanted to take you now to the question of an audit committee. You
28/7/16 Page 30` are aware, aren’t you, that under the Local Government Act the Shire is required to have an audit committee?---Yes.
And when Mr Alcock was CEO, and we spoke about it briefly earlier, there was in fact a finance and audit committee that was called the finance and audit committee. Is that correct?---That’s right.
And you were a member of that committee at some point? ---Yes.
With Dacre Alcock, an I understand Sonia King was also a member of that committee once she was appointed?---Yes.
Did Mr Alcock run these meetings?---Generally. If he was present he would run them.
When you said “if he was present” - - -?---He wasn’t always present.
Did you have a concern about that or were there legitimate reasons he couldn’t be present?---He would, I suppose, delegate it to Sonia King and she would go through the finances with us and bring up issues that - - -
But did you have any understanding of the reason why he wasn’t there? The only reason I’m asking is that you will hear some evidence later on in this examination that Mr Alcock was not at the office very much, and towards the end of his tenure he was disappearing a lot of the time. Did that ever become a concern to you if he was not attending these meetings?---No. To me it was a natural thing that the finance officer was our communication person regards the accounting.
In December 2015, during Gary Martin’s tenure, the finance and audit committee was separated into an audit committee and a separate finance committee, and the reasons in the extract of the minutes were in order to fully comply with the Local Government Act. Do you recall that?---Yes.
And at the time Mr Alcock was CEO were you at all aware that the committee was called the finance and audit committee was not compliant with the Act?---I wasn’t. I knew there was a role of an audit and finance but I didn’t realise they had to be separate.
And that information was never put before council until Gary Martin did that?---No.
So it never came to you through the audit process, that information that the audit committee wasn’t properly established?---It wasn’t, no.
But that information never came to you while Mr Alcock was CEO, in any other form. You never were told that by the auditors. Is that right?---No.
28/7/16 Page 31` And that never came up in the annual compliance audit review as an issue?---No.
Do you now know that a CEO is not permitted under the legislation to be a member of the audit committee?---I’m aware now. I’ve been reading it.
The reason behind that is set out in the Local Government Operational Guideline in relation to audit committees, and the reason behind that is to ensure that the committee operates in an autonomous and independent way?---Yes.
Did you know that the audit committee can make recommendations about the appointment of the auditor? ---Yes.
And the scope of the audits?---I was never aware that there was such a thing as scope for auditors. To my understanding an audit was an audit and they had a certain task to do, and I think that was the general understanding of our council, or the older council – not the older in age but the older in term – that the councillors had, that the scope was a fixed – automatically the auditors did this. We’ve got two new councillors who have accounting background and one of those said to me one day after this happened, “The scope wasn’t there” and that was the first time I was made aware there was such a thing that we could ask the auditors to do this whatever. I am now well aware, but also reading the Act, the Local Government Act, the auditors have got untold power to move in, and I can’t imagine that they would need any more direction from a council to do their job because it’s all listed.
Some of those areas will be areas we will cover with the auditor in terms of what the scope was and the reason for this conduct not being detected. Did you also know that the audit committee can operate as a conduit between the auditors – a conduit to provide information to the auditors? Do you know that now?---Know that now. Make sure that there is a smooth transition of material from the Shire to the auditor.
Did you know that Mr Alcock was the primary conduit for the provision of the information to the auditors over the period you - - -?---He was the only – we had no contact with the auditors.
Did you know that the audit committee under legislation is required to review the annual compliance returns?---No.
At the time Mr Alcock was CEO?---No. Wasn’t aware it was the audit committee. Council as a whole looked at it and I personally went through the compliance return each year and just checked “not applicable,” “Tick, yes” or whatever, and really it was a mechanical thing because I was not aware of the scope and the intent of the compliance report. I now know what the scope and the intent of the compliance report is.
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How do you know now? Is that through attending training? ---No; just reading up and checking and talking with Gary Martin, getting direction from Gary Martin who is a professional adviser for doing compliance on a contract basis with councils, and he was absolutely scathing regards our compliance return, which was done by our CEO, and we had to accept what he – well, we did accept what he said. What I know now is that I should have asked him on occasions when he ticked that this is okay, “Will you bring that file out?” Very easy with hindsight to realise that was our role, to ask for the files to back up the compliance.
Do you feel now, as a result of what happened, that you are in a much better position to consider now, as a councillor, the compliance audit returns?---It would be totally different next time.
If you had been aware of all of these legislative requirements in relation to what an audit committee was meant to be doing, would you have ensured that they were followed?---I’m pretty sure I would.
So again, is it fair to say that additional training could be of benefit to the performance and role of councillors and Presidents?---It’s a fairly big Act, and when you’re talking about additional training it’s going to be skimpy.
The training is going to be skimpy? I see. But certainly in relation to investigations such as this and the variety of reports that have been prepared that are publicly available, would you agree that there’s a number of recommendations about areas of risk that that training could really be focussed on, and directed by councils to the people providing the training?---Yes. To focus on certain areas could make a big difference.
THE COMMISSIONER: You don’t seem to be a huge fan of training. I’m get that message?---Well, can I say that I’m chairman of the Australian Farm Management Society or Farm Management Foundation, so I have been involved, active, in agricultural management.
What would you regard as an acceptable level of knowledge for a new councillor coming on to a local authority, a rural local authority in particular where everybody knows each other?---We did a training session a fortnight ago for a day with WA Local Government Authority and the Department. The booklet that was given out at that training session is of tremendous benefit to a new councillor. I learnt a lot, although I’ve been 13 years on council. That would make a huge difference to the understanding of the role, and that was the point of the exercise. It was the role of a councillor, and that would highlight to councillors their responsibilities, that in conjunction with induction and some induction process. We then come to the point of do potential councillors nominating have to do it before they go on council or do you wait until they go on council, so they’re
28/7/16 Page 33` actually running dry to start with.
HARRIES, MS: Mr Metcalf, when Mr Alcock was CEO did you have a training schedule of any kind?---No.
And is there one now?---We’re instigating a training.
When Mr Alcock was CEO were there any discussions about need for training for councillors?---Often it was brought up but we always got a negative – generally got a negative.
What was the reason?---Not required. Councillors weren’t really interested, and now that’s changed. I would say the councillors are very aware that we need to be more skilled and aware.
Were costs of the training ever a factor?---A major factor.
I understand some training that’s being provided to you now is being subsidised through Royalties for Regions?---Yes, country local government funds, which is Royalties for Regions and the Department; they partnered up and providing training.
And that’s as a result of what happened with Mr Alcock? ---Yes.
Prior to that, that funding wasn’t available for training? ---I’m not aware what the position was regards training. I think that training earlier, we would have had to foot the bill.
THE COMMISSIONER: How long do you think you will be?
HARRIES, MS: Another 15 minutes.
THE COMMISSIONER: We will have just a five-minute rest to stretch our legs, and particularly Mr Metcalf.
______
THE COMMISSIONER: Please be seated.
HARRIES, MS: Mr Metcalf, I’m just going to ask you a few questions about the annual audit. The firm Byfields conducted the audits of the Shire’s annual financial statements over the period that the Shire’s funds were stolen. Is that correct?---Yes.
What did you understand that the audit would do? Did you understand that it would detect this type of conduct?---I presumed it would.
Did you know that the council were required to give the auditors assurance that the material that was being provided to them was free from fraud?---I had no idea that we had that capacity to even judge that it was not fraudulent.
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I will just show you at tab 32 the document there, which is 0423. This was the document that Byfields asked to be provided prior to the audit and this was an example of the document prepared on 30 June 2014, a planning and forward representation from the Shire of Dowerin: “To the best of your knowledge has there been any fraud?” “No.” And it’s signed by Mr Alcock. Do you see that?
Did you ever see this document?---No. The same applies – there is a question in the compliance, “Do you suspect any fraud?” That also was ticked “No.”
Yes. Regulation – sorry, section 7.9 of the Local Government Act requires that the auditor examine the accounts and financial report submitted for audit each year and then provide a copy to the President. Did you receive copies of the annual audit from Byfields?---For 2014-15,. the latest one, I have received a copy.
I see; but the ones when Mr Alcock was in the job you did not receive?---No, not that I can recall them.
But it’s the case, isn’t it, that the audit reports were presented to council?---They were presented to council.
With the annual financial statement?---Yes.
So council were provided with them?---Yes, they – council saw them. Yes, they were tabled.
And adopted, is that correct?---Mm.
I think you said earlier that – did council ever meet with the auditors during Mr Alcock’s tenure?---Not council as a whole.
THE COMMISSIONER: Did some? Did you?---I was introduced.
HARRIES, MS: But to discuss the outcome of the audit? ---No.
Was there ever an intention to do that?---It wasn’t – this last one, yes. It was most interesting.
I am just going to ask you some questions about the Department of Local Government’s involvement. On 22 July 2015, the Department of Local Government wrote a letter to you outlining financial management and compliance issues. Did you receive that letter at the time?---The first knowledge I had of that was probably in January of this year when Gary Martin asked me how did I respond to this particular item of correspondence from the Department.
The letter was sent to the PO box for the Shire?---It was sent to the Shire PO box.
So when you were advised about the letter, did you read it?
28/7/16 Page 35` When Mr Martin told you about the letter, did you have a look at it again?---I glanced at it. He gave me a copy and asked me what I had done and nothing. I had not seen it and it’s no trouble to me for recall whether I’d seen that particular correspondence because again, it was a mathematical type situation where there are graphs and charts and that – I’m not a wordsmith and I had great difficulty with English but I had a bit of a flair for figures and graphs and I could say I hadn’t seen that and that was pointing out that the Dowerin Shire had weak ratios.
I might just put up the letter which is tab 54 and, sorry, barcode 0720. You see that’s addressed to you at the Shire of Dowerin from the Department of Local Government and if you just look at the second paragraph:
The monitoring process has identified financial management and compliance issues as well as issues identified by the auditor in his audit report and audit management report which we draw to your attention.
Those matters are being outlined in a schedule. The schedule is in the following tab, tab 55, and the barcode is 0721. This is the document that you were referring to a moment ago?---Yes.
And it’s a three-page document. One of the matters that’s outlined in the document if you have a look at page 2 is the untied cash, the untied – sorry, unpaid creditors radio. This is a measure of whether a local government has sufficient untied cash to pay trade creditors according to normal trading terms and the ratio was negative, indicating that the Shire had a shortfall of $1.91 for every $1 owed to trade creditors. If you had seen – sorry, I think you’re on the wrong page. Page 2, please.
THE COMMISSIONER: It’s actually page 3 of the document.
HARRIES, MS: On the document, so if you just scroll up, sorry, at the very top of that page. If you had seen that, would that have given you cause for concern at the time? ---Very much so.
There was also information in there about other financial matters, that the get service ratio cover was not good? ---Yes.
And also that the Shire had not reported its asset consumption ratio or its asset renewal funding ratio as required and it was non-compliant. Yes?---If I had received that, I would have had to give it to the CEO and ask him to act and respond to the Department but I didn’t get it.
Thank you. I am finished with that document.
28/7/16 Page 36` While Mr Alcock was CEO, did you have any contact with the Department of Local Government?---Never.
Since Mr Alcock’s departure, what contact have you had with the DLG?---It took some time after his – after the charging of him, it took some time before we had contact. The Department were told straightaway, because we didn’t want it on the press and the Minister finding out that Dowerin Council had gone off the rails and him querying it. We sent correspondence to the Department, so that the Minister was aware. There was no response to that from the Department and Gary Martin kept sending progressive reports and there was nothing until our new CEO came on board, as I see it, and she made direct contact and wanted to fill in the Department and I can only say now it has been marvellous. Jenny Law is here today. I think it’s the fourth time she’s been up here in a very short while giving us a tremendous amount of direction but it was disappointing that we went so long and had nothing.
You said earlier that the Department has been assisting with funding for training for the councillors?---Funding, direction. All sorts of things they have been now assisting us and helping and advising.
And you have also advised that the Department of Local Government is planning to produce a probity report - - -? ---Yes, that’s - - -
- - - in relation to the systems that - - -?---That’s probably – it’s two weeks ago since I spoke to Jenny Law and she said probably in the next three or four weeks, so that must be coming up pretty soon and that’s going to brilliant, that we have that in our armoury as well.
Mr Metcalf, I only have a few more questions. The report prepared by Mr Ron Back is the last area to cover just very briefly. Mr Ron Back is an accountant who was engaged at the beginning of this year by Acting CEO Martin to do the forensic audit and also to do the review of the financial management systems. The Shire received both of these in March this year. Is that correct?---Mm.
Yes?---Yes.
And the forensic audit concluded that the council had little to no effective checking mechanism that protected the assets of the Shire. Do you have any comment in relation to that?---That we had no - - -
Effective checking mechanism that protected the assets of the Shire?---We haven’t got a - - -
At the time?---At the time an asset register with the conditions of those assets, meaning – my thinking there is the physical assets, the bricks and mortar assets, and we don’t have a list of the conditions and what’s required to be done.
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My understanding is that credit cards are assets of the Shire? ---credit cards - - -
But that’s an area that can be clarified with Mr Back. The review of the financial management systems that Mr Back conducted identified 51 areas where improvements could be made in the Shire. Have you read that review?---Yes.
And in your opinion, do you agree with – is there anything else you wanted to add over and above that as to what the council could have done differently to be better equipped to deal with Mr Alcock’s dishonesty?---No, I’m not equipped to.
Has the Shire implemented or is in the process of implementing any of those changes as identified by Mr Back?---There’s a vast number that have been ticked off and there’s a lot in the process of being done. It will take probably 18 months to complete, at a guess 18 months.
Thank you, Mr Metcalf. I am finished with the questions. Thank you?---Thank you.
THE COMMISSIONER: Mr Metcalf, hold it in case Mr Ellis has some questions for you?---Yes.
ELLIS, MR: I do have some questions. I am conscious you have a time for it usually but - - -
THE COMMISSIONER: It takes what it takes, Mr Ellis.
ELLIS, MR: Mr Metcalf, just to start with, you mentioned during your answers to Ms Harries that you have no academic skills whatsoever. I just want to clarify for the Commission, you ran your own business for some 50 years? ---Yes.
You’ve always considered yourself a competent person in the administration of a business?---I think so. I didn’t go broke.
You certainly never felt like you were incapable of performing your role as a councillor?---Not really.
The Commission is obviously keen to identify the various roles played by the council, the CEO and others in the financial management of the Shire. I just want to understand better from you. Do you understand under the legislation that there’s a clear division of responsibility?---Yes, between Shire and council, very definitely.
And is the council prohibited in your understanding under the legislation from interfering with the operational aspects of the CEO’s role?---We are not to interfere with the operational management role of the CEO and it’s a grey
28/7/16 Page 38` area.
When you say it’s a grey area, the legislation as far as you understand does create a prohibition on you interfering with the administration of the Shire’s business?---We are not to interfere but a recent example has come to light now that the simple act of signing the cheques back years ago could be deemed operational.
As in the old system that you referred to when you were - - -?---In the old system where the councillors signed cheques, that could probably be deemed operational whereby you could say I crossed the line. Now with the new policy on bankcards, the CEO is to sign off the statements each month for the other card operators within the Shire. The President is to sign off the CEO’s bankcard statement. Is that not operational?
Can I just understand that a little but further. You are saying that the old system required you to sign off or you adopted a process where you signed off or the council off on payments?---Yes.
That’s not been the case for some period of time?---No.
And even under the arrangements that are now being put in place, the only time that you are exercising some sort of sign off process in terms of a payment is in respect of signing off the credit card statements of the CEO?---The credit card statement for the - - -
Which you think is questionable?---Is questionable but at this stage, we haven’t crossed that line because she does not have a corporate credit card on the Shire account.
Do you consider that it’s the council’s role to check the accuracy of documents that are presented to the council? ---The - - -
Of the financial documents that are presented to them? ---The only way we can check that is by questioning the person presenting them. We can’t go behind and find out whether those documents have been correctly fabricated, not meaning – meaning fabricated in a good sense. We haven’t got the right to do that.
Because of the prohibition on interfering with the business of the Shire?---Yes.
Are you yourself or are aware of anyone else on the council at the time these circumstances arose and during the time of Mr Alcock’s fraud were you qualified as an accountant or bookkeeper or any other sort of financial qualification? Were you qualified?---I’m not, no.
Are you aware of any other councillor having been qualified as an accountant during the time that this fraud - - -? ---No, no.
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I just want to take you to the role of the audit committee. You have been asked a lot of questions about the audit committee and its compliance with the Act. Do you understand that the Act creates an obligation on the council to have an audit committee?---Yes.
Did you have an audit function within the finance and audit committee?---Not - - -
Did the compliance committee consider the external appointment of an auditor, for instance?---Yes.
Can you describe how you perceived the audit role of the finance and audit committee in respect of the external auditor?---The audit role in the old committee was very marginal. Ignorance didn’t allow – didn’t – ignorance created this thing that we didn’t realise the extent of what we were supposed to do.
To just explore that quickly, did that finance and audit committee consider the appointment of an external auditor? ---Yes.
And did it review the report that the external auditor produced?---Yes, more the finance.
Do you understand the role of the audit committee under the legislation to extend to scrutinising and verifying the figures produced by the CEO and the finance Department? ---The audit committee role, not to verify the figures.
And did you say that’s the case because the councillors are not qualified to do that?---But if – there’s three things the audit committee can’t do. Now it’s tucked in my memory. The last one is they have not got any delegated – the audit committee has not got any delegated financial authority. The second one is it cannot instigate any actions and the first one is that it doesn’t have any executive power. So the audit committee has got a very limited role. It’s really only to vet the selection of an auditor and the scope.
And you understand that the appointment of an external auditor creates a check for the financial management of the Shire?---That’s the expectation.
Given the lack of qualification of the councillors being on the audit committee and the qualification of the external auditor, do you understand why the legislation has been set up as it has been?---Yes, they were – the auditor has got the responsibility of checking.
That’s your view?---Mm.
Do you understand they have broader powers to be able to do that?---I’m amazed at the power that an auditor has got.
28/7/16 Page 40` Again, the verification process that an auditor could achieve is not something the council could have achieved by virtue of your inability to intervene in the affairs of the Shire?---No, we have no powers at all.
Can I just ask you about the compliance audit. Whose role is it to undertake the compliance audit?---The CEO filled in the compliance audit and then I’d personally go through it and check and query if I had any – if it was not applicable and I thought, well, maybe it was applicable, why, check what – that everything had been filled in, completely unaware that I should have been questioning the reasons why the answers were given. Like, for instance, there is some questions on the file, is the file kept for all tenders, and in that file will be the list of tenders, the dates, the amounts, everything about the tenders and that’s ticked off as all being done. We now know that that wasn’t done but who - - -
Given what you know about Mr Alcock’s level of fraud, do you think even if you had have questioned him and he produced documents to you to verify things, you would have any confidence that what he produced to you was actually accurate?---Well, in hindsight again we wouldn’t have had – I wouldn’t have known if what he’d presented wasn’t correct.
So a more robust process on your part, on the part of the council, to critically analyse the compliance review is not going to have prevented what happened here?---Wouldn’t make any difference.
Can I take you to the question of policies more generally. You’ve said in your statement as a point I know you wanted to clarify, that the council’s role is in developing policies. We’ve been taken to a couple of different sections of the Act today which are not entirely consistent in the obligation of the council as opposed to the CEO regarding the development of policies. Can you explain what you consider the role of the council is as opposed to the role of the CEO is in the development and implementation of policy?
THE COMMISSIONER: I will take the first part of that as a comment, and one with which I do not agree.
ELLIS, MR: Understood, Commissioner. Shall I ask the question again?
Mr Metcalf, can you explain in your words what you consider the role of the council is as opposed to the role of the CEO in respect of the development and implementation of policy?---Well, I believe it’s the CEO and his or her staff to develop the policy that they believe is required in the management of the organisation, bring that to council, council will debate it, maybe amend it, and then it will be put to the vote. It is not the council’s role to actually instigate the formation of that policy.
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Would you say that’s because as a locally elected member of the community you’re not aware of or trained in the required governance of a local council? ---There’s the Act. The Act says that he or she is to bring reports - bring the report to council, meaning the policy would be a report with a recommendation.
And under the Act, perhaps you might be referring to the Local Government Act section 5.4A which requires the CEO to advise the council in relation to the function of government in the performance of its obligations?---Yes.
Do you take that as being it is the CEO’s role to advise you on your compliance requirements?---Yes.
And therefore to present to you the policies that you need to do that?---Well, yeah, for the council to adopt the policy so that the Shire runs efficiently, ethically, financially sound.
You’ve been asked a few questions about payment policies. I just want to clarify: there was a payment policy in place that required two signatories for any payment?---Yes.
And it was not the council’s role to interfere or be involved in or being a signatory for those payments?---Two signatories, and I would say that that’s a policy or an agenda item probably of 80 years ago where our forefathers moved a motion that all cheques have two signatories and that’s carried on without a sunset clause and now whether it then becomes operational, whether it’s two, a councillor and a staff, or whether it’s all staff.
Who is responsible for the oversight of that policy, as in who is responsible for making sure that there’s two signatories?---That would be the CEO. Yeah, it doesn’t matter which two; there could be six signatories, but two have to be used on each occasion. That’s not in our - all we do is say there needs to be two.
You’ve been asked a bit about the documents that are actually presented to the council, to council meetings, and a number of questions were asked about irregularities that have been pointed out that maybe you could have identified at an earlier point. One of them was the sequence of numbering on the left-hand side?---Yeah.
You stated to Ms Harries in the response to a question that maybe it’s something you could have picked up. Are you trained in the computer system that generates these lists? ---No. All I know is you plug a computer into the power point and turn on the power.
When you say you might have been able to pick it up or that you’d queried it and thought something of it before but you hadn’t raised it, do you say that now with the benefit of hindsight because something has happened?---With the
28/7/16 Page 42` benefit of hindsight, yeah, I should have been more aware. But knowing our own situation, on your bank statement the cheques don’t all come back on the statement in sequence and that was something I just thought, well, there’s one missing there but it’ll probably pop up down the track later; not for a moment thinking it’s EFT, it’s been generated straightaway.
And again you rely on the information that’s presented to you and you trusted the CEO to present that information properly?---Yes. Yeah.
You understood that was his obligation to do so?---That was his obligation, yes.
In respect of the appointment of the external auditor, you were taken to a certificate of some sort that Mr Alcock signed, indicating that there was no fraud. Having, I understand, now looked at the act in a little bit more detail, do you think the CEO advising the external auditor that there is no fraud is sufficient for the auditor to be able to do its role?---Not really.
Do you expect the auditor to do more?---I would expect the auditors would be far more cynical than me.
You think that’s their role?---Yes.
And that’s the way the act is set up?
When you nod your head just say “yes” - - -?---Okay.
- - - so that the transcription picks up your answers. Finally, just a couple more questions. There has been a bit of focus on the credit card statements and the credit card policy and the fact that credit card statements were not presented to the council, I understand that might be part of the policy these days but given Mr Alcock’s level of fraud and his manipulation of documents, do you think had he presented credit card statements to you, that would have prevented this from happening?---I’m pretty sure it would have curtailed some of his activity. Once again, when you look at how he manipulated accounts and produced fraudulent invoices, we may not have seen - - -
It’s possible he could have presented to you a credit card statement that was fraudulent?---Yes.
And you would have no way of knowing that?---And we had no way because we weren’t – wouldn’t be aware of what the background was to it.
Ms Harries asked you a question about your role with dealing with the CEO and staff, liaising with the CEO and staff and I believe you answered the question saying that it was your role to liaise with the CEO and staff. Can I just clarify: do you have a role in liaising with the staff?---No.
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No, you liaise with - - -
THE COMMISSIONER: I didn’t actually understand Mr Metcalf said “the staff”. I thought he said it was a role to liaise with the CEO.
ELLIS, MR: He said that it was his role to liaise with the CEO.
THE COMMISSIONER: Yes. I didn’t understand he said “and staff”.
ELLIS, MR: Okay, it might have been my - - -
Just to clarify that: it’s not your role to liaise with staff?---No: no.
Whose role is it to liaise with staff?---That’s the CEO.
You were taken to a few questions about the appointment of the finance manager, Sonia King. Did you consider it was your role to be involved in her appointment?---No.
Or to consider whether she was qualified?---No.
Whose role was that?---The CEO.
The last thing, Mr Metcalf, I’ll take you to two particular points in your statement. At one point you say that Mr Alcock reported directly to you. When you say reported directly to you, you don’t mean to imply that you had some ability to direct or control his operational aspects of what he does?---No, no. It was probably the wrong word, in that I met frequently with him and he would advise me of progress or whatever the issues were in the Shire as a whole and - - -
That’s not to imply some sort of ability to direct him? ---No, I couldn’t direct him - as much as I would like to sometimes.
Just one last question, you were taken to the report that was Commissioned by the Shire of Mr Back and the 51 recommendations he has made that the Shire is implementing many of or all of. Having had a look at that report, do you consider most of those failings of the Shire to be matters related to the financial systems within the remit of the CEO?---The finance and the governance.
You identify some governance issues?---Yes.
But do you see the bulk of the issues to be matters that fall within the remit of the financial controls that the CEO is responsible for?---Yes.
That’s all the questions I have?---Thank you.
28/7/16 Page 44` HARRIES, MS: Nothing arises.
THE COMMISSIONER: Thank you for your assistance, Mr Metcalf. I now release you from the summons which brought you here. You may continue to remain if you wish but that concludes your evidence?---Thank you.
(THE WITNESS WITHDREW)
O’BRIEN, MS: Thank you, Commissioner. The next witness is Graham Benjamin Ralph.
RALPH, GRAHAM BENJAMIN sworn:
O’BRIEN, MS: Thank you, Commissioner.
Mr Ralph, your full name is Graham Benjamin Ralph? ---Correct.
You are the deputy President of the Shire of Dowerin? ---Correct.
How long have you been the deputy President of the Shire for?---Since October 2011.
Were you a councillor before you were elected as deputy President?---Elected on council in August 2006.
When you were first elected as a councillor until June
28/7/16 Page 45` 2008, who was the chief executive officer or the CEO of the Shire in that period?---Mr Les Crichton.
I’m sorry, I didn’t catch that?
THE COMMISSIONER: Sorry? Mr Les?---Mr Les Crichton.
Crichton. Thank you.
O’BRIEN, MS: Then Mr Dacre Alcock took up that position in June 2008?---Correct.
And he remained in the role of CEO up until 28 October last year?---Correct.
So you worked with him for about seven years?---Correct.
You, Mr Ralph, were in fact involved in reporting concerns about Mr Alcock’s conduct to the Corruption and Crime Commission. Is that right?---Yes.
On 4 November last year you participated in an interview with Commission officers about those events?---That’s correct.
You also provided a statement covering those same matters in February this year?---Yes.
Mr Ralph, I’m going to ask you some questions about those events and some questions about the workings of the council more generally. I’d like to start by asking a little bit about the role of the council and the deputy Shire President. In terms of the council itself, we’ve just heard from Mr Metcalf and we’ve seen the legislation. The role of the council as set out in the Local Government Act, that’s section 2.7, is to govern the local government’s affairs and take responsibility for the performance of the local government’s functions. Is that right?---Correct.
One of the specific roles of the council that we saw spelt out a little earlier in that same provision is in relation to the local government’s finances. If I focus on the time when Mr Alcock was the CEO, what was your understanding of the role of the council in relation to finances and resources?---The role of the council is just to scrutinise the reports that are given from the CEO at council meetings.
So your understanding was that it was an oversight role and the way you engage in that oversight is to look at the reports that were provided to you?---That’s correct, yes.
The wording of the section that we saw a little earlier is that council is to oversee the allocation of the local government’s finances and resources, and also to determine the local government’s policies. Did you understand it to include overseeing the actual allocation of the resources, deciding - - -?---Can I just – yeah, sorry, can I just say
28/7/16 Page 46` one thing on this act. I’ve only seen the act twice. Once was when we met at Mr Metcalf’s last Friday and one time in Shire. That’s the only time as a councillor I’ve ever - - -
THE COMMISSIONER: What’s the second time?---The second?
Mr Metcalf and - - -?---At Mr Metcalf’s house last Friday and one time, which I couldn’t tell you, in Shire, which Mr Metcalf brought the act to council to show councillors what was involved. When I seen the size of the act, which is I don’t know, a hundred-plus mm of small pages, I was surprised. I’ve never been told I had to read the act as a councillor. I’ve never been instructed that I should have a copy of the act. I’ve never read the act.
O’BRIEN, MS: Have you ever been told that it’s publicly available?---I think when Mr Metcalf brought it to show I probably – yeah, it was publicly available. Yeah, that’s right. Yeah. My understanding of the act was that that’s why we have the CEO to inform us of a lot of that stuff and as I said, I’ve never been directed that it was my duty to follow the act as a councillor; like to read the act so when the CEO presents something, to go to the act to work out if it’s done correctly or not.
That probably ties in a little bit with the question of training, Mr Ralph, which I’ll come back to in a moment? ---Yep.
If we just stick with the roles set out in the legislation.
THE COMMISSIONER: Probably not much point.
O’BRIEN, MS: No, certainly, your Honour - Commissioner.
THE COMMISSIONER: I answer to both.
O’BRIEN, MS: As deputy President, Mr Ralph, one of your roles is to act in the role of President if the Presidents are not available, if the role is empty. Is that right? ---Correct.
When Mr Alcock was CEO, apart from the time of his arrest, did you ever formally act in the role of President?---Never formally acted, no. The Shire President, Mr Metcalf, was away on duties – holidays overseas just about every year and the later part of the year. I never ever acted as – in any capacity for the Shire when he was away: everything was taken care of either before or after.
When you were then in your role of deputy President, did you have much contact with Mr Alcock in his role of CEO? Was that mainly left to Mr Metcalf?---Yeah, Mr Alcock was always accessible, yeah, as a councillor. I wouldn’t say as the deputy I had any privileges to see – to go and see Mr Alcock but as a councillor I could ring him and meet with him at any time.
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We’ve heard about the separation that exists between the council and the staff of the Shire and that’s a separation on the basis of operational versus management responsibilities. What did you understand operational aspects of the Shire to mean?---Operations is all to do with everything that is done on a daily thing, including, you know, we were talking about finances, paying of accounts and all that. As a councillor I was there to implement policies that were brought to me as again I didn’t think I had to come up with the policies as a councillor and I still don’t believe that it’s up to me to direct the CEO to form a policy; it’s the CEO who should form the policy. I’m there for strategy and direction and to endorse stuff that the CEO brings, to make our community a better place.
I’ll come back to policy again in a moment but with respect to the role of the CEO and focusing on financial management, at the time when Mr Alcock was the CEO what was your understanding of Mr Alcock’s responsibilities in relation to financial management?---To prepare – finally prepare the reports that come to council, and to take stuff back from council to deliver to staff so that they had direction and knew where they were going. Again, he had the final responsibility of doing all the reports while I was there; every report come through Mr Alcock then to Shire. It didn’t – there were some stuff where an officer would do the recommendations but financials has all come through Mr Alcock.
So it was primarily, in your view, a reporting role; he’d engage in the day-to-day operations and then report on those to council?---That’s correct, yes.
I’d just like to ask briefly, Mr Ralph, about the question of an audit committee that we’ve heard about. Are you aware that the Local Government Act section 7.1A requires the local government to establish an audit committee?---No, I wasn’t aware but I knew we had a finance and audit committee.
So it’s not something, a requirement that you were aware of at the time Mr Alcock was CEO?---I presumed there was a requirement because there was one there. Generally we don’t waste time at council if it’s not a requirement.
What was your understanding of what the finance and audit committee was doing, the work they were engaging in?---I never stuck my nose into that. It doesn’t – finance and audit doesn’t interest me. I never stuck my nose into it. That was theirs. I was focused on other stuff.
I take it you weren’t on that committee?---Never been on the finance and audit committee.
Mr Alcock was, as far as you’re aware?---Correct.
28/7/16 Page 48` Were you aware that the Local Government Act prohibits the CEO from sitting on an audit committee?---Back then, no.
Did you ever see any minutes from the finance and audit committee?---No. I can’t recall anything. Recommendations come to council occasionally, but I don’t recall actually seeing any specific minutes.
Did you think, Mr Ralph, that the committee that was in place, the finance and audit committee, was complying with the requirement in the legislation to have a committee that deals with audit?---I don’t – did not know what their role was. Yeah, you know, that it states it in the title what they should do. What the technicalities was it doesn’t – I’m not on that committee: it doesn’t interest me.
At the time when Mr Alcock was CEO, Mr Ralph, did you receive or were you provided with any manuals and materials on accounting produced by the Department of Local Government, like the Department of WA Local Government Accounting Manual?---No. We received various stuff but I can’t recall specifically that, no.
Anything on accounting, any manuals or guides to accounting or budgeting?---I can’t recall; no specific stuff, no but (indistinct) over the previous CEOs as well.
The material that you did receive, did they come to you from Mr Alcock or did you have another source?---Generally when we go to council meetings it’s on your desk in your position where you sit at council. Some stuff does come through the post but generally it’s not specifically that sort of stuff.
Would it be fair to say that you really relied entirely on the CEO to tell you what you needed to be doing and when in terms of a council’s legislative requirements?---Correct. That’s why we employ him. As a councillor I don’t feel it’s the onus on us to do that sort of stuff. It’s a worry as a councillor that if you go and start directing the CEO or finding out what to do, if I did know the act, where does that leave us from what’s coming onto it now. It does leave me and other councillors in a fair bit of unknown with what’s going on. There’s a lot of onus coming back on the council. Yeah, now I’m reading the act and seen a bit of the act and hearing the act, a lot more than what a lot of council – I know it’s a concern of council currently.
I understand, Mr Ralph, at a time you didn’t think it was councillors’ responsibility to know what the requirements were under the legislation?---Yeah. I’d never been told, no. I didn’t think it was and I’d never been told or informed or read it anywhere else.
Coming back to the question of training, I know there’s been a number of measures in the area of training put in place by the new CEO and we will hear from her about those, but when you were first elected to the council at the time
28/7/16 Page 49` that Mr Crichton was CEO were you provided with any training?---No. As Mr Metcalf said previously, in the whole time, throughout my tenure as councillor, it’s always been considered. One thing I would like to say is that training is not compulsory at the local government level. If I did do training, and I wanted to do training, personally myself I wouldn’t go down the governance or finance area. There’s other ways. I got on council for strategies to make my community a better community. I thought we had other systems in place like employing an auditor to pick this sort of stuff up. So personally I wouldn’t go down the finance and governance side. I’m not qualified in that area. It interests me but it’s not a strong point of mine.
Mr Ralph, it may not be a strong point or the reason you volunteered to be part of the council but it’s the case, isn’t it, that the council does have an obligation to oversee the finances of the Shire?---That’s correct, and I personally feel that obligation because during every financial discussion when it comes up, when the section comes up to council meetings, there’s robust discussion, including myself. I would like to say that Mr Metcalf did dumb himself down a bit with the finances but he was very, very good at going through it, a lot better than me. I still take it seriously and look at it but it’s not something that is a strong point.
Do you rely on other councillors to - - -?---No, I don’t rely on them. I have a look at them myself and fulfil my duties of looking at that, but I do like how other people look at it in a different way.
You said, Mr Ralph, that the question of training was raised from time to time. Is that in a formal sense at a meeting, a council meeting?---Never in a formal sense, no; always informal discussion.
Did you ever request any training from Mr Alcock?---I never requested it, no. Discussed training, yes; never requested. Mr Alcock was pretty negative on training. I never got a positive vibe from him on training.
Did you feel like you needed some training, particularly in the area of financial statements or interpreting financial statements?---Again, when I look at the training offered by WALGA, I wouldn’t have gone down that way first. That would have been the last I would have done. I feel my strong points in delivering to this community as a councillor is in strategy and development, to make it a strong place, to make it more enjoyable for people to live.
Did other councillors present a view to you that they required training in the area of financial management? ---No; just general discussion. We just discuss it as a whole. Probably one thing that did come up since the training was it was a long day out the other day when we did do training and we’d like it compressed. It’s
28/7/16 Page 50` time-consuming. We’re doing this with small remuneration. We’re virtually doing it – we’re getting paid very little for the hours we spend. It all comes at a cost and at the end of the day we’re all running our own businesses. It’s hard to manage everything.
So the answer to the question, Mr Ralph, might depend a bit in part on the quality of the training but as an idea, if there was to be a requirement in the Local Government Act, local governments must have a training policy for new and existing councillors and part of that training must cover financial management and reporting. Would you be supportive of that change?---I personally believe that should be offered – you should be able to have a look at that before you become a councillor. It then raised a whole new issue that we won’t have councillors, because if you have a look at – if you do the training and have a look at the obligation underneath the Act, I don’t feel we will. It’s not healthy as it is. In our last two elections we haven’t actually had elections. We’ve only had just the right amount of people to nominate, so it’s not as though there’s 10 people nominating for one position.
But you can get the mandatory training applied to new councillors who have just been elected and existing councillors. That would prevent people from nominating themselves in the future?---Yeah, I would like to see a bit more of a basic thing, maybe for potential, but again, distances travelled and time consumed, it’s not easy for us to do it all, whether up here or in Perth.
THE COMMISSIONER: When you started on council, or since, have you observed, if there is any formal induction process?---Yes, Commissioner. I got inducted by the CEO, and we have an induction booklet which Mr Ellis has, which I’ve got. That’s generally the running of the council. Again, I can never recall, Commissioner, that the Act was there and that’s what we abided by.
O’BRIEN, MS: Would it be correct to say that the idea of mandatory training – your concern is that it’s a time commitment that is onerous for people who are otherwise busy in their personal professional lives? ---That’s correct, yes, and the problem is, as I say again, the more we get to know what we know now, I’m not too sure whether I would personally sit on council. I know other councillors are concerned since all this has gone on, and we are knowing parts of the Act, why they have nominated, but personally myself, if I had known what I was getting myself into, no, I wouldn’t get on council.
I will go back to some of the events in the years leading up to Mr Alcock’s arrest and particularly with the monthly council meetings. We have heard Mr Alcock attended the monthly council meetings in his capacity as CEO?---Correct.
The finance manager, Ms King, also attended when she wasn’t (indistinct)?---Correct.
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At those meetings the council income and expenditure formed part of the agenda?---Correct.
And in accordance with the regulation that we’ve seen, regulation 34, of the Local Government (Financial Management) Regulations, a local government is to prepare each month a statement of financial activity, and you also in accordance with regulation 13 that we saw of those particular regulations, received a list of accounts that had been raised in the previous month to be approved by the council. Is that right?---Correct.
Do you know who prepared those statements of account?---The finance manager, I presume, prepared them, but as a councillor I thought the CEO was the one who had to look at them before they actually come to council in the agenda.
And you received those financial statements as part of the agenda materials for the upcoming meeting?---That’s correct.
What it your practice to read the financial statements before the meeting?---That’s correct.
Have a look at an example we’ve seen a little earlier, Mr Ralph, from an agenda for an ordinary meeting from July 2015; that’s exhibit 404^ at tab 18.
The second page, Mr Ralph, contains a list of contents of the financial statement of activity. What were you looking for and what were your main concerns when you read the statements that followed that cover page?---Number one, my main concern was that I didn’t understand the system, and I’ve said it throughout my whole career in council, I didn’t understand the system, how it works. I’m not training financially, but my main one was I was always looking at the variance from actual to budget. Again, as the President said, that was to do sometimes with payments and all that. We had a lot of robust discussion on this, the whole council in my whole time, the previous council and current council. I can honestly say that there were lots of questions always getting asked. There was no reason for concern because if there was questions getting asked, the CEO always had an answer.
I will come back to this question of accounts in a moment, but I understand from your evidence you are concerned with this financial statement, predominantly around whether you were in budget or out of budget?---That’s correct, yeah. Yeah, so we just looked at the variance to actual and if that was out of whack we would always ask why.
If a figure was well out of budget you would question the CEO about that?---That’s correct, yes. A lot of times it was just to do with payment; like, you might budget in May but it got paid in April; it’s just a cash flow implication. That’s all it is, but there was nothing there to raise any concern of fraudulent activity.
28/7/16 Page 52` On the flip side, if an amount was within budget would it generally not be questioned?---If it was within budget, no, it wouldn’t be questioned, not generally. If there was a concern from a councillor it would be, yeah; like, “Have you spent more?” It may not be raised; it may still be in an area where it didn’t get flagged but, yeah, council still did raise the question.
Would you turn to page 91 of that bundle, please, Mr Ralph, where the list of accounts is. We’ve seen it a little earlier. Perhaps I will start by asking you, Mr Ralph, when that comes up – in front of you is that an example of the list of accounts you received each month?---Yes.
If we look at page 92 and go to the top of that page, what does “contra” mean on the right-hand side of the page?---Contra is the thing if you get a grant or something like that; there’s always just been a contra budgeted. It’s just not a trading thing. For example, we’ve been getting roughly a $30,000 grant for the swimming pool each year. If that’s spent it will be contraed back in, so it doesn’t actually – there’s implications in cash flow, but it’s not actually – at the end of the year it doesn’t actually add up to a total expense.
And on the left-hand side of the top of the page it says “CHQ” and then “EFT”. What did you understand the EFT portion to mean?---Electronic funds transfer.
If you look at the EFT numbers on the left-hand side of the page, is there anything about those numbers that you were told to look out for?---Never got told – the only time I ever looked at the numbers was when I raised the concern for that account; never, ever got any concern for why there was a missing number, not that I ever picked up a missing number. To me that is a management thing. How they pay it - as a councillor it’s already been discussed between management. To me that’s just a management thing, how they pay it; the numbers, you know, they could come out in any sequence and it would not have occurred to me that there was a problem.
And that goes back to the training concept, Mr Ralph, in terms of your oversight role as a councillor. If you were told in training that sequencing of those numbers might be an important thing to look out for, would that have made a difference as to how you read that financial account?---Yeah, yeah.
When you were looking at the statement of accounts what sort of things were you looking for, if the expense was significant or - - -?---Significant expense, if the description wasn’t correct. Sometimes, as Mr Metcalf has already alluded, for example – I can’t see any things there but sometimes we used to get – it might say “the tyre shop, four tyres for $6000” but there’s batteries and other stuff there in the description. You can’t get everything in the description so we always ask. I’d say as a councillor myself personally, we had that much robust discussion, Mr Metcalf actually kept saying to us, “Why do we look at it so much?” but he always gave us an opportunity to look at it, and as a councillor we would always do it. Before
28/7/16 Page 53` I’d go to a council meeting I’d already flagged which ones I was going to ask.
When you asked questions about that particular transaction were you provided with copies of the invoices?---If we wanted copies. I have never seen a copy. The copies were brought out by the CEO.
So they were available if you wanted to look at them?---Yeah. One thing I noticed since this did come out was the CEO did keep that file pretty close to his chest.
THE COMMISSIONER: So it wouldn’t have been all that easy to have looked at but you could have looked at them?---We could have looked at them, Commissioner, yes, that’s correct.
He didn’t encourage it?---No; that’s correct. One thing I did notice is, you know, you always get a list of things that happen after events, and I did notice that he did disappear back into his office, Mr Alcock, after council meeting with that list of accounts very quickly and put them back on his desk, which at the time I didn’t think there was anything wrong with that.
Ms O’Brien, it’s 1 o’clock. Would it be convenient – and we will break for lunch so everyone can eat – to resume at 1.45?
O’BRIEN, MS: It would, Commissioner, thank you.
(Luncheon adjournment)
THE COMMISSIONER: Please be seated.
O’BRIEN, MS: Mr Ralph, before the break we were talking about the list of accounts - - -
THE COMMISSIONER: I think you had better adjust the microphone.
O’BRIEN, MS: Thank you, Commissioner.
Mr Ralph, we were talking about the list of accounts provided to you in the agenda material before monthly council meetings. Did you understand the statements of account to include any information about credit card transactions?---No.
Were you aware that the Shire had issued credit cards to staff? ---Yeah, I was aware; never formally told but I was aware and presumed that they did have them, yes.
Who did you think was overseeing credit card expenditure?---It never concerned me as a councillor. It’s an operational matter. You hope that they had procedures in place in operations, and that was getting done through the auditor.
Although the Act of the spending on the credit card might be operational, the funds themselves come from the Shire’s
28/7/16 Page 54` municipal account. Correct?---That’s correct.
So would you agree that it is something for the council to oversee as part of its financial management oversight role? ---Whether it’s paid on a credit card or a cheque or an EFT, I don’t see where you’re coming; there is a councillor role. You know, that’s management, how they pay and how they do stuff, and I don’t see as a councillor role where it comes from is my business.
So the nature of the credit card transactions you think isn’t their role of council but the oversight of the funds to pay that credit card is?---Yes. Well, what I’d expect as a councillor is that what’s on the credit card actually gets transferred back through to the financials, so in this case that wasn’t getting transferred back correctly.
During the time that Mr Alcock was CEO did the figures in the monthly statements of financial activity or the accounts of payment ever cause you any concern in terms that the numbers didn’t add up or seem correct?---No. If it did I would have raised it.
If there were inconsistencies between the monthly financial statements and the figures in the accounting, SynergySoft, system used by the Shire, would you have any way of knowing that?---No.
Were you aware, Mr Ralph, that Mr Alcock had complete control over the accounting system used by the Shire, and particularly over the Shire’s credit cards?---No.
If you had known that would it have caused you any particular concern?---Correct, yes.
I am going to ask, Mr Ralph, about annual audit reports. You are aware that from at least 2011 Byfields had been contracted to audit the financial statements of the Shire?---Correct.
Were you aware that the audits conducted by Byfields each year have two parts, an interim audit and a final audit?---Correct.
Regulation 7.9 of the Local Government Act requires that an auditor examine the accounts and an annual financial report is submitted for audit each year, and provide a copy of that report to the President of the council. Can you recall, Mr Ralph, seeing the audit report from Byfields being presented to you on the council on an annual basis?---No.
I will show you an example of an audit report, Mr Ralph. It is exhibit 701^ at tab 40 in front of you. This is an audit report, Mr Ralph, from the 2014 year. It’s not a document that’s familiar to you?---It could have come through council. If I had seen it I would have read it and if there were concerns there I would have raised them. If there were no concerns it would have been business as normal.
But you don’t specifically recall having discussions about it?
28/7/16 Page 55` ---No. If it was presented to council, yes, there would have been discussions on it; that’s right.
Each year would the audit report provided by Byfields have been a significant event in the council meeting?---We used to always ask to see how we went, yeah. It was a major factor from the council, yeah.
Byfields also provided a management report each year dealing with a review of systems of control primarily. Can you recall seeing any management reports from Byfields?---I can’t actually recall seeing them but I can recall Mr Alcock telling us, “Everything’s okay. Don’t worry about that one there; you know, that’s just a little list. I just didn’t do this or didn’t do that.” There was nothing major that we ever got told – that was of major concern.
I will just show you an example of a management report, Mr Ralph. It’s from exhibit number 717^ at tab 44. That again is a management report from the 2014 year. Does that document or a document of its type look familiar to you?---Again, I can’t remember every document that comes through council. If that had come through council, again, if there was concerns there they would have been raised, not only by me. We’ve got eight astute councillors presently and before that would have raised something if it was written there correctly.
Mr Ralph, if you can’t specifically recall, the minutes of the various council meetings between 2011 and 2015 show that the audit reports that we’ve just given you an example of, and the management report, were raised at a council meeting in each of those years to be noted and adopted by the council. Does that suggest to you that these documents were presented each year? ---Oh, yeah, I presume they were; yes.
Mr Ralph, what did you feel that the purpose of the audit conducted by Byfields was?---The audit from Byfields? I didn’t know what the scope was, but just from my general concerns, just from running a business of my own would have been to look at all the moneys in and the moneys out and make sure everything balances and we’re following legislation.
We will hear from Ms Oliver, a director of Byfields, about this tomorrow. If the evidence of Ms Oliver is that an audit of this kind is not designed to check for fraud, would that surprise you?---That would surprise me, yes.
So your expectation was that an audit would uncover - - -? ---Definitely. An audit is there to pick the shortcomings in whatever organisation. Fraud is a major shortcoming.
How much did you rely on the external audit process to tell you if anything unexpected, like stealing or bad record-keeping was happening in the Shire?---Personally myself I relied on them 100 per cent. As I said, I’m not trained in financials, never have been. I don't know how to read financials. I find the Synergy software very hard to understand. I presume they are experts in their field. We went to them because they are experts and
28/7/16 Page 56` that’s just purely what they do. I do a lot of other things in my life, not just sit there doing one thing for my job, and, yeah, I rely 100 per cent on it.
If there was to be a change, Mr Ralph, as is anticipated, to the Local Government Act that gives the Auditor-General authority and responsibility for overseeing the financial and compliance auditing of all local governments in Western Australia, would you see a benefit in that?---From what I know now, unless I’d seen the scope, no, I wouldn’t know; no, but from what I know now with the Act, I don’t see where there would be because the Act states that the auditor has all the powers. One thing I would like to say on that is will it stop fraudulent activity in the future by going to the Auditor-General? Personally, I say no. I would like to be proven wrong but I’d say no.
Mr Ralph, I'll move briefly to events leading up to Mr Alcock’s arrest. Is it the case that on 6 October of last year you were advised by a finance manager, Ms King, that payments to gambling companies had been identified by the bank on Mr Alcock’s Shire credit card. Is that right?---Correct.
That was reported to you as acting President because you were acting in the role at that time?---That’s correct.
For the first time?---That’s correct.
After making some inquiries with other agencies together with Ms King you then contacted the Corruption and Crime Commission to report the matter?---That’s correct.
Mr Ralph, I will just finish by asking about the conclusions in Ron Back’s report. You are aware that forensic accountant Ron Back was engaged by the Shire following the investigation into Mr Alcock’s review of the Shire’s finance records?---Yes.
Have you had a chance to read Mr Back’s report about his findings?---Yeah, yeah.
Mr Back concluded at page 2 of his report, and I can take you to it if you would like. I will read it to you:
The council had little to no effective checking mechanisms that protected the assets of the Shire.
Do you have any views about that finding?---Yeah, I do; yeah. No checking mechanisms – again, I was never aware of what checking mechanisms we should have had as a council. I never ever got told. I never received documentation from anywhere. It comes back to training. Did I do the right training course to – if I had’ve done the right training course, yes; if I had gone the other path and done the wrong training course, I still wouldn’t know. At the end of the day the duty of the council is to employ the CEO. We employ the CEO through a reputable company that went through the process of getting him for us. We didn’t employ himself ourselves. We would have hoped that the
28/7/16 Page 57` background checks were done. As a councillor I would expect the CEO is in a position of trust and he should be doing everything right, so I would have expected that that should have all been done from the CEO.
THE COMMISSIONER: Let me put this to you for comment. Part of the duty is to employ the CEO but do you see council having any role in the subsequent governance and oversight of the CEO’s actions having regard to the fact that you can’t get into operational matters? In other words, if the council doesn’t govern the CEO who would? ---No, I don’t know, and that’s the whole problem in this case, Commissioner, that I still can’t get my head around – Mr Metcalf did allude to it, that the powers – there’s a lot of powers acted upon a CEO in local government at the moment. Personally I believe there’s too many powers.
Mr Ralph, these are issues that are faced by every local authority, and as you heard this morning, part of the Commission’s purpose in holding this hearing is to report on ways to prevent serious misconduct of this kind happening again. Do you have any suggestions from the perspective of the deputy President or a councillor about changes that you think could be implemented to better protect the assets of a local government in the future? ---Sorry, can you just say that again?
Yes, certainly. Do you have any suggestions from the perspective of a deputy President or just a councillor about changes you think could be made to better protect the assets of a local government in future?---Yeah. I think that the President, that senior management should be able to go to their Shire President with some concerns. I know CEOs aren’t going to like that but I think that would have raised flags a long time ago and should have been uncovered and not been so untidy for the Shire of Dowerin.
The change around the separation between - - -? ---Separation, yeah, that’s right. It’s black and white. Since I’ve read the act – and you can read it any which way you want – there is one thing I’ve learnt in all my time in local government, and that is that as a councillor you do not get involved in operations. It’s as simple as that. It’s one of the easiest laws there is in local government.
Mr Ralph, you have been deputy President for the past almost five months while Ms Andrew Selvey has taken on the role of CEO, and you have completed some parts of the training program that Ms Selvey has put in place. Is that right?---That’s correct.
Have you noticed improvements in the Shire’s compliance with financial management requirements and obligations? ---Oh, 100 per cent, yeah, but before, until we were alerted to it, again that’s operations and you would hope that the CEO is directing your staff to do all that. It’s an operational matter but at the moment with our current CEO it’s brilliant. We’re actually knowing what’s going on
28/7/16 Page 58` and actually – again, it all comes down to trust and, yeah, Andrea is delivering the stuff to council, which is good, yeah.
Thank you, Commissioner. No further questions.
THE COMMISSIONER: Mr Ellis?
ELLIS, MR: Thank you, Commissioner.
Mr Ralph, I don’t have too many questions for you, just a few. I just wanted you to have the opportunity of explaining in your own words how you view the separation between the CEO and the council in respect of financial management?---Yeah, it comes down pretty simple, and the Commission’s going to like this, and I got told at training: it's nose in, fingers out, as simple as that. As a councillor I feel since I’ve been on council, and my other councillors, we have been nose in and fingers out. There’s been robust discussion the whole way through and I don’t see there’s been any downfall from the current or previous councils in not asking the right questions to try and cover this.
It has been asked of you and the other witness a number of times, and stated that the council has the ultimate responsibility of financial management. Do you think that overall responsibility for financial management includes an obligation to uncover fraud?---Yes.
Do you feel like the council is equipped with the tools to be able to uncover fraud?---The council, no.
What mechanism is built into the legislation that enables a council to obtain the services of someone else to help you uncover that fraud?---In my view, previous to this breaking and me reading the Act with the auditor, I’ve now read that part in the Act and it still is the auditor.
Are you qualified at all in any way in financial management?---No.
Or accounting?---No.
Do you think it was ever the intention of the legislation to impose on the council an obligation to review financial accounts to be able to detect fraud?---No. Otherwise that position would have been a special position where it should have been advertised as a financial position.
In terms of policies I just wanted to take you to a matter that you raised in your statement. On two occasions you refer to the Shire council setting policy and procedures. I just want you to clarify what you mean by the Shire council being responsible for setting policy and procedure?---Yeah. I would just like to probably retract procedure. It was just in the situation. I’ve never done one before. What I was meaning there was we endorse the
28/7/16 Page 59` policy but we set strategy, and endorse the policy that’s brought to us by the CEO. I would like to think we can give direction to the CEO so he can take it back to his staff.
Do I take from that that you don’t consider the council’s role to implement procedures for financial management? ---No, that’s correct.
Whose role is that?---CEO’s.
Whose responsibility is it to advise the council about the compliance with the Act?---CEO’s.
Do you expect the CEO to present you with policies that comply with the Act?---Correct.
Have you ever had yourself any training in local government governance before?---No.
You were asked about training and you made a reference to had you been offered certain training you would have gone down one path as opposed to another path. I’m just not sure the Commission understood what you meant by that. The training that you’ve now been presented with involves various elements to it?---That’s correct, yeah, which I always knew. There’s the basic training at the bottom which I can’t remember, introduction to local government, basic introductions you have to do, then there’s an intermediate section which you can look at financials governance or you can go the other way in conflict management and asset management, strategy, rah, rah, rah, and then if you complete them all you get the diploma, and I wouldn’t personally want to get a diploma. I’m more interested, as I keep saying – I’m more passionate about this community going forward. We need to know how to make this community a better place, and as a councillor I’ve employed a CEO to do his job and the job wasn’t even done.
In terms of this training that you have been offered, is it possible then, even the course that now has been presented to the councillors, that you could go through numerous training sessions and never end up getting any training in financial management?---From what I understand, yes.
Do you understand the rationale for that, that people can elect to choose what sort of training they want to do? ---Number one, training is not compulsory as a councillor so as a councillor and a normal human being you would pick the stuff that interests you.
You have been taken to quite a lot of financial documents that were presented to the council meetings and to some irregularities in those, particularly their sequencing of numbers, EFT transfers. Have you ever had training in the system that produces those documents?---No.
Have you ever had reason to believe that you ought to have
28/7/16 Page 60` picked up a sequencing issue and identified that as a possible fraudulent activity?---No, because I still feel that’s management, however it gets paid and how they put the numbers their; it’s management. We’re looking at the figure and what it’s for.
You understand that all of the material that was presented to you was presented to you by the CEO?---That’s correct, yeah, 100 per cent.
And now you know that the material presented to you was inaccurate?---That’s correct, yeah. That’s correct. Probably if there was a credit card policy there certainly he couldn’t use his credit card for non Shire stuff. If he had reported accurately what he was spending on his credit card, with no financial training or nothing, I would have seen that there were accounts to betting agencies. I would have picked that up because would have stuck out. A CEO does not do betting agencies.
Presuming there was now a requirement that more information on credit card transactions was presented to the council, which I understand is now part of the policy, if the CEO was fraudulently creating the documents, would you have any way of determining that as a council?---No.
What would you rely on in terms of an external check of that material?---Personally, the auditor.
Can I take you to one more part of your statement. You say in the very last paragraph of your statement as of 16 February 2016 that because of this fraud, many projects that could have been improved – that could have been improved for the community, sorry, such as providing a swimming pool and other elements, may be impacted and may not be able to proceed. Do you have a view on that now, a few further months down the line?---Yeah, I do. Yeah, today I still maintain that was correct. It’s a daunting process when you get told as a councillor - at that stage we still didn’t know the exact amount. It’s daunting when you know the annual budget as to what you lost. Currently now, no, we’ve got great management between policies back in place that should have always been there that make this a more robust council. I feel the council is in a better position overall. We’re all a lot wiser and we’re moving ahead.
I don’t have any further questions, Commissioner.
THE COMMISSIONER: Ms O' Brien.
O'BRIEN, MS: Nothing arising.
THE COMMISSIONER: Thank you, Mr Ralph, for your assistance. I now formally release you from the summons that brought you here. You may of course remain if you wish but you are free to go?---Thank you, Commissioner.
28/7/16 Page 61` (THE WITNESS WITHDREW)
ELLIS, MR: Commissioner, can I take this opportunity to seek your leave to appear during the examination of other witnesses, to cross-examine them or examine them, sorry?
THE COMMISSIONER: I will think about that. You certainly may stay. I will think about the other.
ELLIS, MR: Should I raise my hand at a relevant time to ask the question? Can I seek time then to raise the issue?
THE COMMISSIONER: Yes, that would be a convenient time.
ELLIS, MR: Thank you, Commissioner.
THE COMMISSIONER: Who have we got next?
HARRIES, MS: Sonia King, Commissioner.
KING, SONIA LOUISE sworn:
HARRIES, MS: Ms King, could you please state your full name for the record?---Sonia Louise King.
THE COMMISSIONER: One moment. Is somebody appearing for Ms King?
HARRISON, MR: Yes, sir. I am Will Harrison. I think we have already been granted leave.
THE COMMISSIONER: I gave you leave to appear for two witnesses, yes.
HARRISON, MR: That’s right.
28/7/16 Page 62` THE COMMISSIONER: I will take your appearance for the witness.
HARRIES, MS: Ms King, you were first employed at the Shire of Dowerin in August 2010. Is that correct?---Yes, that’s correct.
As an administration officer?---Yes, that’s correct.
Can you describe the duties that you were performing in that role?---My main duty was dealing with the general matters, counter service, assistance to the deputy CEO when required, the CEO when required, the senior administration officer when required and other tasks that came up.
Mr Alcock was the CEO at the time that you were appointed. Is that right?---That’s correct, yes.
THE COMMISSIONER: I don’t want to ask you too many personal questions but are you a Dowerin person or did you move here when you applied for this job?---I was living in Dowerin at the time but I wasn’t originally from Dowerin, no.
But you were living here at the time?---At the time of applying for the position of administration officer, I was living in Dowerin.
Thank you.
HARRIES, MS: And Mr Rex Adams was the deputy CEO at the time that you were appointed?---Yes, he was.
Is it correct that in his role as deputy CEO, Mr Adams also had responsibility for the financial management?---Yes, that’s the way I understood it.
And when Mr Adams left, what happened then in terms of the financials?---From memory, I believe that there was no replacement immediately for the deputy CEO or finance role and that Dacre was undertaking those tasks and duties. I believe it was around May 2012 that they started to look at recruiting someone for that position but I think the general idea was to not focus on the deputy CEO but more a finance manager or administration manager/finance.
So that job was advertised in May 2012?---It was around that time, yes.
Did you apply for that position?---Yes, I did.
If you can just have a look, in front of you is a folder with some tabs and if you go to tab number 69 and it’s barcode 0436?---Yes.
It will come up on the screen shortly. Do you see the heading is – this is the advert that went out in relation to the position. It’s headed Manager Finance/Accounting.
28/7/16 Page 63` At the time, did you have any financial qualifications when you applied for this position?---No.
And any management qualifications at that time?---Not qualifications, no.
What distinction are you doing there, what qualifications that – experience do you mean?---Within the office at the time, yes, since the deputy CEO had - - -
Had you taken on some financial tasks for the deputy CEO there?---No, but I was doing - - -
No, so - - -?---But I was doing – assisting with payroll and creditors and debtors as needed.
The salary package in the third paragraph ranges between 114,000 to 131,000, with a cash salary component being up to 90,000. When you were appointed to this position, was that the salary that you were being paid?---No, I started on a cash salary of approximately 60,000.
Why did that occur? Was that communicated to you? ---Communicated verbally to me from Dacre, sorry, was that due to my lack of qualifications at that time and experience, I would be paid according to the duties that I would be able to fulfil; following that, that training would be provided and my salary would go up accordingly as I was better fit to take on more financial duties.
If you can just turn over to the next tab, tab number 70, and that’s barcode 0437, this is a JDS of your position which you provided to the Commission and if you just go to the second page at point number 6, your key duties and responsibilities in the position are outlined there. In general terms, can you describe what you understood your duties were going to be when you took up the position? ---Yes. I understood that this position description was the one that was developed for the replacement process. I never was given a position description but I have on record for my actual role, it was on the basis of the changing salary and I assumed that there would be a limitation on the duties I would be able to fulfil at that time. So I understood that I would be taking these on eventually, that through training and mentorship with Dacre Alcock that I would eventually achieve these, but initially it would be overseeing the creditors, the debtors, the payroll, basic asset management, the monthly financial statement reporting to council, which would then be checked by Dacre.
Did you also understand that you would prepare or assist in the preparation of the budget and the annual report?---I understood that that would be eventually part of my role, yes.
And did you also understand – sorry, you understood that that would eventually become part of your role but not at the very beginning?---Yes, because I was aware that I had
28/7/16 Page 64` not done them before and I certainly needed training.
As part of your job, were you expecting to actually supervise other staff, other finance staff, in the finance manager position?---Yes.
How did you feel about taking on the job?---Mixed feelings. I was certainly excited to face the challenges. I was finding my previous position very, very limited. I was excited at the thought of being able to continue study, transferring from what I had been studying with more communities based – I had hoped with – I think it’s in the position description that I would be able to transfer to doing a bachelor of commerce or something similar, so that I could meet the needs of this role fully, so, yes, excited in a number of ways and nervous on taking on that extra responsibility and meeting the expectations of the community as well as the staff that I would be overseeing and also pleasing, I suppose, my boss, being Dacre Alcock.
So you reported directly to him?---Yes.
As I understand your evidence, your expectation was and what you had been told was that you would be trained on the job?---Yes; and mentored as well, I suppose.
Training and mentored, and then you had this vision that you would be able to change your line of study and achieve some formal qualification relevant to the position as well?---Yes, definitely.
When you first started in the position is it fair to say that you were lacking in confidence because of those issues?---In a number of areas, yes.
Which areas were those?---In I guess the financial reporting; leading up to budgets, annual reports, I certainly wouldn’t have felt confident taking those on by myself. I felt the monthly reports I had – we had a consultant come when I first started the position, to update the Excel integration from our accounting software into Excel spreadsheets which we would present to council as reports. So I had an understanding of that but I wanted to gain further understanding.
So I can be clear on what you’re saying there: is it the case that the council had an accounting software system called SynergySoft?---Yes.
You received training when you first went into the position so that you knew how to make SynergySoft speak to Excel so that you could prepare monthly financial statements?---Yes.
You said that when you started in the role and for the duration of the role you reported to Mr Alcock - - -? ---Yes.
- - - until he left? And then for a short period did you
28/7/16 Page 65` report to Gary Martin?---Yes.
And now you currently report to Ms Andrea Selvey. Is that correct?---That’s correct.
And you currently still hold the position as finance manager at the Shire?---Yes, I do on a part-time basis and my duties have been delegated accordingly to the hours that I can work.
THE COMMISSIONER: Can I just ask: both when you started and now, how many staff were employed? I’m not talking about works and maintenance staff: just in the office? ---Internal staff? We have a number of part-time staff so I’ll just try and recall. There was probably about three FTEs or three and a half FTEs, so we had three part-timers and one full-time staff member and then we had a trainee. So, yeah, there was probably about five staff that I was overseeing directly and then we also had the community development services staff which there’s two of them I didn’t oversee but - - -
More the ones you oversee?---Yeah.
Would it be the same now?---Roughly.
HARRIES, MS: You took a period of maternity leave between November 2014 and August 2005. Is that right?---2015.
Sorry, 2015 yes?---Yeah.
To your knowledge did anybody take over and perform your duties while you were away?---Dacre Alcock. Although I was led to believe prior to taking maternity leave that we would have a contractor or a consultant, possibly the gentleman that did the handover with me when I first started the position, to assist Dacre in the budget and the general monthly statements if required.
But that didn’t occur?---That did not occur, no.
When you returned from maternity leave, how did you find the activities there that you needed to pick up? Had the work been done while you were away?---No, everything was a bit of a mess. Bank reconciliations weren’t being done. Monthly reporting I think was happening but the accounts were just – as far as I could see were just being balanced at the end of the month by making journals to make it look like it was balancing.
Is that an impression you formed at the time when you came back from maternity leave? So that’s before Mr Alcock’s activity was discovered?---I didn’t – I was questioning what I was seeing. So I didn’t form that view completely at that time but I was seeing that things weren’t really making sense. So I had questioned him and he didn’t want me to be involved in the finances. He said I needed to take the time from August 15, I think I came back, to
28/7/16 Page 66` settle back in to my role and as a part-timer I would have to review my duties and that he would continue to oversee the finances. So my questions weren’t really responded to at that time. So I didn’t pursue it particularly.
And just to be clear: what you’re talking about in relation to those conversations with Mr Alcock, did that relate to issues with bank reconciliation?---Yes.
Or was it wider than that?---I’m trying to think of which accounts. It was – I just saw that things were being put to bank fees when we wouldn’t have had that many bank fees in the last month, so to me it looked like there was an amount that wasn’t being reconciled so we’ll just put it to bank fees for example to make the accounts sort of add up.
What did you suspect at the time? Did you suspect it was sloppy bookwork - - -?---Yes.
- - - or did you suspect there was something more?---No. I suspected it was sloppy and lazy, like he generally was with everything.
Would you say you worked very closely with Mr Alcock for the periods that you were there in the finance manager position?---As much as was possible. He wasn’t really available a lot of the time. He was very distracted and he wasn’t in the office a lot either. So I guess initially I certainly worked closely with him but over the years our relationship probably disintegrated a bit more.
Can you describe what your working relationship with him was like?
THE COMMISSIONER: At what point?
HARRIES, MS: Perhaps when you first started and then how it evolved?---When I first started I certainly looked to Dacre as a mentor, I suppose. I had faith in his financial abilities and knowledge and past experience. So with all the finances that he was explaining, processes and functions in our accounting system, I took that as truth, that that’s how it should be done. I suppose over time as I started to get a better understanding for myself and looking into, you know, the financial regulations that are provided by the Department, I had a few more questions of him so when I did start to ask questions about should we have a policy in for this, should we be reporting on this, should we be reporting on, you know, our FBT or BAS more closely at the finance committee meetings, I found that he – that’s when our relationship probably started to fall down, because he didn’t like me asking any questions of him or I thought that it was he thought I was doubting his abilities and competency; but it was more, I was concerned for my role and wanting to fulfil that better.
So when you first started working for Mr Alcock, he did in fact give you some on-the-job training which subsequently
28/7/16 Page 67` you had questions over some of the things that he had shown you?---Yes.
Is that in essence what happened?---Yes.
How was his behaviour when you raised some of those questions with him?---Initially it was usually, “Yep, that’s a good idea, we’ll do that next month,” and then I would ask again because it wouldn’t happen and so, “You don’t really need to be involved in that. I can do that much better than you, so I’ll do that and you just focus on other things.” And then over time he became very difficult to communicate with, he would basically ignore me when I was in the office. So there was that and then he would even be reasonably intimidating or aggressive at certain times in basically just telling me to mind my own business and that he is knowledgeable and skilled in finance, I am limited and he would take it over basically.
Did you form a view over the course of your working relationship that he wasn’t then ably performing aspects of his job?---Absolutely.
Did you try and pick up the pieces?---Yes.
Could you give an example of that?---The Department were introducing the integrated planning and reporting framework. I wasn’t informed really by Dacre much about it, I didn’t realise the importance of it until we – I think he was on leave and I found letters in his office, correspondence that was just sitting on his desk or in the in-tray and that we weren’t – we were not meeting deadlines for certain reports, compliance reports, but also that we would be facing – I can’t remember what it was for but that basically our funding could be restricted, our grant funding could be restricted if we didn’t start submitting compliance reports and things soon and then I realised that the strategic planning was documents that they would require for this new framework was coming up very closely, like six months away and we had had years to plan but Dacre hadn’t done anything so that was really concerning. So I tried to get the staff and myself to do very – we did a big board of everything that needed to be done by I think it was July or June, while Dacre was on leave, and we got it all ready and presented it to him and he really wasn’t interested but we followed that time line and we got the main documents, such as the community strategic plan, the workforce plan and the corporate business plan. Although I will admit they’re not strong documents and certainly not anyone’s best work, at least we could produce them for the Department. But Dacre had very, if any interest, little interest in those documents, the development of the documents and really couldn’t care less that we weren’t going to be compliant if myself and the other staff hadn’t initiated the work on them. So that was one huge example.
When was that that those documents needed to be - - -?---It must have been 2013.
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Did you ever see any indication that he was gambling?---In a social community context certainly, and then generally his talk at morning tea or during the day quite often was about gambling and the horses he was betting on and then one instance I did see he accidentally had his laptop screen - because he was using two screens, the laptop screen was facing me while he was apparently discussing something about work but he was watching a horserace on his monitor, not really realising I could see it on the other screen; so in that instance, yes.
You said there also increasingly were absences from the office?---Yes, he’d make up excuses for having to go out for extended periods of time but he – I don’t know where he was.
Were you ever asked to provide information for Mr Alcock’s performance review that the council conducted?---No.
Were you concerned about how he was performing his job? ---Yes.
Did you feel like there was any person that you could speak to within council about that?---Not within the legislation or like the guidelines. I did check that and I saw that really I wasn’t supposed to be talking to councillors, that I should bring it up with the CEO first. That obviously went nowhere. So I didn’t feel I had any avenue to raise my concerns.
I’m just going to talk to you in a bit more detail about the bank reconciliations. When you started as finance manager, did you do the bank reconciliations?---Yes, I did start them.
Could you explain in layman’s terms what a bank reconciliation is?---For us it was just going through our general ledger, our municipal account and comparing it to the actual bank statement. So what was being entered on the computer by the staff as we’re processing and receipting invoices and payments was then supposed to match up with what was on our actual bank statement that we received each month.
Did you receive any training in relation to bank reconciliations?---Just from Dacre: he showed me how to use his – the spreadsheet that he’d created to do the reconciliations. We didn’t use SynergySoft.
Do you currently still use that Excel spreadsheet system or do you use SynergySoft for the bank reconciliations?---We have a consultant who’s been – was involved in the forensic audit who’s still going through our 15-16 reconciliations because there had been some transactions that were obviously fraudulent so she’s been going through them. I believe she has a spreadsheet. And then we plan on continuing on from this financial year with the SynergySoft
28/7/16 Page 69` module which is a bank reconciliation module.
Did you, while you were performing this position, ever have times where you were doing the bank reconciliations and the bank statements didn’t match with the general ledger expenses?---Yes.
What did you do?---I asked Dacre for assistance because I thought that I must be missing something or – and the more I asked he would always be able to get it to balance so that – and then I would ask about other transactions and where we’re supposed to allocate such – you know, I think the credit card ones would’ve come up because it was an automatic deduction from the bank account where we were supposed to be allocating those funds, sorry, those transactions, and then he said he’ll do it. So he would do the allocation of the credit card expenses and then he eventually said, “I will just do the bank reconciliations anyway, it’s easier for me and you’ve got other things to do,” and he wanted me to focus on the strategic planning things and issues with staff and so he took the - - -
When did that happen, that he took over the bank reconciliations?---I think from - the only performance review that I can recall having, that I have a copy of the document, was July 2013 and he had put in there basically that I won’t be – hadn’t been focusing so much on the finances, I was focusing on other key areas within the Shire’s requirements. So I assume it was around that time, so after July 2013 onwards.
When you picked up that the general ledger and the bank statements weren’t matching and Mr Alcock said that he would take over and he would do it, did you feel that you perhaps were just not capable of doing it properly or did you have some concern that he was - - -?---Yeah, he certainly made me feel that I was incompetent and probably not up to the job. Yeah, he - - -
Once Mr Alcock said that he would take over bank reconciliations, did you see any evidence that he in fact did them?---Not that I recall, no.
So you had no reason then to go into that Excel spreadsheet and see what was being done?---No. Except for, sorry, when the auditors came, I think he was trying to get them ready. I know he was talking about it, wanting some copies of statements. So I didn’t see that he’d done them but I knew that he was talking about doing them.
When you were appointed as finance manager, were you given a Shire issued credit card?---Yes, I was.
What was the limit?---I think it was 5000.
Is it the case that Mr Alcock also had one?---Yes, and the works manager.
28/7/16 Page 70` Mr Geerdink?---Yes.
Prior to that, Mr Adams had also had one. Is that correct?---He did, yeah.
Were you given any instruction on how you could properly use that credit card?---No.
Was there any credit card policy?---No.
Was there a process for credit card holders to store proof of their expenditure on their credit card, for example invoices?---There must have been at some point because there was a folder that I found and working with Shirley Howard who was senior administration officer who did a lot of the creditors at the time, there was a folder in her drawer that had Visa card or Bankcard or something written on it and the general thing that Shirley had said is that we – I was supposed to put our invoices and purchase orders or recepts into that file if we made any – if we spent anything on our credit card.
So did you in fact do that with your expenditure?---Yeah, I would always put mine in there.
Were you required every month to go through your credit card statement and - - -?---No.
- - - cost it against various accounts and sign to say that that was a true and accurate reflection of what you had spent?---No, I wasn’t.
Did you ever do that?---I did it once and I can’t remember the date but I believe Dacre was away, either on leave or not in at the time, that there was a paper statement that I went through all the credit cards because they all came in one and acquitted the expenditure from those and, yeah, into our system and asked Dacre when he did come back if I’d done it correctly. So it must have been early on in my role, because I was trying to just I guess do the right thing and show my boss that I was taking initiative and he said, “Yep, that’s all good,” don’t worry about getting the invoices and receipts, he’ll keep doing the credit cards from now on because I’ve got enough to learn with the monthly reports and the whole thing.
Just in relation to the credit card statement, did one statement come to the Shire of Dowerin and was there separately listed against that statement the expenditure on each person’s card?---From memory and probably relating to what I know now, there’s like a front statement that has the front page that has the overall total expenditure and then individual pages for each credit card which lists the detailed transactions for each person.
Did you ever see the credit card statements again after that one time that you reconciled it?---Not that I can recall, no.
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Did you know where they had gone?---No.
Did you assume they were with Mr Alcock since he had said that he was going to be doing them?---Yeah, I assumed that that was the case.
Did you ask anyone else?---Yes, I asked Shirley Howard and she may have even asked me at one time about where the folder was that I was referring to before that was titled “Visa card” and that I would usually put the receipts in. One of us noticed that it wasn’t there at some point in time so we discussed, well, if Shirley’s not doing it, if she’s not overseeing those receipts and checking that purchase orders are done, which she would normally do for all the other creditors, then it must be Dacre because I wasn’t doing it. So there was a question on that and - - -
So the fact that the manila folder disappeared and the contents of it was removed presumably - - -?---Yeah, it was removed.
- - - made you form the opinion also that Dacre was doing them as he said he would?---Yes.
Because you were the finance manager did you ask again whether you could conduct the credit card reconciliations? ---Yes, I asked numerous times.
What did Mr Alcock say?---No. That I didn’t need to do them: he would be. Eventually that’s one that I was referring to before, an example of when he started to get angry for me questioning numerous times and so I sort of gave up.
In a statement that you provided to the Commission for the purposes of the prosecution of Mr Alcock, you said one intimidating reaction is February 2013, ”I asked where the credit card statements were. He leaned forward and became more direct in the way that he was looking at me and said, ‘You don’t need to do that: I can’”?---Yes.
Is that what - - -?---That’s correct. Yep, definitely.
In your statement to the CCC you also describe a request that you made after you returned from maternity leave in August 2015, again to do the credit card reconciliation and I think that was at a staff meeting?---Yes; yes, I did.
Could you explain what happened?---We had a new staff member who had taken on – she was – because Shirley had retired in July 2015 so we had a new staff member who was full-time and she was taking on the creditors. She asked me the question of what happens with the credit card receipts and things and I was like, “That’s a good question actually, we do need to follow that up again.” So I raised it with Dacre and I said we need to talk about it. So he wouldn’t answer me in person, just one on one, so I thought
28/7/16 Page 72` if I bring it up at the staff meeting he might be a little bit more accountable to following it up. I think he said that yes, that’s fine; Emma, who is the new staff member that I was referring to, would be able to take it on next month. But that’s the type of thing he said all the time.
And it didn’t in fact happen?---No.
In terms of preparation of documents for council and attendance at council meetings, did you attend council meetings regularly once you became finance manager?---Yes.
Were you on the finance and audit committee that was in place prior to Dacre leaving?---Yes, I was involved in – yeah, I went to every one of them.
Did you have an active role at those meetings?---Presenting the financial statements and the list of accounts and any other items such as policies that I may have brought up to go to council, I would take them to the finance and audit committee first.
Did you prepare reports for council; like the monthly financial report, I think you said you prepared that? ---Yes, and the list of accounts.
And the list of accounts? Once you prepared it, what did you do with the documentation? Did it go to Mr Alcock? ---He would check it before it was – it went into the agenda, yeah.
Did you ever notice whether those documents were altered once they had been given to Mr Alcock and before they went to council?---I don’t – no, I don’t recall noticing.
Did you ever check?---Probably not.
Presumably you would assume that the documents you gave him would go straight before council?---Yes.
Were you involved in the budget process?---Very minimal I think it was but yeah, very minimal, basic assistance for the first one and then nothing after that.
And the annual reports: annual financial reports?---No.
No involvement in that?---No. Maybe assisting Dacre in getting a bit of information but it wasn’t – certainly wasn’t the training or mentorship of showing me these processes for budgeting or annual reporting that I had anticipated.
Was it the case that he prepared the annual financial reports, then?---Yes.
Did you ever notice anything unusual in those? Did you ever look at them?---No, not that I recall.
28/7/16 Page 73` Did you look at them?---I looked at them, yes.
But just didn’t notice anything?---I didn’t notice anything unusual. Sorry, one thing was he hadn’t budgeted for our waste contract, I don’t remember which year this was, which was about a $50,000 expense that he hadn’t included in the budget and I thought that was a bit strange to miss something that was very obvious and we have been doing for years.
Did you raise that with him?---Yeah, and then I think he – I think he might have mentioned it to council the following – I’m not sure if he did, though.
Now just a few questions about the audit process, did you have a role with the external auditors from Byfields who conducted the annual audit of the financial records?---No. It was we’d assist Dacre, I think, the first year in getting some of the invoices and things ready for large capital items such as trucks or whatever we purchased that year, getting a selection of – and the list that Byfields may have sent through, finding some of those invoices and folders for him, but once the auditors came I didn’t have any actual role.
So requests from the auditors for documents came directly to Mr Alcock?---Yes.
Then on occasion he would ask you for assistance to locate those documents?---Me and other staff.
Then you would provide them back to Mr Alcock?---Yes.
Were you ever asked for credit card statements or to help locate credit card statements?---No.
Are you aware that there’s an interim and a final audit conducted each year?---Yes.
And that different documentation is required for each? ---Yes.
Were you involved in finding documentation for both of those?---Probably.
Were you ever aware of delays in providing documentation to the auditors?---Yes, definitely and I think bank reconciliations would have certainly been one of those. Invoices I don’t think would have been too much of an issue. Complying with fair value; our asset - we didn’t have an asset plan in place so we weren’t up to date with our fair value change of valuations.
The payment of accounts within the Shire was done as I understand it with a double authorisation?---Sorry, what was the first part?
The payment of accounts within the Shire required double
28/7/16 Page 74` authorisation. Is that correct?---That’s correct.
Could you just explain how that worked?---So for the cheques obviously it’s two signatures. For the electronic funds transfer it’s using two tokens; one person can – well, at that time it was one person would upload and authorise and then a second person would do the second authorisation.
And the token are given to you from the bank?---They’re sent to the individual from the bank, yes.
And then in order to use the token a pin number is also required. Is that correct?---Yes; a user ID and a pin number.
Were you aware whether the tokens and pin numbers were sometimes shared?---Yes.
Why did that occur?---I think it was sometimes assisting the staff when things weren’t working, so there was just a general overseeing of user IDs and passwords while they were helping. When people were on leave we had to process payroll or continue with the creditors.
Did that occur, for example, when you were on maternity leave, that your details were used?---I don’t know if they were used but I ended up sending an email to Dacre because he hadn’t organised – one of the staff members that was going to be overseeing some of my tasks, not the financial role, she was going to be given extra access because she had viewing access to the bank balances. She was going to be given a token so that she could be an authoriser in my period of leave. He hadn’t done that. He hadn’t organised that, and I either had a phone call or an email saying we didn’t have enough people in the office because Dacre wasn’t there to process some sort of payment to payroll or the creditors payments. So I emailed Dacre and said where my token was and he could find where I stored my password.
On 6 October 2015 you took an unexpected phone call while you were at work at the Shire?---Yes.
Can you please explain?---One of the staff got a phone call asking for the person that reconciled the credit card statements, and Dacre had just popped out, so I took the phone call, and she said it was from the fraud Department from NAB and she said they had noticed some flags in transactions that they thought were unusual. I asked what they were and she said, “They look like they’re betting transactions. Would that be something that your Shire would approve of?” and I said, “No, certainly not.” Then I asked how much was it, thinking $50 or something, and she said the last one had totalled 5000 for the month. Then I asked her to send through, if she could, any of the other more recent statements that she was referring to.
Did she say whether she had contacted the Shire previously
28/7/16 Page 75` about that issue?---She said they had raised flags in the past. She didn’t elaborate on that, but they had raised flags in the past, that this wasn’t recent. When I said, “How much is it? Was it this month?” she said it had obviously been happening for a period of time. She didn’t say if she had contacted the Shire specifically, but by saying they had raised flags I assumed it could have been the case that they had contacted the council before, the Shire.
After you got that telephone call did you ask for copies of the statements from the National Australia Bank?---Yes.
Did you phone - - -?---Yes. I couldn’t get copies from them because – the lady who rang from the fraud Department, she sent through some recent statements that she was referring to, but to get copies of previous ones, I couldn’t get them from the credit card Department because I wasn’t authorised for the account, so they wouldn’t tell me anything about them. They said that I’d have to contact our (indistinct) business.
Did you tell Councillor Ralph, who was then the acting Shire President, about the phone call?---Yes, I rang him.
And then you and Councillor Ralph reported the matter to the CCC?---Eventually, yes, we rang a couple of others – the Public Sector Commission.
THE COMMISSIONER: I’m just not quite clear. You had a phone call that told you about it?---Yes.
Did you say she sent you some statements?---Yes. They weren’t actually in the statements yet because they were very recent transactions, so it was just in spreadsheets.
Did they have gambling destinations on them?---Yes.
So when you were acting to tell Mr Ralph, you actually had some documentation that confirmed what the lady from NAB had said?---Yes, initially from her but then I followed up and received them from the Northam branch, which is our business adviser.
HARRIES, MS: Thank you. I have no further questions.
THE COMMISSIONER: Mr Harrison?
HARRISON, MR: Ms King, I just have a few questions to ask you. Until you were alerted by the NAB of the fraud in October 2015, were you ever aware that - - -
THE COMMISSIONER: One moment, Mr Harrison. I think we might have to adjust your microphone a little bit. I’m having a bit of trouble hearing you.
HARRISON, MR: Let me move it a little bit closer.
28/7/16 Page 76` THE COMMISSIONER: That might be better, yes.
HARRISON, MR: Ms King, until you were alerted by the NAB on 6 October 2015, were you ever aware that Mr Alcock’s behaviour was fraudulent?---No.
What did you think it was?---I thought he was controlling – I would have maybe suspected that he would have paid for an iPad or something like that that would be for work use, but probably not.
But at no point did you suspect fraud?---No, certainly not.
At least of this nature. You also mentioned in your evidence walking past his office and seeing him watching the horse race on his computer?---Yes.
At any point was it your belief that he had a problem?---I thought he gambled but I didn’t think it was a problem that would affect work.
We saw earlier the original advert, the contract advert, for your position?---Yes.
Which has already been mentioned that the amount of salary offered was much higher than you actually received?---Yes.
The contract also is for a fixed term of three to five years in the advert. Is that what you received?---No. I just had a letter of appointment for the position. There was no contract written.
So it was to all extents quite an insecure position you were in?---Yes.
It also seems to be true that it was Mr Alcock who controlled your day-to-day activities, the jobs you undertook?---Yes.
And I think you just mentioned now that he was a very controlling individual?---Yes, he was controlling and difficult to work with.
You mentioned before that he would essentially, I think, question your skills?---Yes. He could be very condescending.
So undermining you confidence?---Absolutely.
That must have been very upsetting?---It wasn’t pleasant. It was also observed that he did it to other staff which was also not pleasant.
And you see this as it was his means of controlling the staff to keep the fraud under wraps?---Yes. He was very good at manipulating everyone. He was certainly uncomfortable to be around at times, and I felt that you almost needed to rescue him because he looked like he was
28/7/16 Page 77` just completely incompetent at his job, so we would try and pick up those pieces for him so he would be happier at work and be nicer to be around.
It sounds like you were almost sympathetic to him at times?---That’s how I - - -
Because you thought he needed saving or was incompetent? ---Yes. I was concerned also for the organisation and the Shire and the community that I live in. It was embarrassing, his behaviour, and we weren’t complying with so many things.
Was it Mr Alcock who conducted your performance review? ---Yes.
Was Mr Alcock in a position to terminate your employment? ---Yes.
And yet notwithstanding these positions, in your witness statement you address, questioning on number occasions, the credit card transactions?---Yes.
Was that not a risky thing to do?---Yeah, it was probably risky, but I also knew that he needed me a lot in other ways so I thought I had a little bit on my side but it didn’t do any good.
But it sounds like you put the performance of your duties ahead of the risk of possibly losing your job?---Yes, and I guess I was trying to look after the staff that weren’t being treated well.
Thank you. That’s all I have.
THE COMMISSIONER: Ms King, I’m sure this has been a considerable ordeal. You will be pleased to know that you are now released from the summons that brought you here. You may stay if you wish but you are also free to go? ---Thank you, Commissioner.
(THE WITNESS WITHDREW)
THE COMMISSIONER: I might give everybody a five-minute break.
______
THE COMMISSIONER: Yes, Ms O’”Brien.
O’BRIEN, MS: Thank you, Commissioner. The next witness is Ms Shirley Anne Howard.
HOWARD, SHIRLEY ANNE sworn:
O’BRIEN, MS: Mrs Howard, your full name is Shirley Anne Howard?---Yes.
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You are now retired. Is that right?---Yes.
You retired from the role of payroll officer at the Shire of Dowerin in July last year?---Yes.
You began working at the Shire initially as a Shire clerk/secretary in 1990?---Yes.
Have you lived in the community that entire time?---The whole lot, yes.
Mrs Howard, you changed roles in 2003 to be the payroll officer for the 12 years before you retired. Is that right?---Yes.
Was that a full-time position?---Well, with other duties, yes.
What were your duties as the payroll officer?---Paying all staff – and you mean the other duties I did? Were general office duties, licensing, paying creditors, yep.
You presumably worked with a number of different CEOs in your time at the Shire?---I have, yes.
In June 2008 Mr Dacre Alcock took over the role of CEO at that time?---Yes.
And Mr Alcock remained in the role of CEO up until you retired?---Yes.
I think you’ve been in the hearing earlier, Mrs Howard, and you’re of course aware that Mr Alcock pleaded guilty to charges of stealing from the Shire as a result of an investigation by the Corruption and Crime Commission? ---Yes.
In November last year you participated in an interview with Commission officers about those events?---Yes.
You also provided a statement covering those matters in February this year?---Yes.
Mrs Howard, I’m going to ask you some questions about those events and some questions about the workings of the council a bit more generally. I’ll start by asking a little bit about the reporting structure. Up until he retired in September 2011, you reported directly to the deputy CEO of the Shire, Mr Rex Adams?---Yes, I did.
After Mr Adams retired did you report directly to Mr Alcock from that point?---To who, sorry?
Mr Alcock?---Yes.
We’ve just heard in about May 2012 Ms Sonia King was appointed to the newly created role of finance manager.
28/7/16 Page 79` Did you report to Ms King in relation to some of your duties?---Yes, I did.
Which duties were those?---Mainly the creditors, and occasionally payroll things.
So payrolls; and creditors, is that the paying of accounts?---Yes.
Mrs Howard, I’ll just ask about credit cards. When Mr Alcock was CEO the Shire had three credit cards. Is that right?---Yes.
We’ve just heard those three cards were held by Mr Alcock, Ms King and the works manager?---Yes.
Part of your role as payroll officer was to keep documents relating to the Shire’s credit cards. Is that correct? ---As the payroll officer? No.
Yes?---No, just with the creditors.
With the creditors. Was part of your role in relation to the creditors to keep any documents relating to the credit cards?---Not – no, I didn’t have them.
Did you at any stage in your time when you were working with the finances, so as payroll officer or as part of the creditors, keep receipts?---Yes.
What were those receipts for?---They were receipts of people that had used the credit card, and the works manager and Ms King would give me their documentation and I’d make sure there was order numbers to go with that documentation and that was put in a file in my drawer labelled “Visa card”.
Is it in that file in your drawer you kept receipts for credit card transactions that people brought to you?---Yes.
Did you go and ask them for receipts or did they voluntarily bring you the receipts when they’d used them? ---No, they would voluntarily bring them.
Is it the case, Mrs Howard, that when Rex Adams was the deputy CEO, although you collected those receipts Mr Adams was responsible for reconciling the Shire’s credit cards? ---Yes.
Then after Mr Adams retired, who took over the role of the credit card reconciliation?---I don’t recall exactly. I’d say Ms King would have done some of it. I may have done a few when we had the credit card statements.
When you did perform the reconciliations, the few that you did, what did you do to perform the reconciliation?---We matched up your – the invoices with what was on the credit card.
28/7/16 Page 80`
When you say on the credit card, where did you see what had been spent on the credit card?---Just what was on their statements, and match up what invoices I had.
Those are the invoices - - -?---Or payments they had made.
Those are the invoices that you had kept in the folder in your drawer?---Yes.
So you would look at those invoices, look at the credit card statement and marry the two. Was that done on a monthly basis as far as you’re aware?---Yeah, when the credit card statements came in.
Was there one credit card statement for all three credit cards?---Yes; as I recall, yes.
When you did the reconciliation process yourself, how did you get a copy of the credit card statement to do that reconciliation?---Well, it’s when it came in through the mail.
Who used to collect the mail from the Shire’s PO box when Mr Alcock was CEO?---It could’ve been anyone that was going down the street that day to pick up mail.
Would the letters in the PO box or the mail from the bank be taken back to the Shire and given to anyone in particular?---Well, it was always – they were opened by whoever had picked the mail up.
In the times that you did the reconciliations for the credit cards, were there many transactions on the cards or were they quite rarely used?---They weren’t used a lot.
When you did the reconciliations did you enter the information about the credit card transactions into the SynergySoft system?---Yes.
Was there a written procedure that you followed to do the reconciliations or was it not something that was written down, it was just what you were taught?---No, it wasn’t: it wasn’t something that was written down.
You didn’t need to pay the credit card balances did you, we’ve heard that they were automatically paid each month? ---Yes.
Do you know who set up that direct debit system?---No, I don’t.
You’ve said at some point you stopped doing the reconciliations. Why did you stop doing those?---Well, we weren’t getting the credit card statements.
Did you ask anyone about the credit card statements?---I asked Ms King if she’d seen them and she hadn’t seen them
28/7/16 Page 81` and that’s as far as I went with it.
Did you ask Mr Alcock if he’d seen them?---No, I didn’t.
Was there a reason you didn’t ask him?---I just presumed that he must have been doing it; Ms King hadn’t seen them, I presumed that he must have been doing it.
We’ve heard some evidence from Ms King about Mr Alcock and the environment that existed at the Shire at the time. Did you find Mr Alcock to be approachable?---Most of the time while I was there, yes.
So it’s not a case that you didn’t feel you could ask him about the credit card statements. You just thought that you’d ask Ms King about those statement and that was sufficient?---Yes.
When you stopped doing the reconciliations and you stopped receiving the statements, did you assume that someone else was doing the reconciliations or that they weren’t being done at all?---Well, I just presumed that Mr Alcock was doing it.
In SynergySoft, in the section where you used to enter the credit card transactions when you processed them into the system, could you see whether someone else was updating that section and entering any credit card transactions? ---No.
What about the receipts for the credit cards that staff were putting in the folder in your drawer, did that practice continue even when you weren’t doing the reconciliations?---Yes.
What did you do with those receipts when they ended up in the folder?---I just left them in that file and presumed that Mr Alcock was taking them if he was doing the statements.
Did the invoices or receipts leave the folder from time to time?---Some of them did. But I just – yeah, as soon as I’d get another one I’d put it straight back in that file while it was there.
Mrs Howard, when you were doing the credit card reconciliations did you see any transactions on any of the credit cards that you thought were suspicious for not being work related?---No.
Mrs Howard, I’ll ask now about Internet banking transactions. We’ve heard it’s the case that to conduct a transaction from the Shire’s bank accounts, for example, to pay invoices as you did, that transaction had to be authorised by two staff members?---Yes.
Who were the staff members that could authorise
28/7/16 Page 82` transactions?---Ms King, Mr Alcock and myself at that time, yes.
We’ve heard you authorised the transactions by way of electronic token issued by the bank?---Yes.
So each of the three of you had a token?---Yes.
Were there any policies in place at the Shire at the time that you were aware of about using or storing security devices like that token?---No.
When you first received your token was Mr Adams still working at the Shire?---Yes.
Did you get any instructions from Mr Adams or anyone else about storing your token once you’d received it?---No.
Where did you keep your token?---I had my token in a drawer underneath my computer.
Did you have a PIN number for your token?---Yes.
Did you write that PIN number down anywhere?---I did. I had it in the bottom of the box, with the instruction manual on top of it.
Was that the box that the token was stored in?---Yes.
You had a user ID number to log on to electronic banking in addition to the PIN number?---Yes.
Did you write that number down anywhere?---No.
I’ll show you some - - -?---That might have been on the back of the token but I didn’t write that down anywhere.
Okay. We’ll have a look at some photographs, Mrs Howard, of that token. If we could please look at exhibit 83^ at tab 59 and feel free to turn to tab 59 in front of you, Mrs Howard, is that a photograph of your token?---Yes.
We can see the bottom of the page in the centre there’s a four digit number. Is that your PIN number?---Yep. That was in the bottom of the box.
Just to be clear: that’s the box that you stored the token in?---Yes, and there was an instruction manual on top of that and then the token went in on top of that.
If we could have a look please at exhibit 130^ which is at tab 60, that’s the back of that same token. There’s a number that’s taped onto the back of the token. Is that the user ID number that you talked about?---I assume so. I wouldn’t remember it offhand.
Did you put that piece of tape onto the token?---It doesn’t look like my writing, no.
28/7/16 Page 83`
So when you said before that you wrote down the user ID number, can you remember where you wrote it down?---Sorry, can you just repeat that?
You said a little earlier in your evidence as I understood that you did write your user ID number down?---I had the user ID number, yeah. I didn’t write it down anywhere, no, and that doesn’t look like my writing.
I know it was some time ago, you perhaps can’t recall what the user ID was now?---No, I don’t recall.
HARRISON, MR: If I may assist, I believe Ms Howard’s evidence was that there was a number on the back of the token but that she hadn’t written it.
O’BRIEN, MS: Thank you.
If that is your user ID number, Mrs Howard, would it be the case that someone who had access to your token, if they had access to it in the box in which you stored it, would also have access to your password?---To what?
Your password?---Yes: yes.
And if that is the user ID number, access to the user ID number too?---Yep.
Was your workstation in an open-plan area?---No; it was in an office, separate office.
Was that office locked?---No.
Why did you keep the token and the PIN number in one spot, Mrs Howard?---I didn’t – I didn’t think about it. You just trust everybody in the office and, yeah, I didn’t think anyone would go to my drawer that was under my computer.
Did you ever tell anyone your password and your user ID? ---No.
Did you tell anyone where the box with the token was kept? ---No.
Do you think that although you didn’t tell anyone in the office, other staff would have had an idea where you stored your token?---Quite possibly they could have.
I’ll come back to that – that can be taken down, thank you. We’ve heard a little bit about it, Mrs Howard, but could you explain how the authorisation process worked? So for example if you were going to pay an invoice for the Shire, how would that process have worked firstly from your perspective as a primary authoriser?---Yeah, any invoices that came in I would make sure there was an order number to go with that invoice and then it was my duty, once Mr Adams left, to code it which goes to different areas within the
28/7/16 Page 84` SynergySoft system and then I would put that through and then I would do – if there were several I would do up a list and show it to whoever was there and then as long as they were happy with it, I would put it through with my token and then ask for a second person to authorise it.
As a primary authoriser did you fill out any paperwork for each transaction?---Yes, there was a green sheet with specially EFT payments and on that green sheet you would always put the number of the EFT payment and the totals and usually I would sign part of it and hopefully the other person would sign part of it as well.
In relation to the actual electronic part of the banking process, how would you use your token to authorise the payment?---Just going into the National Bank online banking.
You’d put in your user ID?---Yeah, put your user ID and then a PIN number.
And you would get the PIN number from your token?---Yes.
For the secondary authorisation part, so for Ms King or Mr Alcock to authorise a payment, it would be the same process for them?---Yes.
Were you at times asked to be the secondary authorisation for a payment?---Occasionally, yes.
What was your practice to do when you were asked to be the secondary authorisation for something?---Just the same as the first authorisation: go into the National Bank and put your, you know, numbers and PIN numbers in and then put it through the bank.
Would you check any paperwork?---Usually, yes.
Would you sign the same form that you filled out when you were processing a payment?---No, hopefully they would have done that.
We’ll have a look at an example of that form, Mrs Howard. It’s at tab 62 in front of you, exhibit 222^. Is that an example of the form that you would use when you - - -? ---Yep.
- - - conducted an electronic transaction?---Yep.
If we can just scroll down a bit please, if you were involved in a transaction either as the primary or the secondary authoriser, your signature would be on the form under authorisation 1 or authorisation 2?---Yes.
There should be documents attached to this form?---Yes.
Then the secondary authoriser’s signature should also be on the form too?---Yeah.
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Is that how every electronic transaction from the Shire should have worked? There should have been a form like this with two signatures and documents attached?---They were EFT payments so probably any money that was being transferred to it, say from a trust account to another account, there would be just a white – a different form that was used.
In your experience did that always happen that the form was filled out, or would sometimes that procedure not be followed?---Well, any paperwork I collected I made sure there was forms to go with it.
Mrs Howard, when you retired in July last year what did you do with your token and the box with the password on it?---I handed it in at the end of my last day there. I went to Mr Alcock and I handed it to him and I said that’s my National Bank token and that and he said, “I will get that cancelled tomorrow.”
We’ve heard from Ms King about this, Mrs Howard, but in your experience was there a practice at the Shire, when you were there, where occasionally tokens and the passwords would be shared so that just one person could authorise a transaction using two tokens?---Not with who was there when – but previously when Mr Adams was there, there was occasions when I had to put a payroll through or something that I would use his token if he wasn’t available to do it and I would use his but I never gave mine to anybody.
Apart from payroll and the paying of accounts from the municipal Shire account, did you have any duties relating to finances, for example, getting ready for the council meetings?---Only doing up the list of accounts from the Synergy system, you know, on the date that they wanted them by and I always with that list I matched with all my paperwork I had in files in my office.
So you got a list from SynergySoft of all the accounts? ---Yeah.
And then you matched it against those green forms that we’ve just seen?---Yes.
Did you have any way of knowing if the list that you got from SynergySoft was complete and showed all of the transactions that had actually happened?---Well, I just went by the number and from the previous – the previous time a list was done up and then I would, yeah, make sure or query. I don’t know that I ever did query if there was anything but I may not have noticed if there was something missing.
And presumably if the transaction hadn’t actually been entered into SynergySoft, it would have come up on the - - -?---It wouldn’t be – wouldn’t come up. I just matched it with what was on that list.
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What did you do with the list once you had printed it off and - - -?---I used to send it through to either Ms King or Mr Alcock for him to check and then he would put it into the agenda.
Thank you, Commissioner. No further questions.
THE COMMISSIONER: Mr Harrison.
HARRISON, MR: It will soon be over. I just have three questions. We have heard from your evidence that there were no written processes or procedures for storing the token and the way to do that. Separate from written processes, did anybody ever tell you verbally or by email you should do it in this way or that way? Were you ever given instructions?---No.
Were you ever told the way you were doing it is wrong? ---No.
Approximately what year did these tokens – what year were these first issued? Presumably it was after 2003?---I don’t recall that, sorry.
But it happened after you had already been working at the Shire?---Yes.
And the way you stored the tokens at the end, is that how you had always stored them?---Yes.
We have also heard in your evidence that in terms of reporting lines, there were certain matters you reported to Ms King?---Yes.
And we have also heard that after Mr Adams retired, you were receiving the credit card statements for a period of time and then abruptly, that stopped?---Yes.
Your evidence is that you raised that with Ms King?---Yes, I just asked her if she had seen any statements and she said no.
Thank you. That’s all I have.
THE COMMISSIONER: Thank you for your attendance here today. I now release you from any further attendance on the summons. You may stay but you are also free to go? ---Thank you.
(THE WITNESS WITHDREW)
HARRIES, MS: Commissioner, the next witness is Mr Ron Back.
THE COMMISSIONER: I might say we are running a little bit behind schedule. I will sit until 4.30 today.
28/7/16 Page 87` BACK, RONALD JAMES sworn:
HARRIES, MS: Mr Back, could you state your full name for the record, please?---Ronald James Back.
Thank you; and what is your occupation?---A consultant would be the best one.
A consultant in relation to accounting practices?---Local government, finance government and the like, yes.
Could you give a brief and general description of your qualifications?---I have a bachelor of commerce from UWA. I was – and a CPA in 1974. I was trained as an auditor for seven years with the National Audit Office. I joined the City of Perth in 1979 as an accountant. In 1981, I was appointed the city treasurer, a position I held until the City of Perth was expanding at that particular point in 1995. Since then, I have run my own consultancy business, predominantly providing advice to both government and local government.
Thank you. You were engaged by the acting CEO, Mr Gary Martin, at the Shire of Dowerin to conduct a forensic audit of the Shire’s accounts. Is that correct?---That’s correct.
I know the term forensic audit is used. Could you please just explain the difference between what you were asked to do and the annual audit that we have been talking about in the proceedings today?---The scope of audit that we had was provided by the Shire in terms of a request for quotation, which we provided to Gary in November, and in December, he advised us that we were awarded the contract. The forensic audit brief was to basically find out the extent and method of the loss that the Shire had incurred. At that stage, the Shire had identified credit cards as a possible problem. They had also identified some false invoices and so forth and the focus at that particular point was the financial year or the calendar year 2014 and 2015.
Is it fair to say that what you were asked to do was really a forensic investigation, financial investigation of what had gone wrong?---Yes.
Just in front of you, Mr Back, is a volume of exhibits. If I could just ask you to turn to tab 28, and that’s barcode 0694, this is a copy of the forensic report that you produced. When were you engaged to prepare this report?---Yes.
When?---When? In December.
THE COMMISSIONER: I’m sorry, I have lost the tab.
HARRIES, MS: 28.
THE COMMISSIONER: Thank you.
28/7/16 Page 88`
HARRIES, MS: December 2015?---Yes.
Then if we just scroll down on that report, it’s dated 10 March, so that was the end of the review?---That’s correct.
If I can just take you to the bottom of page 4 - so there’s a number of pages before there’s numbers. I’m talking about the numbered pages and actually we can just go over to page 5, yes, and you see that that outlines the scope of the audit, so this is what you were asked to do as part of your review?---That’s correct.
And as you said, initially you were asked to focus on the last two financial years and the previous two financial years of the – sorry, you were asked to focus on the most recent financial years and then you subsequently extended the scope of the audit. Is that correct?---That’s correct.
You were also asked to look at the source of the individual transactions by funds, so the municipal trust loan reserve and any other, and at point 4, the details of where the expenditure had been allocated in the Shire’s accounts? ---That’s correct.
And whether there were any third party implications in relation to false invoicing to branch projects and any other malicious administration or fraud. You were also asked to look at the total itemised loss and the details of the methods used?---That’s correct.
How many people did you have assisting you in the conduct of this review?---One other accountant who specialised in the IT Vision system.
THE COMMISSIONER: Sorry, IT?---IT Vision. That’s the computer system, accounting.
Another name for that SynergySoft?---SynergySoft.
Is it correct that you identified evidence of theft at the Shire of Dowerin?---Yes.
Over what period did you find that funds had been stolen? ---Over four calendar years, which encompassed five financial years.
And did you identify unauthorised use of the Shire’s credit card?---Yes.
I’m sorry. I should just clarify. What were those years? ---In the terms of the credit card?
Sorry, no, in terms of the period over which funds had been stolen?---It started in November 2011 and finished in October 2015.
28/7/16 Page 89` So back to the credit card; in terms of the unauthorised use of the Shire credit card, what was the monetary value of the unauthorised use on the Shire credit card over that period?---$164,000. If I could - - -
THE COMMISSIONER: Feel free to refer to your report at any stage?---The report itself has an executive summary at the front which picks up most of the detail.
HARRIES, MS: Yes?---In terms of the payments, you will find in the executive summary on page 1, the payments made to betting agencies through the credit card, there was 567 transactions amounting to $164,039.25.
Thank you; and did you identify unauthorised payments from the Shire’s municipal fund and trust fund to Mr Alcock’s personal bank account?---Yes, we did.
What was the monetary value over the four-year period? ---The amount taken was $435,840.57.
And how many individual transactions did that entail? ---There were 98.
Thank you. Over the period, were there any repayments by Mr Alcock into the Shire credit card?---Yes, there was. There was 21 occasions where some $28,710 were repaid back into the council’s credit card.
Did the transfers of that money come from his personal account into which the Shire funds had also been transferred?---Yes.
In your report, you broke down the amount of the transactions by financial year at the top of page 11. Are you able to make any comment about the unauthorised activity by Mr Alcock in terms of financial year? Was the value increasing? Was the frequency increasing?---The value was increasing in 2014-15 and 15-16, so there was a gradual escalation. When you look at the total amount, the original year of 11-12 was not a full year. It was a half financial year, so that was 60 odd thousand dollars, followed by $92,000. Now, you must bear in mind that that table you are referring to, the 640,000, also identifies $37,602 which we identified as possible other transactions other than betting agencies. So the amount of $164,000, if you read across the top, the initial six-month period or just a little bit over that was 15,600. In 12-13, it was 44,700. Then it was 29,000, 55,000 and then 19,000 in the last six months.
Thank you. Mr Alcock had access to the Shire credit card. I just want to ask you some more detail about that over the entire period that he was CEO. Were all of the credit card statements available for you to review at the Shire?---Not from the Shire.
Where did you get them from?---We got them directly from
28/7/16 Page 90` the National Bank.
And is it the case that only two out of the 48 statements that you obtained relating to Mr Alcock’s expenditure were free of gambling transactions?---Yes.
What was the limit on his card?---$5000.
And in your report, you point out that the balance due on the Shire’s credit card at the end of each month was automatically swept and cleared. Is that correct?---The process that the National Bank ran was to skim all credit cards owned by the Shire into one corporate account. That was done at the 28th of each month and then the following week, they debited the council’s bank account.
THE COMMISSIONER: That would have required, I take it, no input by a Shire officer?---That’s right.
It was just an automatic standing debit?---Yes.
HARRIES, MS: So in effect, Mr Back, was it the case then that Mr Alcock had access to another $5000 every month as a result of that process?---That’s correct.
How many other employees had credit cards?---We had four over the period that we looked at and you have already mentioned those.
They were all National Australia Bank credit cards?---Yes.
The monthly statements were sent to the Shire by National Australia Bank?---That is correct.
In the usual course, what would you have expected to have occurred with those statements?---The – on receipt of those statements, they should have been appraised to see that the expenditure on those were for Shire – proper Shire purposes, reconciled and signed off and then authorised, so that they could – the best process would have been to enter them directly into the creditors system and then that would automatically flow through to the list of payments that go to council.
So the creditors system into SynergySoft?---Can handle that.
Yes, but how were the credit card transactions recorded at the Shire of Dowerin?---They were – at the time Mr Alcock was processing these, they were processed through general journal, straight through the bank account.
So they weren’t connected to SynergySoft?---No.
Did you find any evidence of any of the credit card statements being reconciled?---There was a period where prior to the activity in terms of fraudulent behaviour that the credit cards were being – listings were being put to
28/7/16 Page 91` council or they were recorded on council minutes and so forth but there was a period, quite considerable, that none of these actually went on the listing to council.
And can you identify what that period was?---About November 11 through to 2015.
I see; so the entire period where the theft was occurring? ---We did find a couple of vouchers that were either in the voucher system or had been put to council and on those that went to council, the documents had been altered to hide any of the expenditure to betting agencies.
In your view, should there have been a credit card policy in place?---Absolutely.
And should the details of credit card expenditure have been put before council in the monthly accounts?---Yes.
In relation to the credit card expenditure, you identified in your report some methods in which that expenditure was hidden from detection. Could you in general terms just explain what those methods were?---There were a couple of methods. The first one was in the very first transactions that took place in November 2011. There were two debits to gambling agencies on that, each of $200.
Mr Back, that’s on page 13 of your report, so perhaps while you are talking about that, we will put that up. So that’s at the bottom of the page?---Yes, at the bottom of the page. I know it’s difficult to see but at the bottom of the page, there are two transactions to a betting agency and then there’s a $400 credit to offset those $200s and if you would like scroll through on to the next page, you will see that the document that was actually there, three transactions were ruled through and a note put “Cancelled out.”
Was this an extract of a document that went before council?---Yes.
Did you view the council minutes in relation to that? ---Yes.
And was there any question asked of Mr Alcock in relation to that expenditure?---Questions are not recorded in the minutes.
I see; but clearly even though it has been crossed through, you can still read underneath that it says “Sports bet.” Would you agree?---No, you must bear in mind that the council would have seen one line entry for the total amount of transactions for that month and this would be a docket that’s in the vouchers should the questions be asked.
So this material wasn’t in the paperwork that went to directly to council but if questions had been asked, this paperwork could have been provided?---Yes.
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Another method is, as I understand it, that credit card – the credit card statements have been altered in this case? ---Yes.
Another method was not only to alter the credit cards but also to create fraudulent supporting documentation. Is that correct?---That is correct.
So if I can take you to tab 29 in front of you, you will see that’s one of the supporting documents that sit behind your report, 0397. If you can go to page 20 and 21; yes, Mr Back, can you explain what that document is?---This is an extract from the payment voucher for the credit cards for that particular transaction. It covers two items that we noticed in this particular month; the first one that we noticed that the council had paid $3850 for a set of tyres for the one vehicle. As it turned out, those debits were charged to two different credit cards of the Shire, so they had overpaid the amount and it was only ever recovered once we identified that earlier this year. The other one is the $2360, represents the amount of betting in that month and what it’s got is that that amount has now been charged to road maintenance as a metro counter. So the documents had been altered to reflect a different version of what the credit card statement had actually said.
If we just scroll to the top of the page you will see you’ve got a reference there that this was the credit card, a voucher to the credit card, for the period 29 November 2011 to 28 December 2011. So this was also very early on in terms of the fraud?---Yes.
Is the use of this form the way that the expenditure on the credit cards should have gone before council? Albeit that the information within it isn’t all accurate, is this the form that should have gone before council?---Yes.
Apart from the matters that you’ve raised, there are some other obvious discrepancies. Do you see the amount at the top of the page on the right-hand side as the total expenditure 7072, and then the amount in words is “four thousand five hundred and ninety-seven dollars” and then if we just scroll down, you’ve got a cardholder summary there in relation to it. Could we just scroll down a little bit more so we can have the top of the next page too, thank you.
Can you just explain what those two extracts are?---Can you just go back to the top of the first one?
Yes?---This is the accumulation of all four cards as they were at that particular point. This is at the point where Mr Rex Adams had left the organisation but the credit card only got cancelled about May 2012. Although there was no activity on it, it was incurring a $9 a month fee, so the first one is the overarching one that says, “This is the accumulation of all of those cards”. This is the amount
28/7/16 Page 93` that would have been taken up at the 28th of each month, and if you would like to scroll down a little bit further, this is the individual credit card statement for each credit card holder.
And that one in particular is Mr Alcock’s statement? ---Yes.
And that is in fact an extract of the statement that you obtained when you were conducting this review?---That’s correct.
That shows a number of Sports Bet entries. Is that correct?---Yes.
Then if we scroll down, is that an extract of the statement that was attached to the form that would have been available to the Shire in relation to this?---That’s correct, yes.
You can see that statement has in fact been altered?---Yes.
How would it be possible to alter a bank statement? ---With modern technology with imaging and so forth you can create your own template, and that was found on the C drive of Mr Alcock, in addition to the ones with the Shire of Toodyay, so it’s not difficult with imaging and those sorts of techniques available to create that process. You can take an image and use it, even in a PDF, and overwrite with a PDF writer, overwrite the numbers and the amounts in those columns.
In relation to the sporting bet entries that have been changed, the amount for the credit card – and you can see from the top of the page extract and the bottom of the page extract – is $4983.46, and that’s the amount in the altered extract down below, but I understand you have added those sums and - - -?---They don’t add up.
- - - they don’t add up. So if this information had been asked for in council is it your view that if some basic addition had been done, it would have been able to - - -? ---The item in totality would have been on the list. The voucher should have been available for scrutiny if required. The ability to actually pick up an addition error in terms of that I would think would be fairly remote.
Because it’s not the sort of thing that would be checked? ---It’s only silly things that accountants do.
There were also examples, as I said before, where supporting documentation was also falsely created, and so if I can take you – it remains in the tab you are in at page 25. This is another Shire of Dowerin document and it’s for the period 28 May 2015 to 29 June 2015, so this is towards the end of the activity and the offending. What did you notice in relation to this matter?---This
28/7/16 Page 94` particular listing of accounts, the bottom line says “Skill shop Midland, saw blades $4949.” In actual fact that represented not only the amount of betting on the card for that month but the $9 at the end was the fee that there’d been charges, so the invoice for that, and I think you have another display which will show the falsified invoice - - -
Yes, I think if we scroll down - - -?---These are the individual transactions. Again the first one is the list of accounts; that’s the total amount that would have been skimmed. If we proceed a little bit further down, this is the individual account from Mr Alcock which shows the individual betting that is on those cards.
And Ladbrokes, is that a betting agency as well?---Yes.
And so Racing and Wagering?---Yes. The only one that is not is a card fee and Westnet.
So predominantly those transactions were betting transactions?---That’s correct.
If I take you to back to the report, tab 28, 0694 at page 17 is the invoice. That’s a copy of the invoice? ---Yes.
Above, where the red arrow appears in the extracted statement, is that an extract of what was attached to the information that would have been available to council? ---That is correct.
So that again is an altered credit card statement to remove the betting transactions and substitute an apparently legitimate transaction?---What would appear to be a legitimate transaction.
Then attached to that was this invoice?---Yes.
Did you conduct any other inquiries in relation to that invoice?---In terms that - - -
The authenticity of it?---It isn’t a valid invoice from that particular firm, and I’m sure if some of the farmer councillors had seen this to say they were paying $4000 for chainsaw blades they would have been pretty concerned I would imagine.
Can we scroll down just a little bit more on that one. Again with this invoice, if you look at the bottom right-hand corner – and I appreciate that it’s actually very hard to see – the amount of the invoice is 4949? ---Yes.
And then the GST content is 449, yet the total is still 4949?---Yes.
So once again the maths just simply don’t add up?---No. The top line should have been the net ex of GST.
28/7/16 Page 95`
There were also unauthorised payments from the Shire’s municipal and trust accounts?---That’s correct.
In the course of your forensic audit you also established that he was using different methods of transferring Shire funds into his personal bank account. Can you describe in general terms what they were?---They were a series of different attempts. One process was, in the creditor system, to actually change the BSB number of the recipient so a legitimate transaction could be sitting in the creditors system, and you change the BSB number before the EFT is run, and then change it back afterwards. The amount then gets transferred to a newly nominated account.
Sorry, just to clarify it, you are talking there about the creditor system in SynergySoft?---Yes.
So accessing that and changing the details for a legitimate creditor?---That’s correct.
Changing the details to Mr Alcock’s personal account? ---Bank account; that’s correct.
I think there were two bank accounts that were his personal account, a NAB account and a BankWest account. Is that correct?---Yeah. The one in Melbourne was the highest user.
THE COMMISSIONER: You have a creditor, somebody you owe money to, so you change your bank account to your own, the money gets paid to your bank, and you change it back to the system looks okay again; but what happens when the creditor doesn’t get paid for that?---You then have to do some quick changes in terms of the process. In due course the creditor is always going to say, “Where’s my money?” and one of the easy ways to do that, as he did, was to put in false invoices, so if the invoice was false, the bank account was false, the creditor never knew that they were owed any money or appeared to be owed any money, and he did that for 28 occasions with the Shire of Toodyay, false invoices, and on those invoices the BSB number was his bank account.
HARRIES, MS: But on the occasions in terms of the example that the Commissioner has raised, where false details were – well, his details were inserted into the creditor’s details, were there occasions where you found that the Shire had in fact paid the bill twice, one to Mr Alcock and once to the legitimate creditor?---They only paid the legitimate creditor once but the council had incurred the cost for the fraudulent one in the first place.
Yes. I understand from your report that there were four main creditors that Mr Alcock changed the details on the system for, and how did you establish that?---There’s a process which is in SynergySoft, under the creditors’ maintenance transactions where you can actually get an audit trail, so the
28/7/16 Page 96` system, which you cannot alter, will produce all the amendments that have taken place over a period of time or for individuals or all operators that had changed details of creditors over whatever period you wish, so that audit trail was available. That was the first document that we saw and that highlighted a number of cases where he used his position to change the BSB numbers for other accounts.
And that was an audit trail that was able to be printed out of the SynergySoft system?---That’s correct.
I'll take you to an example of that, tab 28, 0694, page 22. I think we are still in it. This is a remittance advice, so this is a payment that presumably had been made by the Shire purportedly to Linkage International?---That’s correct.
And those EFT details and banking details that are circled in red are in fact Linkage International’s details?---Yes.
And the payment amount is for 2750. Is that correct?---Yes.
However, that payment did not in fact go to Linkage International. Is that right?---That’s correct.
And then just below, if we just scroll down, how you were able to establish that and if we look at the arrow at the bottom of the screen is through this audit trail report that you printed from SynergySoft and as I understand it, on 25 January 2012 at 1.04 pm that audit trail shows that Mr Alcock changed the creditor details of Linkage to his own. Is that right?---That’s correct.
And where you see the account number changed from 111174 to 0096124, that 0096124 is Mr Alcock’s account?---That’s correct.
Then if you go up to the next arrow in the middle of the page, on the same day, five minutes later at nine minutes past 1 the audit trail shows at the account number that the account number has changed back, from Mr Alcock’s number back to Linkage International’s number?---That’s correct.
And presumably the payment occurred in between?---In between.
As part of your forensic audit did you conduct a trace on Mr Alcock’s Bankwest account to confirm that this money was in fact transferred into his account?---We got originating documents from the bank for every transaction that would appear to have gone to his accounts, and it was just before we signed off on the report on 10 March that we had documents for all of them.
How is it that he was able to go into the system and make these changes? Were there any controls over that process? ---The SynergySoft system has what they call a super user code, that that person has the ability to change, modify, enter all aspects of the accounting system. He was the
28/7/16 Page 97` super user in terms of the council and so he had those functions. So the accounting system didn’t provide any difficulties for that. His only difficulty was actually transferring the money out of the bank accounts into his own, and he did that by changing the details on this BSB account.
THE COMMISSIONER: I take it that the SynergySoft, there are levels of users are there?---Yes.
And permissions - - -?---Yes.
- - - that you can do, because I note that Ms Howard said at one stage she had I think viewing rights over it and then it was changed?---That’s correct, yep.
HARRIES, MS: Mr Back, is there a way that an organisation could have access to or be using SynergySoft but have no super users?---Have no?
Have nobody that was a super user?---The supplier might do it so that they could trigger that, but at some stage if there was a problem with any particular aspect of the accounting system you may need that. What you could do is actually give certain activities to certain people and get those fixed by those particular holders.
THE COMMISSIONER: But it wouldn’t be unusual for an organisation to have a super user?---A super? No ,it’s not.
HARRIES, MS: Another way that you identified in your report that Shire funds were transferred into Mr Alcock’s accounts were by the presentation of false invoices like you were speaking about before, which had his account details on them?---That’s correct.
On how many occasions over the four-year period did you identify that this occurred and if we can perhaps go to page 23 of the report - - -?---I think there’s something like 42 occasions.
I’ll just take you to 23. I had it recorded that there were 20 occasions, totalling $84,000?---And then there was another group as well.
I see. Is that the other group below?---Yeah.
So 20 events, 84,000, and then another 18 events?---Yes.
Totalling 77,000. So the second paragraph, 18 of those were purporting to be from the Shire of Toodyay?---And we found another 10 as well. I think over the page you’ll find there’s 18 plus 10. Keep going. There you go: there were a further 10 other.
These transactions with the presentation of false invoices, were they predominantly Shire of Toodyay?---They were all
28/7/16 Page 98` of Shire of Toodyay: 28 invoices.
Is it right that these invoices predominantly were purporting to relate to expenses for the Avon Regional Organisation of Councils?---That’s correct..
The AROC, as it’s called, is a small group of regional councils, including the Shire of Toodyay and the Shire of Dowerin, which work together cooperatively for the benefit of this region. Is that right?---That’s correct.
So it was conceivable that the Shire of Toodyay could in fact be invoicing the Shire of Dowerin for this work? ---That’s right.
Did you locate an invoice template on the C-drive of Mr Alcock’s computer?---We did.
Did it appear that that template had been used to create these false invoices?---Yes.
Did you establish that it had in fact been used?---Yes.
Then if we can just scroll back up to page 23 please?---I think you’ve gone too far.
Sorry, I think it’s down?---Keep going.
Yes, on the next page?---That’s it.
That’s it? Is this an example of one of the false invoices that was created?---Yes, it is.
That invoice was created or purported to be for an expense incurred on 31 July 2015?---That’s right.
So towards the end of the offending?---Yes.
The total amount payable was $4400?---Yes.
And as you stated earlier, the benefit of this method was that there would be no real creditor seeking to have their invoice paid. Is that correct?---That’s correct. However, there was an instance at that time where there was a $4000 amount which was legitimate from the Shire of Toodyay, which is actually paid to Mr Alcock and it took several months for contact between the Shire of Toodyay and Dowerin to resolve the issue.
If we can just scroll down and there’s an arrow that appears at the direct deposit details and again that’s a different account number, 814915365, but that was the other account of Mr Alcock’s. Is that correct?---That’s correct, yep.
Was that the account that his pay went into?---His pay was distributed to several accounts. By 2015 there was a large amount of his normal pay being allocated to a joint account
28/7/16 Page 99` or his wife’s account in a different name, and there was also some allocations to his children’s accounts as well.
But did any of his pay go into this account?---Yes, it did.
It did. So this was an account number within the Shire’s systems - - -?---That’s correct.
- - - for one of their employees?
THE COMMISSIONER: How likely is it that somebody processing that, however, would notice that?---Very, very slim.
HARRIES, MS: Is there any way of extracting a report from SynergySoft to cross-check those types of details?---You can download the information out of Synergy into Excel and you can just do a straight comparator if you needed to. But you have to be looking for it.
In order to have this payment made, you found an audit trail yet again where the account details for Shire of Toodyay were changed to Mr Alcock’s personal account details and then changed back. Is that correct?---On one occasion, yes.
THE COMMISSIONER: That was the $4000 you were referring to?---Yes.
HARRIES, MS: The last method of payment were direct transfers as I understand it. Can you explain what you found in relation to them?---These transactions had no paper trail at all; they were simple, an EFT transfer out of the municipal accounts or the bank account direct to his own accounts and that was done on the knowledge that he had two signatories to authorise the payment, a transfer out of those bank accounts. So having access to both dongles and authorisations, it just simply made the process fairly easy.
If we can just scroll down to page 26, I think that’s the part of your report that deals with the direct transfers and the period for those was between 23 July 2014 to 17 August 2015. Is that correct?---That’s right.
The period of the transfers, the direct transfers from the municipal account?---That’s right.
The same period?---Yes, the 42 was – the municipal account was earlier than that.
So there were 42 transfers from the municipal account amounting to $194,000 approximately?---That’s correct.
And there were 15 unauthorised transactions amounting to $72,000 approximately, from the trust account?---That’s correct.
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When you speak about Mr Alcock having access to two banking dongles, is that a reference to the dongle of Mrs Howard? ---Yes.
That was the one that was in fact used for these transfers?---On all the data that we got back from the National Bank, it was Alcock and Howard as the two authorising officers.
THE COMMISSIONER: I can see how you do it and so forth, but at the end of the financial year you’re going to have to do something about the deficit, aren’t you? ---Absolutely.
HARRIES, MS: I think if we scroll to the next page you address that, the misstatement of general ledger expenses that inevitably had to occur in order to explain this within the banking system, within the financial documents. Is that correct?---That’s right.
So these transfers had been made out of the Shire’s bank account but they weren’t any documents to support them within the Shire’s SynergySoft system?---That’s right.
So they had to be created?---They had to be journalled out of the bank account as a contra.
This table that’s on the screen at the moment, this is on page 26 I think?---27?
27, thank you. This just relates to the misstatement of general ledger expenses for the amounts transferred from which account?---These are the direct bank account transfers out.
All of them?---All of them: some $363,000.
Did a similar process have to take place in relation to the credit card expenditure?---Yes.
But that’s not represented in this table?---No, it’s not.
So according to this table there were a number of accounts that this money was costed against. One of them was the GST account?---That’s right.
And one of them was the Community Club, where we are now? ---Yes.
And some others.
THE COMMISSIONER: When would these entries be made into the ledger? About the time of the withdrawals or could they wait?---It would appear that bank reconciliations were not done and therefore at the end of the financial year when the reconciliations needed to be done, there was a raft of general journals that were undertaken to balance
28/7/16 Page 101` the bank account at 30 June. We found that from 1 July 2015 to the time of his departure, none of the reconciliations had been done.
I’m just having in mind what went to council monthly, including the sort of thing I would look at which is budget, expenditure: variance year-to-date. Would this have an effect on those figures?---Not a big one. There were a couple of documents that an untrusting accountant might have seen in the monthly statements that would have suggested that there was something wrong and that one deals with this centre here, the community centre, recreation centre account. But when you look at $600,000 over four – five financial years, we know on that list there there was nearly $129,000 parked in what we call the GST account, which meant that the debit went to the GST account and the GST return to the Australian Taxation Office was increased so that the council didn’t have to pay the 129,000. And out of that we suggested that they need access to the portal, which the Shire has made contact with the ATO. They’ve only just been given access to the portal about a couple of weeks ago and we have suggested that what they should do is do a complete reconciliation going back a couple of years to ensure that their obligations to the Australian Taxation Office have been fulfilled.
HARRIES, MS: Mr Back, perhaps if we go to that now if we just scroll down. So that this is the recording of, this is what resulted in costing that $129,000 to the GST account. If we can just scroll up to the next page?---This is one sample.
Yes, just one sample of it. This is the business activity statement for July 2015. That $129,000 that we saw on the other page for the misstatement of the general ledger expenses, that was costed to the GST account falsely? ---Yes.
And that GST account as I understand it, was that meant to record the - - -?---Could I suggest?
Yes, perhaps you can tell me what those are meant to record. Thank you?---This is example of the process. The whole 129,000 is not in this transaction, only about 20 grand or so is. So when you look at where the first arrow is, the return provided by the council was for capital purchases of $357,000 and if you scroll down, if we can, and we have a look at the accounting records, if we look at where that next arrow is, the capital acquisitions for the same period out of the accounting system suggests $122,000 so there’s about $200,000 difference in the capital amount. 10 per cent of that was – the total amount was 21,059 – 509. So in this particular case it put into the GST account $21,509, of which he had to increase the purported capital purchases so the council didn’t have to pay the $21,000.
Yes. So what was in that GST account was meant to be a
28/7/16 Page 102` record of the GST that the council had paid in its purchases?---In the legitimate purchases.
In legitimate purchases, so that GST would be deducted from the GST that the council had collected on behalf of the tax Department and was due to pay it?---That’s correct.
And because of that, the amount of capital expenditure had to be increased to make it fit with the fact that $21,000 of GST had been paid?---That’s correct.
You also mentioned when the Commissioner was asking you some questions, the basic accounting that might have been picked up by an accountant who looked at the monthly financial statements in relation to the funding for this Community Club, so if I take you to page 35?---36?
Sorry, if we can just go over the page to 36, yes. I understand that this is an extract of the minutes of council for 21 July 2015 and this is a note that gets attached to those financial statements that were in the minutes?---That is correct. But you must bear in mind that these are – this is for the whole financial year, it’s to the report to the July meeting of council and it’s an unaudited set of financial reports.
Is it the case that these annual financial reports go to the council first, then get audited and then are returned to the council?---Well, the monthly report needs to be done each month so you need to do one as at 30 June which is provided to the July meeting. Usually the qualification is that there might be end of year adjustments that might need to go through. However, this particular note, note 9, it’s difficult to see under the red writing but in Amounts Received there is a negative amount where it should be a positive amount. This relates to this particular recreation centre here and in actual fact he’d already transferred out of the trust fund the amount of money that was owed to the Community Centre. So he’d paid himself the difference and the council – and I’m aware with discussions with councillors that they were a bit concerned that the amount that had been raised by the community for this centre, in terms of its operations, had not actually been paid to the centre. And this was a very bumble-footed way of emptying that account down to zero, but it was on the council’s agenda for 2015.
THE COMMISSIONER: And just so I’m clear, effectively with this particular thing, he stole the money really from the community trust?---Well, the Shire was the controller of those funds. He took the money from the account, the total trust fund account, and charged the transactions against that and AROC, so if that had been allowed to proceed, then the Shire would still be liable for the 20 odd thousand dollars.
HARRIES, MS: Again just to be clear, Mr Back, the recreation steering committee fund was a fund that was
28/7/16 Page 103` managed by the Shire of Dowerin. Is that correct?---It controlled the fund. It was a process where some cropping was done and the proceeds of that crop were paid to the Shire because – and it went back several years associated with ABN numbers and so forth, so it was paid to the Shire on the basis they were told that fund had been transferred through to the recreation centre.
And a committee was set up to manage fund raising activities and purchases prior to the incorporation of the Dowerin community fund?---That is correct.
So some of that fund raising money went into the fund also?---Yes.
And the direct transfers that Mr Alcock made from the Shire fund into his account, this was one of the funds that he transferred money from?---This is one of the bookkeeping processes.
Yes?---It didn’t alleviate the Shire’s liability to pay the money to the community.
I see; so it wasn’t a direct transfer from the fund?---No.
It was a transfer from the municipal fund but it was being costed to this one?---To this one.
We spoke briefly about bank reconciliations and I think you explained that the reason that these costings needed to happen was, as I understand it, so that the bank reconciliation could occur, so that that process could occur?---That’s correct.
Could you explain that in plain terms, what that actually all means?---So – and these events would take place when the auditors were required to audit the books and on a number of occasions, the auditor had raised the issue of bank reconciliations not being done. So the process he used was, because he controlled all of these features and controlled bank reconciliations, he didn’t need to do them until someone was going to ask the question “Has it been reconciled?” So at the end of 30 June 2015, he then undertook some journals to transfer that unbalanced amount of the bank account, so that the bank account from the bank and the bank account in the general ledger equalled one another.
All the expenditure that he had undertaken from the bank account came to the Shire in a bank statement, in the form of a bank statement?---That’s correct.
Until the end of June, none of those entries were actually accounted for in the SynergySoft accounting system? ---That’s right.
And so it was at that point that he had to cost the expenses against various items and this was one of them?
28/7/16 Page 104` ---Yes, and we actually found that there were I think something like 102 transactions in that end of month that needed further investigation and since we finished the audit, the Shire and a colleague of mine have been working on re-reconciling all of the processes, so the 14-15 financial statements could be made.
In your view, Mr Back, is it significant if bank reconciliations aren’t done?---Absolutely. Bank reconciliations are a cornerstone of accounting systems and that is – and that’s why the inference is that this should be done at least monthly and the reconciliation is intended to account for the differences, not to balance it, so you need to account for any direct debits that are placed into the Shire’s bank account, any credits that haven’t been brought to account and unless the bank balances, there are transactions that are not recorded into the financial records of the Shire.
Did you receive any information in the course of your review about whose task it had been to undertake and prepare the Shire’s bank reconciliations?---The – sorry?
Whose task it was within the Shire to do that?---We have asked and found out that it was Mr Alcock. Well, he took on the task. Whether it was his responsibility or not, he took over that task.
I am just going to ask you some questions about auditing. Over the four-year period, the Shire’s financial records were audited?---Yes.
This is a requirement in the local government legislation? ---Yes.
And Byfields were the auditors for the Shire?---That’s correct.
I might just take you to the scope of the audit, which you outline in your report at tab 28, 0694, page 3, the numbered page 3. There you record the objectives and scope of the audit. “Byfields will conduct - - -“?---That page is from the executive summary which is also repeated on page 42.
“Byfields will conduct their audit services in accordance with accounting standards and the relevant legislation;” and there are a series of dot points. The first is:
Develop a thorough understanding of the council’s business operations and internal structure by performing walk through tests.
Second, “Assess audit risks and identify significant audit areas.” The third, “Perform a systems testing such as compliance tests on all major risk areas.” The fourth:
Review the existing system as well as the internal
28/7/16 Page 105` controls and procedures to suggest areas for improvement where appropriate.
The fifth:
Verify material balance sheet and profit and loss account items by carrying out analytical review procedures and substantive tests.
The sixth, “Review all aspects of the council’s operations for compliance with relevant legislation and regulations.” Seventh:
Any items of a particularly critical nature should be forwarded by the audit committee and normal queries should be furnished by the administration.
The fact that bank reconciliations hadn’t taken place, you said that you regarded that as very significant. In relation to that last dot point, would you suggest that that was a matter of a critical nature that should have been forwarded to an audit committee?---It was and there were audit reports that suggested that bank reconciliations had not been completed.
Yes?---Did it get to the audit committee, I cannot establish. From what I have heard, it didn’t.
The second dot point, “Assess audit risks and identify significant audit areas:” what do you regard, in light of your expertise, as audit risks and significant areas for local government?---As an industry, risk is associated not only with financial risk but the major one for local government is reputational risk and over a number of years, the use of corporate credit cards has caused a fair amount of reputational damage to a number of councils. Most people would identify the use of credit cards as a high risk component simply because the opportunity exists either through wrongful means or accidents to be using corporate credit cards for personal expenditure, so most places will regard credit cards as a high risk component. That is demonstrated with the Department of Local Government guidelines in terms of corporate credit cards and the like, so the industry is very much aware. I would expect on a risk analysis that corporate credit cards will be one of the first things you look at.
Have you looked at any of the working papers for the reviews or the audits that were conducted by Byfields?---We have not had access to them.
This hearing will hear further evidence from the auditors tomorrow and our understanding is that some of that evidence will be that there was no reference to credit cards in the audit following 2011 onwards. Do you have any comment to make in relation to that?---It surprises me and when we look at the volume of transactions – now, the volume of transactions is 567 transactions. That’s a lot
28/7/16 Page 106` of transactions in a four-year period. The amount of 164 relatively is not so high but the volume of transactions on those cards would suggest that there’s a fair chance that any of the transactions picked up in the last 48 months would have shown a credit card with gambling transactions on it.
If the statements, the credit card statements, weren’t available at the Shire, as an auditor, is it possible to access those statements?---They would have had to ask for those statements through the Shire, because they would not have had direct access to the bank. The auditors generally at the end of one financial year will ask for a bank certificate as to the balances of accounts and so forth. In those certificates, you will find references to the credit card amounts that are outstanding. They would have to, you would think.
Perhaps if I can take to - - -
THE COMMISSIONER: How long do you think you will be, Mr Harries?
HARRIES, MS: Perhaps we can adjourn for - - -
THE COMMISSIONER: Were you planning to come back tomorrow, Mr Back?---Absolutely.
Then I think rather than carry on when we are all getting tired, we will adjourn now until 10 am tomorrow morning. Thank you.
(THE WITNESS WITHDREW)
THE MATTER WAS ADJOURNED ACCORDINGLY
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