Infrastructure spending in Australia is a big-ticket item for the government at all levels.
Over the next decade, the federal government has committed a record $110bn towards infrastructure. This includes an additional $15bn through the 2021/22 Federal budget – of which Western Australia’s share is $1bn.
Currently, there are 1,430 WA government infrastructure projects in the state’s four-year pipeline of work valued at $27bn. But with WA’s infrastructure funding level ranked last among all Australian states and territories, it will be up to the state government to prioritise infrastructure within its overarching annual budget.
Unfortunately, the numbers tell us that WA is the only jurisdiction to spend less than 10% of its total budget on infrastructure. Within the state, local governments themselves administer a collective of approximately $45bn of community assets, and outlay approximately $4bn worth of goods and services each year.
As we move beyond the impacts of 2020, infrastructure spending will be a key lever in sustaining WA businesses while protecting current jobs and creating new jobs in a post-pandemic era.
Key challenges facing state and local governments in WA
One of the biggest challenges facing governments in WA is achieving the main goal of “value for money”. This means delivering services at the lowest long-term cost to taxpayers, for a given quality standard.
This challenge has been highlighted by the Gratton Institute in a recent report where they state: “Australian governments don’t care enough about costs”. The institute estimates about 25% of transport infrastructure projects end up costing taxpayers more than governments expected when construction started.
Back in February 2018, Mr John Langoulant AO released a report following a special inquiry into government programs and projects. The report contained a number of observations that current procurement practice and contract management for capital works were sub-optimal.
In WA, the recent corporate failure of the Pindan Group in the engineering construction industry highlights the challenges faced by the government in engaging with a sector that finds it hard to turn a profit.
This challenge is exasperated when governments look for domestic suppliers under the WA Buy Local Policy 2020, but few Australian firms have the technical and financial capability to deliver on large-scale infrastructure projects.
Infrastructure WA have also reported that the high level of construction activity in WA has the potential for the emergence of skilled labour shortages – something we are certainly seeing on a national level.
Other key challenges that governments are struggling with include procurement fraud and the risk of engaging with corrupt suppliers. Some of the recent high-profile investigations in WA are the North Metropolitan Health Services bribery scandal and the Department of Communities alleged corruption scandal.
How the WA government is responding
There are a number of ways that the WA government is attempting to address these key challenges.
One of these is with the establishment of Infrastructure WA in July 2019, with a key guiding principle of offering affordable and deliverable recommendations. Also in 2019, the WA government announced funding for the WA Auditor General to establish a Forensic Audit business unit to conduct targeted investigations of matters related to public money, including contract management systems.
In 2020, we saw the establishment of the Office of Major Transport Infrastructure Delivery which is tasked with delivering infrastructure projects valued at more than $100m.
This was followed by the passing of the Procurement Act 2020, and the release of new WA state government Procurement Rules that will come into effect from 1 July 2021.
Another 2020 initiative was the launch of the WA government’s Building for Tomorrow program, which is a collaboration of WA’s transport agencies in their planning and construction of related infrastructure.
When it comes to the threat of cybercrime and its impact on large-scale projects, this was addressed in September 2020 when the WA government established its Cyber Security Operations Centre in the Office of Digital Government. The aim of the centre is to protect the integrity of government systems and grow cyber security maturity across the sector.
Lastly, the WA Auditor General has announced plans to audit the state of cyber security in local government entities.
How RSM can support local and state governments with infrastructure projects
Large-scale infrastructure procurement and contract management are highly complex and challenging – particularly when internal resources are already stretched thin, or staff lack the necessary skills to provide the assurance needed to act with confidence.
At RSM, we have specialists who can work with your infrastructure teams to develop and implement robust financial due diligence processes to qualify prospective suppliers. For example, the financial due diligence of foreign controlled suppliers should be more than obtaining a letter of financial support. The financial strength of the foreign parent entities should be reviewed to test their ability to provide timely financial support, as and when required.
Our skilled auditors can also provide procurement-related performance audits to test for contract compliance and adherence to government and procurement obligations – as well as establishing policy and procedures for preventing procurement fraud. This includes developing Fraud and Corruption Control Plans in accordance with statutory and regulatory requirements.
At the onset of a new project, we can support you with the design of easily understood and measured financial management KPIs, and help you implement clear and meaningful financial reporting.
In addition, our cyber specialists can conduct cyber-crime health checks to benchmark your cyber security risk mitigation strategies against Australian government better practice guidelines.
How can RSM help?
To learn more about our expertise in infrastructure projects, and how we can assist across the full spectrum of audit and assurance, contact your local RSM office.