Control And Compliance In Public Sector Procurement

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The presentation covers public sector procurement risk and controls from an auditor\'s perspective. It gives an overview of how public sector procurement in Singapore has evolved and the risks that procurement managers, professionals, control and risks managers, internal/external auditors should be alert to when dealing with risks in procurement.

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Control And Compliance In Public Sector Procurement

  1. 1. CONTROL AND COMPLIANCE INPUBLIC SECTOR PROCUREMENTPUBLIC SECTOR PROCUREMENT ASIA MASTERCLASS5 JUNE 2012YOONG EE CHUAN, CPA, CIA, CISA, CISM, MSID 1
  2. 2. AGENDA Evolution of Procurement – A Public Sector Example Centralisation to De-Centralisation Snapshot of Procurement Ecosystem Managing Procurement Risks Internal Controls Auditing and Assurance Control and Compliance 2
  3. 3. EVOLUTION OF PROCUREMENT Instruction Centralisation Manual Snapshot of Paper to to de- (IM)3B to IM procurement Digital centralisation on ecosystem procurement 3
  4. 4. EVOLUTION OF PROCUREMENT 4
  5. 5. EVOLUTION OF PROCUREMENT 5
  6. 6. EVOLUTION OF PROCUREMENT Principles remain IM3B – Government similar i.e. open and Instruction Manual fair competition, on Procurement Estimated transparency and prescriptive rules for procurement value value-for-money (or manual handling of (EPV) previously “lowest procurement cost meeting exercises specifications”) Procurement Rules for quotations processes were very vs tenders manual 6
  7. 7. EVOLUTION OF PROCUREMENT 7
  8. 8. EVOLUTION OF PROCUREMENT • Less onerous compliance wise to tenders • Confidentiality of quotations • Fax quotations vs mailedQuotations quotations • Dedicated fax, officer opening etc. • Posting of quotations on notice board 8
  9. 9. EVOLUTION OF PROCUREMENT • Offer by vendors – more legal documentation as it is binding • Confidentiality and integrity important • Tender boxes system with dual keyTenders • Tender opening committee • Tender witnessing officers • Evaluation by committee • Award by approving authorities based on value • Posting of bids on notice boards 9
  10. 10. EVOLUTION OF PROCUREMENT[Post-SLA] Finance Circular No 1/2011 [4 March 2011] &Corrigendum [13 May 2011]New Roles:• Approving Officer - AO (Approval of Requirement - AOR) function• Approving Officer (Bid Amendment) –Permanent Secretary (PS) or delegated officerOther Requirements• Period contracts require AO (AOR) approval• Good practice to establish own period contracts for regular purchases• Limiting of “Limited” tenders – GPE should seek guidance from PS/CEO/Head of Agency if in doubt 10
  11. 11. EVOLUTION OF PROCUREMENT Other Requirements • Quotation Approving Authority (QAA) preferable (good practice) to be from different department (division/section/unit) requesting procurement • Goods/services Receipt Officer ensure documentary evidence (e.g. delivery orders, service reports, inventory stock-take) that goods/services delivered or performed • Segregation of Payment Certifying Officer / Approving Officer duties extended to Statutory Boards 11
  12. 12. EVOLUTION OF PROCUREMENT Centralisation to de-centralisation • THEN • Central procurement office (CPO) • Stationeries e.g. pens obtained via CPO • Savings from bulk purchases but spoilage from stock obsolescence, matching demand/supply • NOW • Decentralised • E.g. e-Catalogue buy, bulk tender, GeBIZ • You buy what you need, block budget aproach 12
  13. 13. EVOLUTION OF PROCUREMENT IM3B to IM on procurement • THEN • Instruction manuals came in paper files • Updating was a pain, manually cross out super-ceded paras, paste over new paras etc. • People were more controls & rules conscious • NOW • Web-based • Ease of reference and ease of forgetting (in some cases) 13
  14. 14. MANAGING PROCUREMENTRISKS Inherent Procurement is susceptible to corruption (in general) Risks E.g. vendors gifts, ang-pows, free samples Non-compliances can threaten openness, fairness and transparency occur Laxity and lapses in basic contract management can result in loss of value-for-money Report of the Auditor-General highlights cases of non-compliance 14
  15. 15. MANAGING PROCUREMENTRISKS AG’s Report 1994/1995 In the past: Audit of Purchases under United States Foreign Military Sales Programme Review of Financial Systems of Singapore Armed Forces Sports Association Compliance with Government Procurement Procedures by Statutory Boards 15
  16. 16. MANAGING PROCUREMENTRISKS 16
  17. 17. MANAGING PROCUREMENTRISKS 17
  18. 18. MANAGING PROCUREMENTRISKS 18
  19. 19. MANAGING PROCUREMENTRISKS Recently – Report of Areas of concern the Auditor- General FY2008/09, Auditor- Laxity in procurement and contract General’s Overview management Lack of financial prudence in procurement and poor management of contracts and agreements Resulting in higher expenditure for goods and services 19
  20. 20. MANAGING PROCUREMENTRISKS Areas Under-performance not detected of concern (cont’d) Penalties for non-performance not imposed Revenues due not collected Little or no assurance of value- for-money in projects carried out 20
  21. 21. MANAGING PROCUREMENTRISKS 21
  22. 22. MANAGING PROCUREMENTRISKS 22
  23. 23. MANAGING PROCUREMENTRISKS 23
  24. 24. MANAGING PROCUREMENTRISKS 24
  25. 25. INTERNAL CONTROLS People • Lapses due to the way people interpret and enforce the rules as well as implementing the procedures • IM3B now more principles-based, i.e. more room for people to interpret hence critical to educate staff handling procedure about how to apply the principles • IM3B now provides case studies to help us • Segregation of responsibilities • Not one person do everything 25
  26. 26. INTERNAL CONTROLS People • Segregation of responsibilities (cont’d) • GeBIZ – more different roles, e.g. goods received and goods inspection must be different officers, purchasing officer also cannot be approving etc. • Previously can circumvent if manual, now with GeBIZ roles, more difficult • Evaluation team for tenders shouldn’t all be from the same dept/team • Education and awareness of IM 3B (and 3G) • Trade-off between controls and efficiency 26
  27. 27. INTERNAL CONTROLS System of procurement • Implement systems and processes that adhere to IM3 • But public agencies do vary in implementation • E.g. of SBs that had dubious quotations • Get internal audit to review • Perhaps external audit may review • However, does not focus too much on internal controls over procurement, i.e. more concerned about validity and authorisation, completeness of recording of purchasing and payment transactions then procurement principles: openness, fairness and transparency 27
  28. 28. INTERNAL CONTROLS GeBIZ: A game changer • Controls are built into the procurement process • More difficult (but not impossible! i.e Singapore Land Authority case) to circumvent relative to manual processes • Examples • Openness of web invitations to quotes and invitations to tenders and request for proposals (global) • Routing for approvals • Publication of awards 28
  29. 29. INTERNAL CONTROLS Some issues for consideration: • To what extent does your agency adhere to principles of IM3B/G? • To what extent is your standard operating procedures for procurement in line with IM3B/G? • How familiar are your people with IM3B/G principles and procedures (i.e. GeBIZ use) • Have you set-up assurance and audit of procurement • Get your internal audit to look into it • Ask your external auditor to look into it 29
  30. 30. AUDITING AND ASSURANCE CAATs are a significant tool for auditors to gather information independently CAATs include: Generalised Application audit software Utility software for Audit expert Test data (e.g. ACL, software continuous systems IDEA) online audits 30
  31. 31. AUDITING AND ASSURANCE Benefits Challenges IT knowledge, expertise and experience of auditor Increased audit coverage Availability of suitable CAATs and IT facilities Efficiency and effectiveness of using CAATs over manual techniques More thorough and consistent analysis of data Time constraints Integrity of the information system and IT environment Reduction in risk Level of audit risk 31
  32. 32. AUDITING AND ASSURANCE Key characteristics • Ability to extract data from commonly used file formats and tables of database systems e.g. ascii, flat file, comma separated variable, tab separated variable, PDF, prn etc. • Can audit any application on any technology platform Functions • Data queries • Data stratification • Sample selection
  33. 33. AUDITING AND ASSURANCE Functions (cont’d) • Missing sequence identification • Statistic analysis • Calculations • Operations to join files and tables • Fraud analysis – e.g. Benford analysis
  34. 34. AUDITING AND ASSURANCEIDEA • Data analysis or generalised audit software
  35. 35. AUDITING AND ASSURANCE Review organisation’s General analysis of access control list for roles by dept/section potential conflicts Audit Test controls over segregation of dutiesApproach Trend analysis: mean, median and high/low •i.e. officer performing goods receipt vs goods inspection not the same officer Analyse System owner roles vs Finance’s/Procurement user department roles role
  36. 36. AUDITING AND ASSURANCE Vendor/Supplier Review expenditure review • Highest Purchase • Screen against Order “blacklist” (i.e. SLA Value/Number fraud known “front” • Highest Number of companies) Invitations-to- • Summarise vendor Quote / Tenders by amount in called period (financial year or calendar year)
  37. 37. AUDITING AND ASSURANCE Vendor/Supplier Invitations-to- review (cont’d) Quote review • Reasonableness • Summarise by test of top 10 Dept, Section, vendors by value Staff, Vendor or number of • Review for purchase orders unusual patterns against ACRA or unexplained Bizfile check and trends understanding of business
  38. 38. CONTROL AND COMPLIANCE Learning Points CAATs is a tool Auditor’s understanding of business and risks critical Organisation’s oversight by individual heads of department on expenditure important Segregation of duties and staff rotation important
  39. 39. THANK YOU!Questions?Contact • Yoong Ee Chuan, Director/Internal Audit Office • 535 Clementi Road, Singapore 599489 • Ngee Ann Polytechnic (www.np.edu.sg) • yec2@np.edu.sg • DID: 6460-6275 • Twitter: @eechuan • LinkedIn: http://sg.linkedin.com/in/eechuan 39

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