Presentation by Daniel Sanches, Portuguese Court of Accounts, on the Audit to five public works developed through direct State management, at the workshop organised by SIGMA for the Lebanese Court of Accounts on Audit to five public works developed through direct State management, held in Beirut 28-29 June 2016.
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Structure of presentation
1. Initial question: Why control public works? (CRITERIA FOR
SELECTION)
2. Focus
3. The Subject
4. Goals
5. Methodology
6. Audit work phases
7. Collaboration of external experts
8. Conclusions
9. Recommendations
- Introducing Performance Auditing in Supreme Audit Institutions -
Audit to five public works developed through direct State management
3. AjointinitiativeoftheOECDandtheEuropeanUnion,
principallyfinancedbytheEU
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1. Why control public works?
(CRITERIA FOR SELECTION)
- Introducing Performance Auditing in Supreme Audit Institutions -
Audit to five public works developed through direct State management
1. Significant annual budgets;
2. Political priority of public woks;
3. Area of high risks / prior audit works; Identified Risks:
a) Overspending on public works projects;
b) Substantial costs to the State;
c) Planning of annual budgets (understatement of costs);
d) Under budgeting of the works;
e) Works not foreseen / defects in the projects;
f) No respect for deadlines for implementation / execution deadlines;
g) Design errors or construction defects.
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1. Why control public works?
- Introducing Performance Auditing in Supreme Audit Institutions -
Audit to five public works developed through direct State management
The Court of Auditors decided choose this horizontal theme in order to:
a) Avoid future errors and flaws in the management of public works
projects;
b) Be used as an educational instrument and element of reference
in the field of the management;
c) The possibility that performed appraisal would better serve the
public interest;
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1. Why public works developed through direct State management ?
- Introducing Performance Auditing in Supreme Audit Institutions -
Audit to five public works developed through direct State management
Traditionally, the execution of public works in Portugal, namely
by direct management, has repeatedly experienced slippage
of deadlines and costs making it an area of high risk with
substantial costs to the State.
(In summary)
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2. Focus
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Audit to five public works developed through direct State management
Exceeding the aspects of strict legality and regularity;
The verification of compliance with the criteria of economy,
efficiency and effectiveness;
The verification of compliance with the principles of transparency,
competition, equality and the pursuit of the public interest;
Adoption of good practices for this area of public expenditure.
The Court, in this work, focused its attention on
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The subject
05/08-2nd
Chamber –
Project of
rehabilitation
of the tunnel
do Rossio;
22/08-2nd
Chamber –
Tunnel of
Terreiro do
Paço/Santa
Apolónia;
37/08-2nd
Chamber –
House of
music;
06/09-2nd
Chamber –
Sá Carneiro
Airport;
09/09-2nd
Chamber –
Bridge
Rainha
Santa Isabel.
- Introducing Performance Auditing in Supreme Audit Institutions -
Audit to five public works developed through direct State management
Developed by the Court of Auditors on implementation of its supervisory
Plan (2008) five thematic scope audits which gave rise to Reports :
H o r i z o n t a l w o r k
V
e
r
t
i
c
a
l
w
o
r
k
s
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Goals
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Audit to five public works developed through direct State management
Taking into account criteria of opportunity, cost and effectiveness, the
audits aims give coverage to the following goals:
GENERAL
Identify and characterize each project, in accordance with its phases: preliminary
draft phase, project contest, contracting, construction and completion;
COMPLIANCE
Characterize the hiring cycle and whether the process of choice, selection
and award, if there were situations revealing conflicting interests objectively;
Verify that was complied with the provisions of article 275.º of Decree Law
nº 59/99, (Advertising of lists of Contracting)*;
*List of all public works contracts made in the previous year, whatever its value and form of assignment, referencing
these, value and form of attribution and its awarding entities
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Goals
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Audit to five public works developed through direct State management
EFFECTIVENESS
Examine the differences and, as far as
possible, their financial impact on the overall
cost of the work;
Characterize the mechanisms of monitoring,
control and supervision of the work;
Assessment of the enterprise management .
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Methodology Adopted
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Audit to five public works developed through direct State management
The methodology had underlying the principles,
methods and techniques adopted by the Audit Court
and included in its "Audit Manual and Procedures",
as well as the practices and standards accepted by
the international organizations of public external
control, such as INTOSAI, that the Court of Auditors
is a member. Were also considered the good
practices employed by the National Audit Office in
work of equal nature.
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Audit work phases
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Audit to five public works developed through direct State management
Thematic study of the
object audit
Global audit plan
Presentation of the
objectives of the
audit to audited
entities
Draw up of a
questionnaire
directed to the
audited entity
Analysis of
responses to the
questionnaire
Analysis of the
available contracts
and related
documents
Analysis of the
available quarterly
reports prepared by
the company auditor
Analysis of the
opinion delivered by
the General
Inspectorate of public
works
Development of field
work (tests)
Preparation of the
audit report
Adversarial principle
exercise
Analysis and
consideration of the
replies sent to the
Court
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Collaboration of external experts
• Before establishing the final text of the report, the Court invited the Order of Engineers and
the Laboratório Nacional de Engenharia Civil (National Laboratory of Civil Engineering), as
their Chairman, to cooperate as experts in order to fix the content (in everything that does
not interfere with the results of completed audits) of the recommendations contained in the
final report. The suggestions, which were generally accepted gratefully and introduced or
even referred to in the text of the report, having contributed to enrich and strengthen the
experience and knowledge accumulated by those two prestigious organisations.
- Introducing Performance Auditing in Supreme Audit Institutions -
Audit to five public works developed through direct State management
• In the audit development hire an independent civil engineering expert for this purpose having
the Court grant its independence, although functionally subordinate to technical duties and
deontological code that the Auditors carry. Prior to hiring this expert, the Court makes sure of
the absence of any conflict of interest with the audited entity.
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SUMMARY REPORT
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Audit to five public works developed through direct State management
COURT OF AUDITORS
(TRIBUNAL DE
CONTAS)
HAS FOUND
A widespread phenomenon of serious cost slippage
(between 25% and 295% above the ceiling rates
established by the contracts);
Significant deadline deviations (between 1.4 and
4.6 years more than expected for the conclusion of
the works).
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- Introducing Performance Auditing in Supreme Audit Institutions -
Audit to five public works developed through direct State management
CONSTRUCTION
PROJECT TECHNICAL
DOCUMENTS NOT
PROPERLY
CONCEIVED
In 4 cases, the technical documents belonging to the
construction project were improperly conceived, and that implied
the need to alter quantities of materials; in these cases, the
public entities did not go through a new procurement procedure,
disregarding competition and therefore raising costs;
PROCUREMENT
PROCEDURES
DIRECTLY AWARDED
WITHOUT CONSULTING
Procurement procedures aimed at granting supplies and
services' contracts were directly awarded, without consulting
other economic operators; awards were not sufficiently justified,
disregarding the principle of transparency and the market rules;
LACK OF
TRANSPARENCY AND
PUBLICITY OF
PROCUREMENT
PROCEDURES
Open procedures sometimes lacked transparency and publicity
and procurement procedures sometimes lacked accuracy;
CASES OF BREACH OF
CONTRACT
Awarded contracts were not sufficiently penalizing for the private
economic operators in cases of breach of contract;
FINDINGS
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FINDINGS
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Audit to five public works developed through direct State management
SIGNIFICANT
ADDITIONAL COSTS
OF PUBLIC WORKS
In the 5 cases, there were additional costs of public works that
rose to 52.6% of the awarded values; In 1 case, the cost
slippage went up to 136.92% and to 228%; this corresponds
to a widespread phenomenon of cost slippage in public works
in Portugal;
INEXISTENCY OF
ESTIMATED VALUE
FOR THE
PROCUREMENT
PROCEDURE
In 2 cases of public works, there was not an estimated value
for the procurement procedure;
COST SLIPPAGE OF
SUPPLIES AND
SERVICES
CONTRACTS
Supplies and services contracts also followed the same
tendency, with a medium cost slippage of 54%;
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FINDINGS
- Introducing Performance Auditing in Supreme Audit Institutions -
Audit to five public works developed through direct State management
DELAYS ON WORKS
There were major delays in all the five cases, representing
about 100% of the time before which, according to the
contract, works should be concluded;
Those deadline deviations were due, namely, to delays in
expropriating lands, obtaining environmental impact
documents, work suspensions and changes in the technical
projects.
INADEQUATE AND
INEFFECTIVE
MONITORING AND
CONTROL SYSTEM
The Implemented monitoring and control system, mostly
carried out through outsourcing, was, in 4 cases, inadequate
and ineffective; In opposition, in 1 case, the contract was
terminated by the public contractor's initiative and that proved
to be the right decision;
There were no post-assessments of the way in which the
works were developed, and that prevented the public
contractors to gather “lessons learned” and set up guidelines
for the future projects.
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CAUSES FOR DEVIATIONS
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Audit to five public works developed through direct State management
COST
SLIPPAGE
The lack of previous studies and the revision of projects;
Works being carried out at the same time as projects;
Modifications to the works and extra works, due to project errors and
omissions or due to unforeseen events;
Deadline extensions.
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CAUSES FOR DEVIATIONS
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Audit to five public works developed through direct State management
DEADLINE
DEVIATIONS
Delays in expropriating lands and in obtaining the Environmental Impact
Statement
Delays in elaborating and/or approving execution projects and in delivering
project documents
Terms of consignments
Work interruptions, constructive process modifications
Change of project or contractor;
Extra-works and unforeseen events.
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Some Recommendations
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Audit to five public works developed through direct State management
TO THE
GOVERNMENT
Establishment of an Observatory on Public Works
Developments;
Dissemination of good practices referring to the stages of
planning, execution, control and assessment of Public Works;
Dissemination of cost-benefit evaluation models and ex post
evaluation of Public Works Developments;
Timely availability of funds in order to prevent the bodies in
charge of Public Works Developments from making use, as
much as possible, of banking loans;
Implementation of the project life-cycle cost evaluation in a
perspective of the overall costing divided by the respective years;
Limitation of the creation of legal exception schemes.
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Some Recommendations
- Introducing Performance Auditing in Supreme Audit Institutions -
Audit to five public works developed through direct State management
TO THE BODIES
IN CHARGE OF
PUBLIC WORKS
DEVELOPMENTS
Systematically appointing a development manager;
Proper presentation of thorough and credible forecasts of global cost
and development conclusion deadlines;
Mandatory cost-benefit and a posteriori evaluation of the
developments;
Improvement of project quality;
Establishment of objective evaluation criteria for the proposals;
Maximization of accuracy and rigor of the contract clauses;
Timely availability of funds needed for the execution of the work, in a
transparent and effective way;
Improvement of the information system for management, namely
through the cost accounting method;
Systematic promotion of market consultation.