The Year of the Horse or the Year of the Procurement Audit

To the Chinese this is the Year of the Horse.  On the first of April we start the New Financial Year for Public Sector bodies. Will this be the Year of the Procurement Audit? Here is why it is likely!

In November 2013, the Audit Commission in its report “Protecting the Public Purse” stated that in 2012/13 the NFA estimates procurement fraud cost local authorities £876 million, making it the single largest area of financial loss to fraud in local government. However for the same period the total value of detected procurement fraud by local authorities was £1.9 million. This was spread over 203 detected cases (average £9,360 per case). A detection rate of 0.22%.

Compare this to the overall estimated Fraud in Local Authorities of £2bn with identified cases amounting to £178m. The detection rate in this case is almost 9% (average £1,664 per case).

Given the low detection rate and the higher average cost of each Procurement related fraud it seems that Procurement is an obvious and an essential area to target.

We know that some Local Authorities have already targeted Procurement for Financial Year 2014/15

What makes Procurement an even more compelling area to focus on, is that regardless of any fraudulent activity, money is being wasted through less than optimal practices.  This may be due to poor procurement, loose specifying, bad contract design, inadequate contract management, insufficient supplier management or many other aspects of the Procurement Process but in particular Procurement Risk Management.

Losses as a result could dwarf that of fraud!

Can you stop these losses- No! not entirely.

Can you reduce such losses – Emphatically Yes!

Are you ready for the Procurement Audit?

Many procurement and contract management activities are carried out by individuals outside of any Procurement function or without professional Procurement advice. As such they do not always have the requisite skills to ensure that robust contractual and commercially viable contracts are in place.

Gifted amateurs? In some cases not even gifted!

However, the accountability for procurement activities, remains with the Head of Procurement.

Often, there are insufficient resources to undertake a thorough audit of de-centralised procurement activities. However, there is a solution.

Bring in the Cavalry. Work with the Internal Audit Team to plan the approach to verifying that robust controls are in place. It is better to initiate an audit and find issues, than have one imposed on you and to be found lacking.

Brian Farrington Ltd., (BFL) has been providing Procurement Consultancy and Training and Procurement and Supply Chain Audits since 1978. We are a firm believer that “prevention is better than cure! and to this end we have developed an online tool – Procurisk^®  , which can provide a laser like focus on those areas that those Auditing external spend (and Managers of those spending it) should concentrate on.

It does not require the Auditor to have an in-depth knowledge of Procurement or Commissioning. However it will:

• Allow more effective use of the Auditors time and resources
• Provide a blueprint for areas to target
• Identify those areas of procurement related risk, specific to your organisation
• Assist in risk mitigation
• Prevent financial loss, reputational damage and  legal challenges as a result of procurement related failings

Based upon a rigorous self-assessment provided to you by those, Procuring, Commissioning or managing spend within your organisation, a risk assessment will provide a score for each of the following “datasets”:

• Contract Risks
• Financial Risks
• Supply Market Risks
• Supplier Relationship Management Risks
• IT Systems Support Risks
• Procurement Dependencies Risks
• Intellectual Property Risks
• Procurement Pricing Decision Risks
• Vendor Risks
• Procurement Performance Visibility Risks
• Intellectual Capital Risks
• Contract Management Risks 

The scoring is in the range 0 to 10. This is an average of the responses given to the individual metrics in each data set. However the report allows the auditor to drill down to the constituent elements. The whole system addresses more than 200 areas of known risk in procurement. Each time a dataset is completed the system will give a detailed report on each of the outcomes

The example below is the output from the Contract Risks dataset and shows 10 of the 32 areas considered. You can see from this which areas need consideration.

The system has been developed from over 30 years from our practical consultancy experience of auditing Procurement activities in centralised, decentralised and functional operational departments in both the Public and Private sectors in UK, USA, Southern Africa and mainland Europe.

We are that confident that if you use Procurisk^®  you will be able to identify improvements to your current operations.

Please give me, Ray Gambell, a call  on 01744 20698 to discuss how Procurisk^®  can help you and your organisation or email me at [email protected]