A risk-based approach to auditing
procurement in English councils
Mark Wardman
Senior Manager
Audit Commission
19 May 2014
1
This presentation will cover:
• the Audit Commission and its role
• the criteria auditors use to assess risks in the procurement of local
public services
• recent developments in procurement and commissioning in local
government in England
• the costs and benefits of collaborative procurement
• arrangements in public bodies that ensure value for money in
procurement and contract management
2
The Audit Commission – until recently
•
An independent public corporation
(since 1983)
•
Appoints auditors
•
Publishes guidance and a Code of
Practice
•
Analyses and publishes financial &
performance information
•
Produces data analysis and tools
3
The arrangements for local public audit are
changing
• inspection by the Commission ended in 2010
• auditors moved to the private sector in 2012
• the Local Audit and Accountability Act 2014 abolished the Audit
Commission and established a new local public audit framework
• some Audit Commission functions will pass to other bodies
– The National Audit Office (the Code, value for money Studies)
– The Financial Reporting Council (overall public audit regulation)
• the Audit Commission will close on 31 March 2015
But
• there will be transitional arrangements for managing audit contracts
until 2017, or 2020 if contracts are extended
4
Procurement is part of auditors’
Value for Money conclusion
The Value for
Money
Conclusion
CODE OF AUDIT
PRACTICE
Securing
economy,
efficiency,
effectiveness
Prioritising
resources
Improving
efficiency &
productivity
Accounts
Internal
control
Accounting
records
Financial
position
5
“The organisation has proper arrangements
for challenging how it secures economy,
efficiency and effectiveness”
•To make sustainable cost reductions, organisations
will need to take a strategic approach to challenging
all areas of spend . . .
Prioritising
resources
Improving
efficiency and
productivity
•There is a willingness to challenge the existing
approach to managing the organisation and
delivering its services, including consideration of
whether delivery of these services is best through inhouse, outsourced or shared service arrangements.
• . . . This will involve challenging all aspects of their
business and taking action to make sustainable
efficiencies . . .
• The organisation . . . is seeking and evaluating new
ways of delivering services and of improving
efficiency, for example . . .
• . . . use of shared services
• . . . increased use of collaborative procurement
6
And can manage risks effectively
Inadequate evaluation of options for making efficiencies and focus
on achieving short-term efficiencies rather than long-term
sustainable savings
Not challenging the way activities are delivered or exploring
innovative and new ways of delivering activities, for example,
through outsourcing or shared service arrangements
Not considering the possible risks of delivery and financial
performance of outsourcing, shared services or partnerships
7
Reporting the work of the Auditor
• Auditors publicly report their findings on this work to the
public body:
– report to those charged with governance
– audit report including the conclusion on whether the audited body has put
in place proper arrangements for securing economy, efficiency and
effectiveness in its use of resources
– annual audit letter (the published summary of the auditor's findings aimed
at the general reader)
– Public Interest Report
• The Audit Commission produces a summary of the
Auditors’ work in the Annual Auditing the Accounts report.
8
Forces shaping councils’ recent
approaches to public procurement
• Austerity and cuts
• The Public Services (Social Value) Act (2012)
• 2014 EU Procurement Directives
9
The challenges for councils are
considerable and multi-faceted
Satisfy user
needs
Secure efficiency
gains!
Support the local economy
Procure in partnerships
Provide
choice
Develop a diverse supply
base
Improve service
quality
Foster
innovation
Incorporate Sustainability
Support SMEs
Build Voluntary sector
capacity
10
English councils spend over £29 billion
with third parties
Source: Dept. of Communities and Local Government Subjective Analysis Return 2011/12
11
And the trend is upwards
12
Key findings from
‘Collaborative Procurement’ (2009)
• 93% of public bodies used Framework Agreements
• Only half used category management in 4 of 8 standard commodity
categories
• 80% didn’t record the costs of letting contracts
• The collaborative procurement landscape is fragmented
• Too many brands
• Not enough aggregation of demand
• Too much ‘gold plating’
13
There was significant variation in prices
paid for the same product
Price variation for LCD flat screen monitors
£160
£140
Price paid
£120
£100
£80
£60
£40
£20
£0
14
The challenges for councils are
considerable and multi-faceted
Satisfy user
needs
Secure efficiency
gains!
Support the local economy
Procure in partnerships
Provide
choice
Develop a diverse supply
base
Improve service
quality
Foster
innovation
Incorporate Sustainability
Support SMEs
Build Voluntary sector
capacity
15
Intelligent commissioning is the best
way to secure VFM in procurement
INTELLIGENT COMMISSIONING
Understand
needs
Understand the
market
Procure
effectively
Redesign
services?
Develop the
market?
Improve
processes?
User-focused,
outcomes-based
services
Long term impact on
competition &
contestability
Select most
appropriate service
providers
VALUE FOR MONEY
16
Contract management is as important as
procurement
Source: LGA/Audit Commission, Savings from Contract Management (2014)
17
A corporate approach helps to manage risks
in procurement and contract management
RISKS
MITIGATION
Scale and complexity
Aggregating demand
Skills and capacity
Specialisation and training
Fragmentation
Collaboration
Contract management
Procurement & CM staff
continuity
Contract rigidity
Renegotiation
Fraud
Active management &
monitoring
18
Thank you for listening. I’m happy to
answer any questions
[email protected]
+44 (0)7974 007230
www.audit-commission.gov.uk
19
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A risk-based approach to auditing procurement