This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide.
Recent audits have put the spotlight on procurement governance. While some reports identify the need for improved central oversight, others warn that over-regulation increases the risk of waste, fraud, inefficiency, and delay. Overall, these findings highlight the need to fine-tune and balance procurement oversight through improved approval and delegation procedures and enhanced procurement training.
For example, in its February 2021 follow-up audit entitled Medicaid: CMS Needs to Implement Risk-Based Oversight of Puerto Rico’s Procurement Process, the U.S. Government Accountability Office (GAO) found that the federal Centers for Medicare & Medicaid Services (CMS) failed to provide adequate oversight over Puerto Rico’s Medicaid program procurements. As the GAO noted, “Puerto Rico implements major functions of its Medicaid program by procuring services from contractors, such as the delivery of managed care services to Medicaid beneficiaries.” In fact, the report noted that in 2018, “procurement costs represented $2.4 billion of Puerto Rico’s $2.5 billion in total Medicaid expenditures.”
In the 2021 audit, the GAO raised its long-standing oversight concerns, which it previously documented in an April 2016 report where it “found little assurance that Puerto Rico and other territories’ Medicaid funds were protected from fraud, waste, and abuse”. As the GAO’s 2021 report noted, these concerns were exacerbated by a July 2019 Department of Justice indictment of three individuals, including the former executive director of the Puerto Rican government agency responsible for overseeing Medicaid procurements, for unlawfully steering contracts to preferred individuals.
As the GAO stated, “these allegations have raised concerns about Puerto Rico’s Medicaid procurement process, including whether it helps ensure appropriate competition, and prompted members of Congress to ask additional questions about federal oversight.” Notwithstanding these ongoing concerns, the GAO found that CMS failed to directly assess Puerto Rico’s compliance with federal standards and instead relied on Puerto Rico’s compliance self-assessments, which had not been provided to CMS since 2004:
CMS requires states and territories to use the same process for Medicaid procurements as they do for their non-federal procurements. However, CMS has not taken steps to ensure Puerto Rico has met this requirement. Instead, CMS has relied on Puerto Rico to oversee the territory’s procurement process and to attest to its compliance. CMS approved Puerto Rico’s attestation of compliance in 2004 and has not required subsequent updates. CMS officials told GAO that states and territories are in the best position to ensure compliance with their respective procurement laws.
This lack of oversight prompted the GAO’s direct review of the program, where it concluded that Puerto Rico had failed to promote competition or comply with federal procurement standards to guard against fraud risks. The GAO also concluded that CMS had failed to meet its statutory federal oversight responsibilities to ensure the efficient operation of the program:
Our review of selected Medicaid procurements shows that Puerto Rico has not taken actions designed to promote competition, such as those established in the federal standards applicable to other non-federal entities, which could adversely affect program integrity. Because CMS does not oversee Puerto Rico’s procurement processes, the agency lacks assurance that the territory is appropriately managing the risk of fraud, waste, and abuse in its Medicaid procurements. This lack of oversight is inconsistent with federal internal control standards that require agencies to (1) consider the potential for fraud when identifying, analyzing, and responding to risks; and (2) design control activities to respond to risks. It is also inconsistent with the statutory requirement for CMS to ensure that Puerto Rico’s methods of administering its Medicaid program ensure the efficient operation of the program.30 CMS officials said they intend to review Puerto Rico’s procurement reform plan. As of November 2020, they had not documented how they will conduct this review, when it will be complete, or whether they will oversee Puerto Rico’s implementation of its procurement reform plan.
As the report warned, without appropriate oversight, “CMS and the Congress cannot be assured that Puerto Rico’s Medicaid program is appropriately managing the risk of fraud, waste, and abuse.” The GAO therefore called on CMS to enhance its central oversight by directly assessing Puerto Rico’s Medicaid procurements to ensure that they promote competition and reduce the risk of fraud.
Similarly, in its October 2020 report entitled 75th Guam Island Fair and Liberation Day Carnival Procurement, Guam’s Office of Public Accountability (OPA) found weak oversight and record-keeping for goods and services procurements supporting Guam’s Liberation Day celebrations. The OPA attributed the lack of effective oversight to weak delegation procedures, which led to a fragmented subcommittee planning structure that lacked proper oversight and co-ordination:
Ineffective Oversight in the Procurement Process
Procurements of goods and services for the Fair were done by individual subcommittees. No committee member oversaw the entire procurement processes nor ensured maintenance of procurement records. MCOG provided files for our review, but several procurement records were missing. MCOG stated it followed the procurement process similar to the prior year’s Fair. However, they believe that following Guam Procurement is not practical due to factors including a limited timeframe in planning and executing the Fair and lack of annual government appropriations. The Fair’s funds were from sponsorships, solicitations, and donations. Though MCOG may find it impractical to follow Guam Procurement, their adherence ensures accountability and transparency of the Fair’s activities.
While it acknowledged that the Mayors’ Council of Guam, the body responsible for the celebrations, could delegate the authority to plan the annual events, the OPA also confirmed that the Council’s inherent oversight responsibilities could not be delegated. The OPA therefore recommended statutory reforms to establish a special purpose body to oversee and execute future events:
The Conclusion and Recommendations
Under MCOG’s oversight, the Committee did not comply with Guam Procurement for purchases of major goods and services for the Fair. MCOG can delegate authority, but not their inherent oversight responsibilities. Additionally, MCOG admitted that they lacked the capability and resources to effectively perform their mandate due to its primary responsibilities and conveyed their desire to no longer be the Fair’s oversight entity. Therefore, we recommend the Legislature amend the law to: (1) remove MCOG and replace them with an entity equipped with the resources and capability to provide effective oversight and assume full responsibilities of the Fair and (2) remove OPA as a Committee member.
As this report illustrates, proper procurement oversight often calls for the fine-tuning of delegations to better ensure the effective execution of specific projects.
Further, in its June 2021 report entitled 2019 Audit Report on General Administration Sector, Fiji’s Office of the Auditor General found widespread non-compliance across multiple government departments. The report noted that internal oversight controls were weak in many government departments, which led to multiple payroll and procurement irregularities, which, if not addressed, could “result in material misstatements and possible financial losses in the near future.” As the report noted, the weak procurement controls included missing delegation documents, inconsistent file numbering between requisition and payment numbers, reliance on backdated or undated competitive quote documents, and poor record-keeping in relation to the payment of invoices. In response to these findings, the Office of the President acknowledged that it would “strengthen its procurement planning” and ensure that staff upgrade their skills and knowledge “through continuous self-learning, training and refresher courses.”
The Ontario Auditor General’s December 2020 report entitled Business Case Development in the Ontario Public Service also identified the need to enhance staff training in connection with the development of business cases for procurement project approvals. As the report noted, government staff are required to prepare project-specific business cases for in-year funding approvals for projects that were not yet approved as part of the annual budget process. However, the audit found that the government’s central approvals board was “not consistently provided with complete business case information”.
Further, after finding that the average business case was 42 pages, with the longest being 136 pages, the Auditor General warned that lengthy and repetitive briefing documents posed a challenge “to the efficient and complete review of business cases”. The audit recommended a page limit on business cases and better training, noting that 45 percent of the surveyed staff agreed “that they did not have access to the necessary training and resources to carry out their duties in relation to in-year business cases.” The report found that the training gap was exacerbated by the high level of staff turnover and recommended that the government “provide training, coaching and mentorship opportunities to preparers of business cases on how to make their business cases clearer and more concise.”
The Auditor General also raised concerns over weak delegation practices, noting that in 2018 the provincial Cabinet suspended several government subcommittees that were previously delegated authority for procurements valued at under $20 million, which resulted in bottlenecking the procurement process by requiring Cabinet board approvals for procurements valued at over $2 million. As the Auditor General noted, the over-centralization of approvals for lower-value procurements significantly increased the number of in-year business cases that required Cabinet board approvals and increased project delays. The audit concluded that this lack of appropriate delegation “created more work for ministries on low-dollar-value and low-risk procurements”. To streamline the process, the Auditor General recommended that the government revisit its 2018 centralization decision and reconsider the contract value thresholds for the delegation of procurement approvals.
Similarly, in its November 2020 report entitled Defence’s Procurement of Combat Reconnaissance Vehicles (Land 400 Phase 2), Australia’s National Audit Office (NAO) also raised concerns over a lack of clarity in the project approval process, particularly where senior decision-makers are required to approve major projects involving complex technical concepts. The NAO identified the need for greater clarity in the use of industry terms of art, such as “Military‐Off‐The‐Shelf (MOTS) and Commercial‐Off‐The‐Shelf (COTS)”, which could cause confusion during the approval process. As the report warned, “it is important to clearly define these terms to ensure that decision-makers, including ministers, are fully informed.” The NAO also cautioned that agencies “should only implement procurement strategies for which they have clear authority from government” and emphasized the importance of appropriate procurement planning since the “development of a sound tender evaluation and implementation plan provides a solid foundation for the conduct of a procurement process.”
In its 2020 report entitled Business Regulation in South Asia and The Belt and Road Initiative, the World Bank Group underscored the importance of proper oversight and transparency in fighting corruption and enhancing the economic benefits of large infrastructure projects. As the report warned, excessive bureaucracy, overregulation, and red tape, along with corruption and lack of transparency, “all impose significant economic costs on doing business.” As the World Bank Group cautioned, burying the procurement process under layers of outdated rules and regulations does not ensure effective outcomes, but instead undermines the integrity and efficiency of the procurement process. In fact, in another recent report aimed at improving procurement oversight entitled Benchmarking Infrastructure Development 2020, the Word Bank Group recommended that government institutions promote greater innovation through the broader adoption of flexible tendering formats, including multi-staged processes, competitive dialogues, and best-and-final-offer formats.
As these recent reports illustrate, while some public institutions have failed to implement appropriate procurement oversight, others have mired their operations in overregulation and red tape. Moving forward, public institutions need to strike the right balance between accountability and efficiency by fine-tuning their delegation practices and updating the procurement training provided across their organizations.
