This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide.
Recent public sector audits have exposed ongoing governance gaps across a broad range of jurisdictions, including Mozambique, South Africa, Australia, New Zealand, Canada, and the United States, providing fresh evidence of how many public institutions continue to struggle in implementing and maintaining proper procurement practices.
For example, in its May 2020 Mozambique Assessment of the Public Procurement System Main Report Volume I, the World Bank Group found that the government faced ongoing challenges in implementing procurement reforms across the public sector. As the report noted, while Mozambique’s Ministry of Economy and Finance has established a Functional Unit for Procurement Supervision (UFSA) that “played a central and transformational role in establishing the public procurement system”, follow-up work is required in “shifting toward implementation and performance, professionalization, and improving procurement outcomes.” In fact, the report determined that the government’s central procurement unit “remains in weak position and is under-resourced to play an effective role in that government-wide implementation.
The report found that “while UFSA did a tremendous job in asserting itself as the central public procurement body in the country, it is understaffed and underbudgeted and the level of authority is not consistent with the task at hand”. The report found an urgent need to boost the central procurement unit’s resources and level of authority. More specifically the report found that implementation gaps persist due to “the absence of an independent administrative procurement appeal body” and the ongoing need to implement due process rules for debarments and bid protests.
Further, the World Bank Group found that Mozambique needs to professionalize the procurement function, noting that “while a capacity-building program is designed, there are no funds to carry it out” and that understaffing and high turnover within public institutions presents ongoing challenges to capacity building. The report urged the government to prioritize these training initiatives to support the deployment of the new procurement system.
Similarly, in its 2020-21 Consolidated General Report on National and Provincial Audit Outcomes, South Africa’s Auditor-General found widespread non-compliance across the public sector and raised specific concerns over ongoing conflicts of interest. As the report stated, “there has also been little action to address the concerns we have raised year after year about contracts being awarded to employees and their families without the necessary declarations of interest being made, and about non-compliance with the legislation that prohibits department employees from doing business with the state.” The report also noted that “the weaknesses in financial management, controls, fraud prevention and legislative compliance” resulted in “material financial losses” at multiple public institutions.
Further, in its November 2021 Report to the Legislative Assembly, Australia’s Northern Territory Auditor-General’s Office found that the Department of Health failed to fully comply with applicable procurement rules, particularly in the areas of conflict of interest and procurement-related record-keeping. The report recommended that that the Department clearly document and action any perceived, potential, or actual, conflicts and ensure that no-conflict declarations be obtained from “all personnel involved in the procurement or subsequent contract management”. The Auditor-General recommended minimum record-keeping periods for procurement activities and stated that the Department “consider a longer retention period for documents relating to significant procurement activities.”
Similarly, in its November 2021 report entitled Audit Results Report – Annual 2020-21 Financial Audits of State Government Entities, Western Australia’s Auditor General cited the lack of institutional resources as the cause of widespread procurement infractions. As the report raised concerns over “the number of entities with serious deficiencies requiring a qualified opinion on financial statements”, it also noted that “this is the highest number of qualified audit opinions ever reported by my Office” with “too many qualifications related to significant deficiencies in payroll and procurement controls, and information system security.” Stressing the importance of prioritizing and resourcing procurement governance, the Auditor General urged all public entities to address the audit findings and “ensure they have robust control frameworks in place.”
Further, in its Annual plan 2022/23, New Zealand’s Auditor-General raised concerns over fraud risks caused by rushed procurements. As the report stated, “new policies prepared at speed, and urgent and high-value procurement processes all come with risks to probity and can raise questions of process integrity and value for money.” The report cautioned that “fraud and integrity risks increase when a significant amount of new money enters the system and decisions are made at speed” and that “integrity failures can undermine the public’s trust in the public sector.” The report formed part of a multi-year review, during which the Auditor-General will “examine how government agencies support integrity practices when they procure goods and services in emergency situations, and how they provide transparency to the public”.
Similarly, in its January 2022 Annual Report, Newfoundland and Labrador’s Office of the Auditor General found that a local school board failed to implement prior recommendations regarding ethical procurement practices and related staff training. As the report stated, “the Newfoundland and Labrador English School District did not fully implement either of the two recommendations resulting from our 2018 audit into the management of procurement.” The report found that “the District has not communicated or trained staff in the newly established code of conduct and ethics and has not fully implemented a fraud risk management program or internal control policy that evaluates the effectiveness of their internal control environment.” The Auditor General concluded that “as a result of these recommendations not being fully implemented, the organization may still be vulnerable to some of the risks that contributed to the weak control environment that existed during the original audit period.”
In its March 2022 report entitled Secretary of State Grant Administration – Requested Information on Help America Vote Act Funds and Compliance, Georgia’s Department of Audits and Accounts found that “nearly half of the transactions we examined had at least one non-compliance issue related to state procurement requirements and thus did not meet federal requirements.” The infractions included the failure to use the state-level purchasing card program, the failure to use mandatory state-wide contracts, the failure to properly follow purchase order procedures, and the improper use of existing employees to provide consulting services. The report also found a lack of proper documentation in 12 percent of reviewed transactions.
In its June 2022 report entitled Alberta Infrastructure – Procurement Practices, Alberta’s Auditor General found multiple trade treaty infractions at the provincial infrastructure agency. The audit, which included a four-year sampling from $4.5 billion in construction projects for schools, hospitals, and other government facilities, found that rushed bidding deadlines breached open tendering standards and that the agency failed to properly screen for conflicts of interest or secure confidential bidder information. The audit also found inconsistent bid evaluation practices and the failure to maintain proper evaluation records, both of which could undermine the defensibility of any resulting contract awards if losing bidders chose to challenge those results.
In its June 2022 report entitled Forensic Audit – Construction Training Fund, Western Australia’s Auditor General found an increased risk of fraud due to weak procurement governance and a lack of proper record-keeping at a government training agency. The report stated that “until recent times, the Construction Training Fund (CTF) has not sufficiently demonstrated a sound understanding of its obligations to operate within the public sector governance framework”. In fact, the forensic audit “found that the CTF’s disorganised financial management exposes it to an alarming level of fraud vulnerability” due to irregularities that included “numerous shortcomings in process and controls, and significant instances of non-compliance with procurement and record-keeping obligations”. While the report stated that findings to date “represent a level of incompetence or lack of care, rather than corruption”, the Auditor General cautioned that “all the pre-conditions were in place for fraudulent activity to occur undetected.”
Similarly, in its July 2022 report entitled Audit of Internal Controls Managing the Procurement of Goods at U.S. Embassy Freetown, Sierra Leone, the Office of the Inspector General U.S. Department of Justice found weak record-keeping at the U.S. Embassy Freetown in Sierra Leone that was attributed to staffing shortages and the fact that procurement staff were not properly trained, provided standard operating procedures, or properly monitored to ensure compliance with procurement requirements.
Further, in its July 2022 Follow-Up Report – North Bergen School District: A Performance Audit of Selected Fiscal and Operating Practices, New Jersey’s Office of the State Comptroller found that the school district failed to implement prior recommendations aimed at rectifying non-compliance with state procurement laws. While the Comptroller recognized that the school district had complied with the obligation to provide the Comptroller with award notices for contracts valued at over $2 million, the report stated that “North Bergen has failed to implement any of our other recommendations for bringing its policies and procedures in line with state procurement law.” The Comptroller therefore increased its oversight over the school district and directed it to “submit further information regarding its compliance with our recommendations by October 26, 2022 and thereafter every 90 days until further notice.”
Finally, in its July 2022 report entitled Mayors’ Council of Guam Host Community Benefit Fund, Guam’s Office of Public Accountability found a lack of proper procurement record-keeping and a lack of staff training. More specifically, the report noted that expenditures were “not entirely in accordance with applicable laws, regulations, and best practices”, which included a lack of documentation recording proper approvals and compliance with three-quote protocols for lower expenditures.
As these audits reveal, maintaining global procurement standards remains a widespread challenge. To avoid becoming the next non-compliance case study, public institutions should assess their current governance practices and prioritize procurement training and resourcing within their organizations.
