PUBLIC PROCUREMENT AS PART OF PUBLIC FINANCIAL MANAGEMENT Budget Execution Public Expenditure and Financial Accountability

Topics to be Covered Define objectives of procurement system as a public sector management system Identify key elements of a system Establish linkages to public sector financial management Procurement as part of the budget formulation and execution A country-based example Q&As

Procurement as a Governance System Objectives of a public procurement system Efficiency and effectiveness Value for money Timeliness Fair and open system Competition Open to outside participants Provides for remedies Transparency Accountability

Key Aspects of a Developed System Legal framework Oversight Cadre of qualified professionals Defined role/responsibilities consistent with degree of decentralization Record keeping and data management to provide feedback Control systems – Internal and External

Why Procurement is an Integral Part of Public Financial Management The basic objectives are to obtain goods and services needed to deliver government programs at the appropriate quantity, quality and price (value for money) Procurement expenditures are often a significant component of public expenditure and GDP (10-15%) and significantly higher in developing countries. Many procurement projects involve multi-year expenditures Procurement is therefore a financial management issue – not just adhering to legal requirements or obtaining goods and services that meet technical requirements Inappropriate procurement will reduce both strategic resource allocation and operational efficiency, through inappropriate goods and services and higher than necessary costs. It may also threaten aggregate fiscal control through cost blowouts in major projects. Procurement

How Procurement Fits with Key Themes of Budget Design & Reform 1. Greater Performance Focus in the Budget: Provides actual cost data for budget formulation 2. Strengthening Internal Control & Audit: Procurement is a key element of internal control and internal audit systems The procurement audit function in Supreme Audit Institutions (SAIs) is important 3. Accrual Accounting and Budgeting: Focuses on accountability of total costs, including maintenance and depreciation Part of the issue of improving the management of public assets 4. Budget Design: Integrating capital and recurrent budget preparation and execution involves procurement issues 5. Medium-Term Approach to Budgeting: Does not require multi-year appropriations, rather a forward look to provide indicative figures for planning purposes Planning of capital investment programs and projects an integral part of multi-year budgets 6. Transparency: Fiscal transparency, as with transparency of procurement transactions, may improve overall fiscal performance and counter corruption 7. Other Applications: E-Procurement Public-private partnerships (PPI)

Mainstreaming Procurement as a Financial Management Activity – An Example In South Africa, procurement as a technical and peripheral function has been put aside and is being integrated into the overall public expenditure management process The term “procurement” is no longer used. Procurement officers are called “financial management officers” Under the name of “Supply Chain Management” traditional budget management in line ministries is being restructured from: Budget Planning Execution Monitoring Reporting & Execution To: Demand Planning Budget planning Acquisition management Logistics Management Disposal Management Even though “Acquisitions Management” deals with most functions of traditional procurement, each stage of the process engages financial officers, including “procurement” experts. By doing so, officers in charge of demand planning are better able to prepare a more practical and feasible plan for the logistics and procurement stages later on (N.B. the concept of supply-chain management bas been popular in private companies since the early 1980s)

Q&A & Discussion