OAG Office of the Auditor-General Promoting Accountability in the Public Sector Using Audit to Oversee Public Procurement Edward Ouko Auditor-General Kenya

OAG Office of the Auditor-General Issues Introduction Basic Principles of Public Procurement Legal Frameworks Process of Public Procurement Value for money in procurement Role of Audit Role of PAC Challenges Conclusions

OAG Office of the Auditor-General Introduction Governments cannot provide services to the people without engaging in procurement. This makes public procurement big business Public procurement contracts represent a major share of any country’s GDP and public expenditure budget Most of the mega corruptions are associated with procurement It is also general knowledge that low absorption of public funds is blamed on public procurement

OAG Office of the Auditor-General Basic Principles of Public Procurement The overriding objective of a country’s procurement system is to deliver efficiency and value for money in the use of public funds while adhering to national laws and policies Even with varying systems, the basic principles remain the same; –maximizing the economy, efficiency and effectiveness – promoting well functioning markets – promoting integrity and fairness –increasing transparency and accountability –increasing public confidence OECD Principles for Integrity in Public Procurement

OAG Office of the Auditor-General Legal Frameworks The public procurement process is normally regulated by national legislation, accountability and governance standards –Public Procurement and Disposal of Public Assets, Uganda –Public Procurement Act, Tanzania –Public Procurement and Disposal Act, 2005 – Kenya. Regulations are also in place-for Kenya –Public procurement and Disposal Regulations, 2006 –Supplies Practitioners Management Act –User Guides and Manuals –Standard Tender documents developed for goods, works and services( periodically updated by PPOA

OAG Office of the Auditor-General Process of Public Procurement The process of procurement is essentially divided three phases; 1. Pre-tendering phase 2. Tendering phase 3. Post Tendering phase

OAG Office of the Auditor-General Pre-tendering Phase Under this phase we expect; proper needs assessment and definition or requirements, adequate planning & budgeting and, the appropriate choice of procurement procedures Associated risks in this phase are; –inadequate consideration of long term and short term needs, –improper definition of requirements which may limit competition and lead to cartels inflating prices –procurement planning not carried out systematically - not always linked to budget and not part of the procurement plans ( undertaken on an ad hoc basis through quotations and direct procurement)

OAG Office of the Auditor-General Tendering Phase Under this phase we expect, advertisement or quotations depending on the value of the procurement, proper evaluation based on pre-determined criteria notified in advance, and award. Risks prevalent in this phase include; a tender not meeting the relevant and notified criteria leading to irregular shifting of ‘goal posts’ to suit a pre-determined contractor

OAG Office of the Auditor-General Post –tendering Phase We expect proper contract management under this phase, which includes; writing of the contract, making the orders and having them delivered, final payment and evaluation. There is a risk of changing terms during contract writing especially with respect to time frames ( time extensions) and unclear roles and responsibilities especially to the government for non performance( to deter conflict and corrupt practice This is especially present in major construction contracts like roads and buildings

OAG Office of the Auditor-General Value for money in procurement All public procurement of goods and services, including works must be based on value for money This is not necessarily about lowest cost, but the optimum combination of costs, quality and effectiveness The three Es- economy, efficiency and effectiveness serve the basis for performance/ value for money audit and guide the auditor in formulating problems and outlining the general direction of audit

OAG Office of the Auditor-General Role of Audit Auditors have an important role to play in promoting improvements in procurement, by adopting a constructive approach and highlighting good practice Auditors review, analyze and verify compliance to the laws and established procedures, guidelines and standards of procurement; –monitor and report on performance in procurement –recommend changes to improve operation of the system –carry out periodic checks and inspections –ensure any deviation from the system is pre-authorized –in the event of unauthorized non-compliance, recommend sanctions or remedies

OAG Office of the Auditor-General Types of Audit There are three main types of audit Pre-contract Audit A review of the entire procurement process documents and procedures prior to contract effectiveness Post-contract Audit A review of the processes, documents and procedures after the contract has been executed Continuous Audit Monitoring the contract execution throughout the process and ensuring lapses are remedied in a timely manner

OAG Office of the Auditor-General Role of PACs Timely and quality audit reports will be of high value to the work of PACs in providing oversight in public procurement. Auditors must be proactive and play a useful role during procurement and not wait until the end when it is too late to save public funds Oversight can only be successful if the PACs pick up issues from the audit reports and ensure implementation of recommendations and follow up PACs can also flag out topical or major national procurement issues of concern, and make requests to the auditors for timely and continuous reports

OAG Office of the Auditor-General Challenges Existing laws and procedures do not adequately support timely procurement, contract execution and payment - leading to low absorption of funds and inadequate delivery of services Inflated prices for goods and services- the government always pays more, sometimes double the price in the open market especially for small high volume items and IT related equipment Excessive use of quotations- numerous quotations that are expensive to manage or used to split orders to avoid tenders

OAG Office of the Auditor-General Challenges Lack of proper feedback and reporting mechanism which can ensure transparency and provide information on those benefitting the most from government contracts

OAG Office of the Auditor-General Conclusion There is need to support the work of the auditors through timely discussion of the audit reports and issuance of recommendations for a difference to be felt in our public procurement Our procurement laws should be reviewed in the context of ensuring economy and efficiency in achievement of government objectives for service delivery

OAG Office of the Auditor-General Thank you for your attention