Subject: Procurement
Compliance Audit 2021/22
Date of meeting: 28 June 2022
Report of: Executive Director Governance,
People & Resources
Contact Officer: Name: Cliff Youngman
Tel: 01273 29 1408
Email: cliff.youngman@brighton-hove.gov.uk
Ward(s) affected: All
For general release
1.1
Following two recent internal audit reviews
(Phase 1 and 2) of compliance with Contract Standing Orders, which concluded
minimal assurance, this report updates on progress to implement the
recommendations and agreed actions emanating from the audit reviews.
1.2
The audit reviews were conducted on an
‘exception basis’ meaning that the audit reviews were specifically focused on
identified incidences of non-compliance. However, the vast majority of the
council’s circa £260 million procurement and contracting activity is compliant
and follows good practice in terms of governance and decision-making through
reporting to members, including the Member Procurement Advisory Board, and
through the carefully considered use of different procurement routes, including
identifying the best value for money routes via government buying frameworks.
The council also uses waivers to achieve value for money, for example, by
aligning the expiry of similar or related contracts to achieve value for money
through economies of scale, including through collaborations with partners.
1.3
Importantly, the council has not fallen foul of
procurement legislation, i.e. has never been fined, and has successfully
defended all potential legal challenges to its procurement processes and
contact awards. Similarly, no procurement-related fraud has been identified.
The primary risk relating to non-compliance is therefore one of not being able
to satisfy itself that value for money has been achieved in relation to the
procurements identified in the audit review.
2
Recommendations
2.1
That the Audit & Standards Committee notes the
contents of this report including progress made to date and ongoing actions in
response to audit recommendations detailed in Appendix 1.
3
Context and background information
3.1
A number of individual audit reviews, across
various directorates, had previously identified some areas of non-compliance
with the council’s Contract Standing Orders (CSO’s).
In addition, the COVID-19 pandemic,
during 2020, had increased the need for emergency procurements made at short
notice, increasing the risk of non-compliance.
3.2
A further audit review was undertaken to obtain
assurance that where suppliers have been paid more than £75,000, CSOs were
complied with and value for money (VFM) had been demonstrated. This review
focused initially on compliance with CSO 12 (contracts exceeding £75k) and CSO
17 (Contracts Register and Records).
3.3
The initial audit review (phase 1) used data
analytics to match data from the Civica Financials payment system against the council’s
published Contract Register. Following substantial data cleansing,
identification and some reclassification, a significant number of discrepancies
remained outstanding. A subsequent, ‘exception based’ review (phase 2) of 30
records was undertaken to identify any further non-compliance to CSO’s. The findings,
recommendations and agreed actions are attached at Appendix 1.
3.4
Contract Standing Orders require all council
officers to comply with tendering processes when procuring goods and services.
They are embedded in the Constitution and are the responsibility of all Chief
Officers (Executive Directors) and staff nominated by them to undertake
procurement activities. To support this, comprehensive guidance and information
relating to the tendering of goods and services is provided on the council’s
intranet (the Wave) and the Procurement Team undertake training for services to
increase awareness of Officers’ responsibilities. The issue of compliance is
regularly reported through Key Performance data and through updates to the
Strategic Risk Register (SR29).
3.5
The Procurement Team have successfully increased
compliance with CSO’s over many years by building, maintaining and monitoring a
Forward Plan (pipeline of contracts). The Forward Plan provides comprehensive
information on existing and future tendering processes and has provided useful
insight to Senior Officers and Members regarding procurement activity. The
current Contract Standing Orders require all procurements over £75k to be
referred to the Procurement Team. Processes under this threshold will generally
be managed by the requesting service. The latest spend analysis shows 90%
(£234m) of total council spend falls into the over £75k threshold.
3.6
Current data analysis indicates approximately
92-95% of over-threshold contracts (by value) are tendered compliantly. Where
non-compliant spend is identified, efforts are made to bring the contract in
line with CSO’s. Where the Procurement Team identify areas of significant
concern, these are reported to Internal Audit for further investigation and the
team works with the relevant service directorate and the legal team to resolve
issues.
3.7
The current BHCC Financial and Purchasing
systems (both supplied by Civica) do not provide a facility to prevent the
placement of purchase orders where no contract or framework is in place. This
allows officers throughout the council the possibility of procuring goods or
services without the input or knowledge of the Procurement Team. This means
that the analysis of spend, by the Procurement Team, is necessarily retrospective
and as such the council’s systems do not support tight controls on over-threshold
procurements at the point of procurement/ordering.
The Financial and
Purchasing systems are currently under review as part of a wider review of
corporate systems including Finance, HR, Payroll and other core systems, all of
which, although updated and patched, are over 10 years old. Members of the
Procurement team are part of this review. The issue of purchase orders matching
contracts has been raised as a priority.
3.8
During 2020, one third of Procurement Team resources
were redirected to urgent issues such as sourcing of PPE, negotiating supplier
reliefs and other Covid-19 related matters. This resulted in activity around
spend analysis not taking place as planned. In addition, some of the lower
value tenders that would normally have been undertaken by the Procurement Team
were necessarily referred back to directorates.
3.9
In terms of mitigating and preventing compliance
risks in future, the use of Orbis Sourcing Solutions provides a professional
route to market for services and this service will reduce the potential for
non-compliance as its use increases. Since October 2021,
Sourcing Solutions has managed or is managing 78 tenders on behalf of BHCC with
a forward plan of 100+. The Procurement Team also now has in place a Data
Analytics officer which had been a capacity issue for a long period. This
capacity allows the team to monitor spend more efficiently and identify
non-compliance more speedily.
3.10
The current Procurement Team establishment is
designed to manage the council’s high value and high risk projects. Therefore
any requirement to manage all projects within the authority, including those of
lower risk and/or value, would require a significant increase in capacity but
would not necessarily represent good value for money. In particular, there are
over 200 managers with responsibility for procuring and tendering contracts
across the council and it is clearly far more cost effective to provide them
with appropriate corporate training, guidance, on-line tools, systems and
advice to enable managers across the council to procure and tender contracts in
compliance with CSOs.
3.11
However, Procurement Team (Orbis) resources are
kept under review by the council, taking into account volumes of activity, the
growing complexity of procurements, the effectiveness of corporate systems and
controls, and the support required by services to achieve value for money. The
latter is a key area as officers in services are unlikely to ever have the
depth of knowledge of dedicated procurement officers, many of whom are
professionally qualified CIPS practitioners, and therefore reviewing the
balance of support is an ongoing process, particularly as procurement
legislation and practice increases in complexity.
3.12
It should also be noted that non-compliance to
CSO 17 does not necessarily translate into fraudulent activity and the internal
audit reviews have not identified any cases of fraud. Updating of the Contract
Register is an administrative issue, where increased awareness, training and
guidance will generally remedy the situation.
4.1
The actions to improve compliance issues
identified by the internal audit reviews have been developed by management and
agreed with Internal Audit, and, if implemented successfully should address the
issues raised.
When the actions are
substantially completed, a further review of compliance by the Procurement Team
will be undertaken to assess effectiveness and consider further options if
necessary.
4.2
Significant additional staffing or external resources,
either in services or within the Procurement Team, could potentially be applied
to improve compliance but this would be an expensive option and would not
represent good value for money in the context of the council’s financial
constraints. The process of undertaking internal audit reviews and responding
to the findings and recommendations of these reviews to continuously improve
internal controls and compliance is a more efficient and sustainable practice.
5
Community engagement and consultation
5.1
No consultation or engagement was undertaken in
relation to this report.
6
Conclusion
6.1
Appendix 1 shows that most of the agreed actions
to improve internal controls and compliance in response to the audit reviews are
either completed or significant progress has been made. There are a small
number of actions that require longer term solutions and these are also in
train, including the review of the council’s corporate systems requirements.
7
Financial implications
7.1
There are no direct financial implications arising
from this report however the actions to improve compliance and awareness of
procurement processes, procedures and controls has the potential to help
services achieve better value for money outcomes.
Finance officer
consulted: James Hengeveld Date consulted: 13/6/22
8.1
As set out in the report, all procurement
activity should comply with the Council’s Contract Standing Orders. Where the
estimated value of a contract is over the relevant threshold, Officers are also
required to comply with the Public Contracts Regulations 2015 or the Concession
Contract Regulations 2016.
Name of lawyer
consulted: Alice Rowland Date consulted : 20/6/22
9.1
There are no direct equalities implications in
this report.
10.1
There are no direct sustainability implications
in this report, however, actions to improve awareness of and compliance with
procurement processes, procedures and controls provides greater assurance that
procurement policy and practice is being consistently adhered to, including
meeting the council’s sustainable procurement policy and objectives.
11.1
Similarly, there are no direct social value
implications in this report, however, actions to improve awareness of and
compliance with procurement processes, procedures and controls provides greater
assurance that procurement policy and practice is being adhered to, including
the council’s social value procurement policy and objectives.
12
Crime & disorder implications:
12.1
There are no direct implications arising from
this report but actions to improve compliance with CSO’s and procurement
processes, procedures and controls will further help to minimize the potential
for fraud and error in procurements.
Supporting Documentation
Appendices
1.
Procurement
Compliance Update