1 A risk-based approach to auditing procurement in English councils Mark Wardman Senior Manager Audit Commission 19 May 2014

2 This presentation will cover: the Audit Commission and its role the criteria auditors use to assess risks in the procurement of local public services recent developments in procurement and commissioning in local government in England the costs and benefits of collaborative procurement arrangements in public bodies that ensure value for money in procurement and contract management

3 The Audit Commission – until recently An independent public corporation (since 1983) Appoints auditors Publishes guidance and a Code of Practice Analyses and publishes financial & performance information Produces data analysis and tools

4 The arrangements for local public audit are changing inspection by the Commission ended in 2010 auditors moved to the private sector in 2012 the Local Audit and Accountability Act 2014 abolished the Audit Commission and established a new local public audit framework some Audit Commission functions will pass to other bodies –The National Audit Office (the Code, value for money Studies) –The Financial Reporting Council (overall public audit regulation) the Audit Commission will close on 31 March 2015 But there will be transitional arrangements for managing audit contracts until 2017, or 2020 if contracts are extended

5 Procurement is part of auditors’ Value for Money conclusion CODE OF AUDIT PRACTICE Securing economy, efficiency, effectiveness Improving efficiency & productivity Internal control Accounts Financial position Prioritising resources Accounting records The Value for Money Conclusion Improving efficiency & productivity Prioritising resources

6 “The organisation has proper arrangements for challenging how it secures economy, efficiency and effectiveness” To make sustainable cost reductions, organisations will need to take a strategic approach to challenging all areas of spend... There is a willingness to challenge the existing approach to managing the organisation and delivering its services, including consideration of whether delivery of these services is best through in- house, outsourced or shared service arrangements. Prioritising resources... This will involve challenging all aspects of their business and taking action to make sustainable efficiencies... The organisation... is seeking and evaluating new ways of delivering services and of improving efficiency, for example use of shared services... increased use of collaborative procurement Improving efficiency and productivity

7 Inadequate evaluation of options for making efficiencies and focus on achieving short-term efficiencies rather than long-term sustainable savings Not challenging the way activities are delivered or exploring innovative and new ways of delivering activities, for example, through outsourcing or shared service arrangements Not considering the possible risks of delivery and financial performance of outsourcing, shared services or partnerships And can manage risks effectively

8 Reporting the work of the Auditor Auditors publicly report their findings on this work to the public body: –report to those charged with governance –audit report including the conclusion on whether the audited body has put in place proper arrangements for securing economy, efficiency and effectiveness in its use of resources –annual audit letter (the published summary of the auditor's findings aimed at the general reader) –Public Interest Report The Audit Commission produces a summary of the Auditors’ work in the Annual Auditing the Accounts report.

9 Forces shaping councils’ recent approaches to public procurement Austerity and cuts The Public Services (Social Value) Act (2012) 2014 EU Procurement Directives

10 The challenges for councils are considerable and multi-faceted Secure efficiency gains! Develop a diverse supply base Build Voluntary sector capacity Support SMEs Incorporate Sustainability Support the local economy Foster innovation Satisfy user needs Provide choice Improve service quality Procure in partnerships

11 English councils spend over £29 billion with third parties Source: Dept. of Communities and Local Government Subjective Analysis Return 2011/12

12 And the trend is upwards

13 Key findings from ‘Collaborative Procurement’ (2009) 93% of public bodies used Framework Agreements Only half used category management in 4 of 8 standard commodity categories 80% didn’t record the costs of letting contracts The collaborative procurement landscape is fragmented Too many brands Not enough aggregation of demand Too much ‘gold plating’

14 There was significant variation in prices paid for the same product

15 The challenges for councils are considerable and multi-faceted Secure efficiency gains! Develop a diverse supply base Build Voluntary sector capacity Support SMEs Incorporate Sustainability Support the local economy Foster innovation Satisfy user needs Provide choice Improve service quality Procure in partnerships

16 Procure effectively Select most appropriate service providers Improve processes? Intelligent commissioning is the best way to secure VFM in procurement INTELLIGENT COMMISSIONING VALUE FOR MONEY Understand the market Develop the market? Long term impact on competition & contestability User-focused, outcomes-based services Understand needs Redesign services?

17 Contract management is as important as procurement Source: LGA/Audit Commission, Savings from Contract Management (2014)

18 A corporate approach helps to manage risks in procurement and contract management RISKSMITIGATION Scale and complexityAggregating demand Skills and capacitySpecialisation and training FragmentationCollaboration Contract managementProcurement & CM staff continuity Contract rigidityRenegotiation FraudActive management & monitoring

19 Thank you for listening. I’m happy to answer any questions +44 (0)