Best Practices in Public Procurement by Prof. Tan Sri (Dr.) Ambrin Buang

The risk of fraud is inherent to any organisation. Currently, we are being exposed to seemingly endless cases of fraud and corruption occurrences in the public sectors, many of which are related to government procurement of various levels of government, federal, state and local as well as statutory bodies and government-linked companies. Most of these occur due to the inefficient procurement department and the procurement process. Hence, everyone in the organisation should commit themselves to the best practice in procurement by seeking and adopting them to increase the level of accountability, integrity and transparency in government procurement.

Why Procurement Process?

From the audit point of view, other than competency, factors such as attitude and integrity also contribute to the negative perceptions due to human weaknesses. The National Audit Department (NAD) gives special attention to the government procurement management for a number of reasons:

First, the shortcomings on the management of government procurement should be curbed. In the eyes of the public, the shortcomings are constantly repeated as if the civil servants are not sensitive and aware of their responsibilities to manage the public money properly and prudently. If in the limited audit sample, those irregularities have been found, imagine the possibilities of how widespread in this phenomenon, and how difficult it is will change the negative perception of the public.

Government procedure is one component of good governance in the public service. Fostering a culture of excellence among those involved in procurement where flaws such as non-compliance and regulations and the weaknesses revealed by the audit are expected to be the lessons learnt to make continuous improvement. The question is whether they are willing to learn from the mistakes of others?

Comparing during the 60s and 70s to the present, government procedure involves billions of ringgits and thousands of project and activities of various levels. For example, the Federal Government operating expenditure for 2008 – 2012 was RM 847.1 billion while the development expenditure amounted to RM 240.6 billion. Through the bulk of the operating expenditure is emolument, however, provision for supplies involving procurement is also significant. Almost all development expenditure involves the acquisition of work, supplies, equipment and so on. The question is, whether the government gets the value of money or appropriate returns for the expenditure of this magnitude?

In addition, the government procurement is considered as the high risk for leakages, corruption and mismanagement. As a result, the government suffers losses or additional expenditure which could have been avoided. The audit reports often reveal signs or indicators on the occurrence of the weaknesses and it is up to agencies such as Malaysia Anti-Corruption Commission (MACC), the Royal Malaysia Police and the Malaysian Treasury to investigate further to determine the negligence of the wrongdoers is truly not accidental or due to their good greed to accept bribes or kickbacks.

However, based on my 11 years working in National Audit Department, two interesting facts that I would like to share about the government procurement. First, most civil servants perform their work, including the procurement work without thinking one day, their work will be audited. If they knew that they would be audited, maybe they will work more diligently and carefully as they would be liable for negligence. Secondly, heads of department and agencies will only know the shortcomings and mistakes that occur under their control when it was revealed by the auditors. This means that internal control such as supervision of work is still not effective. Weaknesses in supervision include overseeing the work performed by contractors, suppliers and consultants. Integrity means not only the integrity of the individual but also the collective integrity of the ministry, department and agency.

Government procurement is a lucrative business to private contractors, suppliers and consultants. Lucrative business means that the government pays the price generally higher than others. Furthermore, the payment is guaranteed! Therefore, the government must get the value of money of the expenditure incurred. However, if there are no monitoring and rigorous checks on the work of use of the shortcut, not according to specification and so forth, ultimately the government must bear the loss. Prolonged delays increase in costs and poor quality of work affected the image of the government and the public-sector service. The people are not only ungrateful, but they will also hit the Government. This is a major challenge to every public servant who manages the procurement. This message is not only for ministries and departments but also the technical agencies that regulate and monitor the work done by the private sector.

Common Issues in Procurement Guidelines and Procedure

For 11 years working in the National Audit Department, auditors have conducted audits and procurement of various agencies. The objective of these audits is to make heads of ministries, departments and agencies aware of the weaknesses of their procurement management in terms of complying with existence procurement regulations and procedures, poor contract management, poor supervision of contractors and consultants paid to do the job and negative outcomes such as most of these head are not aware of such weaknesses until they have been exposed audit. Others malpractice include:

• Equipmentsupplied, work done and services rendered not in accordance with the original scope.
• Cost overrun due to delays in project completion.
• Not utilised or underutilised equipmentand facilities upon completion.
• Improper payment made for equipmentnot supplied work not done and services not rendered.
• Poor quality of equipment supplied, work done, or services rendered.
• Equipment procured at a much higher cost than market value.
• Contract not signed to safeguard the interest of the Government.
• Procurement not managed according to established regulations.
• Non-coordination among parties involved in procurement.

When these are reported by the media, as is usually the case, it gives the government a bad impression as well as the public service at large, in the eyes of the public, the political parties and investors. The latter is particularly important because their perception of a lack of efficiency, integrity and transparency in government procurement processes carry a lot of weight in the Transparency International Corruption Perception  Index in which Malaysia’s current position is not something that we can be proud of.

The government procurement is too important a subject to be ignored in its performance audit agenda. We will continue to check whether compliance with existing procurement procedures and observance of value for money principle is duly present in the public sector. Also, the National Audit Department will continue to check whether government programs, projects and activities have been well executed and really meet their original objectives.

Procurement Best Practices

A good procurement practice should address issues of accountability, integrity, transparency, ethics, the value of money (Economy) and a professional workforce. The five best practice procurement objectives in the public and private sectors are:

1. Minimise procurement cost (Economy) – the cheapest bid may not necessarily be the most cost-effective over the life of the product
2. Ensure efficiency procurement cycle time – product requisitioned are delivered in a timely manner.
3. Enhance transparency and eradicate corruption – to minimise opaqueness on the procurement process by adopting a clear disclosure policy and leveraging on e-procurement sand cultivate an ethical working environment to reduce graft, enable products to purchase at competitive market prices, and ultimately improve profitability.
4. Enhance organisation capabilities and governance – develop an in-house procurement function to support the business’s long-term objectives. In addition, put policies, incentives and penalties in place to ensure all relevant parties follow the agreed practices and processes.
5. Develop a stable competitive supplier base – develop a stringent vendor selection process, provide suppliers with continuous feedback on their performance.

Hence the following procurement Best Practices are proposed:

Everyone in the decision-making chain of government procurement should commit themselves to the best practice in procurement and value for money principle by seeking and adopting them to increase the level of accountability, integrity and transparency in government procurement.

References

Compilation of Auditor General’s Speech and Country Paper. (2016). Putrajaya: National Audit Department Compilation of Auditor General’s Speech and Country Paper. (2017). Putrajaya: National Audit Department