The Auditor-General's interest in procurement and other funding arrangements

Spending public money wisely and well: how to put basic principles into practice.

The way in which public funds are administered through both grant programmes and procurement contracts is a regular cause of concern, and is frequently the subject of complaints to this office. Substantial amounts of public money are involved. The Auditor-General is therefore overseeing an expanding programme of work to examine policies and practice in this area and to support wider government initiatives to improve performance.

In June 2006, we published a good practice guide on funding arrangements with NGOs, and earlier that year we completed a performance audit on the administration of grant programmes by the Foundation for Research, Science and Technology. In 2006/07, we followed that up with a performance audit of Te Puni Kokiri’s administration of grant programmes, and began a performance audit to examine the Ministry of Health’s funding arrangements with Non-Government Organisations (“NGOs”). At the request of the Minister of Health, we also carried out a performance audit of the conflict of interest procedures of the three district health boards in the Auckland region, after the successful judicial review challenge to a major procurement decision by those entities.

Procurement is a specific and significant subset of the general area of funding arrangements. It covers all business processes associated with buying, spanning the whole cycle from identifying needs to disposing of the product or completing all the service requirements. Given that broad definition - and the wide range of public activities that are achieved through, or supported by, procurement in some form - it is an activity that is critical to the effectiveness and efficiency of public entities. In the last few years, procurement has featured more strongly in our annual audit work, a number of inquiries, and in some special studies and reviews.

In terms of our annual audit work, we asked our auditors of government departments, State-owned enterprises, Crown entities, and some other entities to examine aspects of procurement as part of the 2006/07 annual audits. Specifically, we asked these auditors to review the entity’s procurement policies and some aspects of practice, and to report any concerns.

We also continue to provide ongoing assurance services, outside the annual audit process, about specific procurement processes and the development or review of organisational policies and procedures on procurement to a wide range of public entities.

Based on this work, we consider that there is considerable room for improvement in entities’ procurement policies and practices. On the positive side, most entities have policies and procedures in place, and these policies were clearly based on the core principles of value for money, fairness, and openness. But more than half of the policies we looked at in our annual audits needed some improvement. And in practice we regularly come across or are asked to provide advice on situations that fall well short of good practice standards. (More detail on these findings from our annual audit work is provided in our recent publication, Central government: Results of the 2006/07 audits, part 4, “Procurement, grants, and other funding arrangements”.)

This is a core area where people expect the office to be active, perhaps because it combines several of our traditional areas of interest – money, probity, and the management of decision-making processes. It is also an area that has attracted considerable public concern in recent times, for example through several high profile controversies in district health boards. We are continuing to expand our efforts in this field across the full range of our activities.

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