Posted by Matthew Clyne ● Jan 28, 2020 3:22:23 PM
Don’t want to be in the newspaper? Three procurement pitfalls to avoid in 2020.
Deliver more value and reduce risk this year through better documentation of activity, better oversight of sub-threshold purchasing, and involving Finance in high-value procurement.
The Independent Commissioner Against Corruption (ICAC) is not someone you want knocking on your door for the wrong reasons. In a recent report into one local council in South Australia, ICAC uncovered institutional and systemic failings in a review of how the council was managing procurement.
The auditor identified a number of significant risks which, if not addressed, could potentially lead to further inquiries and job losses. And it’s a small step from there to ending up in the local or national newspaper - a place no one wants to be if the headline has the word “corruption” in it.
What was interesting about the ICAC report is that it didn’t just focus on high value procurements, but rather took a look into the smaller, more operational sourcing events. These are the low and medium value quotes that are requested and managed by decentralised staff in day to day operations, which happens mainly out of sight of the central procurement team.
Here are the three key risks for which your organisation should have an action plan in 2020.
Risk 1: Poor documentation of procurement activities
Does your organisation have a policy or guidelines on who should document decisions made at each stage of a procurement activity? I’m sure most people would say ‘Yes’ but the real question is, are staff actually following these guidelines? Is it easy for staff to adhere to their prescribed responsibilities? If it’s not easily auditable and transparent, how do you know? Can you really assert that you have all procurement decision making recorded?
Even if a procurement process is followed conscientiously, failing to create or manage auditable records puts an organisation at risk of:
- assertions of unfair and unethical processes
- individuals taking advantage of lax processes to engage in impropriety with little chance of detection.
ICAC’s auditor provided the following description of the process used to gather together a procurement paper trail at a local council:
“First I sought only that information that was recorded on established records management systems to identify what auditable trail of documents could be retrieved. Having received those documents, I then sought all other information relating to the procurements that were saved on network drives, hard drives or within employee email mailboxes.”
Without an established records management system in place, procurement documentation can become scattered or non-existent. ICAC found:
- Justification for lower-value procurement decisions located only in email correspondence.
- No evaluation documentation saved on the corporate system to explain why a particular supplier was selected for a purchase. (Documents were eventually located on network drives and in individual employee email mailboxes).
- Copies of submissions saved on network drives.
A similar, earlier audit found that poor documentation was also hampering Western Australian councils’ procurement controls. Of course, a lack of documentation doesn't necessarily mean that procurement processes weren’t followed, but it does expose the organisation to avoidable risk.
Risk 2: Lack of procurement oversight of sub-threshold activities
Because of the sheer volume of transactions, most procurement teams have a threshold under which they won’t get involved. The threshold for these sub-tender quotes will vary between public and private sector organisations but, whether it’s $100,000 or $250,000, this decentralised procurement can lead to real challenges around process, oversight and value.
In this instance, ICAC found that procurement’s lack of oversight led to:
- procurement policy not being adhered to, or being worked around
- policy breaches not being managed
- high-value sourcing being split into smaller amounts, preventing procurement team involvement
- suppliers engaged verbally, despite the requirement for purchase orders or written quotes
Expecting procurement team involvement in every transaction is unrealistic - no one has the resources for that. But you can only manage what you can see, and visibility is attainable with the help of technology. Once spend is taken out of email, spreadsheets and phone calls and put onto a single platform you can start to manage it.
Procurement software can:
- prevent transactions from being finalised until all process steps have been adhered to
- give the procurement team visibility of “red flags” to minimise the chances of corruption and other risks
- move key data into a single system, making it easier to retrieve
- enable the procurement team to spot trends, find value, and intervene when necessary.
Risk 3: Procurement failing to collaborate with Finance
“Business acumen” is an important skill in procurement: how our job and the work we do impacts the organisation’s financial position. A lack of business acumen can lead to decisions being made that may be good for the procurement team’s internal targets but are unhelpful or even damaging for the wider organisation.
One of the best ways to improve business acumen in the procurement team is to collaborate with finance staff, particularly on high-value procurement activities. The ICAC report recommends that high-value procurement decisions “should be made knowing how that decision might financially impact upon other areas [and] enable decision-makers to give consideration to prioritising resources”.
Emily Pribanic of TechFunnel writes: “It might seem like a no-brainer to have your finance and procurement departments collaborating but recent studies show that these two departments often don’t have the right tools for seamless collaboration or know how important it is for them to continually collaborate … This relationship is essential for process efficiency, team structure, strategic leadership, and to know when and which technology to invest in.”
It’s 2020. Time to integrate everything on one platform
There are a number of challenges facing procurement teams in 2020, with limited resourcing and rising expectations. It’s time to use technology to
- help drive smarter decisions and better processes across your organisation
- make sure you have your records in one place,
- get oversight of what staff are doing and who they’re engaging with and
- facilitate internal collaboration.
The technology is already there. It’s just a matter of looking for the right platform for you, and 2020 is the year to act.
VendorPanel is an award-winning Source-to-Contract solution that makes it easy for staff to use the right suppliers, follow good process and to drive positive procurement outcomes. It brings all of your suppliers and associated data into one secure and configurable platform, with integrations that support real-time collaboration with people, process and systems across the enterprise.