This document summarizes the evolution of public sector procurement in Singapore from a manual paper-based system to a more digital centralized system. It discusses how procurement processes have evolved from strict rules in the IM3B manual to more principles-based guidelines. The document also outlines some common procurement risks such as corruption, non-compliance, and loss of value for money. It proposes ways to manage these risks such as segregating duties, educating staff, implementing strong systems like GeBIZ, and establishing mitigating controls and oversight over the procurement process.

1. Control and Compliance in Public Sector Procurement Public Sector Fraud Risk Management & Internal Compliance 22 to 23 August 2011 Yoong Ee Chuan, CPA, CIA, CISA, CISM, MSID 1

2. Evolution of public sector procurement Procurement risks Managing procurement risks Control and compliance issues Agenda 2

3. Paper to Digital Centralisation to de-centralisation IM3B to IM on procurement Snapshot of procurement ecosystem Evolution of Public Sector Procurement 3

4. Evolution of Public Sector Procurement 4

5. Evolution of Public Sector Procurement 5

6. Principles remain similar i.e. open and fair competition, transparency and value-for-money (or previously “lowest cost meeting specifications”) Procurement processes were very manual IM3B – Government Instruction Manual on Procurement prescriptive rules for manual handling of procurement exercises Rules for quotations vs tenders Estimated procurement value (EPV) >=$3,000 < $70,000 – quotations > $70,000- tenders Evolution of Public Sector Procurement 6

7. Evolution of Public Sector Procurement 7

8. Quotations Less onerous compliance wise to tenders Confidentiality of quotations Fax quotations vs mailed quotations Dedicated fax, officer opening etc. Posting of quotations on notice board Evolution of Public Sector Procurement 8

9. Tenders Offer by vendors – more legal documentation as it is binding Confidentiality and integrity important Tender boxes system with dual key Tender opening committee Tender witnessing officers Evaluation by committee Award by approving authorities based on value Posting of bids on notice boards Evolution of Public Sector Procurement 9

10. SLA Fraud 2011 Evolution of Public Sector Procurement 10

11. SLA Fraud 2011 (BT 29/09/2010 cont’d) Evolution of Public Sector Procurement 11

12. SLA Fraud 2011 (BT 29/09/2010 cont’d) Evolution of Public Sector Procurement 12

13. SLA Fraud 2011 (BT 29/09/2010 cont’d) Evolution of Public Sector Procurement 13

14. SLA Fraud 2011 Evolution of Public Sector Procurement 14

15. [Post-SLA] Finance Circular No 1/2011 [4 March 2011] & Corrigendum [13 May 2011] New Roles: Approving Officer - AO (Approval of Requirement - AOR) function Approving Officer (Bid Amendment) –Permanent Secretary (PS) or delegated officer Other Requirements Period contracts require AO (AOR) approval Good practice to establish own period contracts for regular purchases Limiting of “Limited” tenders – GPE should seek guidance from PS/CEO/Head of Agency if in doubt Evolution of Public Sector Procurement 15

16. Quotation Approving Authority (QAA) preferable (good practice) to be from different department (division/section/unit) requesting procurement Goods/services Receipt Officer ensure documentary evidence (e.g. delivery orders, service reports, inventory stock-take) that goods/services delivered or performed Segregation of Payment Certifying Officer / Approving Officer duties extended to Statutory Boards Evolution of Public Sector Procurement 16

17. Centralisation to de-centralisation THEN Central procurement office (CPO) Stationeries e.g. pens obtained via CPO Savings from bulk purchases but spoilage from stock obsolescence, matching demand/supply NOW Decentralised E.g. e-Catalogue buy, bulk tender, GeBIZ You buy what you need, block budget aproach Evolution of Public Sector Procurement 17

18. IM3B to IM on procurement THEN Instruction manuals came in paper files Updating was a pain, manually cross out super-ceded paras, paste over new paras etc. People were more controls & rules conscious NOW Web-based Ease of reference and ease of forgetting (in some cases) Evolution of Public Sector Procurement 18

19. Inherent Risks Procurement is susceptible to corruption (in general) E.g. vendors gifts, ang-pows, free samples Non-compliances can threaten openness, fairness and transparency occur Laxity and lapses in basic contract management can result in loss of value-for-money Report of the Auditor-General highlights cases of non-compliance Procurement Risks 19

20. In the past: AG’s Report 1994/1995 Audit of Purchases under United States Foreign Military Sales Programme Review of Financial Systems of Singapore Armed Forces Sports Association Compliance with Government Procurement Procedures by Statutory Boards Procurement Risks 20

21. Procurement Risks 21

22. Procurement Risks 22

23. Procurement Risks 23

24. Recently – Report of the Auditor-General FY2008/09, Auditor-General’s Overview Areas of concern Laxity in procurement and contract management Lack of financial prudence in procurement and poor management of contracts and agreements Resulting in higher expenditure for goods and services Procurement Risks 24

25. Areas of concern (cont’d) Under-performance not detected Penalties for non-performance not imposed Revenues due not collected Little or no assurance of value-for-money in projects carried out Procurement Risks 25

26. Procurement Risks 26

27. Procurement Risks 27

28. Procurement Risks 28

29. Procurement Risks 29

30. People Lapses due to the way people interpret and enforce the rules as well as implementing the procedures IM3B now more principles-based, i.e. more room for people to interpret hence critical to educate staff handling procedure about how to apply the principles IM3B now provides case studies to help us Segregation of responsibilities Not one person do everything Managing Procurement Risks 30

31. People Segregation of responsibilities (cont’d) GeBIZ – more different roles, e.g. goods received and goods inspection must be different officers, purchasing officer also cannot be approving etc. Previously can circumvent if manual, now with GeBIZ roles, more difficult Evaluation team for tenders shouldn’t all be from the same dept/team Education and awareness of IM 3B (and 3G) Trade-off between controls and efficiency Managing Procurement Risks 31

32. System of procurement Implement systems and processes that adhere to IM3 But public agencies do vary in implementation E.g. of SBs that had dubious quotations Get internal audit to review Perhaps external audit may review However, does not focus too much on internal controls over procurement, i.e. more concerned about validity and authorisation, completeness of recording of purchasing and payment transactions then procurement principles: openness, fairness and transparency Managing Procurement Risks 32

33. GeBIZ: A game changer Controls are built into the procurement process More difficult (but not impossible! i.e Singapore Land Authority case) to circumvent relative to manual processes Examples Openness of web invitations to quotes and invitations to tenders and request for proposals (global) Routing for approvals Publication of awards Make full use of GeBIZ Because you HAVE to (SBs MUST follow IM3) Because it’s good for your agency Managing Procurement Risks 33

34. Some issues for agencies to consider: To what extent does your agency adhere to principles of IM3B/G? To what extent is your standard operating procedures for procurement in line with IM3B/G? How familiar are your people with IM3B/G principles and procedures (i.e. GeBIZ use) Have you set-up assurance and audit of procurement Get your internal audit to look into it Ask your external auditor to look into it Use data analytics to detect unusual patterns Control and Compliance Issues 34

35. Mitigating Controls: Segregation of duties New AO(AOR), AO(Bid Amendment) etc. Goods receipt, inspection and 3-way matching (Purchase Order, Delivery Order, Invoice) Staff rotation SLA fraud surfaced partly due to staff rotation Oversight by Department Heads/Officers responsible for budget and payment approvals Review monthly / quarterly expenditure against budget Review purchases or payment reports and query on payments to “unusual” vendors Understand own department’s procurement needs Control and Compliance Issues 35

36. Mitigating Controls Consider centralisation of procurement Weigh balance between efficiency and controls and risk of procurement fraud Central purchasing “acts” as AOR as all purchases routed through dept Better able to spot split quotations / purchases Consider lower approval limits Not fool-proof as shown by SLA fraudulent transactions were below $70,000 (threshold for calling tenders) but makes fraudster “work” harder Whistle-blowing policy or Internal Disclosure Policy [PMO (PSD) Circular No. 3/2011] Control and Compliance Issues 36

37. Questions? Contact Yoong Ee Chuan, Director/Internal Audit Office 535 Clementi Road, Singapore 599489 Ngee Ann Polytechnic (www.np.edu.sg) yec2@np.edu.sg DID: 6460-6275 Twitter: @eechuan LinkedIn: http://sg.linkedin.com/in/eechuan Thank you! 37