KHADIJA AMEEN: Balancing efficiency with compliance in public procurement

Public procurement constitutes a large portion of how taxpayers’ money is dispensed to provide critical services to citizens. As a percentage of SA’s overall GDP it hovers just above 10% and has trended upwards since 2011 (10.8%) to about 11.9% in 2019.

Since procurement accounts for a major portion of the nation’s spending it is critical that the process is well managed to ensure effective service delivery to the country’s taxpaying citizens.

Auditor-general Tsakani Maluleke’s recent 2020-2021 audit outcomes report in terms of the Public Finance Management Act put accumulated irregular expenditure — spending that had not been “condoned, written off or recovered” — at R488.1bn. This number had grown 18.2% from R399bn the previous financial year.

These findings not only highlight the need for a review of the regulatory landscape state-owned enterprises are operating in but should prompt them to re-examine their procurement governance philosophy and structures.

The current approach to procurement governance within SOEs is a key contributing factor to the challenges plaguing service delivery. The fact that we have such comprehensive and thorough rules and regulations governing public sector purchasing but are still seeing considerable losses through irregular expenditure points to a fundamental flaw in governance.

The way to tackle this issue is to ensure the balance between efficiency and compliance is front and centre in the minds of those responsible for public procurement. By following the correct set of principles it is possible for SOEs to instil models that not only unlock proactive compliance management but also enable greater efficiency.

Our experience has revealed a common thread of five key design principles that underpin successful public procurement governance models: accountability, trust, effective compliance, standardisation and efficiency. If effectively embedded in an organisation and supported by the right enabling structures, these design principles are key to success, offering the optimal balance between efficiency and compliance.

Though these principles are carefully thought out, broadly applicable and have proven successful in a wide range of contexts, they are not a blanket solution. Each organisation presents unique circumstances. Hence, a structured approach must be applied when integrating these principles into governance frameworks.

Organisations should first define robust governance philosophies (underpinned by the five key principles) that strike a critical balance between efficiency and compliance through an agency-based model focused on proactive risk management and distributed accountability. With a renewed governance philosophy it is then possible to design a governance framework that has the correct levels of flexibility.

I am confident that this can be achieved through targeted interventions such as:

• Redefining policies and procedures to simplify approval processes while still ensuring compliance with legislation. Simplifying policies promotes improved compliance, which reduces the risk of adverse audit findings. Reshaping policies and procedures also reduces the reliance on executive/board-level committee approval cycles, resulting in shorter approval times to implement new processes.
• Streamlining multilayered committee structures to eliminate approval bottlenecks. By removing these bottlenecks SOEs can improve their decision-making speed and efficiency and save time.
• Redefining delegated levels of authority to empower tactical decision-making at lower levels within the organisation that are critical for business continuity. Redefining levels of authority enables distributed and individual decision-making accountability. This means individual decision-making accountability cannot be masked by committee structures.
• Instilling control mechanisms (a system of rules and procedures) to direct and influence actions by procurement process stakeholders. An example is our Compliance Control Point framework, which applies a stage gate approach to facilitate compliance at critical steps in the procurement process. This framework ensures distributed decision-making, accountability and transparency, resulting in a robust governance model and an ability to audit decision-making at critical points. 

By instilling these four governance principles into our public procurement system we have an opportunity to increase compliance by SOEs, reduce litigation risk and mitigate against unfavourable audit outcomes. They also allow public procurement organisations to focus more on improving service delivery to their recipients.

Our experience with clients in this space has shown that there are significant operational efficiencies that can be achieved through the effective application of this approach to governance. We have seen sourcing process times improve by up to 80%. In particular, the sourcing process times for high-value, strategic tenders can go from six to 18 months to just two to five months. Tactical purchases for high-value procurement (more than R500,000) can reduce from 30 days to five to 10 days. With these improvements SOEs can capture substantial value by using resources more effectively.

Basic implementation of this approach will create a paradigm shift away from over-reliance on rule-based models to more sophisticated governance philosophies orientated around efficiency but grounded in ethics, which does not compromise compliance.

These principles, which we have already established and tested, help guide the development of robust but balanced governance philosophies and procurement strategies. These elements will influence behavioural change and encourage an institutional efficiency and accountability culture.

• Ameen is manager at global management consultancy Kearney.