December 2022 - Bad Buying

Last week, Gareth Davies, head of the UK’s National Audit Office, gave a speech to members of parliament and civil servants. He drew on the experience of NAO in carrying out dozens of reviews over the last three years to highlight “three big lessons for public spending in large scale emergencies”. All three have implications for and are related to procurement in some sense.

“Firstly, the importance of maintaining basic standards of public accountability even in a crisis, and restoring normal controls as soon as possible. 

Secondly, the central role of good quality data in responding quickly and targeting resources accurately. 

And thirdly, the need for a new approach to improving the country’s resilience to large scale emergencies, which minimises the impact on current and future taxpayers”.

Under the first heading of basic standards, he accepts that there wasn’t time to carry out full and normal processes in areas such as PPE procurement or furlough loans. But there was then no excuse for government failure to apply the safeguards of transparency, for example in terms of large PPE contracts.

“It was therefore a concern to see significant delays to government publishing the details for some (often very large) contracts that had been awarded without competition. It is not an onerous task to publish this information promptly, and it is a vital one”.   

Timely accounting is also key, and he points out the worrying situation in local government where a third of councils at the end of September 2022 had still not published their accounts for the year ended March 2021! Given the waste of money / fraud /massive incompetence that is now coming to light in councils such as Thurrock, Croydon and Slough, timely accounting is “critical to protecting taxpayers and maintaining trust in public spending”.

Under the good quality data headline, he praises some aspects of the NHS App as a good example of the benefits that data can bring, but government has to do more, and progress has been too slow. There are three key issues that can help drive greater efficiency:

Data standards: essential for efficient use of data, held in a consistent way
Data quality: for accurate and reliable results and maintaining public confidence 
Data sharing: so that citizens don’t have to repeat themselves

Finally, resilience – “how is government ensuring that our country is resilient enough to withstand costly crises, without placing an unaffordable burden on taxpayers? And what will good value for money look like in future pandemic planning?”

We need more flexible approaches, he says, but above all we need a more considered approach to risk. For instance, given climate change, there are major issues around water supply, but NAO found no convincing plans to stop the south of England running out of water by 2040! (That’s a worry for a vegetable grower like me even with 8 rainwater butts / bins dotted under various drainpipes and around the garden…)

“To be truly resilient, government must plan for scenarios that it previously dismissed as extreme, and revisit its assessments of how likely they are to happen. This is crucial if we are to achieve value for money, not just in the short term, but for future generations.” 

His final remarks on efficiency in government spending more generally focus mainly on evaluation and evidence. Basically, government spends money and has little idea of whether it does what it was supposed to (or achieves anything at all in some cases). Here’s a shocking fact. In 2019, – “out of the government’s 108 most complex and strategically significant projects, only nine were evaluated robustly. Seventy-seven of them had no evaluation arrangements at all”.

There are other good points around efficiency. Understanding and managing demand for services is key; and we need more and better investment in digital services (with the caveat that projects are consistently over-optimistic about implementation in the public sector). Davies wants more focus on the nuts and bolts of efficiency. “We have seen too many high-level ambitions fail to be translated into concrete plans, adequately resourced and tightly-managed. The skills and organisational discipline required for this are well understood, but they are not always valued and prioritised in government.” 

Indeed. I still wait to see the first appointment of a Permanent Secretary who has risen through roles in procurement, commercial, project management and delivery, rather than the traditional policy and private-office-heavy route. That would be a real indicator that government is taking these messages seriously!

I’ve read about a couple of procurement-related frauds in the media in recent days. They go to show that there is very little new in this game – both rely on tried and tested techniques, and both really would not have happened if some basic controls had been in place.

Accountant Jeffrey Bevan stole £1.7 million by making 50 fake payments to himself when he was payments manager for the accountant general of Bermuda (the islands equivalent of a finance minister). The payments were presumably disguised as going to “suppliers” and he spent the money on cars, multiple properties and gambling. He was sent to jail in 2018 but was back in court recently having been released, hence the news reports last week. A proceeds of crime hearing is trying to recover more of the stolen money from his pension, which Bevan claims is unfair.

This type of fraud is not unusual and there are several examples in the Bad Buying book. This case again shows that the perpetrator can be anyone, including senior managers, accountants, head teachers, NHS directors … In fact, it is generally more senior people who have the power to authorise payments, or to choose suppliers, so of course they are more likely to commit fraud.

But the mitigation of this risk is pretty straightforward. All payments (other than the very smallest) should be authorised by more than one person. Any new “supplier” must be checked out to make sure the organisation is genuine – and not owned by the person making the payment! Bank details should be checked and again more than one person should be involved in authorising new payment details or changes to details. This is all common sense really, yet many organisations don’t follow the basic principles.

The second case featured a senior engineering manager for Coca-Cola Enterprises UK, Noel Corry (it actually hit the news a few months back but I missed it at the time). His role included identifying electrical contractors for bottling plants across the UK, but in some cases he handed out contracts to favoured suppliers where no actual work was ever undertaken.

He took more than £1.5 million in backhanders from the firms as well as getting season tickets for Manchester United. The judge didn’t send him to jail, saying he had suffered enough (my little joke there). Actually, he was spared jail, which seems rather lucky, being given a suspended sentence. Two executives from the supplier side were also given similar sentences.

Corry ensured that work went to various companies including Boulting Group Ltd, Tritec Systems Ltd and Electron Systems Ltd in return for large sums of money paid directly or indirectly to him. The prosecuting QC said, “‘Mr Corry had the power to award general contracts directly or through a tender process. He would determine which work needed to be done and by whom… Mr Corry would ensure that companies were awarded genuine CCE contracts at inflated rates or contracts were raised in their names for bogus work never intended to be completed. The companies would invoice and then be paid. The extra money generated created a slush fund held on behalf of Noel Corry”.

Again, we see a single individual with too much power to make decisions. In this case, the fraud involved awarding contracts as well as making dubious payments. But where was the procurement function in all this? Was there no check on why and how these firms won the work? And in terms of paying for work that was not even delivered, that comes back to having multiple sign-off on invoices, so someone could have asked what exactly had been done for the money being charged.

So do check that your organisation is not open to these or other basic procurement-related frauds. Get a group of your most creative colleagues together, peple who do also know a bit about your organisations processes and systems, and ask them to “think like a crook”. How would they extract money from your organisation? Where are the weak spots in your processes, checks and controls? Most organisations do still have such issues; so it is up to procurement (and finance) leaders to find them before the criminals do – and close those loopholes!

Gareth Davies, NAO Supremo, On Efficiency, Standards (and Procurement)

Why You Should Think About Committing Fraud