Month: March 2023

Mitigating risk is one of the most important responsibilities an organization’s finance leader has. So why do so few pay close attention to procurement, an area bristling with risk? Can they trust that others in their organizations are looking after those risks, or is this a potentially dangerous blind spot for them?

In this blog post, we’ll take a look at the risks inherent in public sector procurement and why finance leaders should care. Finally, we’ll show that it isn’t all doom and gloom by outlining some steps public sector finance leaders can take to assess and improve their agencies’ procurement risk profiles.

Ten risks intrinsic to public sector procurement

The risks inherent in public sector procurement are wide-ranging. Here’s what it looks like when they’re not well-managed.

• Procurement requests are frequently delayed or forgotten entirely. When there’s no formal system to receive and track procurement requests, they can sit unaddressed for a long time, wasting time right from the outset that can’t be recovered.

• The right vendors don’t see your solicitations, so you can’t get the best services, goods, and value for your stakeholders. The best solicitations in the world can’t get results for your agency if they’re hard to find.

• Unqualified vendors are allowed to bid because there isn’t a system in place to screen bidders for necessary qualifications and certifications. That means you waste time sorting through bids that can’t be considered or, worse, you get all the way through the evaluation stage before realizing not all bidders meet the qualifications.

• Evaluations are unintentionally corrupted. For someone trying to mitigate risk, evaluations are one of the most challenging areas of procurement because evaluations are often qualitative and subjective. An evaluator’s failure to understand the evaluation criteria, a hasty reading of the bid details, or unconscious cognitive bias can all lead to suspect evaluations that can’t withstand scrutiny.

• Evaluations are deliberately corrupted. In addition to unconscious bias, there’s also deliberate bias to worry about, which leaves an agency open to accusations of unfair or discriminatory dealing. If evaluators can score bids any way they like, with poor reasons or no reasons given, it becomes impossible for an agency to defend its procurement decisions.
  
  In the absence of risk-mitigating controls (like requiring evaluators to provide reasons for their decisions), even well-intentioned evaluators can let their assumptions and biases lead them towards counterproductive and risky habits that eventually become organizational norms.

• Approvals create bottlenecks that disrupt procurement timelines. Procurement is often the last thing on approvers’ minds, so without a system to keep approvals moving, they languish. At best, time is needlessly wasted; at worst, critical services and supplies aren’t procured as promptly as they’re needed.

• Poor record-keeping exposes the agency to regulatory and PR risks. To avoid an uncomfortable spotlight, public agencies have to be above suspicion and ready to respond to questions and disputes with credible records and facts. Without help from automation and technology, this is a practical impossibility.

• Rogue purchases occur because nobody wants to work with procurement. It’s human nature to go around obstacles that get in the way of our goals. When people treat the procurement department as an obstacle rather than providers of a valuable service, they cut corners that expose the organization to risk.

• Important knowledge doesn’t become institutionalized. In many organizations, people know how to do their jobs well, but nothing’s written down or systematized. This leaves an agency vulnerable to losing key people and finding itself unable to function.
• Poor vendor performance goes unnoticed or unaddressed. This risk is one of the most dangerous because it quietly drains value from a community, year after year, while remaining just under everyone’s radar. It’s usually only when something really egregious happens that this problem gets attention, but by then the damage is done.

What to do about procurement risk

While the list of procurement risks can be daunting, there are software solutions available to manage them. 

Procurement software offers a range of benefits, including streamlined procurement requests, vendor qualification, and minimized corruption in the evaluation process. It can also speed up approvals, reduce bottlenecks, and maintain reliable records to avoid regulatory and PR risks.

Moreover, procurement software can encourage cooperation with the procurement department, institutionalize critical knowledge, and ensure poor vendor performance isn’t overlooked. By using benchmarks and community data, the most capable software solutions can identify and solve common procurement problems.

It’s important to note that not every agency needs cutting-edge functionality in every area, and the most expensive solution is not necessarily the best. The key is to find software that addresses your agency’s specific needs. The best way to know what your needs are is usually through an internal risk assessment that compares the current state to the desired state and identifies the gaps between them.

Public sector procurement simply has too many moving parts for people to keep track of and manage without some help from technology, which is why procurement software is an essential tool for public sector agencies. By identifying and investing in software that meets your agency’s specific needs, you can achieve significant improvements in your procurement processes while reducing risk at the same time.

We recently chatted with seasoned procurement pros at our OntarioTalk event, and they had some great compliance advice that applies to all jurisdictions.

Our panelists included:

• Hend Salem, Manager of Strategic Sourcing – Non Clinical at The Ottawa Hospital
• Carol Izzio, Director of Procurement at Sheridan College
• Christine McParland, Director of Residence and Ancillary Services at St. Lawrence College
• Luca Del Grosso, Manager of Procurement at Technical Standards and Safety Authority

They all shared their experiences and what worked well in their agencies. Find the summary of their advice in this article or watch the full conversation here.

2. Leadership support

Like most things, procurement compliance starts at the top. While procurement can create the initial policies and procedures, leadership gets the final say.

If you’re pushing compliance across all departments that you work with, making sure your leadership team has your back is essential. This ensures your internal stakeholders understand that you’re not forcing them to follow made-up rules, but adhering to corporate-wide policies to make sure things run smoothly, are risk-averse, and follow the law.

Ask yourself these questions:

• Has my leadership team reviewed and approved all policies?
• Does leadership have a process for enforcing policies?
• Does leadership support procurement education for other departments?

3. Internal client education

Educating internal clients on procurement compliance is incredibly important—which all our panelists echoed. They need to understand what they’re complying with, why, and how to stay compliant, or else they’ll do what they feel is best. Educate on the benefits to both them and the organization if the rules are followed—such as spending budget efficiently, increased transparency, avoiding legal issues, streamlined workflows, etc.

Ask yourself these questions:

• Are there any educational sessions on procurement for other departments?
• How are new hires introduced to the procurement process?
• Is it clear to everyone how procurement works and their role in the process?
• Do others understand why policies exist and how to adhere to them?
• Do all other departments have easy access to policy and procedure documents?
• Do others understand the risks associated with not following policy and procedures?

 

“We are not policing [internal stakeholders] or policing how they are spending budget but they are accountable for the budget, the risk, and the spend. It’s not a procurement policy, it’s a corporate policy. Everyone has to buy in.”
– Hend Salem, Manager of Strategic Sourcing – Non Clinical, The Ottawa Hospital

4. Checks and balances

Making sure there are processes in place to catch mistakes before they become problems is a crucial part of the procurement compliance process. Your team—and your whole organization—can land in hot water if policy and procedure aren’t followed to the T.

Regulations like Ontario’s Broader Public Sector Procurement Directive give a list of requirements for certain documents, and our panelists have baked these into their own review processes. Many regulations also have requirements for segregation of duties and approval responsibilities that can help you craft your own procedures.

Ask yourself these questions:

• Are there already review processes in place? Are they working as intended?
• Are my documents version-controlled?
• Is my recordkeeping system organized, centralized, and easily accessible?
• Do you do regular internal procurement audits?
• Are there designated people to review procurement documents?
• Do you have a checklist of document requirements to use in your review?
• Do you use any tech that has compliance checkpoints?

Compliance and risk management is a team effort

Procurement compliance and risk management doesn’t just fall to the procurement department—it’s everyone’s responsibility. But it is procurement’s duty to make sure policies and procedures are standardized, accessible, and easily understood by internal clients.

Procurement technology is your ally. It helps you centralize and manage documents, create compliance checks, follow custom approval workflows, collaborate with your team and internal stakeholders, and so much more.

Get eProcurement with compliance built-in. Learn how Bonfire can help—book a demo.