Meeting: Council 15 February 2018 Name of item: KPMG Independent Audit of Procurement Practices FNDC Management Plan

Transcription

1 Meeting: Council 15 February 2018 Name of item: KPMG Independent Audit of Procurement Practices FNDC Management Plan Author: Date of report: 24 January 2018 Document number: Caroline Wilson - Manager, District Administration A Purpose of the report Item: 8.2 To provide elected members with the implementation plan (the management plan) arising from the Independent Audit of Procurement Practices, undertaken by KPMG and presented to Council at their meeting on the 7 th December Executive summary KPMG completed an independent audit of Councils procurement practices and presented their report to Council on the 7 th December KPMG identified 8 medium and 5 low improvement opportunities and placed the Council at the Developing stage between Foundation and Established. KPMG s recommendation was to progress to a Fully Established status, which generally takes three years to embed into an organisation. Having implemented a Centre of Excellence (within the Project Management Office PMO), Council is on the right path to achieving a Fully Established status. Management have considered the recommendations contained in KPMG s report and provided their management plan to address the recommendations. A number of the recommendations contained in the KPMG report were already underway at the time of the audit, having previously been identified in the PMO s forward programme of work in the procurement space. The KPMG report reinforces that Council was already on the right track. Progress against the recommendations will be reported through the Corporate Committee as part of the reporting by the Risk and Improvement team. Internal audit is scheduled to complete a review of procurement practices at the end of This will become an ongoing activity to ensure compliance with policy and procedures. Recommendation That Council receive the report KPMG Independent Audit of Procurement Practices FNDC Management Plan dated 24 January 2018 and the Audit of Procurement Practices - FNDC Management Plan. Document number A Page 1 of 4

2 1) Background Council resolved at its meeting on 22 June 2017 that an independent review of procurement practices was required as a result of media commentary. KPMG were appointed as the successful independent auditor and performed their assessment over the months of October and November KPMG presented their audit report at the Council meeting on the 7 th December The report made a number of recommendations to further enhance Council s procurement function and management have now considered these recommendations. 2) Discussion and options Management have now considered the recommendations and drafted a management plan. The plan outlines the recommendations, management response, proposed actions and associated timeframes. This plan has been discussed with the Strategic Leadership Team prior to being tabled at Council. The management plan is Attachment 1 Audit of Procurement Practices - FNDC Management Plan. A snapshot of high level recommendations is included in the table below: Recommendation Response Timeframe Policy and Procedures Compliance - planning and evaluation/selection Supplier panels/ preferred suppliers Controls Spend monitoring Conflicts of Interest Procurement Board Purchasing/Sundry Creditor Whistleblower Policy An amended policy to be reviewed by SLT and the Procurement Board ahead of a recommendation to Council for adoption Update documentation to ensure clarity. Provide additional education to staff and suppliers. Supplier panels are already being established. Continue to progress others. Preferred supplier list will be a longer term initiative Supplier master file audits and processes Longer term initiative current systems cannot deliver the analytics required for detailed procurement analytics Tighten controls and audit for compliance Clarify roles, provide education and consider independent board member Physical PO s and controls over the sundry account. Update policy and provide external hotline Tender grading Tender grading criteria aligned to NZTA Anchored scales design, To be tabled at June 2018 Council meeting for adoption By end April 2018 Ongoing End 2018 Completed Commence investigation late 2018 Ongoing April 2018 Already underway Already underway Already underway for 2018 procurements Document number A Page 2 of 4

3 implement, educate Q Record-Keeping Centralised system for storing procurement documentation. Encourage use of Objective and investigate longer term register. Checklist for minimum documentation requirements Naming conventions already established re-educate and make part of checklist. Commence investigation before June 2018 Checklist completed and being rolled out Audit names for compliance Reason for the recommendation To inform Council of the plan to implement the recommendations of KPMG s audit report. 3) Financial implications and budgetary provision There are no financial implications as a result of this report. Manager: Samantha Edmonds - General Manager Corporate Services Attachment 1: Audit of Procurement Practices - FNDC Management Plan - Document number A Document number A Page 3 of 4

4 Compliance schedule: Full consideration has been given to the provisions of the Local Government Act 2002 S77 in relation to decision making, in particular: 1. A Local authority must, in the course of the decision-making process, a) Seek to identify all reasonably practicable options for the achievement of the objective of a decision; and b) Assess the options in terms of their advantages and disadvantages; and c) If any of the options identified under paragraph (a) involves a significant decision in relation to land or a body of water, take into account the relationship of Māori and their culture and traditions with their ancestral land, water sites, waahi tapu, valued flora and fauna and other taonga. 2. This section is subject to Section 79 - Compliance with procedures in relation to decisions. Compliance requirement State the level of significance (high or low) of the issue or proposal as determined by the Council s Significance and Engagement Policy State the relevant Council policies (external or internal), legislation, and/or community outcomes (as stated in the LTP) that relate to this decision. State whether this issue or proposal has a District wide relevance and, if not, the ways in which the appropriate Community Board s views have been sought. State the possible implications for Māori and how Māori have been provided with an opportunity to contribute to decision making if this decision is significant and relates to land and/or any body of water. Identify persons likely to be affected by or have an interest in the matter, and how you have given consideration to their views or preferences. State the financial implications and where budgetary provisions have been made to support this decision. Chief Financial Officer review. Staff assessment Procurement Policy Not applicable The Chief Financial Officer has reviewed this report. Document number A Page 4 of 4

5 Attachment 1 - Independent Audit of Procurement Practices - Management Plan Key Area Recommendation Management Response / Action Plan Responsible Estimated Completion Update policy and processes to include risk and probity Staff will seek professional advice and incorporate best practice from other local authorities and NZTA. Policy will need to go via SLT and the Procurement Board prior to Council decision Jun-18 Implement a formal supplier vetting process Procurement risk drives the level of supplier vetting. This will be in the form of a matrix aligned to value and risk Review and update procurement policy for community projects To be reviewed with policy team and incorporated into one policy for all procurement. Policy will need to go via SLT and the Procurement Board prior to Council decision Jun-18 Policy and Procedures Enhance the procurement plan template to include an overall project risk rating Review appropriateness of the current Register of Delegations document in relation to approval of variations to contracts Enhanced template will be completed Propose to introduce a Contract Variation Approval Template aligned with DFA's. Total value of the contract + variation(s) is the financial driver for DFA approval. Template completed and ready for roll-out. Internal audit will review adherence to the new process as part of audit procedures Implement controls for approval of variations (with thresholds) Part of the Contract Variation Approval Template aligned with DFA's. Total value of the contract + variation(s) is the financial driver for DFA approval. Internal audit will review adherence to the new process as part of audit procedures Review current approval thresholds and ensure they are fit for Review current approval thresholds with a view to aligning to NZTA best practice. This allows purpose. Procurement Specialist recommendation to action this as a greater efficiency in delivery of works - currently staff spend a lot of time "doing" the procurement result of working under the current policy for 1.5 years process. This will also ensure better utilisation of local suppliers (appoint directly) Compliance - procurement planning Reinforce compliance to procurement policy and procedures and approvals as per delegations Ensure the level of detail to be included in the procurement should be relative to the project value and risk Continue with ongoing education, establish KPI's for key roles involved in procurement and perform yearly internal audits to spot check for compliance. Linked to risk and internal audit processes and if required, can perform specific audits outside of yearly cycle Already in existence in current Procurement Plan templates. Will refresh the templates to include more information and guidance on procurement risk Michelle S Level of documentation to support procurement decisions Upgraded documentation to be formulated and introduced Compliance - tender evaluation and supplier selection Completion of conflicts of interest declaration Create a mechanism by which suppliers can clarify their tender submissions where the tender evaluation team have failed an attribute or have serious reservations Procurement Checklist for approvals to be introduced with spot checks by internal audit. Checklist has been completed and is in the process of being rolled out Already exists, will modify and provide education around this to staff and suppliers Supplier panels and/or preferred supplier listing Investigate appropriateness of establishing supplier panels above a certain $$ threshold Implement a centrally managed preferred supplier listing - reviewed annually Supplier Panels will be put in place for Professional Services and Low value physical works. Already in progress Preferred supplier list can be accommodated. Is a significant body of work to assess suitability, go to market and formally establish. Is a longer term activity Ongoing as required towards end 2018 Review supplier file exception report before payment runs Audit will perform a monthly review of supplier master file to identify changes and review the legitimacy of the supplier changes Audit is working with the Financial Services team to redefine the process around adding and amending suppliers, including the requirement for bank account proof Janice S by end March 2018 Controls over supplier master file management Implement secondary controls to support bank account additions Janice S by end March 2018 Annual review of the supplier master file for dormant and duplicate supplier accounts Audit will complete an annual review to identify dormant and duplicate supplier accounts and liaise with Financial Services for actioning Janice S Ongoing Document number A Page 1 of 2

6 Attachment 1 - Independent Audit of Procurement Practices - Management Plan Key Area Recommendation Management Response / Action Plan Responsible Estimated Completion Spend monitoring Implement quarterly procurement spend analysis As part of the spend analysis process, integrate category spend management on a periodic basis Current in-house solutions cannot deliver the type of analytics required for detailed procurement spend analysis. Concept paper and business case will be required for a software package that can deliver data analytics in the procurement space Current in-house solutions cannot deliver the type of analytics required for detailed procurement spend analysis. Business case may be required for a software package that can deliver data analytics that would inform a category strategy in the procurement space Longer term - late 2018 commencement Longer term - late 2018 commencement Review conflicts of interest policy and process P&C will review the policy and processes for SLT to approve any required changes Jill C May 2018 Conflicts of interest management Ensure compliance during onboarding, annually and through education This is standard as part of our onboarding however we will schedule to update annually going forward Jill C June 2018 and yearly thereafter Regularly review conflicts of interest register Post review of policy, audit will review on a 6 monthly basis Matt B Ongoing - commence after June 2018 update Clarify role and responsibilities Review current TOR's and merge into one document with clarity for staff and elected member participation Michelle S Effectiveness of the Procurement Board Ensure education and appropriate skill sets Ongoing education regarding procurement and procurement best practice. Establish a skills matrix to ensure appropriate skill sets (staff and elected members) Consider an independent board member Investigate Procurement Board and Corporate Committee meeting alignment and approach Bruce Robertson to be potentially the independent member Caroline W Purchasing Assess risk of eliminating physical PO's In progress - PO's are now digital and currently being rolled out with IAM followed by all staff Janice S In progress Use of the sundry creditor account Review use of an implement controls to reduce risk, omissions and fraudulent activity when procuring and processing payments Improved controls have already been introduced for the sundry creditor account and the Financial Services team are regularly reviewing purchase orders and invoices being raised under the sundry account Janice S Completed Whistleblower Policy Tender grading criteria Record-keeping Update policy and educate staff Completed and will be communicated to staff and elected members by end of January 2018 Leanna R Jan-18 Consider an external hotline for staff and the public EAP Services have been approved as the external hotline Leanna R Completed Implement organisation wide tender grading criteria Propose to align with NZTA standard scoring mechanism - currently considered as best practice Will be in place before next procurement board - 13th Feb 2018 Develop an evaluation criteria for scoring of attributes prior to scoring of the tender submissions Centralised system for storing documentation Introduce Anchored Scales concept across the organisation. This is a significant change to current procurement practices, along with changes to IAM's team structure. This will require education and embedding A Procurement Register and Contract Register are required. This requires investigation in terms of the best solution for Council and whether it is within existing systems or off the shelf. Short term it is Objective but there may be a better solution Q Michelle S Checklist for minimum document requirements Procurement Checklist for approvals to be introduced. Completed and to be rolled out Investigate before June 2018 Establish naming conventions for consistent naming Establish a consistent approach for procurement and educate / monitor. Will form part of checklist requirements for documentation Document number A Page 2 of 2