PUBLIC PROCUREMENT AS PART OF PUBLIC FINANCIAL

MANAGEMENT

Budget ExecutionPublic Expenditure and Financial Accountability

Topics to be Covered

Define objectives of procurement system as a public sector management systemIdentify key elements of a systemEstablish linkages to public sector financial managementProcurement as part of the budget formulation and execution A country-based exampleQ&As

Procurement as a Governance System

Objectives of a public procurement system Efficiency and effectiveness

Value for money Timeliness

Fair and open system Competition Open to outside participants Provides for remedies

Transparency Accountability

Key Aspects of a Developed System

Legal framework Oversight Cadre of qualified professionalsDefined role/responsibilities consistent with degree of decentralizationRecord keeping and data management to provide feedbackControl systems – Internal and External

The basic objectives are to obtain goods and services needed to deliver government programs at the appropriate quantity, quality and price (value for money)

Procurement expenditures are often a significant component of public expenditure and GDP (10-15%) and significantly higher in developing countries.

Many procurement projects involve multi-year expenditures

Procurement is therefore a financial management issue – not just adhering to legal requirements or obtaining goods and services that meet technical requirements

Inappropriate procurement will reduce both strategic resource allocation and operational efficiency, through inappropriate goods and services and higher than necessary costs. It may also threaten aggregate fiscal control through cost blowouts in major projects.

The basic objectives are to obtain goods and services needed to deliver government programs at the appropriate quantity, quality and price (value for money)

Procurement expenditures are often a significant component of public expenditure and GDP (10-15%) and significantly higher in developing countries.

Many procurement projects involve multi-year expenditures

Procurement is therefore a financial management issue – not just adhering to legal requirements or obtaining goods and services that meet technical requirements

Inappropriate procurement will reduce both strategic resource allocation and operational efficiency, through inappropriate goods and services and higher than necessary costs. It may also threaten aggregate fiscal control through cost blowouts in major projects.

Procurement

Why Procurement is an Integral Part of Public Financial Management

1. Greater Performance Focus in the Budget:

• Provides actual cost data for budget formulation

1. Greater Performance Focus in the Budget:

• Provides actual cost data for budget formulation

2. Strengthening Internal Control & Audit:

• Procurement is a key element of internal control and internal audit systems

• The procurement audit function in Supreme Audit Institutions (SAIs) is important

2. Strengthening Internal Control & Audit:

• Procurement is a key element of internal control and internal audit systems

• The procurement audit function in Supreme Audit Institutions (SAIs) is important

3. Accrual Accounting and Budgeting:

• Focuses on accountability of total costs, including maintenance and depreciation

• Part of the issue of improving the management of public assets

3. Accrual Accounting and Budgeting:

• Focuses on accountability of total costs, including maintenance and depreciation

• Part of the issue of improving the management of public assets

How Procurement Fits with Key Themes of Budget Design & Reform

5. Medium-Term Approach to Budgeting:

• Does not require multi-year appropriations, rather a forward look to provide indicative figures for planning purposes

• Planning of capital investment programs and projects an integral part of multi-year budgets

5. Medium-Term Approach to Budgeting:

• Does not require multi-year appropriations, rather a forward look to provide indicative figures for planning purposes

• Planning of capital investment programs and projects an integral part of multi-year budgets

6. Transparency:• Fiscal transparency, as

with transparency of procurement transactions, may improve overall fiscal performance and counter corruption

6. Transparency:• Fiscal transparency, as

with transparency of procurement transactions, may improve overall fiscal performance and counter corruption

7. Other Applications:

• E-Procurement• Public-private

partnerships (PPI)

7. Other Applications:

• E-Procurement• Public-private

partnerships (PPI)

4. Budget Design:• Integrating capital and

recurrent budget preparation and execution involves procurement issues

4. Budget Design:• Integrating capital and

recurrent budget preparation and execution involves procurement issues

Mainstreaming Procurement as a Financial Management Activity – An Example

Budget Planning

Execution Monitoring Reporting & Execution

Demand Planning

Budget planning

Acquisition management

Logistics Management

• In South Africa, procurement as a technical and peripheral function has been put aside and is being integrated into the overall public expenditure management process

• The term “procurement” is no longer used. Procurement officers are called “financial management officers”

• Under the name of “Supply Chain Management” traditional budget management in line ministries is being restructured from:

• In South Africa, procurement as a technical and peripheral function has been put aside and is being integrated into the overall public expenditure management process

• The term “procurement” is no longer used. Procurement officers are called “financial management officers”

• Under the name of “Supply Chain Management” traditional budget management in line ministries is being restructured from:

Disposal Management

To:

• Even though “Acquisitions Management” deals with most functions of traditional procurement, each stage of the process engages financial officers, including “procurement” experts.

• By doing so, officers in charge of demand planning are better able to prepare a more practical and feasible plan for the logistics and procurement stages later on

(N.B. the concept of supply-chain management bas been popular in private companies since the early 1980s)

• Even though “Acquisitions Management” deals with most functions of traditional procurement, each stage of the process engages financial officers, including “procurement” experts.

• By doing so, officers in charge of demand planning are better able to prepare a more practical and feasible plan for the logistics and procurement stages later on

(N.B. the concept of supply-chain management bas been popular in private companies since the early 1980s)

Q&A

&

Discussion