Accountability, Effectiveness

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Accountability, Effectiveness Audit
Requirements
Getting the Balance RightGood Practice in Action
Seminar 6 March 2009
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NZAID at a Glance
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Background

• Contracting in NZAID was in-line all
  activities are expected to go through a
  contracting process before implementation.
• Contracts Finance teams do procurement
  contracting.
• Programme teams do contract development
  management.
• Concept/need ? Design ? procure/contract ?
  Implement
• Often under urgency and in difficult
  circumstances.
• Creates some inherent tensions outcomes vs
  process
• An ongoing sense that developed world procurement
  contracting was not appropriate in the
  developing world.
• Manuals prescriptive processes had been
  resisted.

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NZAID has 19 different contract
modalities Choices are based on the type of
partner, the type of activity and perceived risk.
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Background

• NZAIDs contracting practices assessed as good
  in 2002, 2003, 2004, 2005 and 2006.
• NZAID had no policy, IT systems, or clear
  guidance for staff around contracting and
  procurement.
• Staff received initial training.
• NZAID had no internal audit function.
• A number of contracts were let retrospectively
  and tenders skipped usually due to issues of
  partner capacity/capability.
• Ministry of Economic Development released their
  Mandatory Procurement Rules in July 2006.
• NZAID updated contract templates and issued some
  general guidance noting changes.
• OAG advised that public sector procurement and
  contracting would be a specific area of focus
  from 2007.

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The Audit

• Took place August 2007
• Audit found
• Staff were passionate and committed with a
  creditable development focus, but
• NZAIDs practices poor and requiring immediate
  and substantial improvement.

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The Audit findings

• Staff unclear as to role and not supported by
  training or policy.
• No clear single policy for staff to follow.
• Large up front grant payments (full year).
• Activity management based on relationships and
  trust, rather than documentation and prudent risk
  management/mitigation.
• Grants made without any assessment of systems and
  capability.
• Insufficient evidence (planning documentation).
• Contracts let without being tendered.
• Internal audit not working.
• Contract advisors advice not given due weight.
• Too many exemptions from policy good practice
  (20)
• No evidence of a culture that is trying to
  improve practice and reduce exemptions.

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The response

• Initially shock, denial
• Executive Director Peter Adams brought management
  together
• No finger pointing or blame game,
• Accept the findings regardless of how just we
  feel they are,
• Develop a plan to fully and systematically
  address all issues,
• Bring staff and partners along.
• Management team brainstormed solutions,
• Solutions were consulted over a couple of weeks
  with staff and were revised and refined
  extensively.
• Supported by Agency-wide meetings and QA
  sessions.
• Achieved wide ownership of the problem and
  acceptance of the solution.

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The plan

• The plan had 46 items focused around the
  following
• Develop a Procurement Contracting Policy,
• Develop clear guidelines around key practices,
• Implement an electronic contract development
  management tool (easy!)
• Support understanding and practice with training,
• Reinforce understanding and practice with revised
  role descriptions and performance objectives at
  all levels,
• Drive down exceptions to policy agreed
  practice.
• Increase capacity around contract management,
  development and monitoring (more staff)
• Visit all posts to review strengthen practice,
• Establish an internal audit function management
  review/monitoring environment.

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Our Partners

• Needed to communicate with all stakeholders
• Recipients countries, communities
  organisations in developing countries.
• Partners Agencies and organisations we work
  with and through to deliver development outcomes,
• Domestic Stakeholders ministers, the public,
  OAG and central agencies.
• Key messages (summarised)
• 1) Recipients - communicated by programme
  managers
• Nothing in the audit will change what we are
  doing, or who we are working with, or our
  priorities,
• All existing activities and programmes will
  continue,
• But, we cannot be as flexible as we have been in
  the past.

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Key Messages Continued

• 2) Partners communicated by programme managers
• Nothing in the audit will change what we are
  doing, or who we are working with, or our
  priorities,
• All existing activities and programmes will
  continue,
• Audit findings were about potential weaknesses in
  systems, not actual failures.
• NZAID will move to systematically strengthen
  systems and practices where necessary but the
  majority of changes will not affect our partners.
• 3) Domestic Stakeholders communicated by
  management
• NZAID acknowledges the seriousness of the
  findings and will quickly and comprehensively
  address all weaknesses.
• The audit findings draw attention to weaknesses
  in processes around contract management - this is
  not about misuse of funds.
• All money has been and will continue to get to
  those for whom it is intended.

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Response

• The response was generally positive

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The Control Environment Strengthening Programme

• The CESP was set to run for two years to August
  2009
• Programme plan agreed with OAG Audit NZ.
• Progress to be verified through annual audits in
  2008, 2009 and 2010.
• Success indicators defined as lifting the control
  environment rating through the annual audit
  process
• From poor to needs improvement in 2008
• From needs improvement to good in 2009.
• Comprehensive monthly reporting to govt
  stakeholders.
• Around May 2008, Audit NZ began to prepare for
  the first follow up audit
• Policies, guidelines, systems, audit function and
  changes around roles responsibilities were all
  in place or bedding in.

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The Control Environment Strengthening Programme

• In pre-audit meeting, Audit NZs lead auditor
  flagged (then) new OAG guidance on relational
  purchases
• Procurement Guidance for Public Sector Entities
  June 2008
• Covers purchase/provision of non-market services
  by non-commercial, public interest bodies, such
  as NGOs.
• Characterised by the goal to support the
  development of a strong, stable NGO, or develop
  strategic relationships, or deliver services best
  provided by a not-for-profit organisation.
• Where these apply, market-based systems for
  managing a contract may not be appropriate or
  particularly effective. It may be more useful
  to develop other systems to manage the dimensions
  normally managed by competitive market
  mechanism.
• He asked whether any of our contracting fitted
  that model

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(No Transcript)
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Relational contracting 80
Commercial contracting 20
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Results of the first follow up audit

• November 2008 Audit NZ advised
• NZAID is on track to full implementation of its
  Control Environment Strengthening Programme over
  the two year target timeframe by June 2009,
• There has been a noticeable improvement in the
  quality of contract management file information
  being documented, good practice being followed,
  and improved focus on risk management and
  observance of probity matters such as recognition
  of potential/perceived/real conflicts of
  interest.
• NZAID have done well to get to where they are in
  less than a year. To do this both in Wellington
  and the challenging environment in overseas posts
  is commendable.

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How we did it

• How did we manage a turn-around of this size, so
  quickly?
• The IT system rolled out a week after the first
  audit.
• All policy and process guidance already existed.
  We just brought it together.
• Evidence of good practice/judgement was easily
  addressed through filing file notes.
• Strong management ownership. Top down
  championing of a culture change.
• Successfully got staff to own both the problem
  solution.
• Reminded staff they were contract managers AND
  programme managers reinforcing with training,
  performance objectives reporting.
• Established a credible audit function.
• Communicated continuously and fully with all
  stakeholders especially OAG Audit NZ.
• Got Audit NZ to better understand our business
  meet us in the middle.
• We believe (cautiously) we are on track for our
  next audit check.

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Lessons

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Lessons

• Make sure your auditors understand your business
  model.
• Make sure your staff understand the role of
  audit.
• Records and evidence of good decision
  making/judgement are key.
• No finger pointing create wide ownership and
  understanding. Foster a genuine commitment to
  the solution.
• Get partners on side. Be honest, but head off
  misinformation.
• Communicate widely and continuously. Move back
  from guilty until proven innocent to innocent
  unless proven guilty.