Auditing the Procurement Plan

Session 3.1

Auditing the Procurement Plan

Session Overview
In this session we will discuss issues relating to the Procurement planning which is the first stage of the procurement process. The type of procurement plan, information required and how to prepare the plan will be illustrated. Moreover, risks associated with the planning process and how to audit the procurement planning will also be explained.

Learning Objectives
By the end of this session, participants will be able to evaluate the managements procurement planning process to the extent that they are able to comment whether the planning process was efficient and in compliance with regulations and ensured best value for money in procurement.

Basic Concepts
Proper planning is an essential element of good procurement. The initial step in procurement planning is the determination of what is needed, how much, where and when. The objective is to provide quality goods through open and fair competition in the required quantity and of the proper quality at the time and place needed, and to secure such goods at competitive prices.

Procurement Planning Process

The purpose of procurement planning is to enable the organisation to meet its specific purchasing objectives, as well as the organisational goals. Effective procurement planning will produce more efficient and economical procurements, which will deliver products in an acceptable and timely manner. Procurement planning is the process by which the efforts of all personnel responsible for significant aspects of a project are coordinated and integrated in a comprehensive manner. The formality and detail of the planning and preparation process will vary with the size, complexity and value of the requirement.

Type of procurement plan

Procurement plans comprise of long-term and short-term plans as discussed below: a) The Procurement Office shall make long-term planning covering 5 years or more in order to lay the foundation for procurement to meet its long term objectives. Long-term planning demonstrates that the organisation manages its funds in a professional way keeping in view its long term strategic plans/perspective plans. Long term planning is an essential component of long term projects requiring several years for completion and needing complex systems, goods and services at different stages of completion which are normally interdependent. Long term planning is intended to assess requirement of goods for each
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stage of project to be taken up in the future, ensuring availability of funds at future dates, and initiating the procurement action timely too so that goods are made available as and when required for completion of various key stages of the long term projects. b) Short- term planning normally covers one year and is intended to procure goods required for meeting annual targets for provision of services, completion of projects and other maintenance needs which can be projected for the whole year. Short- term planning ensures the optimal use of funds throughout the year. The procurement staff should avoid last minute spending at the end of budget period to ensure a transparent, open, efficient and timely procurement process. Subsequently it will ensure that the organisation will obtain good quality of products and services at competitive prices and within the time required. The procurement staff shall set up annual procurement plan to reflect what proportion of the projects should be achieved and what should be purchased within the current budgetary year. Such plans shall be used to obtain economies of scale and other benefits to the organization. 1. What is procurement plan? The procurement plan comprises of the following information: 1.1 Type of products/ goods required 1.2 Estimated quantity (number of units) 1.3 Estimated value/cost 1.4 Delivery date or expected date when the goods are required to be delivered 1.5 Other relevant information, e.g., location where goods are required 2. Preparation of procurement plan It is very important to prepare a plan that clearly sets out the framework for the procurement to be done during the plan period. It involves taking fundamental decisions on requirement of goods, procurement scheduling, choice of procurement methods, provision of funds, etc. Initiating and planning procurement actions require a team effort. The team must include officers from user office, procurement office, technical experts, financing or donor offices or agencies. 2.1 Identify procurement requirement User offices are responsible for identifying their procurement requirements based on their ongoing projects, maintenance requirements and new projects and programmes. The user offices will prepare the procurement requisition with description of essential elements of the proposed purchase with schedule for delivery and

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submit it to Procurement office. The requisition should be approved by user authorities. 2.2 Prepare the requirement package a) On receipt of requisition, the procurement officers may initiate the discussion with the user offices to finalize the needs and timeframe. b) The procurement officer shall make the best effort to: Identify and describe the needs correctly

Check whether the requirements comply with the organization goals and objectives c) The corrections/modifications in the requisitions (quantity or quality), if any, should be returned to user offices for approval. d) Thereafter, the procurement officers will consolidate requisitions received from different user offices to arrive at the purchasing quantity e) Prioritise the procurements f) Prepare the requirements packages, as needed. The contract packaging is done to group the procurement requirements to ensure economy and effectiveness in purchasing, minimize transaction cost, ensure better monitoring and delivery of goods and services. However, the factors below need to be considered before coming to the conclusion for contract packaging of goods: The restrictions on the use of funds, in case the project involve co- financing. Delivery time: There might be long gaps between the desirable delivery times. The number of users: It is simpler to let each party contract for its own goods especially when parties are independent belonging to different departments. When making contract packaging decision, the procurement officers shall have to consider about the ability of the local suppliers of goods and services and the likely interests of foreign bidders to participate in the project. It may be possible to meet both of these by appropriate sizing and timing. Large projects may require funding from several sources. The various cofinancers willing to support the project may have different limitations on the amount and ways their funds could be used. Consequently the uniformity of procedures across project components may have limited
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possibilities. The structure of procurement arrangements and the way in which project needs are packaged require particularly careful planning. 2.3 Market research In developing new specifications and soliciting new products, the procurement officers may have to conduct the marketing survey. Market survey helps identify: the products that are available to satisfy a requirement; substitute or alternative products; number of suppliers and their respective market shares; how to appropriately describe the requirements; make realistic cost estimates and decide time schedules.

The market survey shall involve obtaining information specific to the item or service required or proposed to be acquired. To conduct market survey, the procurement officers may: Contact knowledgeable individuals in the industry,

Review the results of recent market surveys undertaken to meet the similar needs, Conduct internet communications with the industry, Obtain source lists of similar items from other agencies, trade organisation or other source, Review catalogues and other product literature

2.4 Procurement Scheduling The Procurement Office after user consultations shall establish the timing when goods are needed. Each method of procurement involves different steps and different time requirements. Subsequently the period of time from initiation of the requirement by the user to issuance of an award and receipt of supplies should be adequately provided. The best way to calculate the lead time is to work backwards from the desired date of delivery to determine whether sufficient time is available to carry out the necessary procurement steps for each element. In some cases, it may be possible to modify certain contract packages and procurement methods and shorten the time needed until delivery in order to meet desired schedules. However, shortening time frame in some stage of procurement, in bidding process for instance, might lead to unfair practices. In such situations, the only possible solution is to start the procurement process early by timely forecasting of needs.

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2.5 Choice of Procurement Method It is important to determine the procurement method as it will be a major factor in the planning process. In this workshop the procurement methods that we will focus on are open competitive bidding, limited competitive bidding, shopping and direct contracting. The lead time of those methods differ significantly. The choice of procurement method depends on: The nature of goods to procured The value of the procurement The likelihood of interest by bidders Critical dates for delivery Transparency of procedures proposed

Various types of procurement methods are discussed in Session 3.3- Auditing the Selection of procurement methods. 2.6 Preparing procurement plans After gathering information required, the procurement officer shall develop the procurement plan in collaboration with user offices. The plan must outline the objective of procurement, details of products proposal for procurement and address operational requirement, and indicate any special requirements for quality and reliability. Moreover, the procurement officers, in collaboration with evaluation panel and other technical experts as needed, prepare the selected evaluation factors, evaluation methods and procedures that will be used in evaluating competing offers. (More details will be discussed in following session.) Procurement plans must include the related budget planning. Large projects may have funding from several sources. The preliminary plan and budgeting/ financing for project procurement should be developed according to the government and donors conditions as the case may be. Planning is a dynamic process. Any changes in situation, effort and details that affect the procurement must be recorded immediately and procurement plan must be reviewed and updated throughout the life of the project. Estimates of time requirement, assumptions about institutional capacity, changing priorities and other factors will require plan adjustment. During project execution involving several inter dependant contracts, the original procurement plan should be regularly monitored and updated. For example if slippage occurs in the award or execution of one major contract, it may require rescheduling of other related contract awards and deliveries of products.

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The objective of plan monitoring is not fault finding but to develop better understanding of what causes delays or changes in plans and to take corrective measures maintaining efficiency in procurement operations and improving forecasting and planning of similar operations. 3. Procurement Planning Benefits The benefits of procurement planning are as follows: Identifying the needs correctly in time. Providing sufficient lead time and resources for using appropriate procurement methods to get best value for money. Receiving acceptable goods in a timely manner. Obtain price reduction through consolidation of quantity. Allowing early identification and resolution of potential problems.

Auditing the Planning Process

Auditing starts with identifying the risks associated with the planning process, assessing the degree of risk in each case and managing the risk by developing an appropriate audit procedure. Audit procedure comprises of developing appropriate audit objectives, selecting a suitable sample and applying proper audit checks relevant to given risk perception. 1. Risk associated with procurement planning Firstly auditor should identify risks related to procurement planning. The risks could affect on the achievement of procurement objectives as well as the organisation goals. Risk associated with procurement planning may include: Absence of sound, well established procurement policy and plan.

Procurement decisions are made without any reference to the strategic plan, goals and objectives of the organisation. Requisitions are not sent to procurement office in time by the user offices. The requirements are finalised without consultation with user offices. Time provided for completion of procurement process is inadequate.

Requirement assessed without taking into account existing stock levels.

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User and procurement officers are unable to determine the quality requirements accurately due to lack of technical expertise. Potential suppliers can be excluded due to inadequate market survey. Duplicate requisitions may remain undetected due to lack of monitoring and inefficient management information system. Purchasing expensive goods when cheaper and better quality substituted goods are available and can be used Acquiring obsolete technology equipment due to insufficient market survey before finalising quality specifications. Users may underestimate the cost of goods to get the procurement proposal approved from a lower authority. Procuring goods for initial stages without ensuring availability of funds for subsequent stages of major projects. Not reviewing procurement plans despite major changes affecting the need for procurement of goods. 2. Audit objective After having identified risks related to audit area, auditor should develop audit objectives to respond to those risks. Some of the audit objectives in procurement planning could be: To evaluate that: The procurement planning is efficient and effective to ensure delivery of required goods on time in a cost-effective manner. Procurement planning provides best value for money. Requirements are correctly assessed.

Planning process is transparent and the manner of assessment of needs and justification for procurements are fully documented. 3. Audit checklist For audit checks, please refer to the toolkit 3.1- Audit of procurement planning.

Summary
Procurement planning is done to enable the organisation to meet its specific purchasing objectives in an economic, efficient and effective manner. The procurement plan comprises of type of goods to be procured, their quantity, value, delivery date and other relevant information. Lack of proper planning may lead to:
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a) Non availability of goods when required for the project, b) Excess procurement, c) Procurement of unsuitable or obsolete goods, d) Avoidable emergency procurements, e) Unauthorised procurements and f) Uneconomic purchases. The success in developing and carrying out good procurement plan will ensure the success of the procurement objectives as well as organisation goals.

References
Bank-Financed Procurement Manual, Procurement Policy and Services Group Operations Policy and Country Services VPU, July 2001 Draft United Nations Procurement Manual, Department of Management, Office of Central Support Services, Procurement Division, January 2004, Rev.02

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