Procurement in Ukraine in the public and private sector has always been a hot topic in terms of organizing its effectiveness and transparency. However, our country is not the only one, where this area of activity is very problematic.
Published in 2016, the latest study of the Global Association of Anti-Fraud Certified Practitioners (ACFE), conducted in 114 countries, indicates that corruption is the most common form of abuse worldwide and in Eastern Europe that most often found in procurement. Thus, in more than 2.4 thousand fraud cases, found in organizations on all continents, corruption in this sphere turned out to be almost 69%.
It should be noted that against the backdrop of global research Ukraine takes not the best place even in its region. According to the study by a world non-governmental organization Transparency International, the index of corruption intolerance in 2017, a so-called Corruption Perceptions Index (CPI), is still in Ukraine at a very low level, scoring just 30 out of 100 points. Among other countries that have the same indicator there are Gambia, Iran, Myanmar and Sierra Leone. There is no point commenting on their economic and social development. In comparison, the 5 most intolerant to corruption countries, which scored the maximum 85 – 89 points in 2017, are New Zealand, Denmark, Finland, Norway and Switzerland.
Another global study, which I would like to mention, has an indirect relationship to the topic but I could not disregard it. And here’s why. Four above-mentioned countries of Europe have been in the top five countries with the highest rating of happiness among the population for more than a year, according to the international report of the research center at the Columbia University of the United States, prepared on the initiative of the United Nations. New Zealand is only a few points behind in this rating. Among other countries with regard to weighted indicators for 2015-2017 Ukraine takes the 138th place. The study was conducted in 156 countries around the world and covered apart from society intolerance to corruption, of course, other factors related to other social indicators, which deserves separate consideration. Nevertheless, all the research factors, on the basis of which the rating was made, are closely interrelated between each other.
However, what control procedures are necessary to take into account in procurement activities, according to studies of an acute functional area connected with intentional violations? Let’s try to answer this question concisely.
To build an effective system of internal control, I would outline the following criteria that top management should take into account:
1. Confirmation of the need for procurement by checking the analogue of commodities and materials. This monitoring is necessary to identify the risk of shortage, damage to property, prevent illiquidity of assets and also to eliminate the risk of unreasonable writing-off and theft of unclaimed valuables.
2. The organization of the tender (selection) of suppliers and their quorum reduces the probability of collusion between suppliers and the supplier with a company employee. In general, the procedure contributes to the improvement of the delivery conditions for the enterprise and provides a choice of the main and alternative supplier for a stable supply of the necessary commodities and materials and services.
3. Ensuring equal conditions for participation and clear requirements to suppliers reduces the admission chances of “one’s own” counterparty and enables counterparties to provide clear commercial proposals. It is not uncommon for a potential supplier to be excluded from the winners because of a lack of compliance with certain conditions, such as the lack of the necessary nomenclature or the possibility of delivering material from his side to the enterprise. Not always these factors lie behind the supplier himself.
4. The introduction of the system of prequalification of suppliers verifies the reliability of the counterparty, prevents possible losses in case of dishonest counterparty actions, losses on VAT, the occurrence of bad debts. A supplier due diligence can identify the affiliated companies participating in the tender.
5. Open trades in the procurement process make it possible to compete effectively in terms of delivery and reduce the possibility of collusion. In most cases, the openness of trades allows to maximally reduce price offers and improve other purchasing conditions, which can be created with the help of an electronic tender platform.
6. Ensuring collegiality in the selection of winners allows creating effective conditions for the evaluation of all tender criteria and also prevents the promotion of “one’s own” supplier and the abuse of individual employees.
7. Documentation, other fixation of the tender committee decisions finalizes the work and reduces the probability of procurement with violation of the terms of the tender.
8. Ensuring compliance with the approved decisions reduces the risks of losses, abuses by the counterparty and employees, in particular, by controlling the conclusion of contracts, the actual terms of delivery, the quantity and quality of the goods as well as monitoring other conditions of tender decisions.
Ensuring the effectiveness of processes and internal control systems requires constant attention and professional approach from all levels of management as well as periodic assessment of the reliability of the company’s control mechanisms, which ultimately have a direct impact on the company’s cost reduction and financial well-being of all its participants. The enterprise that is steadily developing and thriving will always be a subject of a positive mood of shareholders and employees of the company.
Good luck and impressive results in your work!