Shortcomings in public sector expenditure authority delegation

Delegate Authority.jpgControlling more than 7-million public sector personnel who collectively expend £200-billion annually: a relevant UK expenditure authority’s example of delegation.

How to monitor and manage the expenditure practices of those in the public sector, who, in the course of their contributions to the sector’s service deliveries, have requirements for goods and services sourced from outside suppliers, is an increasingly urgent public sector top management topic, worldwide, Wally Johnson, Chairperson of Purchasing Index UK and keynote speaker at the Public Sector Supply Chain Summit, tells SmartProcurement.

In the UK of 20 years ago it was difficult to manage public sector spending on goods and services when the sector was only 20% purchasing intensive (i.e. 20% of its gross income was directed then to procuring from third party suppliers). Over recent years, with purchasing intensity having steadily increased owing to the acceleration in outsourced services, the UK public sector is almost certainly more than 50% procurement intensive and heading for more than 70% procurement intensity by 2025.

UK public sector purchasing structures and strategies, for what will be in 2025 very nearly virtual public sector service delivering organisations, will be very different to today’s imperatives of policing who buys what from which supplier and how control over the people who are spending the money can be made more effective? How public sector spending is to be more effectively controlled across the UK is now a number one priority Treasury matter, which is linked to the implementation of another long-delayed spend measurement matter: an agreement on what constitutes a purchasing delivered saving, who should measure it, who takes the credit for savings delivered (or perhaps more accurately, claimed?), and what can be done at the business unit level to deliver more savings. It is unanimously agreed that claims of delivering purchasing savings must be supported by the business unit’s bottom line.

Another parameter complicating UK public sector procurement measurement is the Queens’ Government’s recent adoption of a more subjective value for money (VFM) price measuring methodology, which is currently at an embryonic stage. However, the VFM arrangements currently being implemented are such that in effect the end users of brought in goods and services are, in my view, correctly deemed to be the best qualified to determine value for money in whatever they are using, i.e. whether it is for common paint products or clinical materials for hospitals such as surgeons Gloves. It is now being assumed that end users know more about the relative qualities of competing brands for their own particular application than does a category buyer within a corporate purchasing entity. The growing threat to ‘big purchasing’ operating within a VFM environment is that it will now have to liaise more effectively with the client end users of the products and services on whose behalf it is contracting, which, in the UK’s increasingly corporatised public sector procurement operations, usually means that purchasing must take notice of thousands of end users’ brand preferences.

Walter Johnson.jpgLet us focus for a moment on the mechanics of delegating spending authority to business units’ top management teams, and then down to their line- and function-managers and other employees at every level who spend the public sector’s money. The different delegation practices currently employed are usually effected by:

• Departmentally structuring business units’ spend budgets.

• Authorising managers of budget-holding departments to further delegate authority to their service delivery teams to spend budgetary allocations on hierarchically structured bases, i.e. the more senior the employee, the higher the level of delegated authority they will have to spend the organisation’s money. Caveat Emptor - business unit managers at the higher levels can also be, and often are, big spenders, whose spending habits merit a little more attention than they usually receive considering they are much more senior than even the Head of Purchasing.

• Expectations are that those with delegated authorities will stick to the rules and work with the Purchasing Department to ensure that transactions are subject to due process and, increasingly in today’s recessive business environment, to ensure that the organisation they are serving is achieving best VFM. This kind of shared responsibility in money spending delegation arrangements is referred to as separation of powers, i.e. the budget holder has the authority to authorise expenditure against his/her budget, but not the authority to place an order with a supplier. The problem now arising is that for many transactions, particularly those with hi-tech and big spend dimensions, the UK public sector’s manifestly understaffed business-unit based Purchasing Departments are not equipped to make price/value judgements. Nor will the end users of the products and services being purchased be prepared to allow the Purchasing Department to equivocate, i.e. end users tend to place the order themselves.

The situations outlined above become even more difficult to address when purchasing is operating at the higher organisational levels of the public sector’s purchasing hierarchies, which support broad-based and geographically dispersed organisations, at which the UK Government is currently operating. The 40 000+ accountable public sector business units, if you include schools, and all potential users of national frameworks are in many cases ignored, despite national frameworks being mandated for use by all business units, because people managing corporate purchasing initiatives are unable to engage all potential end users in the product’s VFM evaluation process preceding the awards. In today’s UK public sector environment, individual end-user consultation on brand and/or supplier preference is absolutely essential.

Perhaps the most promising developments in respect of the monitoring and control of UK public sector spending, is the accelerating development of state-of-the-art spend management benchmarking facilities, which track the spending habits of authorised individuals and identify the big spenders. In as near to real-time as the client’s data capture will allow, those who never buy core-listed net-priced items can be identified, along with the relationships between what they spend and what their delegated spending authorities are and, in particular, their supplier preferences. Challenging wayward spenders in near to real-time as they spend is a far more effective way of controlling them than post mortems 12 months after the money was spent. Better still if you can find a way of blocking irregular orders.

With a R93,3-billion current budget deficit to address and an annual income for the current year of R834-billion (an 11% shortfall of income vs. budgeted expenditure) the South Africa Government is experiencing many of the authority delegation problems (and opportunities) that the UK Government has experienced. Sacking authorised spenders for prioritising the interests of their supplier friends isn’t anywhere near as effective as blocking the transaction before the supplier gets the order.

In the coming months, Wally Johnson will further elaborate on the delegation of authority/separation of powers game, which is already very complicated and is likely to get more so as B2G purchasing expenditure increases as a proportion of public sector income and the contracts and transactions which public sector initiatives undertake grow correspondingly larger. A Purchasing Department labelling the organisation’s line manager end users, as ‘Maverick Buyers’ if they don’t do what they are told by Corporate Purchasing, and/or its masters, won’t make them appear to be as ‘user friendly’ as Purchasing Departments need to be.

If you would like to comment on the above outline of the shortcomings of current methodologies for delegating authority in the expenditure of public sector money, please email Wally Johnson at wally@pibenchmark.com


 

 

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