Verifying suppliers’ capabilities: Managing expenditure and service delivery within local government
Many suppliers are awarded tenders or quotations without any verification of their capabilities having been performed. While the suppliers look good on paper, their products are either not supplied or they are of inferior quality. In the case of services, there is the potential that they are not provided or never completed, says Smith.
This leaves the municipality with the task of recovering costs from suppliers, an easy task if the suppliers were verified and audited; however, the information supplied on registration forms is in many cases inaccurate or fictitious in an attempt to evade the authorities.
Municipalities have a directive from government to assist and uplift South Africa’s small micro and medium sized enterprises (SMME) to become more viable within the supplier market, but how do municipalities allow new suppliers to enter the market and allow them an opportunity to perform if they have no experience or references? How do they ensure that they are valid suppliers and not fraudulent?
An increase of new entrants’ into the market results in an already overloaded municipality becoming overwhelmed; each tender or quotation has a larger number of suppliers offering a service or product that needs to be evaluated. Each tender or quotation submitted will be evaluated as part of the normal process, however the process is further complicated when the capabilities of these suppliers are not checked nor audited, she says.
This work-intensive quotation process is further impacted on by a lack of resources within some municipalities, which results in many orders being delayed. A quotation process that should take a few hours has increased to a number of days.
Ultimately, delays in the procurement process negatively affect service delivery to end customers, which municipalities are directed by government to improve. Improving delivery without increasing the number of municipal employees providing this service is resulting in an ever increasing backlog.
The main issues facing municipalities:
• Suppliers that are not audited and fraudulent suppliers.
• An influx of individuals and SMMEs into the market.
• Staff constraints within municipalities to manage the process.
• Delayed supplier selection processes.
• Direct spend within the council.
So how do we manage a situation where individuals are utilising the process to defraud local government, which affects the clients who depend on municipalities to deliver a service?
Municipalities have started to engage in a supplier management process whereby every potential supplier goes through a registration process. The registration process eliminates all would-be suppliers who are not legitimate organisations or private persons. All registrations require proof of banking details, company registration documentation and all supporting documentation. Only once the necessary documentation has been verified will the supplier be utilised within the procurement process.
All potential and existing suppliers must be verified and audited. This can be done either as a mass audit of all accredited suppliers or on a tender-by-tender basis. This process involves auditing all suppliers at their registered places of business to ensure that each is legitimate and their products and services comply with the requirements set out by municipalities.
The Future in Spend Management
A spend management process involves the analysis of all spend that takes place within the municipality, irrespective of how it is purchased. This spend visibility will include the analysis of the indirect and direct spend including all spend outside of the categorised/classified items. This process highlights areas of spend that can be addressed as part of the tendering process which will further alleviate the unnecessary processing of quotations and orders for multiple line items.
The majority of local government’s current procurement spend is on quotations below R30 000, a high volume of low-value items. There is a high demand for items that fall into this value group, the majority of which fall within large commodity groups such as stationary, cleaning products or tooling. This would be better managed on a tender basis whereby all items within these commodity groups are procured as part of a contract. Such a process ensures better spend management and a reduction in workload for the buyers and in unnecessary municipal delays.
Issues to be addressed:
• Commodity spend analysis.
• Standardise commodities and items as part of a data cleansing exercise.
• Direct spend investigation.
• Pricing history analysis.
• Buyer workload analysis.
The key performance indicator (KPI) reporting requirements set out for municipalities by government can be incorporated into the process to ensure visibility and that key issues are addressed. This proactive management approach will ensure a quick overview of the current status at any given time and management will be able to act on any situation that may arise without unnecessary delays to service delivery.