FINAL report

nhs FIFE

internal audit service

Ordering, Requisitioning and receipt

of goods and services

report no. B25/14

Issued To:Dr B Montgomery, Interim Chief Executive

C Bowring, Director of Finance

MDoyle, Assistant Director of Finance (Financial Services)

H Knox, Director of Acute Services

M Porter, Acting General Manager, Kirkcaldy & Levenmouth CHP

S Manion, General Manager, Dunfermline & West Fife CHP

V Irons, General Manager, Glenrothes & North East Fife CHP

A McCreadie, Assistant Director of Finance (Management Accounting)

Follow-Up Co-ordinator

Audit Committee

External Audit

DateIssued:2December 2013

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NHS Fife
Ordering, Requisitioning and Receipt of Goods and Services –
Report No. B25/14 / Action Plan

Introduction & SCOPE

  1. NHS Fife’s approach to procurement is detailed in its Supplies Service Procurement Performance Objectives 2012-15. This establishes a Board level commitment to the management of procurement and lists key performance indicators that set out clear and measurable objectives and priorities for improvement, enabling the procurement performance plan to be monitored as it progresses.
  1. Part of this procurement framework has been a move to the Professional E-Commerce On-Line System (PECOS) electronic procurement system as the primary platform for the procurement of goods and services. The roll out of PECOS to departments has been ongoing since September 2012.
  1. The scope of this review was to evaluate and report on the controls established to manage the risks relating to procurement activities across NHS Fife and implement governance arrangements as set out in the Procurement Performance Objectives 2012-15, with particular focus on the roll-out of PECOS.

objectives

  1. Our audit work was designed to evaluate whether appropriate systems are in place and operating effectively to mitigate risks to the achievement of the objectives identified below.
  2. As stated in the Procurement Performance Objectives 2012-15 “to ensure that the goods and services meet customers’ requirements, offering the best value for money, in terms of optimal specification, timeliness and quality”.

RISKS

  1. The following risks could prevent the achievement of the above objectives and were identified as within scope for this audit:

Governance, risk management and performance monitoring mechanisms for procurement may not be effective

Procurement activity may not comply with national contracts and guidance, including CEL (2012) 5

Savings targets assigned to procurement may not be achievable

The rationale for establishing framework contracts may not represent value for money

Appropriate delegation levels, permissions and controls may not be in place and operating effectively within the PECOS system

Changes to the control environment around procurementmay not have been suitably agreed, authorised and documented.

audit opinion and findings

  1. The audit opinion is Category A – Good–There is an adequate and effective system of risk management, control and governance to address risks to the achievement of objectives. A description of all audit opinion categories is given in the final section of this report.

Governance, risk management and performance monitoring

  1. The governance and performance monitoring arrangements in place for procurement were confirmed as beingadequate with routine financial reports, which include achievement against savings targets, beingpresented to relevant committees, including the Finance & Resources Committee.
  2. The roll out of PECOS is being delivered through a fully authorised project initiation document (PID), which details the basis for its management and the assessment of its overall success. This includes a Project Team, headed by a Project Manager, who reports into the Project Board. Although the minutes of the PECOS Project Board meetings are not formally presented to any standing committee to inform Board members of the progress being made in finalising this project, the attendance of executive/senior management members of the PECOS Project Board at all related committee meetings provides a mechanism for raising any issues of concern.
  3. Arrangements exist to ensure risks relating to procurement activity aremonitored. Specific risks affecting budgetsare overseen by individualdirectorates and those relating to the PECOS project are incorporated into a project risk register overseen by the Project Board.

Compliance with national contracts and guidance, including CEL (2012) 5

  1. A comparison to ensure the key elements of CEL (2012) 5 are reflected within NHS Fife’s Financial Operating Procedures (FOPs) indicated that while the FOPs make reference to the CELs requirements, the key principals are not yet specifically mentioned. Work to update the FOPs is currently ongoing and the inclusion of the key principals contained in CEL (2012) 5 will be addressed as part of this latest update to the FOPs.
  2. From a review of procurement practices we confirmed that mechanisms are in place to comply with the key principals within CEL (2012) 5. This is supported by the work of the PECOS Project Team, which is introducing new procurement ordering arrangements based on the requirements of the CEL.As part of the Intensive Improvement Activity (IIA) around procurement the Director of Finance has previously written to all key procurement stakeholders stressing the need to comply with the Key Procurement Principles set out within CEL (2012) 5. This was supplemented by the presentation of CEL (2012) 5 at the IIA Workshop on 12 April 2012.
  3. It was noted on occasions that CEL (2012) 5 - Principal g–‘No purchase order/ no payment’,is not always being complied with, as departments arestill periodically raising retrospective orders through Powergate. We have been given assurances that this issue will be resolved with the roll out of PECOS to all departments as orders cannot be raised retrospectively within the PECOS system.

Savings Targets

  1. NHS Fife has a savings target of £1.12m relating to procurement within its efficiency savings target included in its Local Delivery Plan for 2013/14. Achievement against the savings targets are monitored and reported separately and were not specifically covered by this review. However, it was confirmed that mechanisms are in place to achieve procurement savings through greater use of National Contracts, membership of an NHS Contracts Consortium (East) and setting up local contracts to achieve identified savings. This is being arranged in collaboration with NHS Scotland National Procurement, whose tracker system is being used to forecast, monitor and evaluate savings. Once National contracts are set up for goods or services any other suppliers are removed from PECOS to ensure savings are fully realised.
  2. In establishing local contracts, where a potential for savings isidentified, a short-term working group of relevant staff is set up, including clinical staff as applicable, to discuss the implications of proposed changes that could create savings.

Framework contracts

  1. NHS Fife has no local framework agreements in place, instead opting to use national framework agreements as these provide better value for money than could be achieved locally.

PECOS – delegation levels, permissions and controls

  1. A review of the PECOS system delegation levels confirmed that authorisation permissions and controls are set in accordance with PECOS guidance and are operating effectively. A sample of staff permissions detailed in approver/requisitioner workbooks was reviewed. This review confirmed that staff permissions were in accordance with the standards set and all were accurately replicated within the PECOS system. From this sample we were also able to confirm that all level 4 approvers (£10,000 and above)are of an appropriate gradeand remain employed by NHS Fife within the relevant department.

Changes to the control environment

  1. Changes to the control environment, through the introduction of PECOS, are fully detailed within the PECOS PID.This provides a suitable control framework for such a large project. The PECOS Project Team has been responsible for organisingthe introduction of PECOS within NHS Fife and has set outcomeswithin the PID. A review of attendance at team meetings confirmed that appropriate members of staff are involved in the roll-out of PECOS. Action plans are prepared after each meeting to implement agreed decisions with progress being considered at subsequent meetings.
  2. Training is available for staff moving over to the use of PECOS and although the FOPs have still to be updated, further guidance is available to all staff on the intranet. Although the reports previously supplied by National Procurement (NP), which listed the staff who had completed the online training for PECOS, have now ceased due to staffing changes within NP the level of visits is monitored periodically by the Procurement Team to ensure that users are accessing the online training modules.

Action

  1. An action plan has been agreed with management to address the identified weaknesses. A follow-up of implementation of the agreed actions will be undertaken in accordance with the audit reporting protocol.

acknowledgement

  1. We would like to thank all members of staff for the help and co-operation received during the course of the audit.

David Archibald BAcc CPFA

Regional Audit Manager

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NHS Fife
Internal Audit Service / Ordering, Requisitioning and Receipt of Goods and Services Report No. B25/14

Definition of assurance categories and recommendation priorities

Categories of Assurance:

A / Good / There is an adequate and effective system of risk management, control and governance to address risks to the achievement of objectives.
B / Broadly Satisfactory / There is an adequate and effective system of risk management, control and governance to address risks to the achievement of objectives, although minor weaknesses are present.
C / Adequate / Business objectives are likelyto be achieved. However, improvements are required to enhance the adequacy/ effectiveness of risk management, control and governance.
D / Inadequate / There is increased risk that objectives may not be achieved. Improvements are required to enhance the adequacy and/or effectiveness of risk management, control and governance.
E / Unsatisfactory / There is considerable risk that the system will fail to meet its objectives. Significant improvements are required to improve the adequacy and effectiveness of risk management, control and governance and to place reliance on the system for corporate governance assurance.
F / Unacceptable / The system has failed or there is a real and substantial risk that the system will fail to meet its objectives. Immediate action is required to improve the adequacy and effectiveness of risk management, control and governance.

The priorities relating to Internal Audit recommendations are defined as follows:

Priority1 recommendations relate to critical issues, which will feature in our evaluation of the Governance Statement. These are significant matters relating to factors critical to the success of the organisation. The weakness may also give rise to material loss or error or seriously impact on the reputation of the organisation and require urgent attention by a Director.

Priority2 recommendations relate to important issues that require the attention of senior management and may also give rise to material financial loss or error.

Priority 1 and 2 recommendations are highlighted to the Audit Committee and included in the main body of the report within the Audit Opinion and Findings

Priority3 recommendations are usually matters that can be corrected through line management action or improvements to the efficiency and effectiveness of controls.

Priority4 recommendations are recommendations thatimprove the efficiency and effectiveness of controls operated mainly at supervisory level. Theweaknesses highlighted do not affect the ability of the controls to meet their objectives in any significant way.

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