Perhaps the most striking sentence in the newly released auditor general’s report, ‘Government’s Use of Outsourced Services,’ is the one that starts the Key Messages section: “The government does not routinely monitor and report how much it spends on outsourced services.”
The report says those services totalled nearly $48 million over a five-year period ending 30 June 2017.
“It is not clear how the government plans or makes decisions about which services to outsource and how those services align with its overarching objectives,” the report says. “We were told that some services had been outsourced to help reduce costs and to reduce management oversight, allowing managers to focus on other things; however, there was no evidence to support this.”
The report also says there are too few quality controls on contracts that are issued.
“None of the contracts we reviewed had specified success measure,” it said.
Government is also not using its buying power to leverage its purchases. The report said the multiple government agencies contract for similar services, many with the same suppliers, without coordinating their purchasing efforts in order to maximise value and achieve greater efficiency.
The auditor general also questioned whether officials might be paying too much.
“Government is not carrying out sufficient market testing or pre-tender estimates to ensure that prices quoted by potential suppliers are affordable and reasonable,” the report said.
The biggest outside expenditure was on contracted security services. Over the five-year period, it paid $9.3 million to Security Centre Ltd., which provides the national CCTV programme and the security services for the Government Administration Building.
The biggest spender is the Ministry of Education, Youth, Sports, Agriculture and Lands, which had outside contracts of $28.8 million. The bulk of that amount, $17.3 million, was for school bus contracts.
The report recognised limits on being able to control those costs.
The ministry, it said, “tried to stimulate greater competition for school bus routes during the last procurement for these services in 2015-16, but most routes received single bids only.”
Many of the issues with contract spending, the report said, were tied to larger weaknesses across government financial practices. It said many of the same issues were highlighted in last year’s report ‘Government’s Use of Consultants and Temporary Staff.’ The auditor general said one of the big weaknesses found in that process was that, while procurement manuals existed, they largely were not being followed.
“The Government told us that the [Central Procurement Office] would be issuing new procurement policies and templates that comply with the new legislative requirements for use across government,” the report said. “We are not aware that any new procurement manual was issued.
“We encourage the government to implement the recommendations made in our 2018 report as soon as possible, and we have reiterated them where relevant,” the report added.
In a response, the Central Procurement Office said it had produced a Procurement Portal with “a wealth of procurement templates and other resource and guidance materials”, but agreed that “some additional guidance would be helpful, and proposes that CPO develop a procurement guidance document”, and said it would produce one by the end of September this year.
The relevant agencies essentially agreed with all 15 recommendations the auditor general made in the report as ways to improve how government handles outside contracts.
Other recommendations include monitoring and analysing spending on outside services, preparing strong business cases justifying those services, coordinating purchases across ministries in order to leverage collective buying power, making sure government knows fair market price for the services being contracted and “including appropriate clauses such as consequences for poor or non-performance, and termination clauses” in those contracts.
Audit reports are posted on the Office of the Auditor General website: www.auditorgeneral.gov.ky.