Procurement and the role of ethics

Procurement and the role of ethics

SINGAPORE - Irregularities over procurement have drawn widespread public attention in the last two years following the reporting of numerous procurement irregularities and lapses in the public sector by the Auditor-General's Office (AGO) in its annual reports.

In its 2013 report, the AGO continued to find significant lapses in the tender evaluation process. The government responded to the AGO report by promising to tighten procurement procedures and controls. However, this step may not be sufficient.

In a worrying trend, most of the recent procurement cases reported involved key senior management. Despite being expected to play an important role in ensuring that the systems and controls are in place over procurement decisions, they had flouted or circumvented them. In the most recent reported case, an assistant director at the Corrupt Practices Investigation Bureau (CPIB) was charged with misappropriating $1.76 million meant primarily for the purchase of goods and services for his department. This indicates the need to also inculcate a high sense of ethics and to re-examine the role of procurement.

While the recent spate of procurement lapses appears to have involved government officers, we need to remind ourselves that the tendency of human nature to take unethical actions is not confined to the public sector. Many companies in the private sector also experienced procurement issues, albeit different in nature. For example, Sinotel, a telecommunications company listed on the Singapore Exchange, reported unauthorised purchases made by employees in 2012. The fraudulent activities reportedly cost the company about $21 million.

For many, such incidents serve as costly reminders that organisations need to re-look at procedures and controls within the procurement function. Indeed, to manage the behaviour of procurement officers, many organisations have put in extensive effort to design intricate rules and procedures that staff should comply with. Yet, we learn from past case studies that these are often insufficient. As apparent from the AGO reports, procurement lapses are rarely attributable to a lack of systems and controls within organisations.

In fact, many lapses resulted when procurement officers tried to comply with or circumvent the rules by "avoiding" other rules or retrospectively getting approvals only when goods and services have been delivered. For example, purchasing orders had been split into smaller ones to circumvent approvals. These are wilful actions undertaken by staff, highlighting possible ethical issues. It is clear that the issue runs deeper than flaws in the process.

While the majority of such lapses in procurement did not involve fraud, the frequency of these issues highlights the need to reconsider strengthening the ethical values and culture within organisations. Cultivating the right values will complement the rules to ensure that procurement issues can be mitigated, if not avoided.

Aligning the interests of employees with those of an organisation, however, is often a difficult task. Despite the popular and idealistic notion that employees will seek to maximise value for the organisation, self-interest often prevails, especially in difficult economic times. Entrenching the right values will help improve management decisions to create better value for organisations.

They need to act more responsibly to evaluate procurement decisions.

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