Agenda item

Annual Assurance Report on Procurement Activity


A report of the Interim Director of Finance was presented to provide a summary of the Council’s procurement activity over the last financial year including compliance with Standing Orders, practice changes and contract awards.


During 1st April 2022 to 31st March 2023 the Procurement Team had been involved and supported service areas with 240 procurement activities that equate to approximately £99,865,680 worth of contracts being awarded in the year.


There were currently over 400 active contracts recorded on the Council’s contract register, and this information was available to the public.


The North East Procurement Organisation (NEPO) was an established public sector procurement organisation that worked in partnership with all 12 North East Councils and the wider public sector to procure goods, services and works of high value and strategic importance. The 12 authorities collectively oversee the governance framework for NEPO. 


In 2022/23, 25% of Middlesbrough Council’s procurement solutions utilised NEPO framework arrangements.  Without this, investment would be required within the procurement team to meet the demands of the procurement activity of the local authority.  Middlesbrough Council had annual conversations with NEPO to review the available frameworks and discuss opportunities for future commissioning plans.


In addition to procurement solutions NEPO managed and delivered the e-tendering portal and work was nearing completion of the introduction of a new dynamic portal called Open, which would be rolled out in early 2024 to all 12 members.  This was a significant project led by NEPO and the Local Authorities in trying to develop a unique and innovative e-tendering system that could support the entire commissioning process.  It was essential that all authorities operated the same processes to mitigate impacts of procurement on the suppliers across the North East. Consistency in approach ensured they were more cost effective within their bidding and costing processes. 


Further work with NEPO was progressing in regard to the introduction of North East Social Value TOMs (themes, outcomes, measures). Middlesbrough Council already had social value within its procurement practice however work was being undertaken to strengthen this aspect of procurement for 2024/25.


Middlesbrough Council requested an audit of purchasing cards as part of Internal Audit programme of assurance.  This was requested as monitoring of spend was undertaken within Directorates and assurance was required regarding the sufficiency of the processes for review and monitoring of transactions, and use of the cards.  Internal Audit had provided a limited assurance opinion regarding the utilisation of purchase cards.  The detailed findings were published in the Internal Audit report, a copy of which was attached at Appendix 3 to the submitted report. 


A number of areas of concern were noted, including non-recording of VAT, processes linked to reviewing and approving spend, the lack of quality descriptors for the spend and required updates to policy.  Linked to the Internal Audit Report on the use of purchase cards a programme of improvement activity was currently being rolled out in quarter 3 of 2023/2024, to amend the practice linked to purchase card activity. Historically purchase cards were considered to be one of the primary mechanisms for payment as they reduced the administrative and cost burden of processing invoices and were a solution that met the requirements across a number of Directorates. 


Following the recent review from Internal Audit, along with the communication of reducing all non-essential spend, the strategic direction was to reduce and review levels of spending associated with purchase cards.  Furthermore, with the introduction of the Supplier Incentive Programme (SIP), expenditure should be routed through formalised channels in Business World in order to maximise the opportunities SIP presented and support suppliers engaging with the scheme.


A programme of activities was outlined in the submitted report and within the action plan for the Section 24 recommendations.   Internal Audit reported that there were no resulting fraud investigation concerns linked to the work they appraised.


Currently the number of cards was being reduced from 313 to 171, and this would be kept under review.


During 2022/23 the Council spent £7,938,163 via purchasing cards which was 23,119 transactions. The majority of spend was low value with 16,856 (73%) being below £99, 5,571 (24%) were £100 to £1,000 and 692 (3%) were over £1,000.  Rebates for the cards were paid annually each year and were based on spend activity between 1st December to 30th November, rebate received was £60k. 


It was acknowledged that the Council required purchase cards for some aspects of transactional activity, however review work continued to close down channels of spend and merchant categories to ensure spend and transactions on cards met the strategic aims.


Members were informed that all card holders had to complete mandatory training and if cards were not used appropriately or reviewed within timescales, this would be investigated and cards would be removed when appropriate.    Where staff were provided with purchase cards as part of their role, if the appropriate guidance was not followed, the card would be reviewed.  The service area would then need to consider other mechanisms for payment or whether that card could be allocated to another member of staff.  Inappropriate use of purchase cards could ultimately lead to disciplinary procedures. 


It was confirmed that all cardholders now had to review spend by 28th of each month and scan all receipts into the system.  From 1 January 2024, the VAT receipt would be a mandatory field on the system.  It was acknowledged that there would be some elements that were not VAT and Central Procurement would need to check and process those transactions.    Significant work had been undertaken with banks to so that VAT receipts and detailed description of spend could not be by-passed.  This information would also feed into monitoring arrangements ensuring the process was far more robust.


According to the report, the VAT Officer had raised concerns regarding incomplete claims and a Member asked what action management had taken to address those concerns.   The Head of Finance and Investment explained that guidance and advice was being provided and the VAT Officer was involved with the staff training.  Discussions were also taking place with HMRC to review what VAT from previous years could be reclaimed.  


A Member suggested that it would be useful to measure the impact of the changes made and it was suggested that a further report could be produced in six months’ time to demonstrate the actions taken and the impact.


Internal Audit was currently reviewing the use of purchasing cards across the rest of the Council and would also be reviewing Children’s Services to follow up on the actions from the Audit Report.


The Supplier Incentive Programme (SIP) with Oxygen Finance was an early payment programme which gave suppliers the opportunity to be paid earlier than standard practice.  The programme gave suppliers the option to be paid as soon as the invoice was authorised.  The aim was to complete this within 10 days, normally the payment term was 30 days.  Suppliers paid a small pre-agreed rebate which was applied as the invoice was paid. The rebate was proportionate to the number of days the authority accelerated the payment by.  The rebate was only applied if the invoice was paid earlier than 30 days.  The SIP programme had been operational since May 2022 and the Council had achieved savings of over £25k to date.


Middlesbrough Council had a strategic direction for ensuring spend remained local and this was monitored quarterly. The quotation process allowed for more targeting spend to local suppliers and practice linked to quotations was encouraged to ensure suppliers that were local and offered value for money were requested to quote. The local spend continued to be monitored and a summary of the percentage performance of local spend during 2022/23 was detailed at paragraph 4.4 of the submitted report.   The overall performance for 2022/23 was 39.5% which was slightly below the target of 40%.


AGREED that the information provided was received and noted.

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