Let’s start with definitions.
Oversight is defined as ‘the action of overseeing something’, with inspection, care, direction, control, custody as the synonyms most aligned with the type of oversight apportioned by donors to international development programmes.
Acutely aware of the importance of definition alignment, Procurement in this context covers the process of planning, purchasing and contracting of goods, services and/or works.
International development. Not an easy one. Most commonly linked to donors’ (national or international organisations) efforts to improve the quality of life in so called ‘developing’ countries (i.e. recipients of various forms of aid), to support economic growth towards eventual self-sufficiency.
1. What is procurement oversight in international development?
Procurement oversight is one of the key strategies employed by donors to mitigate programme fiduciary risk.
Programmatic, local or remote, and fiscal oversights are also key mechanisms that go hand in hand with procurement oversight. Funds are released subject to procurement and fiscal agents’ co-approval; programmes require sound management to stay on track towards meeting their objectives. Success of programmes, funds’ disbursement or increased compliance are not dependent on either function in isolation.
2. Why does fiduciary risk occur?
From a procurement perspective, the likelihood of aid funds entrusted to other parties not enabling the expected objectives exists when Donors’ own systems are not used. Procurement systems are an asset of either the Recipient country, as part of the public financial management (PFM) cycle, or are parallel, established by the Donors. Donors channel financial aid through one of these two systems, which is a necessary consideration for non-budget support. Fiduciary risk identification, assessment and management are central to the programmes’ life-cycle.
3. How does procurement oversight mitigate such a risk?
When using the Recipient’s procurement system for donor funded procurement outputs (i.e. non-budget sector support financing mechanism), the need for procurement oversight stems from the weakness of the Recipient’s systems in execution, even where they are robust by design. The challenges of transparency, of capacity building to fully utilise the available systems, and the exposure to manipulation from less devoted parties can disconnect the design from the execution.
Procurement oversight consolidates typical process milestones for compliance and performance reviews under the authority of a single entity. This entity, often referred to as the procurement oversight agent (POA), monitors, reports to Donors and is the custodian of quality standards in the local public procurement system. The POA also advises on policies and tools, makes recommendations for sustainable improvements and provides continuous support.
The POA has a less strict mandate, confined to the scope of the programme, compared to that of the Recipient’s own public procurement oversight body, which is stronger in monitoring, broader policy initiation, review and implementation of public procurement regulations, at country level.
4. Why even use Recipient’s systems instead of parallel Donor systems?
It is most common and of course ideal to establish which system option is preferred for the programme at business case development. The decision hinges on factors including programme objectives, results of country procurement system assessment, what share of aid uses the country systems, how predictable it is, and the extent to which country systems have to be modified by special donor requirements. Benefits such as reduced transaction costs, long term sustainability for the Recipient, increased transparency for Donors are weighted against the identified risks.
Bringing it all together
- Arrangements between Donors and government partners, Recipients of financial aid in the form of non-budget support, typically provide for a level of Donor involvement in the management and oversight of the funds’ expenditure. Clarity on levels of involvement mitigates the risk of conflicting authority between local and remote, Donor and third-party oversight entrusted agents.
- If the decision is agreed to use the Recipient country’s procurement system, then the presence of a procurement oversight agent is a condition and safeguard against fiduciary risk. It ensures the process is transparent, in line with international standards and best practices in procurement. At a strategic level other risk mitigation mechanism are considered by donors such as derogations, a portfolio of various aid modalities or support to capacity development. At operational level due diligence assessments, annual reviews or independent audits are also valuable.
- The procurement oversight safeguarding mechanism brings with it other less explicit long-term benefits for the Recipient country, beyond the momentary impact of learning and perceived imposition of open, fair and transparent procurement discipline. The POA presence and actions act as a catalyst for the Recipient to strengthen its own capacity, it improves the PFM overall with good practices and efficiency and enhances the accountability processes. Efforts towards improvements of the PFM for external reporting and monitoring lead to overall healthier systems than improvements designed for self-monitoring.
- The procurement oversight, regardless of the sector, is a dual-purpose mechanism that can be employed either for PFM strengthening in its own right, either for risk mitigation, or both.
- A POA representative is characterised by extensive experience in procurement, in international development, assertiveness, ethical behaviour, seasoned against corruption and bribery.
- And often grey hair.
