Northern Ireland Water Internal Audit - January 2010 [+ February review]

8/8/2019 Northern Ireland Water Internal Audit - January 2010 [+ February review]

1/24

Contracts Approval

Distribution List Audit Team

Title

Chief Executive Head of Internal Audit

Director of Finance and Regulation Senior Internal Auditor

Head of Operational Procurement

Executive Committee & Board

Director Shareholder Unit (DRD)

Date

Issued

(v1) 15 January 2010 (draft)



(v4) 27 January 2010 (final)


2/24

Contents

Section Page

1 Executive Summary 1

2 Detailed Findings 3

Appendices

1 STAs not appropriately approved11

2 Contracts potentially breaching Official Journal of the European Union (OJEU) /Utilities Contract Procurement Regulations13

3 Vendors with procurement procedure exceptions 14

4 Consultancy Contracts from the Contracts Database lack of evidence of appropriate internal approval20

5 Personnel contacted21


3/24

Section 1

Executive Summary

1NIW Internal Audit Contracts Approval

Background

A recent independent review was commissioned by the Chief Executive into the appointment of Contracting Out LLP to assist with the Steria contracttermination. That review highlighted that the appropriate internal and external Shareholder approvals, as required by the delegated authorities set out inthe financial delegations policy, had not been obtained. This applied to both the award of the framework contract to Contracting Out LLP under a singletender action STA and the framework schedule for subsequent work in relation to the Steria exit.

The Chief Executive notified the Shareholder of the issues found and gave an undertaking that internal actions would be pursued to ensure that suchprocurement authority breaches do not recur in the future. In support of this a second independent review was commissioned by the Chief Executive toassess whether any other existing contracts had not been approved properly in line with the delegated policy and if so, to identify any processimprovements needed to prevent unauthorised contracts being placed going forward. This review also validated whether existing contracts had beenprocured in accordance with the Regulatory Licence and NI Waters procurement procedural requirements.

Review Scope

Approval of contracts in accordance with existing internal financial delegated approvals at contract award, including requirements for STAs;

Approval of contracts in accordance with external financial delegations established with the Shareholder;

Method of procurement used (i.e. single tender action (STA), local tender notice, OJEU tender notice) to confirm whether in accordance with EU

procurement legislation and Licence requirements; and

Management process to monitor and confirm contract approvals prior to expenditure being committed.

Scope Exclusions

Anything not included above is excluded from scope. The following is specifically excluded:

EP capital works contracts (subject to a recent audit of EP Procurement in September 2009, limited sample testing on capital expenditure over 0.5m

within that review raising no major findings); and

The method used to evaluate tenders.

This review has not made any legal judgements in relation to compliance with procurement legislation and has only highlighted relevant exceptions aspotential breaches to the Utilities Contracts Regulations 2006.


4/24

Section 1

Executive Summary (Continued)


It should also be noted that this review is primarily based on contracts recorded by Commercial Directorate within the current Contracts Database and maynot cover some existing contracts that have not yet been captured within the Contracts Database; Although, efforts were made to capture any other potentialrelevant contracts by reviewing all suppliers where expenditure exceeded 100k in the proceeding 12 months (01 December 2008 08 December 2009).Where the expenditure was found to be over 100k and the item was not included within the Contracts Database, the expenditure was then assessed back toApril 2007.

Review Objectives

The objectives of this review were to:

To confirm whether existing contracts were approved appropriately in line with the relevant existing internal financial delegations and externaldelegated authorities established with the Shareholder;

To confirm whether procurement methods were in accordance with EU procurement legislation, Regulatory Licence requirements and defined internalprocurement procedures; and

To identify process improvements required to assist in preventing contracts being entered into without the required authorisations.

Review Conclusion and Findings

Our review has six main findings which are detailed in Section 2 along with an agreed management action plan.

(It is recognised that some of the exceptions found during this review have also occurred outside the Procurement function due to individuals across

the business engaging suppliers directly without the required input from Procurement).

This review does not provide an assurance opinion as it was primarily based on substantive audit work.


5/24


6/24

Section 2

Detailed Findings (Continued)


No. Issue Recommendation(s)Management Response(s),

Responsibility and Action Date(s)

In summary there were 15 STAs found withoutappropriate internal approval and five of these shouldhave been subject to approval from the Shareholderand Board.

Consultancy expenditure over 750kFor each consultancy contract the total expenditurewas reviewed to confirm if it exceeded 750k andtherefore required Shareholder approval in line withthe financial delegations.

One of the STAs noted above relates to customerservices contract management support staffseconded from PWC with expenditure between April

2007 December 2009 totalling 1,281,188 andthere is no evidence of Shareholder approval beingsought.

(Please refer to Appendix 3 where this exception isdetailed).

process will start during Q4and failing which STAapproval sought with eachproject started during Q4FY09/10. Exceptions to the

Utilities Contracts Regulationswill be prioritised.

Responsibility for above actions:1) Head of Operational

Procurement2) Financial Accountant

3) Chief Executive4) Head of Operational

Procurement

Action Date:1) 15 January 20102) 31 March 20103) 28 February 20104) 30 April 2010


7/24


8/24

Section 2





Again, this was effectively a new contract awardexceeding the OJEU thresholds and as such shouldhave been re-tendered via OJEU. It is noted that thissupplier is no longer in use.

(Please refer to Appendix 2 where these exceptionsare detailed)

2) 31 January 20103) 31 January 20104) 31 January 20105) 31 January 20106) 28 February 2010

3 Compliance with Utilities Contracts Regulations2006 requirements technical breaches

In accordance with the Utilities ContractsRegulations 2006 and Condition F1 of the RegulatoryLicence tenders over 288.721k* should bepublished in the Official Journal of the European

Union (OJEU). As part of our review we obtainedevidence of the method of award for all contracts onthe contracts database to confirm if procured viaOJEU where appropriate. No exceptions were noted.

* note this figure has recently been uplifted to313,694.

However, we noted two instances relating toresourcing (staff substitution) were over the OJEU

threshold. Whilst these are classified as a part bservice and do not therefore require formalcompetition via OJEU, there is an obligation topublish a contract award notice. The award of thesewas not notified on OJEU as required.


1) Steps should be taken to ensure that all staff withinthe Commercial Team are aware of the OJEU thresholdrequirements via training and guidance. This should beincluded within the procedure documentation currentlybeing drafted for the Commercial Team.

It should be ensured that the Commercial Team

procedure guidelines include all necessary UtilitiesContracts Regulations 2006 requirements.

2) It is also recommended that the Regulator is informedof potential breaches to Utilities Regulations and relatedLicence Condition F1.

1) Agreed, the CommercialTeam will be advised of thenew OJEU threshold. (Asnoted in point four belowaction against vendors whichshould be OJEU will be taken(April 2010)).

2) Steps will be taken to informall relevant stakeholdersincluding the Board, theShareholder and theRegulator.

Responsibility for above actions:1) Head of Operational

Procurement2) Chief Executive

Action Date:1) 15 January 20102) 28 February 2010


9/24


10/24

Section 2





Responsibility for above actions:

1) Head of OperationalProcurement


3) Chief Executive4) Head of Operational

Procurementsupported by Chief Executive

Action Date:1) 30 April 2010

2) 28 February 20103) 20 January 20104) 28 February 2010

5 Evidence of internal approval of business cases

In November 2009 the Financial Delegations policywas updated to include the requirement for anapproved business case prior to the creation ofcontracts for goods and services. Previously thepolicy only required an approved business case forconsultancy contracts.

Business cases consultancy contracts

To confirm that all existing consultancy contracts hadan approved business case, we obtained a listing of

1) If a business case is required under the FinancialDelegations Policy, it is recommended that the

Commercial Team under no circumstances launch anytender until an appropriately approved business case isobtained. It is recognised that in exceptional cases atender may be required before business case costs canbe calculated. In such situations, an outline businesscase or other approval to tender from the appropriateperson or body is required. A copy of all business casesor approvals should be retained within the tendering filesas evidence of appropriate approval.

1) Agreed, in future no tendering willbe started until an approved business

case is received; all business caseswill be retained on each individualtender file.

2) Training on new Procurementprocedures for the Commercial Teamwill include the Financial Delegationspolicy.

3) Initial rollout of the revised policy at


11/24

Section 2





all consultancy contracts from the contracts databaseand traced back to supporting, appropriatelyapproved business cases. It was noted that oneconsultancy contract did not have an existingapproved business case.

(Please refer to Appendix 4 where this exception isdetailed)

Internal approval of business cases

We also reviewed consultancy business cases toconfirm that the internal approval was in accordancewith the Financial Delegations policy andProfessional Services Framework requirements. We

noted two instances where there was no evidence ofChief Executive approval, as required for any STAs.One of these had been signed retrospectively by theChairman. One exception was also found that didnot have appropriate approval by the Chief Executiveas was previously required for consultancy contractsover 250k. A further exception had no approval asrequired by the relevant Director. These contractswere awarded between 01/01/2008 27/04/2009.


2) Training for the Commercial Team and EngineeringAlliance Integrated Procurement Team should bearranged to ensure that they understand the FinancialDelegations policy requirements and their

responsibilities in relation to them in respect ofprocurement, not withstanding the fact that they arepublished on the intranet.

3) It is also recommended that training on the FinancialDelegations policy is rolled out across the business toraise awareness of the requirements of the policy andemphasise the need for full compliance.

Directorate Management meetings isnear completion. The revised policy isincluded in the Financial Awarenesscourse currently underway across theorganisation. Work is ongoing with the

Learning and Development Team toinclude training on the FinancialDelegations policy within Financialcourses currently being planned forstaff at all levels in the organisation.The inclusion of the revised policywithin NI Water Induction Training isbeing explored.

Responsibility for above actions:



3) Financial Accountant

Action Date:

1) Immediate (January 2010)2) 15 January 20103) 31 March 2010


12/24

Section 2





6 Procurement breaches

All issues noted above in 1 5 are potentiallybreaches of the procurement procedures or theFinancial Delegations policy and are therefore

potentially employee misconduct cases that mayrequire disciplinary action.

The Chief Executive in conjunction with the Boardshould consider if any action is required to be taken upwith the individuals involved in the various procurementbreaches contained in this report.

Agreed. This will be pursued and anyaction will be documented.

Responsibility:Chief Executive

Action Date:31 March 2010


13/24

STAs not appropriately approved Appendix 1


1. STAs recorded on the contracts database without appropriate approval (see page 3, issue no. 1 for full explanation)

No. Vendor name Cost as percontractsdatabase

Total paymentssince April2007 to 8December 2009

Approval STA >250kShareholderapprovalrequired

Date firsttransactiontook place*

Date fromApril 2007invoicesexceeded250kthreshold*

Comments

1. AON (claims

handling)

235,000

(ClaimsHandling)

361,818 Chief Executive

(BC for period01.04.07 01.04.08)(No BC for period01.04.08 01.07.09)(BC for period01.07.09 - 30.06.10)Consultancy STAexceeding 250k sorequires Shareholder

approval.

Yes April 2007 01/08/08 Relates to claims

handling, AON wereappointed as an STAin year one and thework continued foranother 2 years, sototal of 3 BCs shouldbe in place andapproval required byShareholder as

exceeds 250k.2. PENTAGON

SOLUTIONSLTD(autocadlicences)

100,000 151,130 Approved by Directorbut not CEO (April2008).

No N/A N/A BC specifies thattendering to beperformed, howeverwas awarded as anSTA.

3. ALARISCONSULTINGLTD

(appointmentof ITconsultants)

138,000 99,970 Chief Executive(3 BCs completed,April 2009, only 1

signed by CEO).

No N/A N/A 3 BCs (April 2009):- Contract Programmeand Projects Support

Office Manager:36,000 (signed byCEO)- Contract DC MoveProject Manager(signed by InterimCIO)- IT Interim IT ServiceManager (signed by

Interim CIO)


14/24

STAs not appropriately approved Appendix 1


* only applicable for Shareholder governance letter exceptions

2. Vendors with procurement procedure exceptions (STAs which should have been approved) (see page 3, issue no. 1 for full explanation)

(Refer to Appendix 3)


15/24

Contracts potentially breaching Official Journal of the European Union (OJEU) Appendix 2/Utilities Contract Procurement Regulations


(see page 5, issue no. 2 for full explanation)

No Vendor name Total payments from 1 April 2007 to date(20 December 2010)

Comments

1. Enterprise Managed Services Ltd 3,302,288647,357 relates to period 1 April 2009 toDecember 2009

Contract extension for 12 months from 1 April 2009 to 31March 2010 was outside of the permitted contract periodterms and value exceeds OJEU threshold.

2. SIAE UK(Supply and delivery of digital microwaveradio equipment)

441,085 Two contract extensions for 12 months from 1 April 2007to 31 March 2008 and 1 April 2008 to 31 March 2009were outside of the permitted contract period terms and

value exceeds OJEU threshold (no longer in use).

(see page 6, issue no. 3 for full explanation)

No Vendor name Total payments from 1 April 2007 to 08December 2009

Comments

1. PWC(Resourcing staff substitution)- Contract Management Office Support

1,281,188 Resourcing staff substitution: as part b service, norequirement to run a formal competition through OJEU,although there is an obligation to publish a contractaward notice on OJEU. A notice of the award was notposted on OJEU.

2. PWC(Resourcing staff substitution)- Billing & Revenue Secondments

433,501 Resourcing staff substitution: as part b service, norequirement to run a formal competition through OJEU,although there is an obligation to publish a contractaward notice on OJEU. A notice of the award was notposted on OJEU.


16/24

Vendors with procurement procedure exceptions Appendix 3


(see page 3, issue no.1 and page 7, issue no. 4 for full explanation)

No. Vendor name Paymentstosuppliersin past 12months

Totalpaymentsfrom 1 April2007-8December2009

Evidenceoftendering /contractsin place

STAapproval

STA >250kShareholderapprovalrequired

Consultancy>750kShareholderapprovalrequired

Date firsttransactiontook place*



Comments

1. PWC

ContractManagementOffice Support(Resourcing staffsubstitution)

625,733 1,281,188 No No evidence

of approval

Yes Yes April 2007 April 2008 May 2009 Resourcing

staffsubstitution:no evidenceof tenderingor approvalforappointmentof staffsubstitution.

2. IT PROJECTRECOVERYLIMITED(Resourcing -staffsubstitution)

209,849 476,669

(Head of ICT:41,373BusinessImprovement/ ProjectManagement:252,818Acting CIO:182,478)

No No evidenceof approvalobtained

Yes No BusinessImprovement/ ProjectManagement(ComplianceHub) startedin April 2007

November2008

N/A Resourcing staffsubstitution.Initially rolerelated toInterim Headof ICTwherebyrecruitmentagenciescontacted.Consultantthen movedto programmesupport rolefrom April2007 andthen to CIO


17/24



No. Vendor name Payments

tosuppliersin past 12months

Total

paymentsfrom 1 April2007-8December2009

Evidence

oftendering /contractsin place

STA

approval

STA >250k

Shareholderapprovalrequired

Consultancy

>750kShareholderapprovalrequired

Date first

transactiontook place*

Date from

April 2007invoicesexceeded250kthreshold*

Date from


Comments

role in late2008/09 butno evidence

of tendering /approval forthese newroles.

3. PWCBilling &RevenueSecondments(Resourcing staffsubstitution)

130,122 433,501 No No evidenceof approval

Yes No February2007

April 2009 N/A Resourcing no evidenceof tenderingor approvalforappointmentof staffsubstitution.

4. BESPOKEPERFORMANCEMANAGEMENT LIMITED(Resourcing staffsubstitution)

127,783 327,702(spilt of costs:- TelemetryStrategyRole: 92,475- ICT StrategyConsultancy:64,989- Pearl role:168,678-OCC projectcosts:

No externaladvertising,Emailnoting fiverecruitmentagenciescontactedforTelemetryStrategyrole.

TelemetryStrategy roleinvolved fiverecruitmentagenciesbeingcontacted sonot initially anSTA

No(noindividualrole over250k)

No N/A N/A N/A Resourcing Total relatesto two roles,the initial rolefor InterimProjectManager /Advisor forTelemetryStrategy hasan approvedBC by the


18/24





Total


Evidence


STA

approval

STA >250k


Consultancy


Date first


Date from


Date from


Comments

1,560) CEO,however nobusinesscase forchange inrole.

5. HUBERTECHNOLOGY(Variousmachinery,maintenanceand parts forM&E, E&P andWastewater)

303,520 403,143 No No evidenceof approvalprovided

No No N/A N/A N/A Expenditurehas been splitover differentfunctions;Wasterwater,M&E andE&P fordifferentservices andno categoryover 250k.

6. MOBILE &SEPERATIONEQUIPMENTLIMITED (Hireof mobiledecanter fordeployment ofincinerator)


Yes No July 2008 November2009

N/A Orderedthroughquotations, atthis time itwas notanticipatedthe machinerywould beneeded for solong (nolonger in


19/24





Total


Evidence


STA

approval

STA >250k


Consultancy


Date first


Date from


Date from


Comments

use).

7.RMSENTERPRISESLTD(Resourcing staffsubstitution)

155,983 219,583 No No evidenceof approvalobtained

No No N/A N/A N/A Resourcing staffsubstitution:MWM ProjectManager

8. NORTHERNIRELANDCOMPUTINGLTD (opex &capex:TelemetryTechnicians,SCADATechnicians,SCADAServices,SCADAtouchscreen)


No No N/A N/A N/A Currentlygoing throughtendering.


20/24





Total


Evidence


STA

approval

STA >250k


Consultancy


Date first


Date from


Date from


Comments

9. CLNSOLUTIONSLTD

148,462 Two pieces ofwork:- Review ofinternalcontrols:197k- Appointmentof SQI: 89kTotal: 286k

Internalapprovalfor SQIpiece ofworkhowever noapprovalfor internalcontrols.

Totalexpenditure todate over250kthreshold,howevershareholderapproval notrequired perthe newunderstandingagree thatthreshold onlybased oneach discretepiece of work.

No No N/A N/A N/A

10. MCGSERVICES (NI)LTD(Resourcing staffsubstitution)

152,760 208,865 No No evidenceof approvalobtained

No No N/A N/A N/A Resourcing -Customer &OperationsProgrammeManager

11. FL SMIDTHKOCK GMBH(Wastewater parts for caketransferconveyor)

112,054 172,402 No No evidenceof approvalobtained.

No No N/A N/A N/A Parts for caketransferconveyor /survey ofconveyorsrelating tomachinery inwastewater.


21/24





Total


Evidence


STA

approval

STA >250k


Consultancy


Date first


Date from


Date from


Comments

12. CRUMLINPLANT SALESLTD(Parts / repairs)


No No N/A N/A N/A

* only applicable for Shareholder governance letter exceptions


22/24

Consultancy Contracts from the Contracts Database lack of Appendix 4evidence of appropriate internal approval


Consultancy contracts without a business case (see page 8, issue no. 5 for full explanation)

No. Contractnumber

Vendor name Contract name Date of award Contractestimatedvalue

Approval

1. 466259 OLLAVE LTD XANSA ICTProcurementSupport

08/05/2009 22,800 No business case.

Business cases without appropriate approval (see page 8, issue no. 5 for full explanation)

No Contractnumber

Vendor name Contract name Date of award Contractestimated value

Approval required

1. 463366 AON RISK SERVICES InsuranceBrokerage forNIW [C313]

01/01/2008 50,000 Director(BC not signed)

2. 463783 PRICEWATERHOUSECOOPERS LLP

Data QualityImprovement -

Stage 1 and 2[C328]

01/01/2009 289,625 Chief Executive(2 BC, only 1 signed by CE)

3. 461181 GRONTMIJ LTD Product ofPEARL TechnicalSpec, Ts&Cs &Pricing Schedule[C328]

13/02/2009 20,000 Chief Executive as STA(BC signed retrospectively byChairman 01/12/09)

4. 469329 ALARIS CONSULTING LTD Appointment of ITContractors

27/04/2009 138,000 Chief Executive as STA(3 BCs, 2 signed by interim

CIO only)


23/24

Personnel contacted Appendix 5


Title

Chief Executive

Director of Finance and Regulation

General Counsel & Company Secretary

Head of Operational Procurement

Head of Process Improvement

Senior Category Manager


24/24

Northern Ireland Water Internal Audit - January 2010 [+ February review]

Documents

Transcript of Northern Ireland Water Internal Audit - January 2010 [+ February review]