beaumont hospital board supplement to audit report public procurement and

8/14/2019 Beaumont Hospital Board Supplement to Audit Report Public Procurement And

1/5

Beaumont Hospital BoardSupplement to Audit Report

Public Procurement and internal controlPublic bodies are required in the conduct of their business to observe guidelines andregulations in relation to the procurement of goods and services. The guidelines andregulations are concerned with ensuring fairness and transparency in the award ofpublic contracts and ensuring the achievement of value for money.The board of each public body is responsible for m aintaining a proper system ofinternal control designed, among other things, to ensure that appropriate proceduresare followed in relation to public procurement. Among the procedures w hich a largeorganisation would normally be expected to have as part of its system of internalcontrol are measures to ensure an appropriate control environment including proceduresto deal with control failures formal procedures for preventing and detecting frau d procedures for monitoring the effectiveness of the internal control system suchas an audit committee and an effective internal audit function.

Procurement in Beaumont H ospitalThe policy of Beaumont Hospital in relation to procurement w as, and is, thattransparency and fairness should be evident in the tendering process and in the criteriaused for the award of the contract. This policy is supported by detailed procedures inrelation to the conduct of the tendering process.In Beaumont H ospital the Technical Services Division (TSD) is responsible for theprovision of building and maintenance works and technical services. In May 1999 theHospital's General Manager wrote to the TSD Manager expressing concern aboutwork being comm issioned by TSD and being completed before the appropriatedocumentation w as in place. He instructed that in future all tenders should beapproved by him prior to award of contract and that all documentation from thecontractor should be in place before commencing w ork and should be forwarded tohim w ith the recommendation to award the contract.In July 2000 the General Manager again wrote to the TSD Manager. He expressedconcern at the use of Service Request Authorisations (SRAs) by TSD. SRAs wereintended to be used to permit urgent minor repairs to be carried out without the needfor tendering. The General Manager suggested that they were, in fact, being used tocircumvent previously agreed procedures. He also pointed out that, again incontravention of previously agreed procedures, work was being undertaken withouthis prior approval. He instructed that the practice of using SRAs for non-urgent workshould cease.


2/5

The General Manager w rote to TSD for a third time in October 2000 expressingconcern that TSD continued to obtain quotations and issue orders for work withoutgoing through the normal tendering process, and in many cases, commencing workwithout his approval. He reiterated that orders should not be issued without his priorapproval and that normal procedures should be followed. He indicated that if thisinstruction were not obeyed he w ould have to take "appropriate action".In January 1999 the Hospital's internal auditor had circulated personnel responsiblefor procurement in the Hospital asking to be informed of the time, date and location oftender openings so as to permit internal audit to carry out spot checks to ensure thatprocedures were being followed. Notwithstanding this instruction, internal audit wasnot made aware of all tenders in 1999. In particular, TSD did not comply with thisinstruction, a fact which was communicated to the audit committee in June 2000. InJuly 2001 the audit committee was informed that TSD had not complied during 2000but the General Manager assured the internal auditor that TSD was complying sincethe beginning of 2001.During the period January to March 2001 internal audit carried out the first of threeaudits on procurement in TSD. This audit focused exclusively on security installationcontracts awarded by the Hospital since November 1999.The report identified a significant number of weaknesses and failures to comply withprocedures in the award of these contracts. It found that

all of the work concerned was awarded to one contractor staff members in TSD were circumventing the hospital's purchasing systemand were not adhering to the H ospital's policies and procedures there was a lack of documentation on file and a lack of control by Hospitalstaff over the systems being implemented the contractor to whom the work had been awarded could not produce validinsurance cover for the period N ovember 1999 to January 2001 a review of the work paid for established that 36,800 had been paid in respectof systems which were not working properly, a further 2,500 worth ofmaterials had never been installed according to staff in the relevant departmentand 22,900 of equipment had been only partially installed, despite hav ingbeen paid for in full

there was evidence of work that had already been completed being re-tenderedby the contractor.The procedure in the Hospital is that internal audit reports once completed are issuedin draft form to the relevant line manager for a reply; when a reply is received, thedraft audit report and reply are issued to the appropriate Senior M anager; on receipt ofa replyfrom he Senior Manager the report is formally issued to the audit committee.The audit report was issued in draft to the TSD Manager on 20 March 2001. Hedisputed the auditfindings and contested the recommendations. A copy of the draftaudit report and the reply received from he TSD Manager was issued to the DeputyCEO on 23 April 2001 for his views. On 27 April 2001 the internal auditor and theDeputy CEO carried out a physical review of the disputed installation by means of a


3/5

walk around the site. As a result of this review the findings and the recom men dationsin the draft audit report remained largely unchanged.The second and third audit reports arose out of the attendance of the internal auditor atthe opening of tenders on 18 May 2001 and 31 Augu st 2001 respectively. Thesereports concluded that the Hospital's tendering policy had again been circumventedby TSD staff. They also cast serious doubt over the authenticity of some of thetenders. These reports were given to the TSD M anager on 28 August and 4September with a request that he reply within a week.In September 2001, the T SD M anager resigned following the submission of hisresponse to matters arising in the internal audit reports. On subsequent ex amination itwas found that docum entary evidence of educational qualifications submitted by themanager of TSD in support of his ap plication for the position had been falsified.Conse quent on these audit findings, a review was carried out by internal audit of allconstruction work on the hospital site over the period 1998 to 2001. This reviewnoted that all work, to a value of 3.3m , had been carried out by one contractor. Ofthis amount

1.1 m was for a contract where the tendering was carried out by a design teamindependent of TSD 1.5m was for contracts on foot of tendering through TSD The balance of 0.7m was awarded by TSD without a tendering process.

An examination of tenders sought through TSD concluded that, in a number of cases,there were reasons to doubt the authenticity of the tenders.In Septem ber 2001 , a firm of quantity surveyors was commissioned by the Hospital toreport on the value of works executed on site. This report found that procedures inTSD for preparing docum entation, inviting tenders, awarding contracts, m onitoringcontracts and m aintaining file records relating to the projects examined were deficientand recommended that ISO procedures be implemented.The firm concluded, on the basis of examining eight projects, that a reasonable costfor w orks undertaken w as 368 ,858 (exc l.VAT ) while the amoun t charged to theHospital was 782,180 (excl.VAT).The m atter has been referred to the Garda Siochan a whose investigations are stillongoing.I requested the Chief Executive Officer (CEO) of the Hospital to explain howarrangements designed to deter fraudulent or other dishonest cond uct and to detectany that occurred w ere not effective over the period of years in which the problems inTSD continued. In particular I asked him

why the operation of the audit comm ittee did not have sufficient impact on thecontrol environment to prevent the problems in TSD


4/5

when an internal audit function was first introduced in the hospital and whythe problems in TSD were not brought to light until 2001. what controls were in operation in the period in terms of thresholds and

submission of documentation for board and/or senior management approval ofcontracts awarded why such controls failed to prevent the problems in the TSD details of changes in the system and operation of controls and the controlenvironment since the problems came to light what mechanisms the hospital has in place to monitor the efficiency, economyand effectiveness of expenditure and whether and to what extent expenditureunder the control of TSD was monitored during the period in which the

problems occurred to outline the circumstances which allowed a member of staff to be employedon the basis of invalid documentation regarding their educationalqualifications.

CEO's ResponseThe CEO informed me that the Board of the Hospital first set up an Audit Committeein October 1995. The first internal auditor was appointed by the Hospital in April1996. On 1 June 2000 the Audit Committee noted that the procedure for attendance attender openings by the internal auditor w as now in place and considered the report for1999. The Comm ittee noted that there had been "several teething problems". At theAudit Committee meeting on 31 July 2001 the Committee considered a report ontender opening for the year 2000. It noted that the Computer Department and TSDhad not complied during 2000 but that both departments had undertaken to comply,and that TSD had been adhering to regulationsfrom 2001.As part of its modus operandi, the Audit Committee considered matters raised by theinternal auditor or by external auditors. Neither the internal nor external auditorsraised any concerns with the Audit Committee about tendering in TSD prior to 2000.Internal audit concentrated its attention on what were seen as major issues at the time,such as inventory, compliance with regulations and matters raised in managementletters.Internal audit introduced attendance at tender openings on 5 January 1999, madeefforts throughout 2000 to ensure compliance by TSD and was assured that fullcompliance was in place by January 2001. The first tender opening on 28 February2001 to which internal audit was invited raised issues which it pursued to conclusion.In relation to controls over the award of contracts, the CEO said that there wasprovision for sign-off offender sheets by senior managers and this took place. As thetender summaries presented for signature were apparently correct, the senior manager


5/5

involved had no reason to suspect any irregularities. Apartfrom sign-off of contractsummaries, no other segregation of duty controls operated.As regards the reason w hy the controls failed to prevent the problems in TSD , theCEO said that the TSD Manager went out of his way to circumvent the controls thatdid exist and, furthermore, when challenged by internal audit and SeniorManagement, he did everything possible to thwart investigations and to preventchange being implemented in the operation of the department.The CEO informed me that there had been a fundamental regime change in TSDincluding Senior Management change and a project management company nowmonitors all major project work. The hospital had introduced a number of policies toensure full compliance with public procurement procedures:

formal policies and procedures for purchasing in TSD were introduced on17 April 2001 further TSD purchasing instructions were introduced on 27 August 2002 new quotation and tender procedures for TSD were introduced on 4 June

a formal Procurement and Tendering Policy covering all procurement inthe Hospital was approved by the Hospital Board on 12 August 2003 andnow applies to all departments within the Hospital.In addition, sign-off procedures had been strengthened and provision for examinationof tenders before payment had been included in the procedures of the Financefunction.On the question of mechanisms to monitor the efficiency, economy and effectivenessof expenditure, the CEO said that the H ospital took the view that by carrying outproper tendering procedures it optimised the use of resources. As in the case of TSD,if there is any doubt as to whether or not value for money has been achieved theHospital can get an independent valuation carried out. External project managers hadnow been engaged to monitor all major projects and capital expenditure of asignificant nature.In relation to the qualifications of the TSD Manager, the CEO said that the Hospitalhad been supplied with a certificate of registration that was accepted without furthervalidation. This was in the context that the candidate had held similar engineeringroles in other reputable organisations within Ireland for a number of years prior toemployment with Beaumont Hospital. The recruitment process had now beenreviewed and the policies and procedures now require that qualifications be validatedfor successful candidates prior to commencement of employment.

2003

John PurcellComptroller and Auditor GeneralJanuary 2004

beaumont hospital board supplement to audit report public procurement and

Documents