Process Auditor Public Private Partnership by alicejenny

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									                       Central Guidance 3:
Guidelines for the Reporting Arrangements, Role and
   Function of a Process Auditor in a Public Private
                       Partnership Project



                             June 2004




Further details please contact:
      Central PPP Unit
      Department of Finance
      2-4 Merrion Row
      Dublin 2
      T: +353-1-669 6308
      F: +353-1-669 6313
      E: pppinfo@finance.gov.ie
      W: www.ppp.gov.ie




                                  -1-
Contents


1      Context .................................................................................................... 3

2      Introduction / Summary.......................................................................... 4

3      Scope of these Guidelines ..................................................................... 4

4      Role of the Project Manager in relation to the Process Auditor ......... 5

5      Roles of Project Boards in relation to the Process Auditor ................ 6

6      Role of the Process Auditor................................................................... 6

7      When is a Process Auditor required? ................................................... 7

7.1       When should a Process Auditor be appointed? ........................................ 8

8      Who should be a Process Auditor? ...................................................... 8

9      Reporting arrangements for Process Auditor ...................................... 8

10        Procurement Process Checklist ........................................................ 9

11        Procedures for Process Auditing ...................................................... 9

11.1      Raising a point of concern .......................................................................... 9

11.2      Raising urgent issues requiring immediate attention ............................. 10

11.3      Submission of Pre-contract Award Report to the Accountable Officer . 11

12        Report to the Sanctioning Authority................................................ 12

13        Application of these Guidelines ....................................................... 12

14        Queries ............................................................................................... 12

15    Appendix 1: Procurement Process Checklist ..... Error! Bookmark not
defined.13

16        Appendix 2: Template for the Pre-Contract Award Report ............ 13




                                                        -2-
1 Context
These guidelines provide elaboration on the role and function of the Process
Auditor as identified in the PPP guidelines. The Guidelines for the Reporting
Arrangements, Role and Function of a Process Auditor in a Public Private
Partnership Project refer to the stage, from the guidelines on PPP, circled in
the diagram.

                                               A1.
                                        Preliminary
                                        appraisal


                                            A2.
                                        NDFA assistance


                                             A3.                             1.1 Publ
                                        PPP assessment
                                                                                 ic
                                                B1.
                                                                                 Priv
                                        Approval to
                                        proceed. Appoint
                                                                                 ate
                         C1.            client advisors                          Part
                 Accountable Officer
                  appoints a Process                                             ners
                 Auditor. PA reports
                    directly to the
                                                                                 hip
                     Accountable
                       Officer.
                                              A4.
                                          Public Sector
                                                                                 Step
                                           Benchmark                             s
                                             {PSB}
                                                                                 withi
                         C2.                  B2.                                n
                       PSB &              Affordability
                  Affordability Cap           Cap
                                                                                 the
                   recorded by the
                     Sanctioning
                                                                                 Capi
                      Authority                 A5.                              tal
                                        Procurement
                                          Process
                                                                 If the
                                                            Affordability
                                                                                 Exp
                                                           Cap is exceeded       endi
                                                             at any point
                                                A6.
                                                              during the         ture
                                                             procurement
                                              Tender          process the        Stag
                                             Evaluation       Sponsoring
                                                            Agency must
                                                                                 es
                                                             immediately
                                              A7.           revert back to
                                        Value for Money    the Sanctioning
                                          Comparison          Authority.
                                           {VfMC}


                                                A8.
                                         Contract Close


                                          Post project
                                            review




                                       -3-
2 Introduction / Summary
The Process Auditor function operates against the background of defined
procedures for the procurement and project management of a Public Private
Partnership procurement project. These procedures should encapsulate the
appropriate processes to be followed at each stage of the procurement up to
the award of contract in order to ensure compliance with the requirements of
E.U. and national regulatory and administrative procedures and the imperative
of good project management1 - including proper control of working papers /
documentation and their custody within the Sponsoring Agency.


The Process Auditor supports the Accountable Officer’s2 responsibility for the
project by checking on his/her behalf that the proper procedures and
processes, as agreed in the Procurement Process Checklist at the
commencement of the process, have been followed.


The procedures recorded by the Process Auditor should include the steps to
ensure compliance with: European Union and national regulatory and
administrative requirements; sector specific guidance; and with procedures
adopted by the Project Manager/Project Board.



3 Scope of these Guidelines
The purpose of these guidelines is to define in sufficient detail the role of the
Process Auditor and set out the appropriate methodology for compliance with
the requirements of the general Public Private Partnership (PPP) Guidelines
as they relate to the Process Auditor. The aim is for the Process Auditor to
identify any issues of material concern for the Accountable Officer and so to
minimise the need for the detailed involvement of the Accountable Officer in
the procurement process for each project - unless a material concern arises.




1
  It would be expected that many procuring organisations would have well developed project
management structures.
2
  In some instances there may be a dual reporting requirement to the Accountable Officer and another
party who also has overriding project overview responsibilities (e.g. the Manager in a Local Authority
procured project)
                                                  -4-
These Guidelines apply to Steps A.1 to A.8 of the Public Private Partnership
Procurement Steps, i.e., from the Preliminary Appraisal to Contract Close3.
The Post Project Review stage is outside the remit of the Process Auditor.


The role of the Process Auditor as defined in this guidance does not extend
beyond the award of the contract. However, some sectors may require that
the individual who undertook the role of the Process Auditor makes available
the knowledge s/he gained during the process, for the benefit of a post
contract award project review function.



4 Role of the Project Manager in relation to the
     Process Auditor
The Project Manager is the person nominated by the Sponsoring Agency as
the lead individual who is given responsibility for the monitoring and
implementation of a project4.


At the initiation of the project, the Project Manager may not yet know which
procurement mechanism should be followed, traditional or PPP.
Notwithstanding that, the Project Manager should ensure that the initial stages
of all projects, prior to the determination of the appropriate procurement
mechanism, are in accordance with the ‘Guidelines for the Appraisal and
Management of Capital Expenditure Proposals in the Public Sector’.


In order to obtain approval to proceed and procure the project using a Public
Private Partnership approach the Project Manager must:
        Compile a ‘PPP Assessment’5 to be approved by the Sanctioning
         Authority;
        compile a Procurement Process Checklist;
        following approval of the checklist by the Accountable Officer, supply
         the approved checklist to the Process Auditor on his/her appointment.

3
  The term Contract Close is as mentioned in the Interim Guidelines on PPP and refers to the point in
time when a contract is entered into by the public sector.
4
  A Project Manager may or may not have the delegated authority to make project related decisions.
The title of this role may vary depending on the sector. A group of individuals with differing
specialisms, (a Project Board/Team) may be formed to support the role of the Project Manager.
5
  This refers to stage A3 in the ‘Interim Guidelines for the Provision of Infrastructure and Capital
Investments through Public Private Partnerships’.
                                                  -5-
Documentary evidence outlining the consideration of and the basis for
decisions taken at each defined stage should be provided by the Project
Manager. The Secretary to the Project Board who is responsible for, inter alia,
retaining all relevant documentation relating to the project, must make copies
of relevant papers available to the Process Auditor on request.



5 Roles of Project Boards in relation to the Process
     Auditor
A Project Board6 is a group of individuals brought together for the purposes of
delivering a specific project.


Accountability structures vary in regard to the responsibilities of project
boards. A Board may be constituted to provide specialist skills to support the
decision making role of a Project Manager. In this regard the role of the
Project Board is to support the Project Manager in undertaking all stages as
identified in the Procurement Process Checklist.


Alternatively, where the Project Board is constituted in the form of a decision
making authority, its members are then collectively responsible to the
Sponsoring Agency, through the Project Manager, for the completion of all
steps of the Procurement Process Checklist.


Irrespective of the type of structure a complete set of project related
documentation is to be retained, in the Sponsoring Agency, by the Project
Manager/Project Board.



6 Role of the Process Auditor
The Process Auditor’s role is to record that each step / procedure on the
approved Procurement Process Checklist has been addressed by the Project
Manager / Project Board. In order to record that a step has been completed,


6
 A Project Board may also be referred to as a procurement group or project team. The terminology
used may differ from sector to sector and between projects.
                                                -6-
the Process Auditor must be satisfied that the step has been given due
consideration by the appropriate responsible authority.


On appointment, the Process Auditor should be provided with
         A copy of the approved Procurement Process Checklist; and
         Documentary evidence outlining the consideration of and the basis for
          decisions made in relation to the project from the Project Manager.


The Process Auditor is not a second layer of project management. It is not
part of the Process Auditor’s role to comment on any action / omission /
decision taken in relation to the project that is not related to the steps set out
in the approved Procurement Process Checklist. Decisions made in relation to
the project are not the responsibility of the Process Auditor, nor does s/he
have the authority to challenge or second guess decisions or expert advice
provided to the Project Manager / Project Board.


The Process Auditor must, however, raise as a point of concern (see Section
11), instances where decisions or advice, relating to the stages as set out in
the Procurement Process Checklist, do not appear to have been followed
through by the Project Manager / Project Board.



7 When is a Process Auditor required?
A Process Auditor must be appointed to all projects or grouped projects where
the capital cost exceeds the threshold set out in the National Development
Finance Agency Circular - currently €20 million7.


The Accountable Officer may appoint a Process Auditor with responsibility for
projects or grouped projects below this threshold if s/he thinks it prudent to do
so.




7
  S430/10/03 Public Private Partnerships and National Development Finance Agency currently
provides that the advice of the NDFA must be sought for major projects and grouped projects costing
in excess of €20 million,
                                                 -7-
In cases where the initial cost estimate for a project was lower than the
threshold and the capital cost is likely to exceed the threshold, a Process
Auditor must be appointed as soon as this has become apparent.




7.1 When should a Process Auditor be appointed?

    A Process Auditor must be appointed when the PPP Assessment has been
completed and the Sanctioning Authority has given approval to the
Sponsoring Agency to proceed with the project as a PPP.



8 Who should be a Process Auditor?
The Process Auditor is required to be a person (internal or external to the
Sponsoring Agency or Sanctioning Authority) who is considered by the
Accountable Officer to have suitable experience and standing to undertake
the functions of the Process Auditor, including the requirement, if necessary,
to seek clarification about the Project Manager’s / Project Board’s compliance
with their obligations per the Procurement Process checklist. The person
appointed by the Accountable Officer as the Process Auditor must have direct
access to the Accountable Officer.


9 Reporting arrangements for Process Auditor
The Process Auditor is appointed by, and reports directly to, the Accountable
Officer. In some sectors another party, in addition to the Accountable Officer,
may have project accountable responsibilities8. In such instances a dual
reporting mechanism may be required. Any such requirement will be set out in
sector specific guidance issued by the appropriate Government Department /
State Authority. The reporting arrangements to the Accountable Officer for the
Process Auditor are independent of the reporting arrangements of the Project
Manager / Project Board.




8
  This occurs in Local Authorities where the Accountable Officer has different project responsibilities
than those of the Local Authority Manager in relation to the same project.
                                                  -8-
10 Procurement Process Checklist
On foot of the approval from the Sanctioning Authority that the project is to be
procured as a PPP, the Accountable Officer must agree and sign off a
checklist of the steps, as set out in the project specific Procurement
Process Checklist. These steps must be completed during the process.
This is a prerequisite of these guidelines.


The checklist must have regard to the need to comply with all requirements
arising from relevant European Union and Irish Law; Department of Finance
guidelines and circulars; and sector specific guidance. A sample of the steps
in a Procurement Process Checklist which should be completed is set out in
Appendix 19. The Checklist should also contain any additional project-specific
issues that are considered necessary by the Accountable Officer or the
Project Manager / Project Board.


The Process Auditor is responsible for obtaining and retaining all relevant
documentation relating to the Procurement Process Checklist and his/her role
as Process Auditor.


In the interest of efficiency, the Accountable Officer may agree to the
formulation and approval of a standard Procurement Process Checklist for
specific project types. Where it is proposed not to use the standard checklist,
the Accountable Officer should approve a Procurement Process Checklist for
each of these projects.




11 Procedures for Process Auditing

11.1 Raising a point of concern

In the event that the Process Auditor is not satisfied that the Project Manager /
Project Board is fully compliant with any step outlined in the approved
Procurement Process Checklist, then s/he should do the following:


9
    The precise contents of each checklist will depend on the type of project and sector.
                                                     -9-
(i)     Verbally mention his/her concerns to the Project Manager and supply a
        written statement setting out the point(s) of concern and the reasons
        for the concern(s).
(ii)    If, in the opinion of the Process Auditor and after a reasonable period
        of time, the Project Manager has not adequately addressed the
        Process Auditor’s concern(s), the Project Manager and each member
        of the Project Board should be advised of the Process Auditor’s
        concern(s) in writing, enclosing a copy of the written statement
        originally provided to the Project Manager.
(iii)   The Project Manager/Project Board must respond in writing to the
        Process Auditor setting out the reasons for their proposed approach
        and/or the action proposed to remedy the concern(s) raised by the
        Process Auditor. The Process Auditor must then decide if the proposed
        approach addresses his/her concern(s).
(iv)    If, in the opinion of the Process Auditor and within a reasonable period
        of time, the Project Manager and/or the Project Board fail to adequately
        address the concern(s) raised in writing by the Process Auditor, then
        the Process Auditor should raise the same material concern(s) in
        writing with the Accountable Officer (attaching a copy of the written
        correspondence to the Project Manager and the Project Board).


Where the function has been assimilated into the project management
structure, analogous procedures to the above should be established for the
project .


11.2 Raising urgent issues requiring immediate attention

The Process Auditor may consider that certain material concerns are urgent
and require immediate attention and action from the relevant party i.e. Project
Manager/Project Board/Accountable Officer. In such instances the Process
Auditor should raise the concern(s) with the relevant party/parties in writing,
outlining why this concern is urgent.




                                        - 10 -
11.3 Submission of Pre-contract Award Report to the
     Accountable Officer

The Process Auditor must submit a project specific pre-contract award
report,10 setting out the level of compliance with the requirements of the
approved Procurement Process Checklist and referring to the Accountable
Officer for his/her resolution of concerns which remain outstanding. This must
occur prior to Contract Award, i.e., before the contract can be signed or any
other binding commitment entered into.


This document should be submitted to the Accountable Officer, who must
then, before the contract can be signed or any other binding
commitment entered into:
1. decide, whether, having regard to the issue(s) raised by the Process
     Auditor, the project should proceed to Contract Award;


2. within a reasonable timeframe, advise the Project Manager/Project
     Board/Sponsoring Agency and the Process Auditor of his/her decision in
     regard to above; and,


The contract must not be signed until the Accountable Officer has indicated, in
writing,11 his/her satisfaction that these issues have been adequately
addressed.


Where the steps required in the approved Procurement Process Checklist
have not been completed, the Process Auditor will already have
communicated his/her concerns to the Accounting Officer in writing as they
arose during the procurement process. Copies of all of this documentation
should also be attached to the audit report.




10
   This approach requires minimal involvement of the Accountable Officer at the commencement of the
process and prior to contract award. S/he is also informed by the Process Auditor during the process
where a material point of concern is not addressed by the Project Manager/Project Board.
11
   This may be addressed through other written Corporate Governance procedures, (e.g. a
recommendation to the Project Manager / Project Board).
                                                - 11 -
12 Report to the Sanctioning Authority
Where the Process Auditor’s Pre-contract Award Report raises concerns that
all the relevant steps on the approved Procurement Process Checklist have
not been completed, the Accountable Officer should notify, as a point of
information, the Sanctioning Authority of these concerns and what his/her final
decision has been on the matter, prior to Contract Close.



13 Application of these Guidelines
These guidelines come into force on 1 July 2004 and apply to all PPP projects
which have not yet commenced and to all PPP projects which have not yet
invited tenders12 from the private sector.


Where applicable, sector specific guidance will issue from Government
Departments and State Authorities.


14 Queries
Any queries relating to these guidelines circular should be referred to the
Central PPP Unit, Department of Finance, 15 Lower Hatch Street, Dublin 2;
telephone (01) 639 6227; e-mail: pppinfo@finance.gov.ie




12
   This applies to all PPP projects which have not yet reached stage A5 – Procurement Process – as
stated in the ‘Interim Guidelines for the Provision of Capital Investments through Public Private
Partnership’.

                                                 - 12 -
15 Procurement Process Checklist

        Project Name: _______________________________________

Note: The Project Manager made responsible for the procurement of this
project must obtain the Accountable Officer’s approval for their Project
Specific Procurement Process Checklist once Sanctioning Authority
approval to proceed and procure the project as a PPP has been
obtained. If approval is obtained the Checklist is submitted to the
Process Auditor upon his/her appointment. Upon completion of the Pre-
Contract Award Report, the Process Auditor must submit the Checklist
with the Report for approval.

The attached Procurement Process Checklist has been compiled by the
Project Manager to reflect the specific needs of the project and approved for
use by the Accountable Officer.

To be completed by the Project Manager/Individual responsible for the
Project:

Name:               ____________________________ (Block Capitals)

Signature:          ____________________________

Date:               ____________________________


To be completed by the Accountable Officer:

Name:               ____________________________ (Block Capitals)

Signature:          ____________________________

Date:               ____________________________




                                     - 13 -
    The steps outlined below are not in chronological order

                              Section A – Pre-Procurement
Main                                                               Not        Not
Requirement         Further Detail                   Completed   Required   Completed
Preliminary         Needs Analysis
Appraisal – as
per the Capital     Options Appraisal
Appraisal
Guidelines          Cost Benefit Analysis
National
Development         Advice of the National
Finance Agency      Development Finance
Assistance          Agency sought
Detailed            Appraisal should produce a
Appraisal – as      reasonable estimate of the
per the Capital     budget required to procure
Appraisal           the project
Guidelines

PPP                As per PPP Procurement
Procurement        Assessment Guidelines,
Assessment         including Value for Money
                   Test.
Affordability      Cost of the project can be
                   accommodated by sponsor
                   e.g. capital costs of the
                   project over the construction
                   phase can be
                   accommodated within the
                   relevant Capital Envelope.
All policy issues  Possible issues include:
involved are clear no conflict with public sector
and fully agreed   numbers, HR policy or any
                   other general policy;
                   capital costs of the project
                   over the construction phase
                   can be accommodated
                   within the relevant Capital
                   Envelope
Stakeholder        Stakeholder consultation as
consultation       required by relevant
                   guidelines.
Approval to         Following appraisal of the
Proceed            project, the Sponsoring
                   Agency should approach the
                   Sanctioning Authority for
                   approval to proceed with the
                   project as a PPP.
                    The overall budget, which
                    incorporates both PPP and
                    non-PPP elements, is set at
                                            - 14 -
                   this point

Site-related       At this point the following
Issues             aspects of the site should be
                   decided and arranged:
                       - Identification
                       - Acquisition
                       - Investigations
                       - Consents
Establishing       Selection of appropriate
Project            management structure for
Management         project in accordance with
Structure          Stage 2 of Capital Appraisal
                   Guidelines.
                   Agreement of reporting
                   relationships.
Appointment of     When approval to proceed
Process Auditor    with a project has been
                   secured, a Process Auditor
                   should be appointed in
                   accordance with section
                   1.10 of the Main PPP
                   Guidelines.
                   Agree Checklist
Compiling Output   Draw up detailed Output
Specifications     Specifications for the
and Public         project, including approval of
Service            the Risk Matrix.
Benchmark          Compile PSB derived from
                   Output Specifications and
                   confirm Value for Money.




                                         - 15 -
                              Section B1 – Tendering Phase
                                                                   Not        Not
Main Requirement           Further Detail            Completed   Required   Completed
                    Compliance with EU and
Procurement
                    national procurement
Process
                    guidelines.
                    Evaluation of Tenders
                    deemed “suitable in
                    principle”. Reconfirm
Tender              affordability i.e. within
Evaluation          relevant Capital envelope.
                    Value for Money
                    Comparison Exercise
Considerations if   Refer to Sanctioning
Bid Fails to        Authority and the relevant
Equal/Beat Public   Minister or the Government
Service             for a decision.
Benchmark
                    -Financial close
Contract and
                    -Final Value for Money Test
Financial
                    -Award of Contract
Close/Award of
                    -Documentation Provided
Contract
                    Guidelines




                                            - 16 -
              Section B2 – Tendering Phase in Centre of Expertise Model
                                                                   Not        Not
Main Requirement         Further Detail         Completed       Required    Completed
                    Compliance with EU and
Procurement
                    national procurement
Process
                    guidelines.
                    Evaluation of Tenders
                    deemed “suitable in
                    principle”. Reconfirm
Tender              affordability i.e. within
Evaluation          relevant Capital envelope.
                    Value for Money
                    Comparison Exercise
                    Refer to NDFA Board for
Considerations if   examination.
Bid Fails to        Refer to Minister or
Equal/Beat Public   Government for decision.
Service
Benchmark
                    Convey decision to NDFA
                    -Financial close
Contract and
                    -Final Value for Money Test
Financial
                    -Award of Contract
Close/Award of
                    -Documentation Provided
Contract
                    Guidelines

   To be completed by the Process Auditor prior to submission of the
   checklist to the Accountable Officer as part of the Pre-contract Award
   Report:

   Name:                ____________________________ (Block Capitals)

   Signature:           ____________________________

   Date:                ____________________________




                                         - 17 -
16 Appendix 2: Template for the Pre-Contract Award
     Report


 PRE-CONTRACT AWARD REPORT TO [THE ACCOUNTABLE OFFICER]
  REGARDING THE PROCESS FOLLOWED IN THE PROCUREMENT OF
           [PROJECT] PRIOR TO CONTRACT AWARD



In accordance with the Department of Finance Guidelines for the Reporting
Arrangements, Role and Function of a Process Auditor in a Public Private
Partnership Project I have audited the process followed in the procurement of
[project] prior to Contract Close. The contract has not been signed and no
other binding commitment has been entered into.


To the best of my knowledge, all relevant steps outlined in the project’s
procurement process checklist, as approved by the Accountable Officer, have
been adhered to in the procurement of [project]. Confirmation that each
relevant stage was completed is detailed in the appended checklist.

Or

As you are aware13, [Detail of steps not followed]

In view of the fact that the Project Manager/Project Board has not completed
[briefly list the steps not followed], as detailed above, in my opinion, all
relevant steps outlined in the project’s procurement process checklist, as
approved by the Accountable Officer, were not adhered to in the procurement
of [project].

In all other respects, in my opinion, the requisite steps were followed in the
procurement of [project]. Confirmation of each stage completed is detailed in
the appended checklist.




______________________
Name
Process Auditor

Date




13
  Section 10 identifies the action which the Process Auditor would have taken during the procurement
process to highlight these concerns to the Accountable Officer.
                                                - 18 -
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