The Impact of Public Procurement Act, 2003 (Act 663) on the Public Financial Management System of Ghana


Master's Thesis, 2014

107 Pages, Grade: 3.0


Excerpt

Table of Contents

LIST OF TABLES

LIST OF FIGURES

ABSTRACT

ACKNOWLEDGEMENT

ABBREVIATIONS

CHAPTER ONE
GENERAL INTRODUCTION
1.0 Background of the research
1.1 Research Problem Statement
1.2Research Questions
1.3 Research Objectives
1.4 Relevance of the Research
1.5 Research Scope
1.6 Research Limitations
1.7 Research Organisation

CHAPTER TWO
OVERVIEW OF PUBLIC FINANCIAL MANAGEMENT AND PUBLIC PROCUREMENT SYSTEM
2.0 Introduction
2.1 Definition of Key Concepts
2.2 Public Financial Management
2.3 Transparency and Accountability
2.4 Bureaucracy
2.5 Government Expenditure and Budgetary Control
2.6 Conceptual Definition of Procurement
2.7 Best Practices and Significance of Public Procurement
2.8 Public Procurement Practices in Sweden
2.9 Curtailing Bribery and Corruption in Public Procurement in Asia and the Pacific
2.10 Public Financial Management Reform Programme (PUFMARP)
2.11 Structure of Ghana’s Public Procurement Act, 2003 (ACT 663)
2.11.0 Procurement Process Model
2.12 Drivers for Accomplishing Procurement Objectives
2.13 Criteria for Choosing Successful Suppliers/Vendors
2.14 Challenges in Ghana’s Public Financial Management System
2.15 Enhancing Public Expenditure Management System in Ghana
2.16 Rules and Regulations Governing Public Procurement Procedures in Ghana
2.17.0 Procedures for the Award of Procurement Contracts
2.18 Challenges of Public Procurement and Effects of Poor Procurement

CHAPTER THREE
RESEARCH METHODOLOGY
3.0 Introduction
3.1 Research Design
3.2 Population and Sampling Size
3.3 Sampling Technique
3.4 Sources of Data
3.5 Instruments for Obtaining Data
3.6 Data Analysis and Presentation
3.7 Ethical Considerations

CHAPTER FOUR
RESULTS AND ANALYSIS OF FIELD DATA ON THE PUBLIC PROCUREMENT ACT, 2003 (ACT 663) AND PUBLIC FINANCIAL MANAGEMENT
4.0 Introduction
4.1 Profile of Study Areas
4.1.0 Regional Medical Stores, Koforidua, Eastern Region
4.1.1 Hawa Memorial Saviour Hospital, Osiem, Eastern Region
4.2 Background and Characteristics of Respondents
4.2.0 Working Experience of Respondents
4.3 TRANSPARENCY IN PUBLIC PROCUREMENT
4.3.0 Availability of Written Records of Procurement Activities
4.3.3 Tender Invitation and Opening
4.3.4 Tendering Methods
4.3.5 Appeal Cases or Disputes and its Resolution Mechanisms
4.3.6 Time for Opening Tendering and Mode of Opening
4.3.7 Internal Quality Control and Auditing of Procurement Activities
4.4 CAUSES OF DELAY IN PUBLIC PROCUREMENT ACTIVITIES
4.4.0 Time Period for the Preparation of Procurement Plan
4.4.1 Duration for Advertisement and Evaluation of Tender Documents
4.4.2 Duration for Payment of Suppliers
4.4.3 The Public Procurement Act, 2003 (ACT 663) as cause of delay in Procurement Activities
4.4.4 Compensation for delay in Payment of Suppliers and its Consequences
4.4.5 Cumbersome Procedures in Public Procurement
4.5 EXPENDITURE CONTROL
4.5.0 Auditing of Procurement Activities
4.5.1 Market Survey
4.5.2 The Public Procurement Act, 2003 (ACT 663) and Value-for-Money/ Cost of Business
4.5.3 Expenditure and Budgetary Control of Procurement Activities

CHAPTER FIVE
SUMMARY OF FINDINGS, RECOMMENDATIONS AND CONCLUSION
5.0 Introduction
5.1 Summary of Findings
5.2 Research Recommendations
5.3 Conclusion

REFERENCES

APPENDIX ONE

LIST OF TABLES

Table 1: Criteria for Selecting Suppliers

Table 2: Working Experience of Respondents

Table 3: Advertisement of Procurement Contracts

Table 4: Medium of Advertisement of Procurement Contracts

Table 5: Time Period for Preparation of Tender Documents

Table 6: Tendering Methods

Table 7: Annual Appeal Cases by Tenderers

Table 8: Dispute Resolution

Table 9: Mode of Opening Tenders

Table 10: Time Period for the Preparation of Procurement Plan

Table 11: Time Period for Advertisement

Table 12: Time Period for Evaluation of Tender Documents

Table 13: Payment of Suppliers

Table 14: Procurement Act and delay in Procurement Process

Table 15: Cumbersome Procedures in Public Procurement

Table 16: Time Interval for Auditing Procurement Activities

Table 17: The Public Procurement Act, 2003 (ACT 663) and Value for Money

Table 18: Procurement Act and Budgetary Control

Table 19: Procurement Act and Control Mechanisms

LIST OF FIGURES

Figure 1: Procurement Process Model

Figure 2: Drivers to Successful Procurement

Figure 3: Availability of Written Records of Procurement Activities

Figure 4: Access to Procurement Information

Figure 5: Medium of Advertisement of Procurement Contracts

Figure 6: Time for Opening Procurement Tenders

Figure 7: Mode of Opening Tenders

ABSTRACT

Since 2001, the government of Ghana has made all attempts at streamlining the uncontrolled expenditure levels of the Ghanaian economy which has resulted in unstable economic climate. The government therefore devised several mechanisms and laws with the view of controlling public expenditure and maintaining financial discipline in the utilization of limited public funds. This led to the passing into law of the Public Procurement Act, 2003 (ACT 663).

Prior to the development and enactment of the Public Procurement Act in 2003, the government undertook an exercise to reform and control the public procurement system of the country in 1996 as an integral part of the wider Public Financial Management Reform Programme (PUFMARP). The Ministry of Finance in 2003 therefore stated that public procurement constitutes about fifty to seventy percent (50-70%) of total government expenditure in Ghana. Hence, MOF noted that public procurement represented about fourteen percent (14%) of the Gross Domestic Product and about twenty four percent (24%) of total imports of the country.

This research attempted to evaluate the impact of the Public Procurement Act in accomplishing transparency in the utilization of public funds, causes of delay in the procurement process and the impact of the Public Procurement law on government expenditure. Geographically, Eastern Region was the case study site due to proximity to the researcher and specifically, the Ghana Health Service was selected because of the numerous complaints from suppliers concerning delay in the payment of medical and non-medical supplies to hospitals. Exploratory research design was adopted to explain and analyze causal relationship between the Public Procurement Act, 2003 (ACT 663) and Public Financial Management System in Ghana Health Service, Eastern Region of Ghana. The study used both questionnaires and interviews of focus groups to collect data and information.

The research showed that there was transparency in the public procurement process and all procurement decisions were in agreement with the provisions specified in the Public Procurement Act, 2003 (ACT 663). Furthermore, the research revealed that procurement decisions and activities were publicly advertised and available to all stakeholders concerned. The research also found out that suppliers of medical and non-medical supplies were not paid as per the payment schedule in the procurement agreement. This act adversely affected the operational activities of suppliers. The study also concluded that the Public Procurement Act, 2003 (ACT 663) had minimized and streamlined government spending significantly. This is because the Act has minimized and eliminated wastage and prevented leakage of financial resources through effective monitoring, cost-effectiveness and competition. In effect, the Act has achieved the principle of value for money.

The study therefore recommended that procurement entities should abide by the payment schedule agreed in the procurement contract for the supply of medical and non-medical supplies. Furthermore, it was also recommended that government takes urgent steps to review the Public Procurement Act, 2003 (ACT 663) in terms of the threshold and number of steps in the procurement process in an attempt to reduce delays in the procurement process.

ACKNOWLEDGEMENT

My first and foremost gratitude goes to the Almighty God, the fountain of all knowledge; indeed the Lord has been gracious to me throughout my life and I am very grateful.

I am also grateful to my supervisor, for his priceless guidance Mr. Daniel Opoku- Akyea in the successful completion of this thesis. You have not only been a lecturer and a supervisor, but also a friend and brother. Your encouragement and direction throughout my masters’ programme and your humble nature will forever influence my life.

My heartfelt thanks go to all members of my family, especially, Mr. Roland Forson. He is a mentor, father, and leader. He provided both spiritual and financial support throughout my academic life.

I also wish to thank Mr. Addabor Delove, (Regional Transport Manager of the Ghana Health Service, Koforidua), Mr. Obiri Solomon (Manager of Koforidua Medical Stores) and all the staff of New-Tafo Government Hospital and Hawa Memorial Saviour Hospital, without whose diverse support, this thesis would not have been completed. I also thank the following individuals for their contributions toward the publication of this thesis: Madam Mary Dadzie, Theophilus Forson, Gladys Forson and all those who contributed in several ways for the successful completion of this thesis.

ABBREVIATIONS

Abbildung in dieser Leseprobe nicht enthalten

CHAPTER ONE

GENERAL INTRODUCTION

1.0 Background of the research

Financial Management involves all processes related to the acquisition of funds and spending it effectively. Effective financial management consists of conducting proper planning and using organizational resources prudently. Effective financial management enables financial priorities to be determined in accordance with organizational objectives. In view of this, institutional expenditure depends on determined priorities and it ensures that adequate funds are readily available to cater for current and future expenditure (Pride et al. 2002).

An implementation of sound financial management system ensures that government expenditure is actually used for the intended purpose. Sound financial management system ensures that procured goods, works and consultancy services are actually delivered to those concerned. It also promotes accountability in the use of national resources. Through public financial management system, the government is able to consistently pursue either a balanced or surplus budget. To achieve this, public financial management explains the importance of increasing receipts from both tax and non-tax sources and decreasing public expenditure levels concurrently. Public Financial Management system is an important fiscal policy adopted by government and its institutions that strives at improving revenue collection and spending levels with the aim of achieving a desirable level of national output and employment. These are achieved through the evaluation of government’s expenditure policies, drivers of revenue or revenue diversification and tax reforms (World Bank, 2001). The main goals of an effective public financial management system include the following: creation of wealth for the nation; improve revenue collection and obtain good returns on investment. Basically, financial management follows three main processes:

- Financial Planning: This process requires management to plan financial resources or funds properly and ensure that there exist sufficient funds at the appropriate period to accomplish procurement needs of the nation. Government and its institutions need enough funds to invest in physical assets, human resources etc. of the organisation.
- Financial Control: This process is deemed very important for the state to accomplish its objectives successfully. The process of financial control provides answers to the following questions:

a. Are organizational or government assets utilized efficiently?
b. What security measures are in place to protect national and organizational assets?
c. Are actions or policies of management in the best interest of stakeholders concerned?

- Financial Decision Making: This explains all investment decisions and source of funds to manage these investments.

Kurtz and Boone (1993) observed that public financial management stresses the principles of economy, efficiency and effectiveness. Also, one rationale for the enactment of the Public Procurement Act, 2003 (ACT 663) relates to efforts at controlling cost in the public sector. In effect, the fundamental tenets of public procurement should concern cost control instead of establishing strict rules and regulations aimed at protecting the public against abuse (Kurtz & Boone, 1993).

In order to develop nations, most countries spend considerable amount of their national budgets on the procurement of goods, works and consultancy services. However, in utilizing the national purse, it is important for government and its institutions to consider value-for-money (VFM) for all procurement activities. To accomplish the principle of value for money and utilize the taxpayers’ financial resources judiciously, it is important to adequately plan, manage and execute procurement activities effectively.

The Ghana Integrity Initiative (2007) defined Public Procurement as ‘‘the acquisition of goods and services at the best possible total cost of ownership, in the right quantity and quality, at the right time, in the right place for the direct benefit or use of government, corporations or individuals, generally via a contract”. Chowdhury and Kirkpatrick (1994) also observed that public procurement contributed to fiscal policies and programmes aimed at ensuring effective and efficient public financial management and national development at large. Public procurement is therefore regarded as a useful economic tool for achieving national development. Therefore the effective planning and implementation of public procurement has the potential of achieving the following benefits to aid national development: enhances resource mobilization; improves debt sustainability and proper debt management; enhances the effectiveness of public expenditure; rapid improvement in revenue planning and collection; and ultimately lowers economic and financial dependency.

Despite the numerous benefits Ghana derives from Public Procurement, it is confronted with a lot of challenges such as bribery and corruption, conflict of interest, lack of qualified procurement officers, bureaucracy, fraud, embezzlement, kickbacks etc. In addressing these challenges, Ghana has embarked on numerous procurement reforms over the past years. These reforms were enacted as constitutional and legislative instruments, administrative instructions and financial circulars.

In the early parts of 1960, the Ghana Supply Commission Act, 1960 was promulgated, with the Ghana Supply Commission responsible for direct public procurement activities. The Ghana Supply Commission was created to serve as the Central Procurement Agency responsible for frontline procurement activities in the public sector; this agency therefore could not provide oversight responsibilities for their operations. Thus, they could not act as players and referees at the same time, hence its review in 1990 to be replaced by the PNDCL 245.

In the same year, the Government passed the Contracts Act, 1960 (ACT 25). Furthermore, in 1976, the Supreme Military Council passed the Ghana National Procurement Agency Decree, 1976 (SMCD 55) into law. 1979 also witnessed the passage of the Financial Administration Decree, 1979 (SMCD 221). In 2003, the Public Procurement Act, 2003 (ACT 663) was passed. Osei and Gyapong (2013) stated that ‘‘these legal regulations were established to offer a comprehensive framework of administrative powers to regulate the activities of procurement within the public sector’’.

1.1 Research Problem Statement

Procurement is seen as a strategic fiscal policy or programme used to observe effectiveness and efficiency in the public financial management system of Ghana. As an economic tool for accomplishing national objectives, procurement activities should be adequately planned and executed to realize the following: rapid improvement in resource mobilization, improvement in managing and maintaining debt sustainability effectively, enhancing the public expenditure framework of the country, improvement in revenue generation and a reduction in economic and financial slavery (Chowdhury and Kirkpatrick, 2009).

Key objects of the Public Procurement Act, 2003 (ACT 663) includes the following: harmonization of all public procurement processes within the public sector, ensuring public funds are utilized judiciously, economically and efficiently to achieve value-for-money, promoting fairness and competition in public procurement, and maintaining and improving high standards of transparency and accountability to eliminate fraudulent practices in public procurement (PPA, 2003).

Notwithstanding these objectives, most government institutions experience undue bureaucratic procedures in purchasing goods and services as a result of the implementation of the provisions of the Act. Nketia-Asante (2009) therefore postulates that the bureaucratic nature of the Procurement Act affected productivity, led to inefficiency and waste of public funds, which affected the national budget adversely. Hence, he opined that to some extent, the Public Procurement Act, 2003 (ACT 663) has rather worsened the already suffering public financial management system in the country.

Some suppliers of the Ghana Health Service lament about the level of transparency in the procurement process and undue delay in the payment for goods and services supplied. The practice of ineffective procurement procedures have resulted in increased interest on bank borrowings and penalties on late payments, which have increased government expenditure and reduced savings. In addition to the above, procurement officers contacted during the research revealed that they found it extremely difficult to purchase goods, consultancy services and works because of the unwillingness of most suppliers to offer credit purchases. This problem was also partly attributed to lack of funds, bureaucracy, and lack of qualified procurement officers. These factors have contributed negatively to the operations of hospitals in Ghana, because it undermines the effectiveness of their operations and lowered the morale of staff to adhere to good procurement procedures. Another cause of this problem is the delay in the payment of National Health Insurance fees to hospitals by the government. This therefore hinders the operational activities of hospitals operating under the National Health Insurance Scheme and affects their financial resources adversely to honour prompt payment to their suppliers.

Unfortunately, little efforts have been made to evaluate the impact of the causes of delay in the implementation of the Procurement Act, the impact of the Act on government expenditure, savings and debt management, as well as transparency in the utilization of public funds.

This research is therefore aimed at obtaining requisite data to evaluate the causes of the delay, impact of the Procurement Act on public financial management as well as the impact of the Act in ensuring high level of transparency in the spending of public funds.

1.2 Research Questions

The findings of this research are expected to answer the following research questions:

- To what extent do key stakeholders of the procurement process understand the requirements of the Public Procurement Act, 2003 (ACT 663) of Ghana?
- What factors delay procurement activities in the public sector?
- To what extent has the implementation of the Public Procurement Act, 2003 (ACT 663) ensured transparency and accountability in the utilization of public funds?
- Has the implementation of Public Procurement Act, 2003 (ACT 663) influenced government spending?
- What are the main challenges encountered in implementing the provisions of the Public Procurement Act, ACT 663?

1.3 Research Objectives

The objectives of this research will cover the following areas:

- To investigate the degree of compliance in implementing the Public Procurement Act, 2003 (ACT663) by selected heath facilities in Ghana Health Service, Koforidua;
- To assess the reasons of delay in the procurement process of Ghana Health Service and its impact;
- To assess the extent to which the Public Procurement Act, 2003 (ACT 663) ensures transparency and accountability in the utilization of public funds;
- To evaluate the impact of Public Procurement Act, 2003 (ACT 663) on government expenditure; and
- Make recommendations for improving implementation of the Public Procurement Act, 2003 (ACT 663)

1.4 Relevance of the Research

To adequately enhance public financial management in Ghana, the Public Procurement Act, 2003 (ACT 663) was enacted to provide effective and efficient administration and institutional procedures for the achievement of procurement objectives in the country. With its promulgation, studies indicate that little scientific and systematic research has been embarked upon to evaluate the impact of the Public Procurement Act, 2003 (ACT 663) on Public Financial Management system in Ghana. This research is therefore conducted to unravel or further provide adequate evidence and recommendations on the impact of the Public Procurement Act, 2003 (ACT 663) on public financial management in the Ghana Health Service.

One key rationale for this research is also the significance of the Procurement law and its numerous impact in improving effectiveness, efficiency and to a larger extent, minimizing and eliminating the corruption syndrome in the Ghana Health Service. Furthermore, issues concerning public financial management have also gained sufficient grounds in the operations of most government organizations and business at large. Achieving effective financial management results in rapid growth and development of businesses. It is against this back drop that this research is important to evaluate the impact of the Public Procurement Act, 2003 (ACT 663) on the management of finance in Ghana.

Finally, the research would also provide a comprehensive document that would offer useful and reliable information to other researchers conducting similar studies on the Public Procurement Act, 2003 (ACT 663) and financial management. The findings of this research are also relevant as inadequate information on existing procurement practices in the health sector and its impact on financial management is available. This research attempts to address the gap in the literature.

1.5 Research Scope

Explanatory research was used to assess the impact of the Public Procurement Act, 2003 (ACT 663) on Public Financial Management System using Ghana Health Service, Eastern Region, as the study sample. Respondents from the Procurement Department, Finance Department, and Planning and Administrative Departments were surveyed.

1.6 Research Limitations

This research was expected to evaluate the entire public sector health institutions in Ghana to arrive at a more representative conclusion. However, due to time constraints and cost involved, the research is limited to Ghana Health Service, Koforidua, Eastern Region.

1.7 Research Organisation

This thesis is organized into five chapters. Chapter one provides the background to the studies and clearly specifies the research problem, objectives, scope and limitations of the research. Chapter two reviews relevant and important literature on Procurement and Public Financial Management. The literature review provides a short historical explanation of the Public Procurement Act, 2003 (ACT 663) of Ghana, the Procurement laws of other countries, and issues of transparency and accountability, and bureaucracy. Chapter three also examines the methodology employed in addressing the research questions raised.

This constitutes the methods of collection and analysis of data. Chapter four provides an in-depth analysis of data collected. Chapter five concludes the research by stating the research findings and providing necessary recommendations.

CHAPTER TWO

OVERVIEW OF PUBLIC FINANCIAL MANAGEMENT AND PUBLIC PROCUREMENT SYSTEM

2.0 Introduction

This chapter explains the literature review of the study. The broad sections covered are: definition of finance, public finance, financial management, financial management, transparency and accountability, bureaucracy and its impact on public sector of Ghana.

Furthermore, this chapter provides a short historical explanation of the Public Procurement Act, 2003 (ACT 663) of Ghana, the Procurement laws of other countries, and the perceptions of the Ghanaian public concerning the Public Procurement law. It further provides an in-depth revision of the general literature on procurement. It also explains the significance of procurement, challenges and effects of procurement, the procurement cycle and other related matters of public procurement at large. The main objective of this chapter is to highlight necessary and relevant variables significant for analysis and discussion of circumstances in the study area.

2.1 Definition of Key Concepts

a. Finance

Finance explains the determination of an entity’s strategic investments, how to raise funds for these investments, engaging the day-to-day financial operations of an entity and prudent management of an organization’s risks. The concept of finance enables institutions to have adequate funds for its daily operations. In effect, financial control refers to all procedures employed in monitoring actual expenditures incurred against budgeted amounts to reveal the variance (Griffen and Ebert, 1999).

Rosse (2001) also stipulated that the concept of finance attempts to address the following questions;

- What strategic investments should the government embark on? Thus, which areas of economic activity is the government in and the nature of capital investments it needs to undertake.
- What source of funding would the government undertake to finance these investments, is it going to be debt or equity financing?
- What procedures are adopted by the state in properly managing its revenue mobilization and disbursement?

From the above explanation of finance by different authors, finance can be explained as the process of planning, acquiring, and managing an entity’s daily operational income and expenditure in an effective and efficient manner to ensure business objectives are achieved successfully.

b. Public Finance

Prest (1985) described public finance as an aspect of economics that explains the planning, budgeting, revenue mobilization and expenditure control of a public entity, often government institutions. He noted that public finance involves the determination of the required expenditure pattern of a public organisation, sources of raising funds by the entity, and its budgeting procedures adopted. Public finance relates to efforts made by governments to ensure that it operates within a balanced or surplus budget. This idea of maintaining surplus or balanced budget within the public sector can be achieved through improvement in revenue mobilization, and monitoring or reducing expenditure levels. The government attempts to enhance revenue generation through sound fiscal policies. Fiscal policies are government actions intended to tax citizens and organisations in order to raise revenue, and spend with the motive of bringing total output of all sectors of the economy and employment to desired levels. Adjei (2009) therefore noted that, to achieve this desired level, the government needs to conduct an evaluation of its expenditure policies, revenue and tax reforms.

c. Financial Management

This relates to accounting for and controlling the sources and uses of funds that an entity employs in its daily activities. The main objective of financial management is the provision of the required funds in the most economical way, either through debts, equity financing or sale of an entity’s asset. Financial management controls the usage of funds in an economic way to achieve desired output. Burke and Bittel (1991) defined management as the process of planning the objectives of an organisation and allocating required resources for the accomplishment of these objectives. Hence, Nickel (1999) defined financial management as the effective and efficient management of resources to achieve desired organizational goals and objectives.

Nickel (1999) further noted that financial management function can be managed by Chief Finance Officer, company treasurer, or the vice president in charge of finance. The main function of the financial manager is the acquisition of funds for the organisation and putting in place adequate mechanisms for it to be utilized effectively. The financial manager is also responsible for claiming debts from customers and taking prudent and adequate measures to reduce the bad debts of an organisation. One aspect of financial management which is worth noting is financial planning and control.

Financial planning is concerned with the effective evaluation of monetary flows within the organisation. The broad aim of financial planning is the optimization of an organisation’s profitability and providing value for money for the utilization of the entity’s financial resources. Financial control on the other hand involves an assessment of an entity’s actual revenues, costs and expenditure with budgeted levels to determine the rate of deviation or variance. It is therefore desirable for organisations to at conduct monthly financial reviews as a way of ensuring financial control. The main objectives of financial management are the creation of wealth and cash generation for an organisation, and ensuring adequate returns from its investments.

2.2 Public Financial Management

Shand (2005) asserted that effective public financial management system enhances a system of accounting that depicts effective utilization of a country’s financial resources; provides a transparent environment for the public to access the financial status of the country; and provides strategic direction in formulating and implementing government and national policies. An effective and efficient Public Financial Management (PFM) system involves the following variables; Cash management, aid and debt management, revenue management, audit, and procurement.

Shand (2005) therefore provided the following as the key components of a good PFM system;

- An effective internal control mechanism which prevents exceeding budget appropriations. It ensures that financial resources are utilized for its intended purposes and adequate and reliable documents and information are available to substantiate the utilization of these funds.
- Adequate transparency of budget processes and information. Budgets are to be designed and executed through a laid down and comprehensive procedure understood by all stakeholders concerned. The legislature of the nation as well as the general public are required to have a full disclosure of the budget concerning targets established, financial position of the country, as well as assumptions and risks stipulated in the budget.
- The budget is credible, practicable and realistic for implementation. Most African countries, especially Ghana, are good at designing budgets which is not feasible for implementation. A significant variable to consider at this stage is the predictability of donor funding. Government institutions should be clear on the expected amounts to receive from the government chest during the year and what outputs are required from those expenditures.
- It is comprehensive and includes all government activities. Shand noted that all off budget transactions should be reduced or eliminated, especially, those involving little or no transparency.
- The financial plan or budget depicts government’s policies and priorities. In addition to this, anticipated outputs from expenditure inputs should be reliably measured and realistic.
- Availability of comprehensive accounting systems that offers reliable and timely information in all aspects of decision making. This enhances internal management control and external accountability purposes. It should be noted that effective external reporting of information largely depends on an effective and efficient internal reporting systems.

Shand (2005) further stipulated that there exist a general agreement among donors and partner nations on the main components of a good public financial management system. A good public financial management system is usually achieved through extensive diagnostic work; which is usually undertaken by donors in partnership with countries. Basically, a Public Financial Management System seeks to accomplish four main objectives. These are;

- Aggregate fiscal discipline (between and within years)
- Strategic prioritization of expenditure items through the design of realistic budgets.
- Operational efficiency in the utilization of organizational resources.
- Fiscal transparency

Organisations are advised not to recognise enhancing public financial management solely as a technical exercise; however, in an attempt by government and its institutions to enhance its budgets, procurement must also be seen as a very important mechanism for controlling government expenditure, improving transparency and accountability in the utilization of state funds, and establishing national priorities for effective and efficient production and delivery of goods, works and services.

The Public Procurement Act, 2003 (ACT 663) partly deals with the problems in public financial management system because it stipulates adequate planning, accounting and auditing, reporting, information provision and mechanisms for dealing with complaints. Furthermore, the Public Procurement Act, 2003 (ACT 663) also provides a mechanism for government to increase her tax revenue. This is achieved through the elements of withholding tax and tax clearance certificate which must be observed before a state institution can deal with a supplier.

Furthermore, it can be concluded that to achieve all the objectives of good public financial management system, the principles of transparency and accountability, expenditure and cost control and bureaucracy cannot be ignored. All these components are significant for the success of public financial management system. It is therefore important to discuss these basic components as asserted by Shand (2005).

2.3 Transparency and Accountability

Greening (2005) defined transparency as the concept of developing an environment where information on current conditions, decisions and actions are available, visible and understood by all stakeholders concerned. Disclosure can also be explained as processes and procedures adopted in offering information and making policy decisions through timely and accurate dissemination and openness. Accountability explains the concept whereby all stakeholders give accurate justification for decisions taken and unconditionally accept ultimate responsibility for the outcome of their actions.

For the concept of accountability to be developed, it is important for the principle of transparency to be upheld by all stakeholders concerned. The principles of transparency and accountability in the use of state funds have therefore become an issue for public scrutiny in an attempt at reducing corruption and promote economic growth and development. These concepts highly forbid the attitudes of secrecy on the part of policy holders and implementers. Secrecy is usually viewed by its victims as a necessary tool for exerting authority while concealing the level of incompetence held by decision makers. Secrecy also inhibits policies from accomplishing its intended objectives.

However, the rapidly changing global economy characterized by rapid internationalization and interdependence has made issues of transparency and accountability an important element in economic decision making. In view of this, Central Government of most developing nations including its Central Banks acknowledges the importance of transparency and accountability in enhancing the effectiveness and efficiency of economic decisions. Transparency and accountability mandates state institutions to reveal the true state of affairs regarding their operations and ensures that public officers take ultimate responsibility for their actions.

Transparency in the context of public procurement implies that same criteria are adopted for all suppliers of goods, works and consultancy services during the evaluation and selection process. It also means these criteria should be publicized and made known to all participants concerned before it is used in evaluating their eligibility for the contract. The tenets of transparency ensure that the procurement process is organized in an open and fair competitive environment. Ensuring that the principle of transparency is adhered to in public procurement improves public confidence and enhances inward investment and competition among potential suppliers as well as procurement officers in the various government institutions.

Accountability also ensures that individuals or institutions in charge of procurement activities are responsible for all decisions for which they are given authority under the Public Procurement Act, 2003 (ACT 663). The Public Procurement Authority (2007) therefore asserts that the basic principle of public sector accountability in the procurement of goods, works and consultancy services improves public perception of transparency and fairness and reduces corruption. It should be noted that accountability as enshrined in the Public Procurement Act, 2003 (ACT 663) ensures that the public purse is utilized in a highly transparent and open manner, and makes available all relevant and necessary information on public procurement to all stakeholders including the general public.

The Public Procurement Act, 2003 (ACT 663) also mandates the audit of all issues of public procurement by the Auditor General’s Department. In addition to this, for the objectives of accountability to be achieved in public procurement, it is important for all rules and regulations governing public procurement activities to be accessed by all interested parties in making good economic decisions.

The Public Procurement Act, 2003 (ACT 663) stipulates that all public officers and procurement practitioners shall be held accountable for all decisions regarding public procurement. It further noted that all suppliers, contractors and professionals of public procurement should be given a fair and equal competitive environment to conduct procurement activities with the state. Procurement shall also be organized in the most efficient manner, after considering the principles of value for money, transparency and fairness; and all monies earmarked for public procurement shall not be used for any other purpose other than the purpose stipulated.

Furthermore, relevant and necessary procurement procedures as enshrined in the Public Procurement Act, 2003 (ACT 663) or provided by Development Partners in respect of aids or grants should be adopted for all public procurement activities. All transactions of public procurement are mandated to be properly and adequately authorized by the appropriate authority and should be supported by adequately prepared written documents or records.

In public procurement, the concept of value for money is viewed as a very important and necessary condition. This can be achieved by comparing market rates for the prices of goods, works and consultancy services to be procured or purchased. The Public Procurement Act, 2003 (ACT 663) also mandates the development of an appropriate and acceptable Code of Ethics which should be enforced and abide by all officers involved in the public procurement process. All these provisions enshrined in the Public Procurement Act, 2003 (ACT 663) aim at providing the necessary guidelines for transparency and accountability of participants in the public procurement process.

Sarfo (2011) also asserts that transparency connotes making decisions and adequately implementing them in accordance with laid down rules and regulations. Transparency also means that information is disseminated freely and easily accessible by all stakeholders who would be impacted by the implementation of a decision or policy. For a system to be transparent, adequate and reliable information should be provided at the right time and easily comprehended. Relating the concept of transparency to public procurement, it means all information regarding procurement should be made available at no cost and easily accessible by all participants in the procurement process to enhance their economic decision making process. In effect, to achieve the principle of transparency as enshrined in the Public Procurement Act, 2003 (ACT 663), all procurement activities within the public sector should be organized according to the provisions of the Act.

The basic principles of transparency and accountability mutually reinforce one another. Transparency improves accountability by providing monitoring of procurement activities. On the other hand, accountability supports transparency by serving as an incentive for procurement officers or practitioners. By serving as an incentive to procurement officers or practitioners, accountability makes it possible for all actions of officers to be well explained and understood by all stakeholders of the procurement process. In view of this, (Greuning, 2005), noted that the principles of transparency and accountability serve as a disciplinary mechanism that enhances quality and effectiveness of decision making in the public sector.

2.4 Bureaucracy

To effectively understand the impact of public procurement in achieving prudent financial management, it is important to discuss the concept of bureaucracy and how it contributes to the objectives of the Public Procurement Act, 2003 (ACT 663). Weber (1920) defined bureaucracy as an organizational development depending on a hierarchy of offices and systems of rules having its main objective of ensuring the permanence of the organisation, although there will exist a level of employee turnover within the organisation.

Weber observed that formal procedures and processes of organizational operations would be adequately documented and stored in files; this ensures permanence and continuity of organizational operations into the foreseeable future. The concept of bureaucracy explains the hierarchical structure of formal organisations, with each level within the organisation being controlled by the other level above it. All activities and organizational transactions are recorded and stored. The main objective of the bureaucratic nature of organisations is to ensure an optimum degree of operational efficiency and effectiveness and also enhance the permanency of the institution as a going concern entity.

Lack of bureaucratic procedures often leads to red tapes and conflicting rules, regulations and administrative procedures in conducting the day-to-day administrative works of the organisation. In respect of this, it can be concluded that all organisations (private or public) have some level of bureaucracy in their operating procedures (Weber 1920).

Bureaucracy is therefore characterized by the following: rules and regulations are made available and explained to all parties concerned; the objectives of these rules and regulations are explicitly explained and depends on a valid theory of cause and effect; there is absolute consistency in the rules and regulations developed; it is very clear when to adopt a particular regulation and the scope for subjectivity is reasonably defined and limited (Weber, 1920). From the above, bureaucracy in the public sector can be viewed as a governance system whereby public sector officers who undertake rationalized activities within an organisation observe laid down procedures in executing their functions.

Lawton and Rose (1994) noted that the level of bureaucracy experienced in the public sector has a lot of consequences which inhibits the objectives of prudent financial management. Bureaucracy breeds dictatorship within officials, supervision problems, rules and regulations becoming an end in itself, and subsequently rules and regulations becoming ineffective and inefficient.

Furthermore, one key effect of bureaucracy is delay. Antill and Woodhead (1989) defined delay as the extra time taken to finish an activity above the planned duration as stipulated in a contract between two or more parties. They further noted that delay should be traced to their origin. In procurement contracts, delay is normally attributed to owners or principals not honouring their payment obligations on time. Also, on the part of suppliers, delay is witnessed when suppliers or contractors fail to deliver goods, works and consultancy services at the stipulated time period in the procurement agreement.

One main impact of delay on public financial management is the compensation contractors receive as a result of delay on the part of the government’s procurement entity. Antill and Woodhead therefore suggested that inflation and interest rates should be used in assessing the amount of compensation to be paid to contractors as a result of delay in the payment of their contract values. They asserted that many of the state contractors who provide goods, works and consultancy services finance their contracts from bank borrowings which are accompanied by its compounded interest payments. Colander (2011) also noted that delay on the part of government procurement entities in procurement contracts adds extra costs to the procurement process and adversely affect public financial management.

The Public Procurement Act, 2003 (ACT 663) strives to reduce public expenditure by rationalizing procurement activities and controlling leakages in public funds; however, bureaucratic procedures employed in the public procurement process results in delay in executing procurement activities.

The effect of this delay is an increase in procurement expenditure (as a result of extra amounts paid as compensation to contractors for delay on the part of government entities), and has adverse financial impact on the public financial management.

2.5 Government Expenditure and Budgetary Control

Government expenditures refer to all outflows from the national purse. Government expenditures can be categorized into recurrent and capital expenditures. Recurrent expenditures are outflows or expenditures incurred on the day to day administration of government activities. Recurrent expenditures include wages and salaries of government employees, maintenance, payment of interest on national debt, etc. On the other hand, capital expenditures are outlays incurred on construction of developmental infrastructures such as roads, schools, and acquisition of plants, equipment and machinery owned by the state (Malcolm, 1987).

Budgetary control on the other hand comprises monitoring and comparing actual income and expenditure with planned or budgeted income and expenditure on a consistent basis, computing variances or deviations, examines the causes of these variations to putting in place corrective actions or measures to ensure a balanced budget at the end of every fiscal or financial period. It should be noted that the mere identification of variances are necessary but not sufficient, hence, it is also important to determine and examine the causes for these variance or deviation.

2.6 Conceptual Definition of Procurement

The Public Procurement Authority (2003) defined procurement as the means of purchasing goods, works and services, as well as buying from third parties. Procurement also covers the evaluation of alternatives and decisions regarding ‘‘make or buy’’ that would eventually lead to the acquisition of goods and services to satisfy the needs of intended users.

In addition to this, Ghana Integrity Initiative (2007) also defined Public Procurement as ‘‘the acquisition of goods and services at the best possible total cost of ownership, in the right quantity and quality, at the right time, in the right place for the direct benefit or use of governments, corporations, or individuals, generally via a contract’’. Waara (2007) noted that public procurement comprises all purchasing activities undertaken by a public entity or organization within the classical or utilities sector. In respect of this, procurement regulations or laws applicable to these government or state entities largely depend on the total purchase value within a particular threshold, thus, whether the purchase value is above or below a given value or threshold. The Public Procurement Act, 2003 (ACT 663) therefore offers diverse procurement methods and procedures to adopt depending on the purchase value concerned, thus whether it is above or below a particular threshold or purchase value. The purchase of goods, works and consultancy services above the threshold follows specific and laid down procurement rules and mandates it to be advertised in the supplement to the official journal for public tender. On the other hand, procurement values below the threshold are usually termed “direct procurement” and such procurements do not warrant any advertisement publicly. However, for the tenets of competition to be observed, the Public Procurement Act, 2003 (ACT 663) does not agree to consistent use of direct procurement. It therefore stated that purchases should not be segregated into smaller units in order to fall below the threshold value.

The processes involve planning, invitation for tenders, evaluating and selecting suppliers or tenderers, and managing procurement contracts effectively. In order to accomplish procurement objectives, the procurement process or activities must observe two main tenets: principles of professionalism and value-for-money (economy).

- Professionalism: Professionalism is defined as a discipline that ensures that well educated, experienced, knowledgeable, and skillful procurement officials provide informed decisions on all procurement issues. It should be emphasized that procurement officials play a very key role in the economic development of the country. Through sound and informed procurement activities, the principle of value-for-money can be achieved. Furthermore, government expenditures are highly regulated. Hence, the Public Procurement Board emphasizes the principle of professionalism in its main objective as “the professional development, promotion and support for individuals engaged in public procurement and ensure adherence by the trained persons to ethical standard”.
- Value - for - Money/Economy: The principle of value-for-money emphasizes the utilization of public funds judiciously, economically and efficiently. It should be noted that value-for-money does not mean procuring at the least cost possible; however, it stresses the optimum combination of whole life costs and quality.

To achieve the basic objectives of procurement, World Bank (2000) noted the following basic principles:

- Optimizing the principles of efficiency and economy
- Enhancing competitive environment and encouraging maximum participation of suppliers for the supply of goods, works and consultancy services.
- Fairness and level competitive environment for all suppliers at the evaluation and selection process.
- Maintaining a high sense of transparency and accountability in all procurement processes and reducing or eliminating all avenues for corruption and collusion for fraudulent procurement activities.

The ultimate objective of procurement officers and regulators is the acquisition of best procurement contracts for the nation. Procurement officers and regulators are also expected to implement all available and appropriate procedures, processes and tools to achieve best and informed procurement decisions. This stresses the importance of eliminating bias, favouritism and nepotism, and fraud in the procurement process and award of procurement contracts.

2.7 Best Practices and Significance of Public Procurement

The Public Procurement Authority (2007), observed that implementation of good Public Procurement systems significantly affects the following; successful accomplishment of national projects, prudent management of scarce financial resources to accrue value for money in the area of public expenditure, controlling rapid corruption, improving competition among potential suppliers, encouraging budgetary savings, lowering national debts significantly, and finally motivating the private sector within the national economy.

Furthermore, other social effects of implementing a good Public Procurement law involves; improvement in respect for the rule of law, enhanced social sector services, higher probability of accomplishing other government objectives successfully, improved opportunity for local contractors to participate in government contracts, and an improvement in the image of government and its agencies. Hence, it is clear that Public Procurement laws offer multi-dimensional impact which spans all facets of the economy. To sufficiently reap the objectives above, it is important for governments of developing nations like Ghana to ensure strict compliance and implementation of the Public Procurement Act, 2003 (ACT 663) and eliminate all bottlenecks hampering its successful implementation.

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Details

Title
The Impact of Public Procurement Act, 2003 (Act 663) on the Public Financial Management System of Ghana
College
Ghana Telecom University College
Course
Msc Supply chain management
Grade
3.0
Author
Year
2014
Pages
107
Catalog Number
V508696
ISBN (eBook)
9783346137500
ISBN (Book)
9783346137517
Language
English
Tags
impact, public, procurement, financial, management, system, ghana
Quote paper
Edward Odum Forson (Author), 2014, The Impact of Public Procurement Act, 2003 (Act 663) on the Public Financial Management System of Ghana, Munich, GRIN Verlag, https://www.grin.com/document/508696

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