Compliance of the public procurement internal control system with its requirements

The internal control established by the entities assessed by the National Audit Office in the area of public procurement does not comply with all the internal control elements and the principles applied to them. No deficiencies were found in the public procurement of a quarter of the entities assessed. This is the data provided by the auditors in the audit of "Compliance of the internal control system for public procurement with applicable requirements".

Around 4,000 contracting authorities carry out public procurement worth EUR 5-6 billion a year, accounting for around a third of all public sector spending and around 12% of national GDP. From the beginning of 2020, public sector entities had to update their internal control system to help mitigate the negative impact of risk factors, including a pandemic, on their operations. Internal control covers the control environment, risk assessment, control activities, information and communication, and monitoring.

"Internal control is essential to ensure a smooth procurement process and to reduce corruption, reputational and other risks. Most of the audited entities did not assess the risks related to public procurement, even though risk assessment is one of the most important elements of internal control. In addition, non-compliance with the requirements set out in the legal acts and internal procedures was found in 72% of the procurement activities of the audited entities, indicating weaknesses in the functioning of the internal control system," says Paulius Bakaitis, Audit Team leader.

The audit results show that the risk assessment process is regulated in 78% of the audited entities. 66% of the audited entities did not carry out an assessment of procurement risks in Q3 2020-2022. Accordingly, a sufficiently effective internal control system is not created, in line with the needs of the entities, to manage the identified procurement risks, ensuring compliance with the basic principles of procurement and the achievement of the objective of procurement - to procure what the organisation needs through the rational use of the allocated appropriations.

To collect audit evidence, budgetary entities were selected from the management areas of the ministries with the largest number of procurement contracts in 2020 and 2021: the management area of the Ministry of Culture (3,800 procurement contracts in 2020) and the Ministry of Social Security and Labour (1,900 contracts in 2021).

The implementation of the National Audit Office's recommendations will improve the methodological guidance to the institutions, helping them to establish an effective internal control system for public procurement that complies with the elements and principles of internal control as set out in the Law on Internal Control and Internal Audit, making the internal control of such procurement more effective and reducing non-compliance with the requirements of the legislation. Consolidation of resources through joint procurement will help to reduce the administrative burden on institutions while addressing the lack of expertise and resources.