Helping NGOs do more with their money

Procurement

Procurement is the purchase of works, assets, goods and services for the organisation.

Procurement is one of the most risky areas in NGO financial management, often abused by kick backs, paying too much for sub-standard goods, and buying from related parties.

This page covers the following areas:

Objectives of a procurement policy

A good procurement process ensures that:

Because of the high risks, some organisations fall into the trap of making the process so bureaucratic that programmes suffer and people are tempted to find shortcuts. Balancing speed and safety is key.

What are the different stages?

The steps to go through for a particular purchase depend very much on the type of purchase:

In developing a procurement policy, it is good to consider processes for these different options, because that enables any given purchase to have the right level of safety without too much bureaucracy.

The figure below describes a typical process for the purchase of a high value item on credit.

Who should be involved?

Ideally, key tasks in the procurement should be done by different people.  This ‘segregation of duties’ reduces the risk of fraud.  In smaller organisations, it may be necessary to compromise if there are not enough staff to fill all the roles.

Ethical procurement

Ethical procurement involves consideration of other factors apart from just cost and quality. For example, would you want to buy a good quality, cheap product that had been manufactured using child labour? Or timber that had been illegally logged, or taken from an unsustainable source? Would you prefer to buy local goods rather than imported ones? Thinking about the environment, you might need to consider transport distances, energy efficiency of electrical products, fuel efficiency and cleanness of vehicles etc

NGOs often form a significant part of the economy in developing countries and their purchasing decisions have a knock on impact, which may be negative if they perpetuate unsustainable, abusive, illegal, or polluting practices.

Creating an ethical procurement policy is important as it gives the tender committee a justification for selecting an option apart from the cheapest one, if that would be a more responsible and ethical choice.

 

What paperwork is required?

There is a lot of paperwork associated with procurement, which needs to be kept and properly filed so that it can be easily retrieved for audit purposes.

Standard documents (internally generated)

Source Documents (from suppliers)

Other documents needed for reference

 

Follow this link to see some examples of procurement documents.

 

External linksAn online initiative, Funds for NGOs works for the sustainability of NGOs by increasing their access to donors, resources and skills. This link takes you to their sample procurement policy.


Top Tips 16 – Stages of procurement.

 

The internal controls page in the Guide includes some principles that are useful when developing a procurement policy.