NAO Says Government Produces Dodgy Data on Prompt Payments

The National Audit Office issued a report titled “Paying Government Suppliers On Time” last week. It was unusual in its very overt criticism of government departments, including the Cabinet Office. Indeed, it is hard to recall a report that comes so close to accusing departments of explicitly lying in terms of the data they produce and present to the public. The topic is in the main around prompt payment of invoices, something close to the heart of many procurement professionals, as well as being a key issue for many suppliers to the public sector.

To summarise – in March 2010 (under the Labour government, we should note), the government announced that departments would aim to pay 80% of undisputed invoices within 5 working days, and since then, the government has claimed success in meeting that target. However, this report suggests that there was no business case for this policy in the first place, the benefits are dubious to say the least, there has been no evaluation of the success or otherwise of the policy, there is no guidance to departments, and departments are basically lying in the figures they produce to report on their performance.

All pretty shocking really.

The story starts with the lack of any business case for this. “Government has not been able to provide us with its estimates of the costs and benefits of the prompt payment commitment. The commitment should lead to fewer business failures and reduce suppliers’ costs, but BIS and the Cabinet Office were unable to locate the official papers setting out the policy’s original objectives and its estimated costs and benefits.”

“Unable to locate the official papers “– that’s a new one on me, I admit! Then we have the issues around the apparent “success” of departments in meeting the target. Claims seem to be based on volume not value, and on just a few large suppliers where electronic payment mechanisms are in place.

In calculating performance, departments measure the volume rather than the value of invoices paid. Individual orders for low-value but high-volume items, such as train tickets and purchases made using a government procurement card, are each counted as a separate invoice; these goods and services are mainly provided by a small number of suppliers who invoice electronically.”

So every line on your Purchasing Card statement counts as an “invoice” by the sound of it. When the NAO looked into matters in more detail, it found that departments analysed also did not record when they received invoices! So how on earth can you claim to be paying promptly? “The 4 departments we looked at do not record the date they first receive paper invoices.”

And there are further fiddles in terms of hitting the target. “There is also inconsistency about when departments ‘start the clock’ for the 5-day period: some departments count only the days taken to pay once all approval processes are completed.”

The four departments analysed in detail by the watchdog were found to be taking “much longer” than five days to pay most of their suppliers. Four out of every five businesses directly supplying the Home Office, the Ministry of Defence, the Department for Business, Innovation & Skills and the Cabinet Office and using paper invoices are having to wait between 21 and 49 days for their bills to be settled.

NAO also points out that prompt payment may not be offering the taxpayer good value for money. Getting cash into the pockets of Capita, HP or Microsoft is hardly what was intended by this policy. “In the absence of evidence that SMEs are benefiting from prompt payment by departments, we believe there is a risk that prompt payment mainly boosts the working capital of larger companies.”

In addition, none of the four departments monitor their suppliers contractual requirements to pay their subcontractors within 30 days. That is very poor; I am particularly surprised that MOD, who have a large and generally professional commercial function, don't do this. In addition, only 20 of the 44 strategic suppliers to government have signed the prompt payment code, which requires them to pay sub-contractors promptly.

More on this shocking report in part 2 early next week ...

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