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Formal governance procedures not being followed

You are a non-executive director of a public sector body, and a member of the organisation’s finance committee.

The committee is currently discussing the tender process for the procurement of substantial capital improvements to the staff catering facility. The director of finance has suggested that the normal tender route be waived in this instance and the project awarded on a single tender basis. This is because the organisation has recently tendered for the construction of a new boiler facility on the organisation’s main site. As the catering facility is in close proximity to this existing capital project, the finance committee has agreed that there are practical benefits in awarding the work to the same contractor, who has a good history of completing capital projects for the organisation.

If the tender process is waived, it will mean that the improvements to the catering facility can be commenced as soon as the boiler project ends. It is likely this could result in cost savings to the catering project, because the contractor’s equipment will not have to be removed and the required workers can remain on site. The director of finance has also suggested that it is possible to benchmark costs to ensure that the agreed contract price is in line with current market prices. Initial discussions have already taken place with the contractor, who has explained that substantial cost savings would be achieved if this project was awarded to them straight after the boiler project. They have also provisionally agreed to undertake the works. There are existing standing orders and standing financial instructions which require a formal tender process to be fulfilled for projects of this size. You are concerned that the organisation is openly ignoring the governance arrangements that are in place without providing a robust basis for doing so, and you believe that the director of finance should not recommend these proposals to the advisory board.

Key fundamental principles

Integrity: Whatever action you decide to take, are you able to demonstrate that you are being fair and honest towards all parties concerned?

Objectivity: Can you demonstrate objectivity in your actions? Does the potential breach of the organisation’s governance documents require you to refer the matter to a higher level? You should not allow your objectivity to be threatened by close relationships with other members of the finance committee. Neither should you allow yourself to feel intimidated by advisory board members or other interested parties.

Professional competence and due care: This is a sensitive matter so it is important that any action you take is careful and considered. Do you have the knowledge and experience to decide on a course of action, or do you need to take advice?

Professional behaviour: You should endeavour to ensure that the organisation acts in accordance with relevant regulations, and that you act in compliance with your obligations and responsibilities as a non-executive director.

Considerations

Identify relevant facts:

Is there an established procedure for overriding the tender process? As a non-executive director, you are required to hold a governance role which involves taking an overview of the operation of the organisation. In this instance, you have been made aware of the issues and need to determine the appropriate action to take.

Identify affected parties:

The affected parties are you, the other members of the finance committee and the other advisory board members who have specific responsibility for the governance arrangements, including the CEO and the director of finance. You should also consider the contractor, who may or may not have been promised the work without following the tender process, and other parties who might not be given the opportunity to tender.

Who should be involved in the resolution:

You should ensure that both the finance committee and the advisory board are involved in the decision. The internal auditor may also need to be made aware.

Possible course of action

As a non-executive director, it is your responsibility to raise your concerns at the committee meeting so that the other members are fully aware of your views on this matter. If the committee does not consider your view, you should ensure that, when the matter is referred to the advisory board for decision, you make your advisory board colleagues aware of your concerns. This may include highlighting the failure to comply with the organisation’s governance arrangements and the potential risks faced by the organisation if it pursues this proposed course of action.

However, before voicing your concerns, you should exercise due care in obtaining sufficient information to be able to meet your responsibilities as a non-executive director. You should establish, by making enquiries, whether any procedures exist for situations where it is proposed to waive the formal tender process.

At all times, you should remember your obligations and responsibilities as a non-executive director. You are required to act in the best interests of stakeholders. This often demands the exercise of professional judgement. Whilst you need to safeguard the principle of objectivity, you should also be aware that insisting on following established internal procedures may sometimes impede the operations of the organisation.

If, having gathered the necessary information, you have determined it necessary to disclose your concerns to the finance committee and then the advisory board, and if you believe that the advisory board will not give due consideration to your concerns, you could raise them with the internal auditor.

You should consider taking legal advice. In addition, as a non-executive director who is also a professional accountant, you could discuss the dilemma with your own professional body. You should document any discussions you have and the bases for the decisions you make.