Development of efficient and optimal purchasing procedures should be a priority in each and every company. When properly developed, they help build competitive edge in the market by conscious and rational purchasing. Shortcomings in the area of purchasing procedures may have an adverse impact on companies’ economic and financial results.
Key audit findings
In 15 out of 19 companies with State Treasury shareholding, purchasing procedures were properly developed, implemented and applied.
In the purchasing procedures of four companies some aspects were defined in too general terms, e.g.: justification of purchase, estimation of order value or criteria of supplier selection. According to NIK, the lack of precision in this respect posed a risk of arbitrariness of action.
Besides, NIK has found that four companies – Energa SA (an energy company), PGE SA (Polish Energy Group), Totalizator Sportowy sp. z o.o. (a sports sweepstakes company), Zespół Elektrowni Wodnych Niedzica SA (Hydroelectric Power Plant Complex) – did not apply purchasing procedures in some important areas: legal, financial, insurance services or airtime purchase. Although the companies were not legally bound to apply the procedures to purchases of this type, only 8% of one company’s purchases (Energa SA) was made in line with its purchasing procedures. The rest (over 90% of purchases) was made without applying those procedures.
In the audited period, three largest companies (in terms of capital) spent from PLN 183 million to more than PLN 248 million on purchases without using the purchasing procedures (which makes up 92% and 58% respectively):
- spending of Energa SA on marketing in 2016-2020 (1st half) made beyond purchasing procedures totalled PLN 183 million, i.e. 92% of the total spending. Energa SA spent a lot on marketing activity every year, yet it did not have any marketing strategy in place;
- in Totalizator Sportowy sp. z o.o. the total value of purchases made in 2016-2019 (1st half) beyond purchasing procedures totalled nearly PLN 244 million, which made up over 34 percent of the total amount earmarked for purchases (PLN 711 million). Especially high-value purchases were made in that way, as part of exercising the state monopoly for the organisation and operation of machine gambling outside gambling casinos;
- spending of PGE SA made beyond purchasing procedures in 2016-2020 (1st half) exceeded PLN 248 million, of which PLN 232.5 million was spent on sponsoring and advertising. It made up over 58% of total purchase spending.
As many as 429 of 442 audited purchase transactions were conducted properly.
Only in 13 out of 442 audited purchase transactions (worth nearly PLN 70 million) irregularities were identified which resulted in the companies’ real financial losses or could cause such problems in the future. In terms of numbers the transactions made up 2.9 %, whereas in terms of value it was 4.9%.
Economic and financial standing of audited companies varied a lot and changed significantly in different periods covered by the audit. Differences in financial results were particularly noticeable when comparing results achieved in 2019 with the first half of 2020. For 13 companies subsequent periods were related to dropping net financial results.
The COVID-19 pandemic had a significant impact on some companies’ economic and financial results produced in the first half of 2020. For instance, it caused a drop in demand for oil products. As a result, the revenue of Lotos Group in the first half of 2020 made up only 34% of the 2019 revenue. In case of Rabka Health Resort, since it had to stop its operations from March to June 2020, the company’s revenue in the first half of 2020 represented only about 30% of the revenue in 2019.
For some companies the pandemic provided an opportunity to boost their profits. The sale of hand sanitiser helped Polfa Tarchomin SA (a large pharmaceutical company) make net profit of over PLN 140 million in the first half of 2020, whereas the year before it was less than PLN 34 million.
In the audited period, 13 companies recorded worsening economic and financial results, whereas in three of them it was related to purchasing (to a different extent):
- PGE SA carried out two projects falling within the competence of the government administration. The company paid over PLN 758 thousand (gross) for making legal analyses of the tourism and hotel market. According to NIK, the company also undertook other financial commitments although there was a high risk that the target would not be met. The company paid over PLN 100 thousand (net) for making the report “Roadmap of the government’s activities in 2016-2020 in the area of electricity production”.
- One of the causes of financial difficulties on part of WPRD SA (Provincial Road Works Company) was ignoring competitive procedures when selecting providers to purchase asphalt and using trade credits for that purpose (which the company could not pay off on time). Those were some of the reasons why the company’s liabilities went up from over PLN 16.6 million in 2016 to PLN 26.4 million at the end of the first half of 2020. Also, the company recorded a net loss over PLN 3 million in the first half of 2020.
- the Management Board of Totalizator Sportowy sp. z o.o., purchased gaming terminals and the central system from a non-eligible provider. According to NIK that was why it incurred a property damage of at least PLN 9.8 million.
On 16 November 2020, NIK filed a report to the Regional Prosecutor’s Office concerning possible crime committed by the Management Board of Totalizator Sportowy sp. z o.o. The company ignored competitive procedures when selecting the provider of 300 gambling terminals including software and purchase of licence for the central terminal management system. Moreover, the company withdrew from claiming part of contractual penalties in case the provider failed to perform the contract properly or did not perform it at all. As a result, Totalizator Sportowy sp. z o.o. lost at least PLN 9.8 million.
Recommendations
NIK has written statements to the Management Boards of both companies with the following recommendations:
- the Management Board of Totalizator Sportowy sp. z o.o. should take measures ensuring specific verification of conditions under which – in line with the company’s internal regulations – tender procedures can be ignored in the purchasing process;
- Chemical Plant „Siarkopol” Tarnobrzeg sp. z o.o. should precisely define orders in requests for proposal.
