4. Managing risks and supporting accountability through the public procurement cycle in Kazakhstan

This chapter covers issues related to integrity in public procurement. It analyses the existing risk-based internal control procedures in place, and finds that while corruption risk assessments take place, the process could be integrated more effectively into everyday activities. Assessing the application of integrity standards to the procurement profession, this chapter finds that Kazakhstan could develop tailored integrity standards and training for the procurement workforce. Recognising the role of participation by external stakeholders to increase transparency and integrity, this chapter also finds that Kazakhstan could build on existing social control projects to institute a social witness programme. Kazakhstan has taken strides to broaden its complaints management system, and should now focus on ensuring it is efficient and effective.

    

4.1. Introduction

Addressing corruption is a national priority, with the Government of the Republic of Kazakhstan instituting a series of reforms and developing a number of tools over the past few years to facilitate change. Recently, a number of high-level officials have been prosecuted for corruption offences, showing a willingness by the state to bring to account corrupt actors (OECD, 2017[1]). General society is slowly becoming more willing to participate in the fight against corruption, and the relationship between government and civil society organisations is improving (Shibutov et al., 2018[2]). Taken together, these events demonstrate that the once taken-for-granted acceptance of corruption is under threat.

Nevertheless, challenges remain. While the Agency for Civil Service Affairs and Anti-Corruption has instituted a progressive corruption prevention policy, internal opposition to their efforts exist (Shibutov et al., 2018[2]). Perceptions of corruption in society, while changing, are still high. Indeed, on a scale of 0-100 (0 being “highly corrupt”, 100 being “very clean”), Kazakhstan scored 31 in the 2017 Corruption Perceptions Index (in comparison, Kazakhstan scored 29 in 2016, 28 in 2015). Amongst the business community exclusively, corruption is identified as the second most problematic factor for doing business (see Figure ‎4.1).

Figure ‎4.1. Most problematic factors for doing business

Note: From the list of factors, respondents to the World Economic Forum's Executive Opinion Survey were asked to select the five most problematic factors for doing business in their country and to rank them between 1 (most problematic) and 5. The score corresponds to the responses weighted according to their rankings.

Source: World Economic Forum, Global Competiveness Index 2017-2018, http://reports.weforum.org/global-competitiveness-index-2017-2018/countryeconomy-profiles/#economy=KAZ.

The procurement sector is particularly at risk, with the large share of public resources and the close interaction between public officials and the private sector. Indeed, public procurement is particularly vulnerable to mismanagement, fraud and corruption, which can occur across all phases of the public procurement cycle. Figure ‎4.2 details perceptions of how common undocumented payments or bribes are given, with a focus on five activities: (a) imports and exports; (b) public utilities; (c) annual tax payments; (d) awarding of public contracts and licences; and (e) obtaining favourable judicial decisions. With an average score of 1 corresponding to “very common” and 7 corresponding to “never occurs”, Kazakhstan’s average score of 3.8 places it well below the OECD average of 5.4. Moreover, it highlights that undocumented payments and bribes continue to be an issue across key sectors, including procurement.

Figure ‎4.2. Perceptions of irregular payments and bribes across key sectors

Note: Average score across the five components of the following Executive Opinion Survey question: In your country, how common is it for firms to make undocumented extra payments or bribes connected with (a) imports and exports; (b) public utilities; (c) annual tax payments; (d) awarding of public contracts and licenses; (e) obtaining favourable judicial decisions? In each case, the answer ranges from 1 [very common] to 7 [never occurs]

Source: World Economic Forum, Global Competiveness Index 2017-2018 http://reports.weforum.org/global-competitiveness-index-2017-2018/competitiveness-rankings/#series=BRIBEIDX

Recent, high-level corruption scandals related to the public procurement process have raised government and public attention to corruption issues, and the Government of Kazakhstan is seeking support to address these issues. This chapter identifies a number of areas where the existing integrity strategy for procurement can improve. It does so by addressing: a) the need for a coherent and comprehensive integrity system in procurement, b) the role of risk-based internal control functions, c) the necessity of enhancing civil society’s role in overseeing the procurement process, and d) the need for effective complaints and sanctions. The OECD Recommendation on Public Procurement, particularly principle III), and the OECD Recommendation on Public Integrity provide the framework for analysis.

4.2. Developing a coherent and comprehensive integrity system

4.2.1. Elaborate a procurement-specific integrity strategy

Building a culture of integrity in public procurement requires going beyond reacting to specific cases of corruption, fraud and misuse. To do so, strategic and operational integrity planning is required. An integrity strategy is an essential component of a robust integrity system, and commits the government to feasible, concrete integrity outcomes. Underpinned by a risk-based approach, an integrity strategy sets the strategic objectives and priorities for the public integrity system. In particular, an integrity strategy identifies the key factors, including human and financial resources, and the core focus areas, to cultivate a culture of integrity.

When used effectively, a strategic approach to integrity can support the government in cultivating a cultural change. This is because applying a strategic approach requires policy makers to think about the integrity challenges that exist across the government, and identify the outcomes needed to effect real change. From here, policy makers can work backwards, identifying the outputs, concrete activities and objectives to help achieve the outcomes (OECD, 2019[3]).Furthermore, a strategic approach helps countries to develop benchmarks and indicators that support data gathering to assess the level of implementation, performance and overall effectiveness of the integrity system. A strategic approach also serves as a valuable coordination mechanism, as it can be used to assign clear responsibilities to the relevant entities to achieve the identified goals and objectives.

While broad, government-wide integrity strategies help set the objectives for the corruption prevention system as a whole, such approaches do not take into account the specificities of corruption risks in different sectors. A thorough understanding of how a given sector works, its processes and actors, is often required to design effective measures. Sector specific integrity strategies can help policy makers address integrity challenges in core areas, such as procurement. Taking a sector-specific approach also enables policy makers to engage the relevant procurement entities, building on their knowledge and experience to capture the relevant risks to integrity. Moreover, by engaging relevant stakeholders in the development of an integrity strategy for procurement, policy makers can build ownership of the strategy as well as build strategic understanding of the strategy’s intended goals (OECD, 2019[3]).

Kazakhstan’s Strategic Plan for the Development of the Republic of Kazakhstan until 2025 includes using preventative measures to both reduce demand and supply of corruption actions (Government of the Republic of Kazakhstan, 2018[4]). In particular, the Strategic Plan prioritises system-level and preventive measures to address corruption, notably by using tailored measures to address corruption in high-risk areas. The Strategic Plan is premised on the understanding that simplifying, digitalising and reducing contact between public officials and citizens (including business), as well as improving transparency of government services, will help reduce corruption (Shibutov et al., 2018[2]). The Anti-Corruption Strategy of the Republic of Kazakhstan for 2015-2025 sets out the six main activities for addressing corruption. These include:

1. 1. Preventing corruption in the civil service

2. 2. Implementing an institution of public control

3. 3. Preventing corruption in the quasi-state and private sectors

4. 4. Preventing corruption in court and law enforcement bodies

5. 5. Creating an acceptable level of anti-corruption culture

6. 6. Developing international cooperation in corruption prevention issues (Government of the Republic of Kazakhstan, 2015[5]).

At the regional level, Akimats develop their own anti-corruption strategies, based on the 2015-2025 Anti-Corruption Strategy. In addition, the Law on Combatting Corruption, which sets out provisions for managing conflict of interest and assets, implementing the Code of Ethics, applying risk management and control activities (amongst others), guides the integrity actions of the government. The law sets out the parameters by which actions are taken to prevent corruption in public entities, quasi-state bodies and SOEs across Kazakhstan. The Law also introduces instruments to assess the implementation of the anti-corruption policy, including annual corruption prevention reports. The Strategic Plan, central and regional Anti-Corruption Strategies and Law on Combatting Corruption inform the integrity and anti-corruption activities of the Government; however, the government has not detailed a specific integrity strategy for the public procurement sector.

As discussed in Chapter 1, the procurement system in Kazakhstan is decentralised, with different government agencies, quasi-state bodies and SOEs responsible for specific procurement projects. Across these various actors, some have implemented plans specific to integrity in procurement (for example, the Ministry of Health) but it is not clear the extent to which these efforts are widespread or coordinated. There are several coordinating bodies with different responsibilities, and these include the Internal Audit Committee and the Department of Public Procurement Legislation (both within the Ministry of Finance), and the Ministry of National Economy. In terms of integrity and anti-corruption policy, the Agency for Civil Service Affairs and National Bureau on Combatting Corruption (herein the “Agency”) is the institution responsible for corruption prevention and prosecution. One of the key tasks of the Agency is to co-develop ministry-specific plans based on key corruption risks (called “external risk assessments”) and oversee their implementation. This makes the Agency well placed to lead the development of a procurement-specific integrity strategy.

A Memorandum on Cooperation in the field of combatting corruption was signed between the Ministry of Finance and the Agency. In the context of this cooperation agreement and together with procurement experts from the Ministry of Finance, the Ministry of National Economy, as well as the National Chamber of Entrepreneurs (herein “the NCE”), the Agency could elaborate a procurement-specific integrity strategy. This strategy could lay out how the Government of the Republic of Kazakhstan will prevent corruption in public procurement, and could assign objectives around themes related to transparency, corruption risk management and awareness raising and capacity building. The objectives in the strategy should be linked to the appropriate budget, identify realistic goals, and make clear the required inputs to fulfil the goals. Box ‎4.1 includes an example of the anti-corruption strategy of Austria’s Federal Procurement Agency. A procurement-specific integrity strategy could also be developed at the regional level of each Akimat, and linked to the national one.

Box ‎4.1. The Anti-Corruption Strategy of the Austrian Federal Procurement Agency

Integrity is at the heart of the Anti-Corruption Strategy developed by the Austrian Federal Procurement Agency (BBG), and embodied by the following actions :

• Set precise organisational procedures (clear definition of roles and structures)

• Integrate anti-corruption measures in the workday life

• Constantly reassess and improve the strategy

• Constantly raise awareness of staff

• Sharpen the focus on the consequences of corruption

The Strategy contains an explicit regulation of the main values and strategies regarding prevention of corruption, clear definition of grey areas (e.g. the difference between customer care and corruption), clear rules on accepting gifts, as well as rules on additional employment. The Strategy also offers the employees a clear view on emergency management.

Source: (BBG, 2016[6]).

In developing the procurement integrity strategy, the Agency and other entities could draw on the findings of the external risk assessment studies, as they provide useful, sector specific recommendations to government entities. The Government of the RK could consider including in the Law on Combatting Corruption that the findings of these studies inform the updates of the entity-specific integrity policy. The Agency could also consider aggregating the findings from all the ministries to inform a government-wide integrity and anti-corruption strategy. Box ‎4.2 presents the new anti-corruption strategy of the UK, which includes a sectoral perspective and concrete goals and actions.

Box ‎4.2. United Kingdom (UK) anti-corruption strategy 2017-2022

At the 2016 Anti-Corruption Summit in London, the UK government pledged to develop a cross-government anti-corruption strategy that laid out a long-term vision of how to tackle corruption, and how the government would implement the commitments made during the Summit. The UK anti-corruption strategy was published in December 2017 and aims to provide a long-term framework to steer the government’s actions in preventing corruption. The strategy contains six priorities for Parliament which are as follows:

1. 1. Reduce the insider threat in high-risk domestic sectors, such as borders and ports

2. 2. Strengthen the integrity of the UK as an international financial centre

3. 3. Promote integrity across the public and private sectors

4. 4. Reduce corruption in public procurement and grants

5. 5. Improving the business environment globally

6. 6. Working with other countries to combat corruption

The strategy is guided by four approaches: Protect against corruption, by building open and resilient organisations across the public and private sectors; Prevent people from engaging in corruption, including strengthening professional integrity; Pursue and punish the corrupt, strengthening the ability of law enforcement, criminal justice and oversight bodies to investigate, prosecute and sanction wrongdoers, and; Reduce the impact of corruption where it takes place, including redress from injustice caused by corruption.

The strategy was developed as a cross-government initiative with a whole-of-society approach, aiming to coordinate government anti-corruption efforts with civil society, the private sector, and law enforcement. To achieve this, the strategy outlines how the government Anti-Corruption Champion will play an active role in engaging stakeholders, and increase coordination with domestic partners modelled on the success of the Joint Money Laundering Intelligence Taskforce and the Joint Fraud Taskforce. The strategy also notes that cooperation will be facilitated with civil society and the private sector by undertaking regular, problem-oriented policy dialogue through both informal and formal means.

Source: HM Government (2017), United Kingdom anti-corruption strategy 2017-2022, https://www.gov.uk/government/publications/uk-anti-corruption-strategy-2017-to-2022.

Given the decentralised nature of procurement in Kazakhstan, all ministries, agencies, quasi-state bodies and SOEs could also consider devising entity-specific procurement integrity plans, and link to the government-wide procurement integrity plan. This process will help entities operationalise the objectives set out in the procurement integrity plan, and identify how they can achieve these objectives in their own day-to-day functions. To facilitate this strategic and operational planning at organisational levels, the Agency and the Ministry of Finance could support these entities in developing their own procurement integrity plans through planning workshops. With such support, these entities would be able to reap the synergies between their specific knowledge on the reality of their day-to-day procurement procedures and the integrity and anti-corruption standards of the government. The Agency and the Ministry of Finance could validate the integrity objectives and activities of this planning at entity-level.

4.2.2. Leverage the position of the Ethics Commissioner to coordinate the procurement-specific integrity strategy across ministries

Mainstreaming integrity throughout the government requires establishing clear integrity responsibilities at all levels. While every public official is required to uphold integrity standards, dedicating specific responsibilities for integrity management to a unit or individual(s) ensures coherent and consistent integrity policies across the government. Dedicated integrity actors serve as a contact point for public officials, offering advice and guidance on ad hoc integrity challenges that may arise. Moreover, integrity actors can monitor progress and implementation of the integrity system, feeding into information about the continued relevance of the integrity strategy and identifying areas where gaps may exist.

The Regulation on Ethics Commissioners assigns the role of dedicated integrity actors to Ethics Commissioners. This Regulation outlines the functions of the Ethics Commissioner, which include providing integrity advice and guidance to public officials; conducting training and awareness raising to inform an integrity culture; and reviewing situations where an ethical breach occurred and providing recommendations to management on future prevention. According to the Code of Ethics, at the central level, a public official who holds a managerial position and is recognised and respected by the team should hold the position. At the central level within each ministry, the position is autonomous and the Ethics Commissioner is responsible for coordinating the Ethics Commissioners at the subnational levels. Within the regions however, the Ethics Commissioner role is assigned to a public official in addition to their other tasks.

While vertical mechanisms for coordination between the central and subnational levels exist, it is not clear how Ethics Commissioners coordinate integrity policy horizontally across the ministries. As procurement functions are decentralised in Kazakhstan, the structure for the Ethics Commissioner could ensure coordination of the integrity strategy across the various procurement entities in Kazakhstan. Ethics Commissioners should be part of the committee responsible for creating a procurement-specific integrity strategy, given their expertise on the integrity challenges facing their ministries. The Agency could also consider establishing regular meetings where Ethics Commissioners could meet with each other to exchange good practices and lessons learned. These meetings could include dedicated discussions related to integrity in public procurement, as well as other integrity topics. Box ‎4.3 provides an overview of the coordination functions that Integrity Officers play in the Austrian federal government.

Box ‎4.3. Integrity Officers in Austria’s Federal Government

In Austria, the Federal Bureau to prevent and fight corruption (Bundesamt zur Korruptionsprävention und Korruptionsbekämpfung, BAK) created the Austrian Integrity Network (Integritätsbeauftragten-Netzwerk) with the purpose to strengthen integrity by firmly anchoring integrity as a fundamental element in public sector.

To this end, the BAK trains civil servants to become experts in the field of integrity and corruption prevention within the framework of the Integrity Network. These integrity officers provide advice and guidance in their entities to strengthen integrity within specific entities. The integrity officers can access further information on compliance, corruption, ethics, integrity and organisational culture. In addition to the Internet platform, the BAK also offers regular follow-up meetings for integrity officers on specific topics such as risk management and ethics and values.

Source: (IBN, n.d.[7]).

4.2.3. Revise and simplify the existing Code of Ethics and adapt the Code of Ethics for public procurement officials to guide their behaviour

A code of ethics provides guidance to public officials regarding the shared values of the organisation, and identifies the forms of behaviour that uphold these values. In contexts where integrity requirements are contained in different legislation and policy documents, a code of ethics can be especially helpful in clarifying the roles and responsibilities of public officials. In 2015, following a consultative process with both public officials and citizens, the Government introduced the Code of Ethics for Public Servants of the Republic of Kazakhstan, which applies to all civil servants (OECD, 2017[8]). The Code establishes the basic requirements for the moral and ethical image of public officials, and lays out the basic standards of behaviour. In total, there are thirty-eight standards of behaviour mentioned, many of which overlap. Written in a legalistic language, the Code of Ethics runs the risk of being difficult to read and understand.

A code of ethics aims to influence behaviour, and when written in a legalistic language, it can impede the desired impact on behavioural change, as it turns the focus towards compliance (OECD, 2018[9]). Legalistic language, coupled with a lengthy document, can make it difficult for employees to understand the content, thereby diminishing its impact on behaviour. A simple, easy to understand code of ethics is more effective, as it allows public officials to call to mind the required behaviour and appropriate standards they must uphold. In fact, evidence has found that individuals are only able to recall, on average, seven items, plus or minus two (Miller, 1955[10]). Good practice amongst OECD countries shows that some are taking steps to revise their codes of ethics in line with this principle, in order to support public officials in aligning their conduct with the expected behaviour of the public service (see Box ‎4.4 for the case of Australia and Denmark). Such an approach can also help move the organisation from a compliance-centred approach to one that is principles-based. Moreover, to ensure applicability to a public official’s daily routine, an ethics code is ideally created through a participative process incorporating feedback from those officials that are concerned (OECD, 2018[11]). Together with relevant employees, the Agency could consider revising the Code of Ethics by refining the number of provisions, and categorising the principles around clear, easy-to-understand values. The guidance contained in Box ‎4.5 could inform the process.

Box ‎4.4. Setting clear standards of conduct for public officials

The Australian Public Service (APS) Values

In 2010, the Advisory Group on the Reform of the Australian Government Administration released its report, which recognised the importance of a robust values framework to a high-performing, adaptive public service, and the importance of strategic, values-based leadership in driving performance. The APS values aim to provide a “small[er] set of core values that are meaningful, memorable, and effective in driving change.” The model follows the acronym “I CARE”:

• Impartial

• Committed to service

• Accountable

• Respectful

• Ethical

Syv central pligter – Seven key duties

The Danish Agency for Modernisation (MODST) under the Ministry of Finance issued the “Kodex VII” – a Code of Conduct for Danish civil servants. The Code defines seven central duties: Legality; Truthfulness; Professionalism; Development and co-operation; Responsibility and management; Openness about errors; and Party-political neutrality.

The “Kodex VII” describes the relevance and the implications of each duty for the Danish public sector. Moreover, MODST provides fictional case studies that can be used to practice the application of “Kodex VII”. Potential solutions for the case studies are available to public institutions, but are not published.

Sources: (Ministry of Finance, 2015[12]; Australian Public Service Commission, 2018[13]).

Box ‎4.5. Guidance for drafting Integrity Codes

The following guidelines (Maesschalck & Schram 2006) might increase the quality and relevance of a code that goes along with the following model: it consists of a limited number of core values that are each defined and then further specified in specific rules that might in turn be illustrated with examples:

• Clear: Make the text as clear and legible as possible. The code should be clear for all staff members who are expected to apply it.

• Simple: Make the text as simple as possible, but not too simple. Integrity is a complicated topic and one should not neglect that in a code. Yet, there is no reason to make things more complicated than necessary.

• Concrete: Avoid empty generalisations. Vague statements are not always avoidable, particularly in (values-based) “codes of ethics”. Nevertheless, it is important to try and make the values as concrete as possible, e.g. by specifying them in specific rules and guidelines or by illustrating them with concrete examples.

• Structured: Make sure that the code is constructed logically, centred on a number of core values that do not overlap. If the values are thus truly mutually exclusive, it will become easier to identify the tensions between them. These tensions are typical for ethical dilemmas and a code with clearly delineated values thus becomes a very useful tool for dealing with ethical dilemmas or teaching dilemma training sessions.

• Consistent: Use concepts in a parsimonious and consistent way. It is not a good idea to use different terms for the same concept within the same code (or in different documents within the same organisation). Likewise, avoid using the same term in different meanings. Decide on the term that is most appropriate and use it consistently throughout the different documents in the same meaning. This will strongly increase the chance that all staff members use the same language, thus allowing the code and related documents to become truly useful tools in training and daily conversation.

• Linked: Include sufficient cross-references in the code to other documents, guidelines and codes where staff members can find further details about specific themes (see the abovementioned idea of a code as a “portal” for all relevant integrity-related information).

• Relevant: The code should move beyond the obvious and particularly focus on those issues where guidance is needed. The chances for this will increase if the above-mentioned techniques are used in preparation of the code: risk analysis and dilemma analysis.

Source: OECD (2009); Maesschalck, J., & Schram, F. (2006). Meer dan een brochure of affiche: de deontologische code als kernelement van een effectief ambtelijk integriteitsbeleid. Burger, Bestuur En Beleid, 3(1), 49-61.

Given the particular risks related to procurement processes, some countries have specific codes tailored to procurement officials. Sector-specific ethics codes identify relevant and concrete examples from an organisation or sector’s specific business activities. These examples are useful for employees to relate to, in turn helping them to understand what their behaviour should look like when confronted with ethical dilemmas.

Previous studies have suggested that Kazakhstan develop a specific code for procurement officials (see for example (OECD, 2017[8])). The Agency, along with the Ministry of Finance, the Committee for Financial Control and Public Procurement, and the Central Procurement Committee, could consider developing a specific code of ethics for public procurement officials. Similar to the process for revising the general Code of Ethics, the standards of conduct should be defined through a participative process that results in meaningful and actionable standards for public procurement officials. In developing the code, the relevant counterparts could consider applying the guidance detailed in Box ‎4.5. An example of a specific code of conduct can be found in Box ‎4.6.

Box ‎4.6. Code of conduct for procurement in Canada

The Government of Canada is responsible for maintaining the confidence of the vendor community and the Canadian public in the procurement system, by conducting procurement in an accountable, ethical and transparent manner.

The Code of Conduct for Procurement will aid the Government in fulfilling its commitment to reform procurement, ensuring greater transparency, accountability, and the highest standards of ethical conduct. The Code consolidates the Government's existing legal, regulatory and policy requirements into a concise and transparent statement of the expectations the Government has of its employees and its suppliers.

The Code of Conduct for Procurement provides all those involved in the procurement process – public servants and vendors alike – with a clear statement of mutual expectations to ensure a common basic understanding among all participants in procurement.

The Code reflects the policy of the Government of Canada and is framed by the principles set out in the Financial Administration Act and the Federal Accountability Act. It consolidates the Federal Government's measures on conflict of interest, post-employment measures and anti-corruption as well as other legislative and policy requirements relating specifically to procurement. This Code is intended to summarise existing law by providing a single point of reference to key responsibilities and obligations for both public servants and vendors. In addition, it describes vendor complaints and procedural safeguards.

The Government expects that all those involved in the procurement process will abide by the provisions of this Code.

Source: (Government of Canada, n.d.[14]).

4.2.4. Expand the conflict of interest rules to address procurement-specific conflicts of interest

Ensuring that conflicts of interests do not compromise the integrity of the public procurement process is key to responsive and effective public purchasing. A conflict of interest arises when a public official’s private interests could improperly influence the performance of their official duties (OECD, 2004[15]). A conflict of interest can be actual, apparent and potential (see Box ‎4.7). Corruption occurs when a conflict of interest has affected duties (misconduct, abuse of office, etc.) A conflict of interest does not necessarily equal corruption, but is damaging to public trust and must be managed.

Box ‎4.7. Differentiating between actual, apparent and potential conflict of interest

An actual conflict of interest occurs when a public official has a private-capacity interest which could improperly influence the performance of their official duties or responsibilities.

An apparent conflict of interest exists when it appears that an official’s private interests could improperly influence the performance of their duties but this is not in fact the case. These should also be avoided or managed to minimise the risk to the public institution’s reputation (and officials’ reputation) for integrity.

A potential conflict of interest exists when a public official holds a private interest which would constitute a conflict of interest if the relevant circumstances were to change in the future.

Source: (OECD, 2004[15]).

In Kazakhstan, the Law on Combatting Corruption, the Law on Civil Service, and the Law on Public Procurement all contain measures related to managing conflict of interest. The Law on Combatting Corruption defines a conflict of interest as a contradiction between the personal interests of a public official and his official duties, where such interest may lead to the improper performance of his duties (article 5(1)). Within the Law on Civil Service, Article 51 contains the conflict-of-interest policy. Under both laws, the disclosure of conflicts of interest is mandatory. When a public official becomes aware of a conflict of interest, they are required to notify their immediate supervisor or manager in writing. The immediate supervisor or manager is then required to take timely action to prevent or resolve the conflict of interest. Policy options to manage conflicts of interest in both laws include transferring the duties of the public official with the conflict of interest to another public official, changing the duties of the public official with the conflict of interest, or taking other measures to eliminate the conflict of interest (OECD, 2017[8]).

However, neither law identifies the options of divestment or liquidation of the interest of the public official or resignation of the public official from their public office in the event that the conflict cannot be otherwise managed. Furthermore, neither of the laws makes the distinction between real, apparent and perceived conflict of interests. As noted in the OECD Integrity Scan of Kazakhstan, the Government of the RK could therefore consider broadening the options for management of those conflicts, such as divestment, liquidation or resignation. Box ‎4.8 details each of these options. As conflicts of interest are an inherent part of public life, broadening these options will enable public officials to manage and resolve conflicts of interest more effectively.

Box ‎4.8. Resolution and management options for conflict of interest situations

Options for positive resolution or management of a conflict of interest can include one or more of the following strategies, as appropriate:

• Removal (temporary or permanent): public officials should be required to remove the conflicting private interest if they wish to retain their public position. Options could include temporary removal for the duration of the public official’s tenure, for example through the assignment of the conflicting interest to a genuinely “blind trust” arrangement. More permanent removal options could include the divestment or liquidation of the interest by the public official.

• Recusal or restriction: where a particular conflict is not likely to recur frequently, it may be appropriate for the public official concerned to maintain their current position but not participate in decision-making on the affected matters, for example by having an affected decision made by an independent third party, or by abstaining from voting on decisions. Particular care must be taken to protect the integrity of the decision-making process where recusal is adopted. Likewise, an option to restrict access by the affected public official to particular information, by prohibiting them from receiving relevant documents and other information relating to their private interest, could be adopted.

• Transfer or re-arrangement: the option of transferring a public official to a different assignment or reassigning certain functions of the public official concerned should also be available, where a particular conflict is considered likely to continue, thereby making ad hoc recusal inappropriate.

• Resignation: where a serious conflict of interest cannot be resolved in any other way, the public official should be required to resign from either their conflicting private-capacity function or their official position. In the event of resignation of the public official from their public office, the conflict of interest policy (together with the relevant employment law and/or employment contract provisions) should provide the possibility that the official can be terminated in accordance with a defined procedure in such circumstances.

Source: (OECD, 2004[15]).

Similarly, the Law on Public Procurement contains conflict of interest provisions for suppliers under Article 6. Article 6 prevents suppliers who have close relations with Contracting Authorities (e.g. spouses, close family and relatives by affinity) from participating in specific tenders where their relative is the Contracting Authority or part of the tender commission. Inability to participate also applies to suppliers and their affiliates who provided consulting services, participated in the early stages of a project/tender preparation, or otherwise took part in drafting technical documentation. However, the provisions on conflict of interest do not cover affiliates of potential suppliers such as subsidiaries and joint ventures (unless they were involved in providing technical or economic justification for the tender). Kazakhstan should therefore consider expanding the conflict of interest provisions under Article 6 of the Law on Public Procurement to cover affiliates of potential suppliers.

Currently, public procurement officials manually check whether a member of the Tender Commission has a conflict of interest with any of the suppliers. The intention is to automate the checks to make the process more efficient. This practice is promising, and the Ministry of Finance is encouraged to carry forward with automating the process to ensure comprehensive checks on potential conflicts of interest for all tenders.

4.2.5. Develop procurement-specific integrity training and awareness raising to cultivate a behaviour change

Simply identifying the required behaviour in a code of conduct is not enough to guarantee ethical behaviour. Tailored trainings and guidance for public procurement officials on integrity, including on the code of conduct, conflict of interest, risk management and reporting, could be developed. While some ministries (both central and regional), quasi-state bodies and SOEs have ethics trainings, implementation is ad hoc, and the Ministry of Finance’s current procurement trainings do not include modules on integrity in procurement.

Currently, the Agency is developing an “Integrity Agreement” clause to include in the revised the Law “On Combatting Corruption”. This clause would require state bodies and those in the quasi-public sector to develop an integrity agreement that identifies the expected integrity behaviours, as well as the relevant sanctions in case of a breach. At-risk public officials, including procurement officials, will be required to sign these agreements. If adopted, the Agency will develop recommendations for state bodies and those in the quasi-public sector to standardise what should be included in the agreements.

Such measures can help raise awareness and cultivate commitment amongst public officials on their integrity responsibilities. To make the commitments meaningful, the Agency could consider developing training modules. Modules could cover the revised Code of Ethics, as well as the procurement-specific code of ethics, managing conflict of interest, and risk management roles and responsibilities (see section ‎4.3). The training should take place regularly and be tailored to the specific needs of the procurement workforce.

In particular, the modules could contain scenarios that include real conflict-of-interest situations, ethical dilemmas or case studies based on past cases of integrity breaches or corruption. The purpose of these scenarios is to describe in detail situations where the values of a public procurement official could be challenged, to better guide them in the event that they encounter such a situation.

In addition, the Agency could also support the Ministry of Finance and other entities with a procurement function in developing measures that regularly reactivate public officials’ commitment to ethical standards. For example, displaying posters that include the core public sector values within procurement offices can remind public officials of their commitments to integrity. Simple behavioural cues, like a mousepad with the word integrity on it can help serve as a moral reminder for public officials, and alter actions by establishing a link between previous discussions and trainings on integrity and a sense of moral commitment (OECD, 2018[11]).

4.2.6. Ensure robust requirements for internal controls, compliance measures and anti-corruption programmes for suppliers.

Suppliers are a critical actor in the public procurement system, where their integrity has a reverberating effect on the overall integrity system of the country. Suppliers that collude, offer bribes, provide fraudulent bids or invoices etc., reduce competiveness, create negative economic externalities, and undermine government legitimacy and trust in markets. Suppliers are also key partners in ensuring efficient public procurement and a functioning integrity system, and many firms are implementing corporate integrity reforms and reshaping the global integrity landscape (UNODC, 2013[16]). The public procurement system is a prime area within which the public sector can expect both higher levels of integrity from the private sector, as well as advance efforts to support integrity practices in companies. Such tools range from incentive regimes to mandating business integrity programmes. Indeed, a growing international practice is the requirement for the private sector to have a business integrity programme in place in order to qualify for eligibility in public contracting.

In Kazakhstan, all suppliers who submit a bid via the e-procurement system are required to sign a mandatory declaration, stating that they are not in breach of Article 6 of the Law on Public Procurement (e.g. the conflict of interest provision). In signing the declaration, they also give consent for the contract to be terminated in case of “revealing facts” (specified in clause 19 of article 43 of the Law), as well as the consequences for presenting false information. The declaration however does not include corruption-related offences, nor any provision against bid rigging or supplier collusion. The Ministry of Finance could consider introducing including anti-corruption and anti-competition provisions in the declaration.

The Agency for Civil Service Affairs recently approved the draft national standard entitled “The System of Methods to Combat Bribery: Requirements and Guidelines for Use”. This was developed by the Institute for Standardisation and Certification in Kazakhstan, and is aligned with the ISO 370001: 2016 Anti-Bribery Management Systems. According the Agency, the standards define the basic requirements for business ethics in the private sector. It is not clear whether or how the government intends to incorporate the standards into the existing procurement process, or how it intends to verify the quality of such programmes in companies.

Verification can be a useful tool to gain assurance on the existence and quality of a business integrity programme. Based on a set of pre-defined criteria, a verification process reviews the extent to which business integrity programmes meet the required standards set by the government. A verification process can either look at the suitability of the programme – that is, the extent to which it is designed to meet the desired outcomes, or the operating effectiveness of the programme over a specified period (Transparency International, 2012[17]). Benefits of a verification process include strengthening the programme by identifying areas for improvement, meeting future pre-qualification requirements, and enhancing the reputation of the company as one which is committed to high integrity standards (Transparency International, 2012[17]). The Agency for Civil Service Affairs could mandate that state bodies and other quasi-state bodies require verification of the existence and quality of a business ethics programme. The government should not carry out this verification; instead it should be done by an independent, reputable independent third-party reviewer. The government may wish to set guidelines on the components of an effective verification.

The Ministry of Finance, together with the Agency for Civil Service Affairs and the National Chamber for Entrepreneurs (NCE), could also consider developing and carrying out integrity training programmes for suppliers. Modules could include:

• the Code of Ethics and the integrity tools in place for the procurement workforce and how they are implemented;

• identifying and mitigating integrity risks related to public procurement (such as corruption, fraud, collusion, etc.);

• how to identify, report and manage potential conflicts of interest that could undermine the integrity of the procurement process; and

• where and how to report wrongdoing, integrity breaches or mismanagement.

The aim of integrity training programmes is to ensure that suppliers understand the requirements of integrity surrounding the public procurement process in Kazakhstan. Moreover, they help to support capacity building amongst suppliers on preventing corruption within their own entities.

4.3. Integrating effective risk-based internal control in procurement activities

4.3.1. Using fraud and corruption risk management throughout the entire procurement cycle

The public procurement cycle is particularly prone to corruption risks, including bribery, undue influence, capture of public investment projects, and unresolved conflicts of interest (see Table ‎4.1 below). The Ministry of Finance sets the framework and the standards for the internal control and risk management system for the entire government. The Law “On State Audit and Financial Control” sets out the internal control system. In particular, Article 57 identifies the five components of Kazakhstan’s internal control system, including the control environment, risk assessment, control procedures, information and communication, and monitoring and evaluation of the effectiveness of the internal control system. The law applies to all internal audit and financial control units in public bodies and SOEs, with the exception of the National Bank of the Republic of Kazakhstan. The system is comprised of the Internal Audit Committee (KVGA, which sits within the Ministry of Finance) and internal audit services / units in each of the state entities and local executive bodies at the regional and city level. In addition, the Accounts Committee for Control over the Execution of the Republican Budget is the supreme body of state financial control (e.g. the Supreme Audit Institution).

Table ‎4.1. Corruption risks associated with the different phases of the public procurement cycle
	Phase	Corruption risks
Risks of the pre-tendering phase	Needs assessment	Lack of adequate needs assessment Influence of external actors on officials decision making Informal agreement on contract
	Planning and budgeting	Poor procurement planning Procurement not aligned with overall investment decision-making process Failure to budget realistically or deficiency in the budget
	Development of specifications/requirements	Technical specifications are tailored for a specific company Selection criteria are not objectively defined and are not established in advance Requests for unnecessary samples of goods and services that can influence purchase information on the project specifications
Risks of the tendering phase	Choice of procurement procedure	Lack of proper justification for the use of non-competitive procedures Abuse of non-competitive procedures on the basis of legal exceptions: contract splitting, abuse of extreme urgency, non-supported modifications
	Request for proposal/bid	Absence of public notice for the invitation to bid Evaluation and award criteria are not announced Procurement information is not disclosed and is not made public
	Bid submission	Lack of competition or cases of collusive bidding (cover bidding, bid suppression, bid rotation, market allocation)
	Bid evaluation	Conflict of interest and corruption in the evaluation process through: Familiarity with bidders overtime Personal interests such as gifts or future/additional employment No effective implementation of the ‘four eyes principle’
	Contract award	Vendors fail to disclose accurate cost or pricing data in their price proposals, resulting in an increased contract price (i.e. invoice mark-ups, channel stuffing) Conflict of interest and corruption in the approval process (i.e. no effective separation of financial, contractual and project authorities) Lack of access to records on the procedure
Risks of the post-award phase	Contract management/performance	Abuse of the supplier in performing the contract, in particular in relation to its quality, price and timing: Substantial change in contract conditions to allow more time and/or higher prices for the bidder Product substitution or substandard work or service not meeting contract specifications Theft of new assets before delivery to end-user or before being recorded Deficient supervision from public officials and/or collusion between contractors and supervising officials Subcontractors and partners chosen in a non-transparent way or not kept accountable
	Order and payment	Deficient separation of financial duties and/or lack of supervision of public officials, leading to: False accounting and cost misallocation or cost migration between contracts Late payment of invoices False or duplicate invoicing for goods and services not supplied, and for interim payment in advance entitlement
Source: (OECD, 2009[18])

Corruption risks throughout the procurement cycle are a considerable issue in Kazakhstan. Some measures are in place to identify the risks and provide recommendations for their management, most notably through an external corruption risk assessment. Mandated by the Law on Combatting Corruption, the external corruption risk assessment was carried out by an Expert Group consisting of the Agency for Civil Service, the Ministry of Finance, the Accounts Committee for Control over the Execution of the Republican Budget, the General Prosecutor’s Office, the NCE, and regional chambers of entrepreneurs. The external risk assessment reviewed the procurement processes vis-à-vis the provisions set out in the Law on Public Procurement and identified a number of areas where corruption risks emerged as a result of loopholes and unclear requirements in the procurement legislation. In particular, the assessment identified corruption risks related to development of specifications/requirements; choice of procurement procedure; bid evaluation and contract award, contract management and performance, and payment issues (Agency for Civil Service Affairs, n.d.). It is worth noting that following an external risk assessment, the head of a department or unit can initiate an internal corruption risk assessment, according to the Model Guidelines to perform an internal analysis of corruption risks (Government of the Republic of Kazakhstan, 2016[19]).

The Agency has also carried out a review of ‘high risk’ procurements, such as road and building construction contracts, and has reviewed contracts when tender prices are too high. For example, public officials noted that in the event that a price is 30-40 percent above the average tender price of the good or service, the Agency wrote to the Contracting Authority to clarify the issue. In most cases, the Contracting Authorities took steps to reduce the price. Following the review, the Agency published the report online, as required by the Law “On Combatting Corruption”. Signed by the President, the report included suggestions on potential improvements to the system. Recommendations included rotating procurement officials when they became too familiar with the suppliers.

While the government has taken steps to implement internal control and risk management functions for public procurement, more is needed to ensure these measures protect the integrity of the public procurement system. Currently, the external risk assessments are formal external reviews that take place upon decision of the President of the RK. Moreover, while some recommendations address these risks, the process is not consistent; the recommendations may be ignored; and the controls are not consistently assigned to any specific entity. Taken together, the features of the external risk assessment process prevent ownership over risk management by key stakeholders, such as contracting authorities and management within the Ministry of Finance and other procurement functions.

To close the gaps and build ownership for managing risks, the Ministry of Finance could implement a systemic, on-going and comprehensive risk management process that covers the entire procurement cycle. Numerous international standards exist for internal control and risk management, such as the International Standards Organisation's (ISO) 31000, Risk Management: Principles and Guidelines, which calls for a clear risk assessment process to be established (see Figure ‎4.3).

Figure ‎4.3. An international standard for risk management

Source: (ISO, 2009[20]).

The OECD supported the Tunisian procurement authority, HAICOP, in the development of a strategy on risk management in public procurement (Box ‎4.9). Indeed, one of the shortcomings of Tunisia’s public procurement framework was the lack of systematic risk management procedures and tools: procurement officers used to set up their own risk management actions, although they are not being formalised, communicated or documented.

Box ‎4.9. Risk Management Strategy in Public procurement in Tunisia

In Tunisia, public procurement represents more than 15% of GDP. The efforts made over the past few years regarding the public procurement system have brought considerable improvements. However, some areas still need to be improved, especially since public procurement is a high-risk area both in terms of integrity as well as in other aspects that may affect the well-functioning of the public procurement system and thus the provision of public services.

Therefore, the High Authority for Public Procurement (HAICOP) with the support of the OECD developed a strategy on risk management in public procurement that was launched in March 2019. This strategy aims at:

1. 1. Strengthening the principle of good governance in public procurement.

2. 2. Improving the efficiency and effectiveness of public procurement

3. 3. Formalising and standardising risk management methodology and tools across Tunisian public entities

4. 4. Optimising the public procurement control system by focusing on high-risk areas.

5. 5. Strengthening risk management capacities in public procurement in Tunisia

In terms of scope, this strategy foresees the implementation of a risk management approach at two levels:

1. 1. At the level of each procurement project or programme. The risk management exercise must be performed for the following contracts:

   • All negotiated contracts

   • Large-volume contracts whose volume represents at least 20% of the total purchases of each public entity.

2. 2. At the level of procedural steps and sub-processes throughout the public procurement cycle (tendering and contract performance)

The implementation of the strategy is supported by different tools including a risk management tool tailored to the strategy, a manual on risk management in public procurement and a testing with five pilots.

The intention of HAICOP is to integrate the risk management approach in the updated regulatory framework. The implementation of this strategy will be carried out in a phased approach to cover all contracting authorities from all levels of governments.

Source: (HAICOP & OECD, 2019[21]).

The Ministry of Finance could ensure that those who are in the frontline of preventing fraud and corruption (e.g. contracting authorities) as well as external entities (e.g. the NCE, the Accounts Committee, contractors and regulators) are involved in identifying possible risks. Interviews, surveys and focus groups are just one way of gathering input. The desk control process, which identifies the most common abnormalities, can also be used to inform the risk assessment process. In addition to corruption and fraud risks (see Table ‎4.1), the risk assessment process should also identify strategic and operational risks.

The Ministry of Finance could also ensure that the risk assessment process includes assessing the severity, likelihood and consequences of the risks. The process also involves assigning the appropriate response (or “treatment”) strategies, to either eliminate or minimise the potential impact and likelihood. This includes designing the appropriate control mechanisms to manage the identified risks. Clear responsibilities for managing the controls should also be assigned. The Ministry of Finance could also consider incorporating the identified risks and controls in a “risk register” that is accessible to the risk managers and capable of being updated throughout the year in order to respond to changing risks.

4.3.2. Provide guidance and tools for conducting risk assessments related to procurement

According to ISO 31000, risk management activities should be documented in order to help improve methods, tools, and overall processes (ISO, 2009[20]). In addition, OECD's Recommendation of the Council on Public Procurement calls for government entities to not only publicise risk management strategies, but also to raise awareness and knowledge about the integration of risk management into the procurement cycle (ISO, 2009[20]). It makes the following recommendations for achieving this:

• engaging in communication to strengthen trust between stakeholders and control activities

• organising awareness campaigns and events on the importance of integrating risk management activities into daily business practices

• providing training sessions and workshops to inform relevant public procurement entities about their risks and ways to handle the identified risks,

• circulating periodic messages using various media (e.g. newsletter, promotional posters, brochures, videos, handbook, etc.) to relevant stakeholders on the existing risk management strategies

• disseminating best practices of risk management case studies from leading organisations

• inviting public procurement entities to relevant conferences and seminars on risk management strategies.

To support implementation, the Ministry of Finance could develop training that communicates the value of risk management processes and ensures that public officials have the capacity to participate. Such training will help public officials to own control and risk arrangements in order to close the gap between nominal and actual implementation. Informed public procurement officials who can identify and manage risks across the whole procurement cycle are more likely to identify situations that can undermine institutional objectives. Box ‎4.10 details the guidance on building risk management capability in entities by the Australian government.

Box ‎4.10. Building Risk Management Capability in the Australian Government

The Australian Department of Finance developed guidance on building risk management capability in government entities, focused on the following areas:

People capability – A consistent and effective approach to risk management is a result of well skilled, trained and adequately resourced staff. All staff have a role to play in the management of risk. Therefore, it is important that staff at all levels of the entity have clearly articulated and well communicated roles and responsibilities, access to relevant and up-to-date risk information, and the opportunity to build competency. Considerations include:

• Are risk roles and responsibilities explicitly detailed in job descriptions?

• Have you determined the current risk management competency levels and completed a needs analysis to identify learning needs?

• Do induction programmes incorporate an introduction to risk management?

• Is there a learning and development programme that incorporates ongoing risk management training tailored to different roles and levels?

Risk systems and tools –The complexity of risk systems and tools often range from simple spreadsheets to complex risk management software. The availability of data for monitoring, risk registers, and reporting will assist in building risk capability. Considerations include:

• Are your current risk management tools and systems effective in storing the required data to make informed business decisions?

• How effective are your risk systems in providing timely and accurate information for communication to stakeholders?

Managing risk information – Successfully assessing, monitoring and treating risks across the entity depends on the quality, accuracy and availability of risk information. Considerations include:

• Have you identified the data sources that will provide the required information to have a complete view of risk across the entity?

• What is the frequency of collating risk information?

• Do you have readily available risk information accessible to all staff?

• How would you rate the integrity and accuracy of the available data?

Risk management processes – The effective documentation and communication of risk management processes will allow for clear, concise and frequent presentation of risk information to support decision making. Considerations include:

• Are your risk management processes well documented and available?

• Do your risk management processes align to your framework?

• Is there training available, tailored to different audiences, in the use of your risk processes?

Source: Adapted from the (Department of Finance, 2016[22]).

The Ministry of Finance could also consider developing a risk management guide that identifies the core responsibilities for identifying and managing risks, and provide practical guidance on key activities, such as conducting a risk assessment, developing treatment measures, and assigning responsibility for managing the risks. Additional tools, such as a risk heat map and guidance for assessing the likelihood and impact of risks, a risk register and a checklist of common corruption and fraud risks inherent to the public procurement process in Kazakhstan could be developed.

4.3.3. Expand the system of desk control to all phases of the procurement cycle

A system of “desk control” is in place at both the national and akimat levels. Carried out by public officials within the KVGA, desk control focuses specifically on preventing favouritism towards a potential brand or supplier. The purpose of the desk control process is to reduce the administrative burden of responding to problems after issuing the contract. The e-procurement system automatically proposes tenders to undergo desk control based on pre-determined criteria across different stages of the procurement process:

1. 1. At the stage of publication of tender bids, all tenders are the object of desk control.

2. 2. At the stage of establishing tender participants, KVGA monitors all procurements beyond a certain threshold (KZT 5 million or KZT 10 million). KVGA does not check the protocols for which all bidders participate. KVGA checks with increased attentions all tenders for which only one bidder participated (suspicion of collusion of CA with supplier).

3. 3. At the final award stage, KVGA uses a filter based on a threshold. For example, if there were more than two bid submissions, but only one is selected to take part in the procedure.

In particular, for public procurement, the KVGA conducts the desk control for each ministry and state body at the central level, while the regional KVGA offices carry out the same process akimats. According to public officials, detected violations are promptly rectified. In doing so, KVGA does not have to impose penalties’ on the tender commissions, and does not need to cancel the contract. Since 2016, public officials who make mistakes but correct them immediately are not administratively liable. The process of desk control has therefore reduced the number of violations that fall under administrative liability. In particular, 31.3 thousand violations were caught under the desk control procedure (out of a total of 496.5 thousand procedures) in 2017 and in the first quarter of 2018, 9.8 thousand violations (out of a total of 191.7 thousand procedures) were caught (Ministry of Finance, 2018[23]).

However, while the desk control system serves as a useful tool for detecting abnormalities in the procurement process, two issues exist. First, the exclusive focus on the bid evaluation process leaves the rest of the procurement cycle unassessed. To that end, the Ministry of Finance could expand the process across the whole procurement cycle.

Second, at the regional level, desk control poses an additional burden on the KVGA regional offices, due to insufficient staffing. Appropriate resources should be assigned to the “desk control” function, to ensure capacity to carry out the process. In doing so, the “desk control” process can become a robust tool for detecting and mitigating abnormalities and preserving the integrity of the entire procurement process.

4.4. Providing opportunities for direct involvement of relevant external stakeholders in the procurement system to increase transparency and integrity

4.4.1. Enhance the integrity of the entire procurement process by enabling independent oversight by civil society

Low levels of transparency and accountability in the public procurement system can compromise the effective use of public resources and funds. Participation – the vehicle by which civil society and citizens play an oversight and monitoring role in public procurement – helps to increase transparency in procurement activities. Given the integrity risks present in procurement operations, it is good practice for governments to involve representatives of civil society, academia or end-users in scrutinising the integrity of the procurement process. Direct social control mechanisms encourage their involvement as external observers of the entire procurement process or of key decision-making points (OECD, 2018[24]).

The Agency for Civil Service Affairs could develop an independent monitoring programme, whereby civil society organisations carry out an independent review of the procurement procedures for both goods and services. To qualify for the independent monitoring programme, civil society organisations could be required to complete trainings on monitoring an entire public procurement process. This training could be co-developed by the Ministry of Finance and the Agency for Civil Service Affairs, and administered by the Agency.

To ensure independence, the Agency for Civil Service Affairs should manage this programme, with other government entities, such as the Ministry of Finance, submitting a request to the Agency engage a CSO to carry out the independent monitoring. The CSOs could be recruited at the pre-tendering stage, and review the entire procurement process, submitting their report on the integrity of the procurement process. To institute the independent monitoring role, an article on the function of independent monitoring could be included in the Law on Public Procurement. The article could clearly indicate the additional time a monitoring process will take, and identify and assign the roles and responsibilities for managing the programme to the Agency for Civil Service Affairs. The article could also lay out the qualifications and requirements for recruiting civil society organisations, the contract threshold at which an independent monitoring programme is required (e.g. medium and high value procurements), the drafting and sharing of the independent monitoring report, and the requirement for the respective public entity to respond to the opinion. The article should also clearly indicate that the role of independent monitoring is to review the integrity of the procurement process in order to prevent corruption in public procurement.

4.5. Developing an effective complaint and sanction system, including for suppliers

4.5.1. Advance measures to enhance the complaints management system

Providing clear channels to inform authorities of potential irregularities or corruption, such as through webpage complaint mechanisms, can also enhance the integrity of the procurement process. In accordance with the Law on Public Procurement, a potential supplier has the right to complain against actions (or inactions), decisions by a client, a procuring entity, a single public procurement organisation, commissions, experts, a single public procurement operator, if their actions (inactions), decisions violate the rights and legitimate interests of the potential supplier. The Internal Audit Committee of the Ministry of Finance reviews the complaints. Each participant in public procurement has the right to appeal the decision of the tender (auction) commission. While suppliers have traditionally filed complaints through regular mail, from January 2018 onwards, a complaint module is available in the e-procurement system. This enables suppliers to submit complaints electronically directly through the state e-procurement system. Complaints submitted electronically accounted for 93% of all complaints during the first 6 months of 2018.With the online model, all complaints and decisions are public.

While tenderers can submit complaints at any time, complaints that are submitted 5 days after the tender award announcement suspend the process of concluding the contract until the complaint can be reviewed and a decision taken. The Internal Audit Committee has 10 days to take a decision after a complaint is filed. As a result, the competitive tender can be cancelled, or the complaint rejected. All complaints and decisions taken on them by the Internal Audit Committee are made publicly available on the state e-procurement system. There is an appropriate mechanism to appeal against decisions of the Committee (via common court system).

The steep increase in the number of complaints in recent years suggests that businesses and other stakeholders believe in the efficiency of the current system. According to the Ministry of Finance, around 50 percent of the complaints are upheld. Complaints increased more than fivefold in 2016 (up to 8 359), i.e. the year the Ministry launched the e-procurement system. The introduction of the electronic complaint module at the beginning of 2018 spurred another increase in the number of complaints from suppliers. Indeed, data from the state e-procurement system suggest that suppliers submitted 9 947 complaints during the first 6 months of 2018, i.e. almost two times more than for the whole year of 2017 (9 500). Auditors from Internal Audit find it increasingly challenging to review all complaints, particularly in the Committee’s regional branches. Two motives account for the bulk of complaints filed in the first 6 months of 2018: suppliers appealing the rejection of their applications (39%) and suppliers challenging the admission of competitors to participate in a tender (36%).

There is large consensus that ‘professional complainers’ submit a significant share of complaints, at least since the introduction of the electronic complaint module. Professional complainers are shell companies with no intention of winning and executing a specific public procurement. They submit complaints to prevent competitors from being awarded the contract. As information about suppliers is public, some ‘professional complainers’ use the complaint mechanism to blackmail other bidders, asking them for money to withdraw their complaint. This puts the procurement at a standstill, hindering the contract from being signed. Moreover, because of very stringent formal requirements, applications from many legitimate suppliers contain irregularities that can be a basis for cancelling the procurement process. This issue is very acute concerning construction works, which account for almost half of the complaints submitted in the first 6 months of 2018.

The Internal Audit Committee reviews a specific public procurement process based on a written or electronic complaint by a tenderer, a request by law enforcement agencies, or based on information from their risk management system. In case it discovers a violation, the Committee issues mandatory orders to the procuring entity to address it, or applies to court to revoke contracts that entered into force. If the contract is not signed, the procurement process is suspended. If the Committee detects elements of a criminal offence, it refers such information to the law enforcement authorities, including to the anticorruption bureau in case of corruption offenses. Otherwise, civil servants responsible for irregularities or violation of the public procurement legislation face administrative liability (administrative sanctions), most often fines.

The reform of public procurement (amendments adopted on 26th December 2018) requires suppliers to submit remarks to tender specifications during the preliminary discussion of technical specifications for them to be able to submit a complaint regarding tender specifications in the post award-phase. This new measure aims at preventing suppliers from submitting frivolous complaints. However, it is paramount that suppliers have an adequate time to identify excessive or biased provisions in technical specifications during the preliminary discussion stage, and submit the corresponding comments. Kazakhstan could extend the period for suppliers to submit comments and requests for clarifications to at least 10 days. Such an extension would be worth considering even without any limitation on complaints after contract award, in order to give more time for a meaningful preliminary discussion of technical specifications. Moreover, five days after the publication of procurement notices is too short to allow for an adequate analysis of technical specifications (and drafting of comment thereof), particularly regarding large and complex purchases such as construction works. Therefore, reshuffling the preliminary discussion of technical specifications is necessary to give more time to suppliers to comment on provisions in technical specifications. Otherwise, the measure makes the complaint system overly restrictive, putting an excessive constraint on suppliers’ access to appeals and challenge mechanisms. At the same time, it is important that this system is balanced and achieves the objectives it was designed for. The Ministry of Finance should consider introducing fees as an additional measure to discourage ‘professional complainers’ from submitting unsubstantiated complaints. As part of future changes to the law, the Ministry of Finance could consider introducing a proportionate fee (to be determined) that would be collected if a bidder would like to log a complaint. This measure is aligned with international best practices and presents an additional hurdle to spurious complaints, making the system more effective; however, it its impact on the complaint mechanism should be closely monitored over time, to avoid creating unnecessary burden or barriers to suppliers.

The Government is also considering setting up a second level of appeal for suppliers to challenge decisions from the Internal Audit Committee. While the Government envisions creating a specialised appeal body within the Ministry of Finance, it could consider the experience of the independent Procurement Ombudsman in Canada. The Ombudsman provides for an independent settlement mechanism of procurement disputes regarding federal government procurement (see Box ‎4.11).

Box ‎4.11. The Procurement Ombudsman in Canada

Canada established a procurement Ombudsman in 2008 to increase the effectiveness and transparency of business practices in relation to procurement. The overall objective of the Office of the Procurement Ombudsman is to promote fairness, openness and transparency in federal government procurement. Its mandate and role are as follows:

1. 1. Review departments’ practices for acquiring materials and services to assess their fairness, openness and transparency and make any appropriate recommendations.

2. 2. Review complaints respecting the administration of a contract for the acquisition of services by a department or agency, regardless of dollar value, and the acquisition of goods; above a certain threshold.

3. 3. Ensure an alternative dispute resolution process is provided, if all parties to the contract agree to participate.

The Office of the Procurement Ombudsman is a federally constituted independent organisation with a government-wide mandate: It operates horizontally in departments and agencies. Between May 2008 and March 2011, the Procurement Ombudsman handled more than 1 200 inquiries and complaints and conducted 6 investigations into contract award issues and conducted 12 procurement practice reviews which involved 26 different federal government departments and agencies.

Source: (OECD, 2016[25]).

As noted above, the KVGA can refer information related to potential corrupt activities to the National Bureau on Combatting Corruption. In addition, the website of the National Bureau provides guidance on where to report, how to report, and how the reports are handled.1 Three reporting channels are available in practice:

1. 1. in writing to a pre-specified address;

2. 2. through the e-government portal egov.kz; and

3. 3. through the Anti-Corruption Call Service number 1494.

In the event that the National Bureau receives a complaint related to procurement, they carry out an investigation. According to officials at the National Bureau, they are in the process of establishing an automated system to detect corruption risks.

The dedicated module of the state e-procurement system has made the complaint system more accessible to suppliers and brought adequate transparency to the handling of procurement complaints. Even though the state e-procurement system makes available some basic statistics about complaints, disclosure of more detailed aggregated complaint statistics in a machine-readable format is necessary to ensure an adequate level of transparency and to inform broader public procurement reforms.

The government should make sure that the staff in regional branches of the Internal Audit Committee is able to cope with the increasing number of complaints, and could consider increasing staff limits as necessary. It is worth noting that, according to the on Internal Audit Committee, the most common violations and irregularities in procurement procedures are technical specification requirements that artificially exclude some suppliers from the bidding process.

4.5.2. Include corruption-related offences in the List of Unreliable Suppliers

The integrity of the public procurement process requires ensuring that safeguards exist to protect public funds from firms or individuals who underperform, mismanage or abuse the public procurement process. A debarment regime or ‘black list’ can help enhance the integrity of the public procurement process, by ensuring that safeguards exist to protect public funds from firms or individuals who abuse the public procurement process. However, in the absence of clear, concise legal and policy guidance to debar a company or individual, debarment regimes act as a conduit to unfairly target firms or restrict access. An effective debarment regime therefore must be based on the rule of law, where it is clear what provisions will lead to debarment, what provisions allow for removal from the list, and how (if any) exceptions will be applied.

As mentioned previously, the Ministry of Finance runs a List of Unreliable Suppliers (“blacklist”). The blacklist includes firms that have either provided fraudulent information in public procurement applications; failed to sign the public contract upon award; or performed poorly on implementation of their contractual duties. Figure ‎4.4 details the relative frequency of reasons for inclusion on the blacklist. The blacklist prohibits companies and individuals from applying to any public procurement contract for a period of 24 months. A company or individual is placed on the blacklist following requests from Contracting Authorities or court decisions. A blacklisted company or individual can appeal the decision, with the courts cancelling debarment following a successful appeal.

Figure ‎4.4. The most frequent reason for blacklisting suppliers is evasion of contract conclusion (Frequency of reasons for inclusion on blacklist, by percentage)

Source: (Ministry of Finance of the Republic of Kazakhstan, 2018[26]).

Amendments adopted on 26th December 2018 introduced an expansion of the suppliers excluded from participating in public procurement. Currently, only suppliers on the List of Unreliable Suppliers under the Public procurement framework are prohibited from participating in public procurement. However, as of 1 January 2020, this prohibition extends to suppliers on the single Blacklist of national holdings and companies, as well as on the blacklist of the list of unreliable suppliers of Sovereign Wealth Fund Samruk-Kazyna (SK).

The Ministry of Finance does not include companies or individuals on the blacklist convicted of corrupt practices. The blacklist could be further enhanced to protect the integrity of the contracting process, with the Ministry of Finance including provisions to debar companies or individuals convicted of corrupt practices. The Ministry of Finance could also consider including a clause in the Law on Public Procurement that informs potential bidders of the debarment system and the offenses that could lead to debarment. In expanding the list of prohibited practices that can result in debarment, the Ministry of Finance should also develop guidance that clearly outlines what provisions lead to debarment, how debarment actions will be taken, the length of debarment, and the process for reinstatement. Box ‎4.12 details the debarment regime in Canada, which includes clear guidance to bidders and suppliers on debarment proceedings.

Box ‎4.12. The Government of Canada’s Integrity Regime

In 2015, Public Services and Procurement Canada introduced the Integrity Regime to ensure that the government only conducts business with ethical suppliers in Canada and abroad. Run by Public Services and Procurement Canada, the regime applies across government through agreements between Public Services and Procurement Canada and other federal departments and agencies.

The regime applies to (i) goods, services and construction contracts, subcontracts and real property agreements with a transaction value over USD 10 000; and (ii) contracts that are either issued by a federal department or agency listed in schedule I, I.1 or II of the Federal Administration Act or contain provisions of the Ineligibility and Suspension Policy.

Public Services and Procurement Canada determines whether a supplier is ineligible to do business with the government. Some offences lead to an automatic ineligibility, while others lead to a case-by-case review. Generally, it applies to procurement and real property transactions over $10,000.

Public Services and Procurement Canada clearly communicates and provides guidance on the three components of the regime to both public procurement officers and supplier. The three components are as follows:

• Ineligibility and Suspension Policy, which clearly establishes when and how a supplier may be declared ineligible or suspended from doing business with the government;

• Integrity directives, which provide formal instructions to the federal departments and agencies that follow the policy; and

• Integrity provisions, which consist of the clauses that incorporate the policy into solicitations and the resulting contracts and real property agreements.

The debarment regime consists of a number of offences that could render a supplier ineligible to do business with the government. To further support suppliers in understanding what will or may make them ineligible, the department has prepared a Guide to the Ineligibility and Suspension Policy.

Source: (Public Services and Procurement Canada, 2017[27]).

Proposals for action

While integrity reforms are ongoing in Kazakhstan, a number of tailored measures are required to protect the public procurement process from corruption, fraud and misuse. The following proposals for action summarise the key reform areas identified above:

• Building a culture of integrity in public procurement requires a clear, tailored integrity strategy and standards. Currently, a tailored integrity strategy for public procurement does not exist. As the Agency for Civil Service Affairs has the mandate to develop ministry-specific plans on anti-corruption, it is well placed to lead the development of a procurement-specific integrity strategy, in cooperation with procurement experts from across the government. All national and regional ministries, agencies, quasi-state bodies and SOEs could consider devising entity-specific procurement integrity plans, based on the government-wide procurement integrity plan. The Ethics Commissioner in each ministry could support coordination of the integrity strategy across the various procurement entities in Kazakhstan.

• In addition to a clear strategy, tailored integrity standards can clarify the expected behaviour and actions to take for public procurement officials. While a general Code of Ethics currently exists for the public service, the Agency for Civil Service Affairs could consider refining the number of provisions, and categorising the principles around clear, easy-to-understand values. This process could be accompanied by a specific exercise to develop a Code of Ethics for public procurement officials, which provides guidance for dealing with the procurement-specific integrity challenges officials will face. To ensure buy-in and support for the Code, the Ministry of Finance, with support from the Agency for Civil Service Affairs, could develop the code.

• While the Law on Public Procurement contains conflict of interest provisions for suppliers under Article 6, the provisions do not cover affiliates of potential suppliers such as subsidiaries and joint ventures (unless they were involved in providing technical or economic justification for the tender).. As these interests could also undermine the integrity of the procurement process, Article 6 could be expanded to cover affiliates of all potential suppliers, not just those involved in providing technical or economic justifications for the tender, including in what regards procurement of infrastructure or construction services. More broadly, the government could consider broadening the options for managing conflict of interest, and include options such as divestment, liquidation and resignation. The Ministry of Finance is also encouraged to carry forward with automating the process to ensure comprehensive checks on potential conflicts of interest for all tenders.

• Effective implementation of integrity standards requires tailored training and guidance for public officials. To make the commitments under the Integrity Agreements meaningful, the Agency could consider developing training modules. Modules could cover the revised Code of Ethics, as well as the procurement-specific code of ethics, managing conflict of interest, and risk management roles and responsibilities. The training should take place regularly and be tailored to the specific needs of the procurement workforce. The Agency could also support the Ministry of Finance and other entities with a procurement function to develop behavioural measures that regularly reactivate public officials’ commitment to ethical standards.

• The integrity of suppliers is critical to the overall integrity of the public procurement process. To support companies in implementing of the “System of Methods to Combat Bribery”, the Ministry of Finance and the Agency for Civil Service Affairs could require that companies provide verification of their business ethics programme by a reputable, independent third-party reviewer. The government should avoid conducting any verification themselves. To support implementation, the Ministry of Finance, together with the Agency for Civil Service Affairs and the NCE, could develop and carry out integrity training programmes for suppliers.

• Fostering effective risk-based internal control is critical for ensuring the integrity of procurement activities. The Ministry of Finance could implement a systemic, on-going and comprehensive risk management process that covers the entire procurement cycle and involves core stakeholders, including contracting authorities. This process should include risk assessment and risk response activities, be integrated into everyday business practices and be updated throughout the year to respond to changing risks. Developing key tools, such as a risk management guide, a risk heat map and a risk register, could support public procurement officials in integrating risk management into their everyday activities. Other control tools, such as the desk control process, could also be enhanced. The Ministry of Finance could expand the desk control process to integrate fraud and corruption risk assessments across the entirety of the procurement cycle. The appropriate resources should be assigned to the “desk control” function, to ensure capacity to carry out the process.

• Measures could be taken to enhance oversight of the public procurement process by civil society organisations. This will require ensuring qualified, civil society organisations have the capacity to carry out an independent review of specific procurement processes. To protect the independence of the reviewers, the Agency of Civil Service Affairs should be responsible for coordinating this programme. Core components of the independent monitoring programme could include training for civil society organisations to carry out the review, as well as including an article detailing the requirements for independent monitoring into the draft Law on Public Procurement.

• Currently, serious constraints such as ‘professional complainers’ and a lack of resources undermine the effectiveness of the complaints mechanism. To address these issues, the Ministry of Finance could extend the period for suppliers to submit comments and requests for clarification to at least 10 days, when the procurement is considered complex. The Ministry of Finance should consider introducing proportionate fees for filing a complaint to dis-incentivise complaints without grounds alongside a system to monitor the results of its usage. A reshuffle of the preliminary discussion of technical specifications is necessary to give more time to suppliers to comment on provisions in technical specifications. As well, the Ministry of Finance should make sure that the staff in regional branches of the Internal Audit Committee are able to cope with the increasing number of complaints, and could consider increasing staff limits as necessary. Finally, while the Ministry of Finance currently collects data on complaints, more could be done to enhance transparency. To that end, the Ministry of Finance could consider disclosing more detailed aggregated complaint statistics in a machine-readable format to ensure an adequate level of transparency and inform broader public procurement reforms.

• To protect public funds from corrupt firms or individuals, the Ministry of Finance could include provisions to debar companies or individuals convicted of corrupt practices. Moreover, to communicate the debarment process to suppliers, the Ministry of Finance should develop guidance that outlines what provisions lead to debarment, how debarment actions will be taken, the length of debarment, and the process for reinstatement. The Ministry of Finance could also consider including a clause in the Law on Public Procurement that informs potential bidders of the debarment system and the offenses that could lead to debarment.

References

[13] Australian Public Service Commission (2018), APS Values, https://www.apsc.gov.au/aps-values-1 (accessed on 2 October 2018).

[6] BBG (2016), Antikorruptionsstrategie der BBG, https://www.bbg.gv.at/fileadmin/daten/Downloads/Publikationen/2016_04_11_Praesentation_AntikorrLinie_fuer_die_HP.pdf (accessed on 21 September 2018).

[22] Department of Finance (2016), “Building risk management capability”, https://www.finance.gov.au/sites/default/files/comcover-information-sheet-building-risk-management-capability.pdf (accessed on 1 August 2017).

[14] Government of Canada (n.d.), Code of Conduct for Procurement, http://www.tpsgc-pwgsc.gc.ca/app-acq/cndt-cndct/contexte-context-eng.html (accessed on 19 July 2018).

[4] Government of the Republic of Kazakhstan (2018), Strategic Plan for the Development of the Republic of Kazakhstan, http://www.akorda.kz/ru/legal_acts/decrees/ob-utverzhdenii-strategicheskogo-plana-razvitiya-respubliki-kazahstan-do-2025-goda-i-priznanii-utrativshimi-silu-nekotoryh-ukazov-prezidenta (accessed on 13 July 2018).

[19] Government of the Republic of Kazakhstan (2016), On the Approval of the Model Rules for Conducting an Internal Analysis of Corruption Risks, http://adilet.zan.kz/rus/docs/V1600014441 (accessed on 17 July 2018).

[5] Government of the Republic of Kazakhstan (2015), Anti-Corruption Strategy of the Republic of Kazakhstan for 2015-2025, http://adilet.zan.kz/rus/docs/U1400000986#z13 (accessed on 13 July 2018).

[21] HAICOP & OECD (2019), Risk Management Strategy in Public Procurement in Tunisia, https://www.oecd.org/gov/public-procurement/publications/strat%C3%A9gie-management-des-risques-march%C3%A9s-publics-tunisie.pdf.

[7] IBN (n.d.), IBN - Integritätsbeauftragten-Netzwerk, 2018, https://integritaet.info/ (accessed on 12 October 2018).

[20] ISO (2009), ISO 31000-2009 Risk Management, https://www.iso.org/iso-31000-risk-management.html.

[10] Miller, G. (1955), “The Magical Number Seven, Plus or Minus Two Some Limits on Our Capacity for Processing Information”, Psychological Review, Vol. 101/2, pp. 343-352, http://www.psych.utoronto.ca/users/peterson/psy430s2001/Miller%20GA%20Magical%20Seven%20Psych%20Review%201955.pdf (accessed on 24 January 2018).

[23] Ministry of Finance (2018), Online procurement: violations are detected at an early stage, http://www.minfin.gov.kz/irj/go/km/docs/documents/%D0%9C%D0%B8%D0%BD%D1%84%D0%B8%D0%BD_new/%D0%A1%D0%BE%D0%B1%D1%8B%D1%82%D0%B8%D1%8F/%D0%9D%D0%BE%D0%B2%D0%BE%D1%81%D1%82%D0%B8/ru/f01e1937-9561-3610-a584-9b273952e3f8.xml (accessed on 20 September 2018).

[12] Ministry of Finance (2015), Seven key duties for civil servants in central government, https://www.modst.dk/media/17483/kodex_vii_english_version.pdf (accessed on 24 January 2018).

[26] Ministry of Finance of the Republic of Kazakhstan (2018), Register of unscrupulous participants in public procurement: Government procurement portal of the Republic of Kazakhstan, https://www.goszakup.gov.kz/ru/registry/rnu (accessed on 17 July 2018).

[3] OECD (2019), OECD Integrity Review of Argentina: Achieving Systemic and Sustained Change, OECD Public Governance Reviews, OECD Publishing, Paris, https://dx.doi.org/10.1787/g2g98ec3-en.

[11] OECD (2018), Behavioural Insights for Public Integrity: Harnessing the Human Factor to Counter Corruption, OECD Public Governance Reviews, OECD Publishing, Paris, https://doi.org/10.1787/9789264297067-en.

[9] OECD (2018), Procurement Review of the Chamber of Commerce of Bogotá, Colombia, OECD, Paris, http://www.oecd.org/gov/public-procurement/publications/procurement-review-chamber-commerce-bogota.pdf (accessed on 14 July 2018).

[24] OECD (2018), Second Public Procurement Review of the Mexican Institute of Social Security (IMSS): Reshaping Strategies for Better Healthcare, OECD Public Governance Reviews, OECD Publishing, Paris, https://doi.org/10.1787/9789264190191-en.

[1] OECD (2017), Anti-corruption reforms in Kazakhstan: 4th round of monitoring of the Istanbul Anti-Corruption Action Plan, OECD, Paris, http://www.oecd.org/corruption/acn/OECD-ACN-Kazakhstan-Round-4-Monitoring-Report-ENG.pdf.

[8] OECD (2017), OECD Integrity Scan of Kazakhstan: Preventing Corruption for a Competitive Economy, OECD Public Governance Reviews, OECD Publishing, Paris, https://doi.org/10.1787/9789264272880-en.

[25] OECD (2016), Procurement Ombudsman in Canada, OECD, Paris, http://www.oecd.org/governance/procurement/toolbox/search/procurement-ombudsman-canada.pdf (accessed on 19 July 2018).

[18] OECD (2009), OECD Principles for Integrity in Public Procurement, OECD Publishing, Paris, https://doi.org/10.1787/9789264056527-en.

[15] OECD (2004), “OECD Guidelines for Managing Conflict of Interest in the Public Service”, in Managing Conflict of Interest in the Public Service: OECD Guidelines and Country Experiences, OECD Publishing, Paris, https://doi.org/10.1787/9789264104938-2-en.

[27] Public Services and Procurement Canada (2017), About the Integrity Regime - Government of Canada’s Integrity Regime - Accountability - PSPC, https://www.tpsgc-pwgsc.gc.ca/ci-if/apropos-about-eng.html (accessed on 18 July 2018).

[2] Shibutov, M. et al. (2018), Report on the Prevention of Corruption in Kazakhstan (the viewpoint of civil society), Civic Foundation Transparency Kazakhstan, Almaty, http://tikazakhstan.org/wp-content/uploads/2018/05/REPORT-ON-THE-PREVENTION-OF-CORRUPTION-IN-KAZAKHSTAN.pdf (accessed on 13 July 2018).

[17] Transparency International (2012), Assurance Framework for Corporate Anti-Bribery Programmes, Transparency International, Berlin, https://www.transparency.org/whatwedo/publication/assurance_framework_for_corporate_anti_bribery_programmes.

[16] UNODC (2013), A Resource Guide on State Measures for Strengthening Corporate Integrity, https://www.unodc.org/documents/corruption/Publications/2013/Resource_Guide_on_State_Measures_for_Strengthening_Corporate_Integrity.pdf.

Note

← 1. For a full assessment on the whistleblower system in Kazakhstan, including recommendations related to the scope of whistleblower protection, please see (OECD, 2017[8]) and (OECD, 2017[1]).