procurement systems at the Companies and Intellectual Property Registration
Office (CIPRO)
18 October 2006
Cape Town â The (AG) today tabled a report identifying irregularities
amounting to millions of rands in procurement processes at the state-owned
CIPRO.
The purpose of the report is to make known the findings of an independent
investigation conducted by the AG at the request of CIPRO following concerns
raised in the AGâs 2004/05 regularity audit management letter.
CIPRO, a trading entity within the Department of Trade and industry, exists
to register businesses and intellectual property rights, maintain related
registries and develop information for disclosure to stakeholders. It was
formed in March 2002 from the merger of the South African Companies
Registration and the South African Patents and Trademark offices.
The investigation focused on the process followed by CIPRO in the
procurement of goods and services from 24 different service providers. The
findings were that there was a general non-compliance with the Procurement
Procedural Manual and Policy (PPMP) and other procurement prescripts such as
the State Tender Board user manual and directives to the departments in respect
of procurement, 1998 (ST 37) and the Public Finance Management Act.
The investigation found that:
* In six procurements totalling R11 486 680, role-players did not consider and
approve the procurement of goods and services as required.
* For the procurement of goods and services of more than R1 000 three
quotations were not always invited. In three cases totalling R381 293 no
quotations were considered. In 36 cases totalling R15 405 704 only one
quotation was considered and in two cases totalling R808 830 only two
quotations were considered.
* During the review of the procurement documentation for a service provider, a
risk of collusive quoting was identified as quotations from three service
providers showed similarities. Furthermore, no departmental service provider
database existed for the period under review and the filing system at CIPRO
revealed a lack of internal controls as some of the requested procurement and
payment documentation could not be provided.
* In 18 cases the Procurement Operational Committee (PROCOM) evaluated and
approved requests that did not comply with value-added tax (VAT)
requirements.
* In eight cases totalling R10 587 943 Information Technology (IT)-related
goods and services were procured without consulting or approval from State
Information Technology Agency (SITA). Furthermore, a quotation was requested
and received from a service provider for the rental or purchase of two servers.
The purchase price quoted was R5 986 908 (including VAT) or a rental
amount of R181 749 (including VAT) per month for three years totalling R6 542
992. No tender process through SITA was followed.
* In six cases totalling R11 486 680 procurement requirements amounted to more
than R500 000, the basic quotation process was followed instead of public
tender invitations. Furthermore, tenders for the outsourcing of the filing
system of CIPRO were only invited from three service providers thereby
following a closed tender process. The tender was awarded to a service provider
for the total ceiling escalated value of R21 877 740 including VAT for five
years.
* The procurement documentation for a service provider indicated that the
special project in the corporate information unit was extended seven times. The
total amount for the seven extensions accumulated to R2 335 548, which required
the tender process to be followed. Furthermore, the procurement documentation
for another service provider was split into two phases. If the services were
not split in two phases the tender process should have been followed and not
the quotation process.
* In the procurement documentation it was noted that service providers charged
VAT without supplying VAT details on invoices. Further, in one case the VAT
details supplied by a service provider were invalid.
* Two members of the CIPRO management board had interest in two service
providers with which CIPRO contracted for services, which were not declared in
declaration of interest forms. Officials at management level did not provide
declaration of interest forms required by the Public Servants Association (PSA)
for the 2004/05 financial year.
* In contradiction of Treasury regulation, CIPRO sponsored a yacht for
participation in the Vasco race for R233 746.
* A supply chain management and preferential point system was not developed and
implemented for the period under review.
The Auditor-General has recommended, among other measures, that:
* CIPRO should comply with the Procurement Procedural Manual and Policy until
the Framework for Supply Chain Management is implemented
* CIPRO seeks legal advice on action to be taken regarding financial misconduct
as stated in the Public Finance Management Act (PFMA)
* disciplinary actions against CIPRO officials and other relevant role-players
who did not ensure compliance with the prescripts in the procurement and
payment process
* other action should be considered against officials who are no longer working
for CIPRO.
A complete copy of this report on the findings identified during an
investigation into procurement at CIPRO is available on our website: http://www.agsa.co.za
Enquiries:
Africa Boso
Tel: (012) 426 8273
Cell: 082 8899 527
E-mail: africab@agsa.co.za
Issued by: Auditor-General of South Africa
18 October 2006
Source: Auditor-General of South Africa (http://www.agsa.co.za)
