Background
The interface between the public service and the private sector is a necessary requirement for effective delivery of services but comes with inherent risks. The extent of the financial transactions entered into between the public service and the private sector opens possibilities of collusion, fraud and bribery, and the areas of supply chain management in the public service is especially vulnerable in this regard.
Despite the comprehensive legislation and measures implemented by government to manage the risks of fraud and corruption in supply chain management, incidents of financial mismanagement which includes the supply chain management process remains prevalent in the public service. It is on the basis of this that the Public Service Commission investigated supply chain management practices within the R200 000 threshold.
The investigation, which took place from September 2007 to October 2008 and covered the period 1 April 2005 to 31 March 2007, focused on the national and provincial Departments of Public Works and Human Settlements due to the nature of these departments’ operations, which involves a large degree of outsourcing to service providers.
The investigation was aimed at amongst others, establishing whether government departments adhere to departmental procurement policies within the threshold of R200 000, identifying areas of weaknesses in supply chain management cycle that makes the procurement process susceptible to fraud and corruption and provide recommendations with regard to the curbing of incidents of irregularities, fraud and corruption regarding procurement processes
Key findings
The Public Service Commission reviewed a total of 1 679 transactions across the national and provincial Departments of Public Works and Human Settlements collectively.
From the review, the PSC found that the average rate of compliance to the requirement that evidence of invitation of quotations to service providers must be recorded was 71 percent.
Only 55 percent of transactions had evidence that the required number of quotations was obtained or had authorisation for deviation from the required number of quotations. Low levels of compliance were particularly evident in the Department of Human Settlements: National (40 [percent), Gauteng (19 percent), KwaZulu-Natal (53 percent), Northern Cape (41 percent) and Western Cape (42 percent).
In 54 percent of the transactions evidence could be found that the quotations were evaluated and where the lowest quotation was not considered, motivation for such decisions was recorded.
The investigation also revealed that only 69 percent of all the transactions the Public Service Commission evaluated complied with the requirement that requests to service providers for the rendering of a specific service must be done in writing and recorded. The Public Service Commission is of the view that failure to issue specific instructions and or orders to service providers exposes the departments to, amongst other irregularities, the risk of incorrect deliveries and inferior quality of goods or services. Thus, the Public Service Commission is of the view that in the absence of a specific instruction and or order to a service provider, departments are limited in their ability to terminate appointments of service providers or to litigate in the event of a dispute.
A total of 94 percent of transactions evaluated complied with the requirements attached to the payment process. Payments were generally effected on original invoices, in line with the quoted amounts and were authorised by appropriate delegated authority. This level of compliance indicates that diligence is exercised over the payment process.
The weaknesses that the Public Service Commission found in compliance to the prescribed supply chain management processes indicate that the application of the supply chain management process requires extensive improvement. The weaknesses that the Public Service Commission identified make the supply chain management process susceptible to the following irregularities:
* Verbal requests for quotations so as to favour a service provider by providing incorrect information to competing service providers
* Sending out invitations to quote at the last minute to competing service providers in order to favour a preferred service provider
* Inconsistent information being sent out in requests for quotations
* Requesting less than the prescribed number of quotations to bypass the due procurement process
* Applying inconsistent rationale when evaluating quotations for the same goods or services
* Cover quoting whereby an official of a department colludes with an external service provider to submit multiple quotations under different entity names. In such instances only one service provider submit quotations thereby ensuring that it (service provider) will receive the contract
* Kickback schemes
* Irregularly directing orders to a business entity in which a government official has a vested interest
* False invoicing
* Overpayment of service providers and
* Unauthorised expenditure in violation of the Public Finance Management Act (PFMA).
Recommendations
Although the evaluation focused on the national and provincial Departments of Public Works and Human Settlements, the Public Service Commission is of the view that constant vigilance is required in order to mitigate and manage the risk of fraud, corruption and other irregularities in the procurement process and therefore recommends the following for implementation by all departments:
* Departments should continuously be supported by ongoing training, education and communication of the due senior management services process in order to ensure integrity within the supply chain management process.
* Audits of supply chain management process should be aimed at identifying weaknesses which contribute to fraud, corruption and other irregularities. Such audits should specifically address each step of the supply chain management process and not only be in the form of generic internal audits reviews which management is inclined to place limited priority on and in respect of which remedial action is in many instances delayed.
* Departments should ensure that the same officials should not be assigned the responsibility of requesting quotations, evaluating them and making recommendations on the appropriate entity to who an order should be placed. The Public Service Commission is of the view that these different steps in the supply chain management process should be assigned to different officials to ensure the segregation of duties and thus to strengthen control over the process.
* The timely and accurate reporting of suspicions of fraud, corruption and other irregularities by all employees should be encouraged by management and specific mechanisms to facilitate whistle-blowing within departments should be developed and implemented as per the Protected Disclosures Act, 2000.
* To mitigate the fraud risks associated with requests for quotations, such as irregularly favouring a service provider by providing incorrect information to competing service providers, the Public Service Commission recommends that the issuing of formal written requests for quotations should be compulsory across all departments. In instances where less than the prescribed number of quotations has been obtained, deviations must be recorded in writing and authorized in terms of the delegations of authority.
* Payment of invoices should not be made in the absence of the original quotation submitted and a copy of the original order attached to the original invoice.
* Officials involved in supply chain management must declare all interests including actual, perceived or potential on a regular basis. Furthermore, they should sign confidentiality agreements not to disclose any information received during the procurement process.
Conclusion
Based on the findings of this evaluation the Public Service Commission identified major shortcomings in the application of the prescribed procurement policies, procedures and controls. The lack of thorough and comprehensive documentation of the approval of reasons for deviations from prescribed procurement procedures is of particular concern. Recordkeeping of invitation of quotations, the number of quotations, deviations, evaluation of quotations and communication to successful suppliers is particularly weak.
These shortcomings make the procurement process highly susceptible to the risks of mal-administration, fraud and corruption. The lack of proper record keeping also results in inadequate audit trails. This contributes to the likelihood that the investigation of allegations of irregularities in procurement may not be successful in that the high number of control weaknesses identified will themselves disguise evidence of actual mal-administration, fraud and corruption thus making these hard to uncover. The Public Service Commission is confident that its recommendations which attempt to address the weaknesses identified will reduce the risks of mal-administration, fraud and corruption in the supply chain management process.
For enquiries, please contact:
Humphrey Ramafoko
Tel: 012 352 1196
Cell: 082 782 1730
Fax: 012 325 8344
Issued by: Public Service Commission
19 November 2009
Source: Public Service Commission (http://www.psc.gov.za/)
