Companies and Intellectual Property Registration Office (CIPRO): Interrogation of 2008/09 Annual Report
Summary:
The Annual Report 2008/09 of the Companies and Intellectual Property Registration Office (CIPRO) was interrogated. The Auditor General had given this entity a qualified report and its performance, efficiency and staff complement were questioned. The Committee asked why this entity had acquired a surplus for the past financial year. Members questioned whether the suggestions by the Auditor-General had been implemented. Irregular expenditure amounting to R86 000 was questioned at length by the Committee including who was responsible, what internal processes had been contravened, what disciplinary action had been taken against the officials responsible and what internal control measures had been effected since that period. There was a plea from the Committee for the entity to seek outside help either from National Treasury or the Auditor-General. The Committee suggested that more offices had to be built across the country.
Members of the Committee were also critical of the fact that the strategic plan did not have any measurable objectives and outcomes. The Committee was appalled that the Director-General of the Department of Trade and Industry, who was the accounting officer, had signed the strategic plan in total disregard of the Public Finance Management Act as well as National Treasury regulations. The Committee questioned why the annual report of the entity did not bear the signature of the Minister of Trade and Industry. However, the Committee did concede that it was not certain whether the Department of Trade and Industry's assertion, that reports of trading entities did not need to be signed, was correct. Members made the point that Parliament should perhaps be asked to resolve that performance bonuses must be linked to an audit performance. The Committee noted that there were discrepancies in the information contained in the annual report, specifically in relation to bonuses.
Members asked specifically if CIPRO applied its policy framework for this tender, asked why there were two evaluation committees, and questioned CIPRO and State Information Technology Agency (SITA) whether they were aware that one of the owners of the company that won the bid, Valor IT, was a dentist by profession, that the company had been in existence only for three months, had subcontracted to Mantra Consulting, who in turn brought in Zeta Technologies. The Committee was unhappy with CIPRO's assertion that since Valor IT was on the SITA list, it had assumed that the necessary verification process was completed, and with the fact that SITA ha not sought the necessary approval from Department of Public Service and Administration. Members also questioned whether the demand by Valor IT for payment only 16 days after being awarded the contract had not raised alarm bells, as it was quite contrary to usual practices. They pointed out that payment was made before the software was installed and verified, allegedly to allow the service provider to start developing the blueprint. Members questioned whether value for money was achieved, and asked whether enquiries had not been made by the Acting CEO when he assumed his position. Members also pointed out that there were glaring similarities between the entity's business case and the submission by the successful bidder, and the AG indicated its concern that some information seemed to be in the hands of only the successful tenderer. Members asked who should have obtained permission, and questioned who had signed the responses by CIPRO to the AG, as two letters contained conflicting information. Members asked for copies of the correspondence to be provided. The composition of the evaluation committee was questioned, as were the requirements in respect of the financial statements, enquiries into the financial viability of Valor IT, whether the company had submitted a return, and whether there were servers on which to instal the software purchased. Members suggested that financial evaluations and information system audits should be done.
Finally, the Minister of Trade and Industry gave a report on the matter. A forensic investigation was conducted, and led to the suspension of the Chief Information Officer, as it highlighted a pattern of relationships between officials in SITA and the companies involved. Disciplinary and criminal charges would be laid and the Department was considering whether it could repudiate the contract with Valor IT, as well as trying to track down the funds involved.
Minutes:
Companies and Intellectual Property Registration Office (CIPRO): Interrogation of 2008/09 Annual Report
Mr N Singh (IFP) noted that one of the main reasons why CIPRO was established was for the efficient registration of companies and intellectual property, and he asked if this was happening.
Mr Tshediso Matona, Director General, Department of Trade and Industry, replied that the services at CIPRO were improving and there were significant achievements in the time that it took to register companies.
Mr Singh asked if CIPRO had managed to achieve its objective of phasing out manual operations and streamlining processes that were geared towards the maximum use of technology.
Mr Matona replied that the targets for effective service delivery were achieved. A decision was also taken to upgrade the Information Technology (IT) of CIPRO in order to meet demand. This was the background for the acquisition of the Enterprise Content Management (ECM).
Mr Singh asked what the latest situation was on the filling of positions at CIPRO.
Mr Matona replied that there was an effort from the entity to fill all posts, as there was a full complement of management at the top for the year under review. The acting Chief Executive Officer (CEO) of CIPRO could elaborate further.
Mr Lungile Dukwana, Acting Chief Executive Officer, CIPRO, replied that there was a structure comprising 500 positions that was approved by the Department. Of these 500 positions, 450 had been filled.
Mr Singh asked if there was a lot of money spent on training.
Mr Dukwana replied that a lot of money was spent on training but it had slowed down recently.
Mr Singh said that the reason for the qualified audit was the way in which the entity recorded its revenue. The entity had a lot of accumulated surpluses in its revenue. He asked it to explain the reasons.
Mr Dukwana replied that this was because the revenue collection mechanism was improving. The Auditor-General (AG) had issued a qualified audit certificate because of the recognition of revenue and accrual system that was being used.
Mr Singh asked what prompted the collection of levies from companies and whether this had proved successful.
Mr Dukwana replied that each company had to submit a return during its anniversary month. If submissions were made on time then there were no penalties, but if they were not, then the full penalty was imposed.
Mr Singh asked how many companies had been de-registered,
Mr Dukwana said that de-registration was a process and non-compliance after a certain period resulted in full de-registration. The information on the exact figures would be made available later to the Committee.
Mr Singh asked what interventions had been taken, from the Department's side, to ensure that there was compliance with accounting practices at CIPRO.
Mr Renier du Toit, Chief Financial Officer, CIPRO, replied that the entity was now in agreement with the Auditor General (AG) on the methodology to ensure that there was compliance with the accounting standards.
Mr Singh asked the Office of the AG if it had been satisfied with its interaction with CIPRO.
Mr L Van Vuuren, Business Executive, Auditor-General South Africa (AGSA), responded that the AG was satisfied about the various interactions it had had with CIPRO.
Mr Singh asked what CIPRO did with the surpluses it had. He also asked whether it had been overcharging companies, and whether this was the reason for the big surplus.
Mr Dukwana said that CIPRO had improved in its efficiency, which had led to the entity saving a lot of money. There were also many vacancies at some stage in the past, which contributed to the acquired surpluses.
Mr Singh referred to page 49 of the Annual Report. He noted that R86 000 was incurred by CIPRO but was regarded as irregular expenditure. He sought clarity on this issue.
Mr Du Toit replied that the figure related to two incidents. The first was for advertising services. The second was an error of oversight for printing of training material by a manager. No disciplinary measures had been taken against the manager, as he resigned. To curb these problems, CIPRO had developed contract management training for staff, and was keeping a contract management register as well as running a Public Finance Management Act (PFMA) training programme.
Mr Singh asked if no criminal action could have been taken in this instance in respect of the advertising issue.
Mr Du Toit replied that CIPRO received value for money for the advertisement, and it was an administrative error.
The Chairperson asked if the point that was being made was that the error was a minor one.
Mr Du Toit replied in the negative. CIPRO had taken the situation seriously. The official had resigned after being asked to explain the matter.
Mr Singh asked for comments from CIPRO in regard to the comment by the AG that the financial statements were subject to material amendments during the audit. Material adjustments were made to the accumulated surpluses and equipment. Significant deficiencies were identified in the design and implementation of internal control with regard to the annual return process.
Mr Dukwana said that CIPRO had accepted that there were problems with the annual returns. The entity was working with the AG and the South African Revenue Services (SARS) to turn the situation around.
Mr Singh asked if was possible to register bogus companies, and what controls there were to ensure that this did not happen.
Mr Dukwana replied that CIPRO had become very strict with registrations and changes of directorships. An external verification process had been introduced and the ECM would play a vital role in this regard.
Mr Singh asked if there were CIPRO regional offices, other than those in Pretoria, anywhere else in the country.
Mr Dukwana replied that there were offices in Pretoria and Cape Town, but not in other regions.
Mr Singh referred to page 39, item 23, which noted that the Executive authority did not approve the strategic plan. He asked why this had happened, and whether there was now approval.
Mr Matona responded that in previous years it was assumed that the policy was that authority from the accounting officer was sufficient. This had now been clarified and it was clear that the approvals had to come from the Executive authority.
The Chairperson asked if the basis of this understanding was based on practice as opposed to policy, since it was not in any legislation.
Mr Matona replied that this was so.
The Chairperson continued that this meant that Mr Matona did not appear to have read the National Treasury regulations, which clearly set out that the Minister had to sign the strategic plans.
Mr Singh agreed with the Chairperson, and added that there was further non-compliance with National Treasury regulations and the Public Finance Management Act (PFMA), since the strategic plan did not have measurable outcomes or objectives. He asked who had drawn up, and who had approved this Strategic Plan.
Mr Matona agreed that he was not aware of National Treasury regulations and the PFMA requirements at the time, but there was compliance now. The strategic plan was drawn up by the entity concerned. He has approved it.
The Chairperson asked if it was approved without meeting Treasury regulations
Mr Matona conceded that this was so.
Mr Rob Davies, Minister of Trade and Information, said that the non-compliance referred to the previous administration, but now there was compliance.
Mr Singh asked what were the plans of CIPRO and why there were no measurable objectives to begin with.
Mr Kumaran Naidoo, Chief Financial Officer, Department of Trade and Industry, replied that the strategic plan and business plan had substantial measurable objectives, it was only in respect of the issues that the AG singled out that it did not comply
The Chairperson said that those issue where it did not comply were a concern for the Committee.
Mr Singh added that this was quite a serious matter, as the AG had highlighted it.
Mr Dukwana said that when the strategic plan was drawn up there were a number of issues at CIPRO - including, for example, the fact that there was no head of corporate strategy.
The Chairperson interrupted and said that he expected Mr Matona to respond, as he was the one who had signed and approved an incomplete strategic plan. He should have spotted the deficiencies and should have had them corrected.
Mr Matona agreed with the Chairperson that he should have ensured that the strategic plan was fully compliant.
Mr Singh asked if the problem had been attended to.
Mr Matona confirmed that it had..
Mr S Thobejane (ANC) asked if Mr Matona was aware that ignorance of the law was no excuse.
Mr Matona responded that he was aware of this legal principle.
Mr M Mbili (ANC) asked if the Executive authority signed the annual report.
Mr Matona replied that the Executive authority did not sign it.
The Chairperson asked why this was the case. However, he commented that he was not sure if the annual reports of entities had to be signed by the Executive authorities, although this was a requirement in the case of departments.
Mr Matona replied that it was a matter of practice, as the position for trading entities was not clear.
The Chairperson said that practice and precedence did not render actions as legal, as the law must provide guidance.
Mr Mbili asked what the status of an unsigned annual report would be.
The Chairperson requested firm confirmation on the legal requirement for entities.
Ms M Matladi (ACDP) asked what informed the budget, since the strategic plan lacked measurable objectives. She also asked how management could, in the absence of this information, ascertain that the budget had been used correctly. She also asked if there was a fraud management system at CIPRO that covered a situation where a guilty party resigned from the organisation before disciplinary steps could be taken against him or her.
Mr Dukwana replied that CIPRO had fraud prevention and management plans. CIPRO was mostly guided by the PFMA. The budget was based on the outcomes that were in the strategic plan but they were not aligned with any measurable objectives.
Mr I Malale (ANC) asked what process was not followed in regard to the R86 000 that was deemed to be irregular expenditure.
Mr Du Toit replied that the internal supply chain management policy was not followed, as prior approval had not been obtained.
Mr Thobejane asked what happened to the individual responsible for the irregular expenditure.
The Chairperson reminded the Committee that CIPRO had said that he resigned.
Ms A Muthambi (ANC) asked the same individual was responsible for both transactions.
]
Mr Du Toit replied in the affirmative.
Ms Muthambi asked why the individual was allowed to resign, when management knew that he had transgressed company policy.
Mr Du Toit replied that where irregular expenditure had taken place there had to be an internal audit which determined whether CIPRA had received value for money or not. The decision to take disciplinary action would be informed by the outcome of the internal audit.
Ms Muthambi asked in which division of CIPRO this transgression had happened.
Mr Dukwana replied that it occurred in the marketing and communications department. There was commitment from CIPRO to deal with disciplinary issues.
Mr R Ainslie (ANC) said that many of the problems that CIPRO was facing had to do with the lack of internal controls. In all the audit reports since 2002 it was noted that there were an internal control weaknesses. During a SCOPA hearing in 2006 it was suggested to CIPRO that it should be calling for outside help, which it had refused on the basis that CIPRO had its own turnaround strategy. The DG was told to turn the situation around by 2007 and this had not been done. It was no surprise to him that the entity had received a qualification. He questioned how the audit committee of CIPRO, as stated on page 33 of the Annual Report, could come to the conclusion that all policies and processes had been complied with, given all the investigations that the entity was facing, as well as the qualification from the AG.
Mr Anthony Koen, Chairperson of the CIPRO Audit Committee, agreed with the observation that there had been many internal audit problems over the years. However, he said that CIPRO had comprehensive internal audit structures. There was a tracking register, which the audit committee used every year. The qualification in this year had to do with the accounting standard for revenue, and not with internal control weaknesses.
Mr Ainslie referred to page 34 of the Annual Report and noted that the audit committee was satisfied with the quarterly reports that it had received. He questioned how this could be so, given that the entity had received a qualification.
Mr Koen replied that the reports referred to income and expenditure. The management reporting system was strong, and reports were accurate and detailed.
Mr Ainslie disagreed. He repeated that outside help should be used.
Mr Ainslie then referred to page 33 of the Annual Report, which set out the attendance register for meetings. He noted that out of the four meetings, the Director General had attended one and the Chief Executive Officer had attended two. He asked who had attended in the Director-General's place and why this was not marked in the register.
Mr Matona replied that he usually sent a Deputy Director General in his place when he could not attend. He received reports and acted on them.
Mr Ainslie asked why, if this was the case, there was another qualification.
Mr Matona replied that the Chairperson of the audit committee had explained the basis of the qualification. The AG's observations were attended to. The performance of CIPRO was satisfactory.
Mr Ainslie interrupted and said that the audit committee and Mr Matona may be satisfied, but the AG and the Committee were not.
Mr M Steele (DA) said that he hoped that the Minister was playing close attention to the comments, particularly in regard to the inadequacy of the strategic plan.
Mr Steele asked if CIPRO ensured that all companies who were liable for lodging annual returns were doing so.
Mr Dukwana replied that since the previous year CIPRO had run an extensive campaign to raise awareness across entities about their responsibility towards lodging their annual returns. This was an ongoing campaign. It was now at provincial level.
Mr P Pretorius (DA) referred to page 81 of the Annual Report, which noted that 60% of private companies were not lodging their annual returns. He asked how much money this represented.
Mr Du Toit replied that the figure ran into the millions. R160 million had been collected previously.
Mr Pretorius asked what happened to the other staff members who were involved in fraud. He noted that only two had been dismissed whereas 70 were under investigation.
Ms Dintswalo Nkuna, Chief Audit Executive, CIPRO replied that the figure of 70 included disciplinary cases carried over from the previous year. The fraud register was an ongoing issue. Disciplinary action against staff members involved in fraud had been taken. During investigations it had been discovered that some of the fraud was being perpetuated by officials outside of the organisation. This included, for example, the changing of directors without due process being followed. Investigations continued against other officials. In the 2009/10 financial year, seven officials were found guilty of fraud and corruption. One was given a final written warning, five were dismissed and the other case was ongoing.
Mr Pretorius referred to page 75 of the Annual Report. He pointed out that in one column the CEO was recorded as not receiving a performance bonus, but in another column he was reflected as having received a figure of R95 000 as a performance bonus. He asked for clarification.
Mr Du Toit referred to page 55 of the Annual Report and said that the figures there related to the 2007/08 financial year. The figures on page 75 related to the 2008/09 financial year. This would be clarified in future by means of a note.
Mr Pretorius said that the figures were stated as being for the 2009 financial year; the space for 2008 on page 55 was blank.
Mr Du Toit responded that the actual payment took place in that year, although the financial year ended on 31 March. The bonuses were paid in November 2009.
The Chairperson said in that case the information was inconsistent. The bonuses paid in 2009 then related to the financial year 2007/08. Page 55 referred to a bonus payment for the previous year. The information on page 55 should have been on page 75.
Mr Pretorius referred to page 87, paragraph 3, of the Annual Report. He asked if the new policy on supply chain management included an assessment on the financial viability of contractors with whom CIPRO was dealing.
Mr Du Toit said the policy that was being referred to in the document did not include an assessment, but it had now been revised to include a financial viability analysis.
Mr Ainslie asked if the performance bonus was linked to an audit performance.
Mr Matona replied that it was not.
Mr Ainslie suggested that Parliament should perhaps resolve that there should be such linking for all government entities.
Ms Muthambi agreed with Mr Ainslie.
Mr Mbili asked who tabled the report in Parliament
Mr Matona replied that it was the Minister.
Mr Mbili asked why the Minister had tabled an unsigned report.
Mr Matona replied that the understanding was that the report of a trading entity like CIPRO did not have to be signed by the Minister.
Mr Mbili said that the report had to be signed, and it was not.
Mr Matona restated that his understanding was that the Minister did not have to sign the report of a trading entity like CIPRO.
Mr Mbili asked for the Minister's comments on this matter.
The Minister replied that he had acted on the advice he was given. He said that if it was incorrect for him not to sign the report, for purposes of "owning" the report, then this mistake would be corrected.
Ms Matladi said that she was worried that Mr Matona did not seem to know policy issues, which was unacceptable for someone in such a high position.
Mr Malale said that he did not think that it was a requirement that there had to be a signature.
Mr Singh agreed with Mr Malale.
The Minister commented that he had known that CIPRO had not been functioning as it should have been. There had been problems of corruption, inefficiency and the ECM tender, but now several other issues had also been raised, and would be addressed. There had been a major weakness in management of CIPRO for some time. He pointed out that the new Companies Act would carry a host of implications for CIPRO, which would become a Commission. The bureaucratic requirements for it would be reduced.
Enterprise Content Management (ECM) system tender
Mr Malale asked if CIPRO applied its policy framework for the ECM tender.
Mr Dukwana confirmed that it did.
Mr Malale asked why there were two evaluation committees for a single tender.
Mr Du Toit replied that this was because of the technical complexities of the ECM tender and to ensure that the tender process was done objectively.
Mr Malale asked why the internal experts were excluded from the tender process.
Mr Du Toit replied that the internal experts were part of the evaluation committee. Because the tender was highly technical, external experts were included.
Mr Malale said that the successful bidder was Valor IT. He questioned whether Mr du Toit had been aware that the owners of Valor IT were Joseph SIbulele and Moosa Seedat.
Mr Du Toit said that he was.
Mr Malale asked if Mr Du Toit was aware that Mr Seedat was a dentist by profession.
Mr Du Toit said that he was not aware of this.
Mr Malale asked if Mr Du Toit knew that Valor IT had sub-contracted to Mantra Consulting.
Mr Du Toit said that he was not aware of this during the adjudication process.
Mr Malale asked if CIPRO knew that Mantra Consulting brought in a multi national IT firm called Zeta Technologies.
Mr Du Toit said that CIPRO was aware of the two main sub-contractors, but the name was not familiar.
Mr Malale said that a check through the records of the transaction would show that the logo of the company was displayed very prominently. He asked whether there had been such documentary checks, or if, after checking, Mr du Toit was still not aware of this.
Mr Du Toit said that he had not personally looked at this.
Mr Malale asked if certain participants in this transaction should not have known about this, including the CFO.
Mr Du Toit said that the Chief Information Officer (CIO) was the appointed IT expert and this person had confirmed that the company was able to do the work. He pointed out that this would have been difficult for a Chief Financial Officer to assess. Valor IT was also on the State Information Technology Agency (SITA) Category A list of suppliers.
Mr Malale asked if the evaluation committee had checked if it was properly listed with SITA.
Mr Du Toit said that as it was on the SITA list it was assumed that all necessary verifications had been made.
Mr Malale asked if this was a supposition on the part of CIPRO, or whether it was confirmed by SITA.
Mr Du Toit said that the evaluation committee accepted that because Valor IT was on the list of SITA
it could be included in the supply chain process.
Mr Malale asked if CIPRO was aware that SITA had not sought the approval of the Department of Public Service and Administration (DPSA) for the determination of this contract.
Mr Du Toit replied that he was not aware of this.
Mr Malale asked if CIPRO was aware that the company had only been in existence for about three months.
Mr Du Toit said that CIPRO was aware of this, and the CIO was questioned about this.
Mr Malale asked if an investigation into the financial viability of this company had been undertaken.
Mr Du Toit replied that CIPRO did do a financial viability assessment.
Mr Malale asked if it was the practice of CIPRO to pay for goods and services before delivery, or whether payments would be made after delivery.
Mr Du Toit said that payment was after delivery.
Mr Malale asked if it was not suspicious that Valor IT was awarded the contract in February, yet within 16 days it had invoiced the Department.
Mr Du Toit replied that in terms of the contractual arrangements that were entered into with Valor IT, payment would be made on delivery of the software. That was delivered.
Mr Malale said that payment was made before the software was installed and verified, and called for comment why this was done.
Mr Du Toit replied that the acceptance of the software, as well as the recommendation for payment, came from the CIO.
Mr Malale asked if Mr Du Toit was saying that at the time that payment was effected, the software had been installed and was properly functioning.
Mr Du Toit said that his understanding, based on information from the CIO, was that CIPRO had to procure the software in order to allow the service provider to proceed with the development phase of the project.
Mr Malale asked if this meant that receipt of the software warranted a payment of R56 million.
Mr Du Toit replied that the software was procured to enable the service provider to start developing the blueprint, which would be used to develop all the processes required in terms of the tender specifications.
Mr Ainslie asked what CIPRO had actually paid for.
Mr Du Toit replied that payment was for the software, licensing for use of the software and maintenance.
Mr Ainslie asked if the software was installed, and whether CIPRO received value for money.
Mr Du Toit replied that at that time, the software, license fees and maintenance was procured. Thereafter the service provider began with the development of the processes required in terms of the new Companies Act.
The Chairperson said that the lack of leadership by both Mr Dukwana and Mr Matona was exasperating him. They seemed to be totally disengaged from this hearing.
Mr Malale said that there was a promise on 19 November 2009 that there would be a new CIPRO portal, but nothing materialised. R7.8 million was paid for maintenance fees although the system was not being utilised. He called for an explanation on this.
Mr Dukwana said that he did not know why this was done. The reason why he had not responded was because he had not been part of the procurement process.
The Chairperson said that the comment was institutional and not personal. He asked whether Mr Dukwana had not enquired into the matter since assuming his position.
Mr Dukwana said that the R7.8 million had not been paid, although CIPRO was invoiced.
Mr Malale asked if the score sheets were combined for the bid evaluation process.
Mr Du Toit replied that they were.
Mr Malale said that there were glaring similarities between the entity's business case and the submission by the successful bidder. He called for an explanation on this.
Mr Dukwana replied that the officials would not know anything about this.
Mr Malale asked if the internal business case was ever disclosed to bidders at any stage.
Mr Du Toit said that this was never done from the supply chain management's side.
The Chairperson said that the AG's report did indicate that extracts of the internal business case were issued to bidders who requested this, and asked whether this was correct.
Mr Du Toit replied in the affirmative.
The Chairperson asked how many parties requested this information.
Mr Du Toit said that there was an information session before the tender closed, but the business case was not discussed.
The Chairperson asked how many bidders who were at the presentation requested information on the business case.
Mr Du Toit replied that he did not know.
The Chairperson asked the AG to shed some light on the matter.
Mr Pramesh Bhana, Corporate Executive, AGSA, said that the concern of the AG was that at the information session there were specific details not made available. Those included the pricing of the project, which would have been in the business case. Instead, this information seemed to be made privy to only a few bidders, most notably the vendor who had succeeded in the tender bid.
Mr Malale asked why SITA had gone ahead with the process without getting the relevant permission from Department of Public Service and Administration (DPSA).
Mr Velaphi Zikalala, General Manager: Sourcing and Procurement, SITA, agreed that, for contracts of this nature, the approval of DPSA was normally sought. SITA agreed with the findings of the AG that no approval was sought or given for this specific contract.
The Chairperson interrupted and said that the Committee wanted to know why permission was not sought and who was responsible.
Mr Zikalala replied that the Chief Procurement Officer (CPO) was the person responsible, but this person had left SITA.
The Chairperson asked how a manager at that level could process contracts without senior management knowing about it. He asked who sent documentation to external stakeholders for purposes of seeking approval.
Mr Zikalala responded that there was a procurement process, and the CPO was responsible. All individuals who were supposed to be informed were informed, except for when approval had to be sought.
The Chairperson asked how the CEO of DPSA remained unaware of this.
Mr Zikalala replied that the assumption was that all processes had been complied with.
The Chairperson asked if it was good practice for a leader to work on assumptions.
Ms Nontobeko Ntsinde, Board Member, SITA, said that a checklist had been developed for the various stages of a tender process and this would be used in the future.
The Chairperson said that non-compliance came about as a result of disregarding policy, rather than an absence of policy altogether. It all depended on the individual.
Mr Steele referred to the responses that CIPRO made to the AG's requests, in August 2009 and January 2010. He asked who had signed the response of August 2009.
Mr Dukwana said that he was not sure.
The Chairperson asked the AG who signed the letter.
Mr Bhana replied that his team was still checking.
Mr Steele said that the August 2009 response was an assertion that the entire business case had been made available to all interested parties. The response on January 2010 indicated that the power point presentation at the information session excluded extracts of the business case. He asked who had then signed the later letter.
Mr Du Toit said that the CIO, Dr Michael Twum-Darko, had provided the AG with the information.
The Chairperson asked if the CIO was at the meeting.
Mr Dukwana replied that he had been suspended.
Mr Bhana then confirmed that the Chief Executive Officer, Mr Keith Sendwe, had signed the August 2009 response. The January letter was signed by the then-Acting CEO Mr Du Toit.
Mr Steele asked for an explanation as to why there was a difference in the information contained in the two responses that were provided to the AG.
Mr Du Toit replied that the CIO presented information to bidders at the information session, and the information was requested from him and then forwarded to the AG.
Mr Steele said that the information session must have been in public. He said that surely somebody would be able to confirm whether the whole business case was presented or not.
The Chairperson asked if there was any additional information that Mr Du Toit could add.
Mr Du Toit added that the CIO had indicated that he provided extracts of the business case to bidders during the information session.
Mr Steele asked if it was possible for correspondence to be provided that could attest to what the CIO had stated.
Mr Dukwana said that the information would be made available, as an investigation would have to be made.
Mr Mbili asked if Mr Du Toit was saying that he had signed a letter containing content that he did not understand or had no knowledge of.
Mr Du Toit replied that he had discussed the matter with the CIO and he had tried to obtain the minutes of the information session, but was not supplied with them.
Mr Pretorius asked who identified the members of the evaluation committee and how were they identified.
Mr Du Toit said that the evaluation committee comprised the CIO, CFO, CEO and the head of procurement.
Mr Pretorius asked if the adjudication committee had the powers to change the decision of the evaluation committee.
Mr Du Toit replied that the adjudication committee could refer the decision of the evaluation committee back, if there were concerns.
Mr Pretorius asked if there were members of the evaluation committee who made up the bid evaluation committee.
Mr Du Toit said that the CEO would have appointed the permanent members and the CIO recommended the external members.
Mr Pretorius asked if there was immediate agreement from the adjudication committee on the preferred bidder.
Mr Du Toit said that the issue was discussed at length until it was resolved.
Mr Pretorius asked how SITA could accept a company like Valor, which only had two directors or staff members. He also asked whether it was not a registration requirement that a company had to submit financial statements from the last two years.
Mr Zikalala replied that it was a requirement.
Mr Pretorius asked if Valor IT had done this.
Mr Zikalala replied that it had not.
Mr Pretorius asked why it had not.
Mr Zikalala replied that although it was a general rule, the tender requirement did not include the furnishing of financial statements. The evaluation was more technical.
The Chairperson then asked if Mr Zikalala was suggesting that "the rule" could be ignored, when it was not a mandatory requirement.
Mr Zikalala said that this was so.
Mr Pretorius said that he found this totally unacceptable. He questioned whether CIPRO had evaluated the financial viability of this company.
Mr Du Toit replied in the negative.
Mr Pretorius asked if CIPRO checked whether this company had submitted a return.
Mr Du Toit replied in the negative.
The Chairperson asked why this was not done.
Mr Du Toit said that it was not done and it was not a general rule.
Mr Pretorius asked if it was correct that there were no servers on which to install the software, and that there was not a single operational item that was at CIPRO, despite a payment for maintenance fees.
Mr Dukwana said that the various components of the ECM had been developed. All that remained was for them to be deployed. It was correct to say that at that point there was a need for servers. There were concerns at the time about exchange rate fluctuations, which would have pushed costs up.
The Chairperson asked if there were no risks in paying the entire amount at one go.
Mr Dukwana said that the software was necessary at the time, so that it could be developed for the purpose of use by CIPRO.
Mr M Van Der Westerhuizen (DA) asked if the attention of the Chief Financial Officer was drawn to the concerns of a Mr Piet Pienaar on the bid evaluation committees. He also asked if the Head of Internal Audit was approached in regard to alleged irregularities in the awarding of this bid.
Mr Du Toit replied that Mr Pienaar did raise concerns over this matter. The CEO at the time had a meeting and asked for complaints to be in writing. There had been no feedback since.
Ms Dintswalo added that after the concerns were raised, a decision was taken to have an external IT expert to be part of the evaluation committee so that an unbiased process could be followed.
Mr Steele asked what measures CIPRO had taken to address the allegations.
Mr Du Toit replied that Mr Piet Pienaar was not an official at CIPRO, the information was not specific and there were no direct leads.
Ms Muthambi asked if Mr Matona was not curious about the winning bidder, when he signed off the service level agreement.
Mr Matona said that he acted on the advice of his advisors, after consulting with them. He was also convinced by the fact that the company was accredited by SITA.
Mr Muthambi reiterated the question whether the fact that Valor IT invoiced CIPRO ten days after being awarded the bid did not raise any concerns for the Chief Financial Officer.
Mr Du Toit replied that he did raise his concerns but the CIO advised the CEO that the software was required. The concerns were raised in writing.
The Chairperson asked the AG to make comments before the Minister gave a report on the forensic investigation he had commissioned.
Mr Bhana said that the financial evaluation of sub-contractors had to be also done in addition to that of the contractor. CIPRO had to have an effective system to fight white-collar crime. Information System Audits had to be done as soon as possible.
The Minister said that the recommendations of the AG would be taken seriously and the Department of Trade and Industry and CIPRO would work with the AG. He reported that the forensic investigation led to the suspension of the CIO. The report would be used in subsequent processes, and would not just remain in the public domain. The forensic report had revealed a pattern of relationships between Mantra, Valor IT, the CIO and the CEO. The R56 million was more than a third of the total contract, and it was paid in record time. A team of lawyers had been appointed that had made recommendations, some of which had already been implemented. The CEO and CIO had serious charges to answer to, both from a disciplinary and criminal perspective. The Department was also looking at repudiating the contract with Valor IT. The legal team would draw up the charges. The Department was also in contact with other government agencies to ensure that the proceeds would not just be disseminated without being tracked down.
The meeting was adjourned.
Source: Parliamentary Monitoring Group, May 18 2010
Click here to sign up to receive our free daily headline email newsletter
