REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON A PERFORMANCE AUDIT OF ENTITIES THAT ARE CONNECTED WITH GOVERNMENT EMPLOYEES AND DOING BUSINESS WITH NATIONAL DEPARTMENTS, APRIL 20 2009

EXECUTIVE SUMMARY

1.1 The Auditor-General issued a report to Parliament in January 2006 regarding approval for government employees to perform other remunerative work and the disclosure of financial interests by ministers, deputy ministers and senior managers. This report indicated that designated employees (senior managers) and certain ministers failed to declare their interests and that the majority of government employees did not have approval to perform remunerative work outside their employment in government, as prescribed by the relevant legislation and regulations.

1.2 Based on the above, a transversal performance audit was conducted on government employee-related entities doing business with national and provincial departments. This report only focuses on government employee-related entities doing business with national departments. This report was compiled after the audits at provincial level were completed during the period August 2007 and July 2008.

1.3 During the audit specific emphasis was placed on:

1.3.1 performance of remunerative work

1.3.2 declaration of registrable interests

1.3.3 declaration of interest on standard bidding documentation (SBD)

1.3.4 deviation from the supply chain management process and cases where a conflict of interest existed

1.3.5 non-compliance with certain Treasury Regulations

1.3.6 non-compliance with value-added tax legislation.

1.4 The audit revealed, inter alia, the following:

1.4.1 A total of 49 employees were identified who were directors or members of companies or close corporations (CCs) doing business with national departments.

Forty-six of these employees did not have approval to perform other remunerative work. The total amount paid to these companies and CCs during the period under review was approximately R35,7 million (paragraph. 7.1.2).

1.4.2 Employees who are directors or members of companies or CCs that did business with national departments amounting to R30,6 million during the period under review had failed to declare their interest on the financial disclosure forms submitted to the Public Service Commission (PSC) (paragraph. 7.2.2).

1.4.3 Tenderers made misrepresentations by not declaring in the tender documentation that employees are related to the companies and CCs that are tendering (paragraph. 7.3.2).

1.4.4 Supply chain managers in national departments did not adhere to the supply chain management procedures and regulations in awarding tenders and contracts to employee-related entities (paragraph 7.4.2).

1.5 The following actions were taken by the affected entities or are in the process of being taken as a result of the audit:

1.5.1 Approval to perform remunerative work

(a) Cases of non-compliance with regulations pertaining to approval for remunerative work outside official duties are being followed up by departments in order for them to take action (paragraph 7.1.4).

(b) The Accountant-General indicated that companies should be requested to mention their shareholding, and not only directorships, in the tender documentation to allow departments to identify related-party transactions (paragraph 7.1.5 (b)).

(c) The PSC proposed changes to the financial disclosure form and also recommended that where a designated official had obtained approval to perform remunerative work outside of the public service, such approval must accompany the financial disclosure form (paragraph 7.1.6 (b)).

1.5.2 Declaration of interest by designated employees

(a) With regard to the submission of financial disclosure forms to the PSC, the PSC has established a directorate to scrutinise the completeness of financial disclosure forms and the management of conflict of interest (paragraph 7.1.6 (c)).

(b) The Department of Public Service and Administration (DPSA) indicated that the department was currently investigating the implementation of a similar disclosure form to be completed by employees on salary levels 1 to 12 (non-designated employees) (paragraph 7.2.4).

1.5.3 Declaration of interest in bidding documentation

(a) The Accountant-General indicated that disclosure of interest should be compulsory for employees and their related parties, including family members and close friends (paragraph 7.3.4).

(b) The SBD 4 declaration of interest form would be amended to include spouses' directorships/shareholding/memberships in companies that had transacted with the state in the previous 12 months of the financial year and an integration of the PSC system and Companies and Intellectual Property Registration Office (CIPRO) must be considered (paragraph 7.3.4).

1.5.4 Conflict of interest

The national departments in general indicated that transactions would be followed up to determine whether there had been preferential treatment or possible fraudulent actions (paragraph 7.4.7).

1.6 For the performance audits conducted at provincial level, separate reports will be tabled in the relevant provincial legislatures. The findings made at provincial level are similar to those reported in this report. The graphs below depict the total number of government employees with directorships or memberships in companies and/or CCs that did business with provincial departments, excluding the Provincial Administration of KwaZulu-Natal, as the audits have not yet been finalised.

1.7 Summary of transversal findings made and actions taken by provincial department with regard to audits conducted on employee-related companies and/or CCs doing business with provincial departments:

1.7.1 The extent of business done by employee- or spouse-related companies at provincial level for the period 1 April 2005 to 31 January 2007 amounted to approximately R540,2 million. Although some of the provincial departments are still determining whether employees who are directors and/or members of companies and/or CCs that did business with provincial departments had approval to do so, in the majority of cases such employees did not have approval to perform other remunerative work.

1.7.2 Tenderers made misrepresentations by not declaring in the tender documentation that employees were related to the companies and CCs that were tendering.

1.7.3 The following transversal findings were made where provincial departments had deviated from the supply chain management process without the necessary approval and had awarded tenders or quotations to employee-related entities. This could be an indication of preferential treatment of such employee-related entities or of fraudulent activities in the awarding of tenders or contracts.

(a) Provincial departments did not always obtain three quotations for transactions with a value above R10 000 but not exceeding R200 000, in line with the regulations for the procurement of goods and services.

(b) Provincial departments did not always apply the prescripts of the Preferential Procurement Policy Framework Act, 2000 (Act No. 5 of 2000) (PPPFA) when evaluating quotations that exceeded R30 000.

(c) In certain instances provincial departments did not invite competitive bids for procurement where the value of the goods or services exceeded R200 000, in accordance with the regulations, and had awarded the contracts to employee-related entities.

(d) Bids were not always scored correctly by the evaluation committees of provincial departments and as a result the bids were incorrectly awarded to employee-related entities.

(e) Provincial departments awarded contracts to employee-related entities that had not scored the highest points during the evaluation process, without providing reasonable and justifiable grounds for doing so.

1.7.4 There are inconsistencies between departments in rectifying these problems. In some instances departments charged employees with misconduct and discharged them or issued final warnings, while others indicated that disciplinary steps could not be taken as employees were not aware that they should have obtained approval to perform other remunerative work. A consistent approach, which includes awareness, training, disciplining and legal action as well as the blacklisting of entities, should be encouraged.

This is an edited extract. The full report can be found here - PDF

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