1
PORTFOLIO COMMITTEE ON PUBLIC
SERVICE AND ADMINISTRATION:
BRIEFING
ON
UNAUTHORISED,
IRREGULAR,
FRUITLESS AND WASTEFUL EXPENDITURE
AND
REMEDIAL ACTION IMPLEMENTED:
2 MARCH 2011
1
2
Strategic Interventions to stabilize the department and
move to a non qualified audit
•
•
•
•
•
•
•
•
•
Improved institutional arrangement and governance – Exco subcommittees
(Finance , IT and Risk)
Revision and improvement of delegations
Dedicated capacity to investigate and institute disciplinary action non
compliance and misconduct lead at executive management level
Additional personnel appointments and training in the supply chain
management environment
Strengthening of internal audit, national and regional oversight and
monitoring
Inclusion of financial and internal control in performance contracts of
executive and senior management
Revision and update of departmental prescripts and policies
Technical assistance by National Treasury
Strengthening audit committee oversight and periodic structured
engagement with the AG
2
3
1. IRREGULAR EXPENDITURE
3
IRREGULAR EXPENDITURE REPORTED
4
2009/10
2008/09
R’000
R’000
26,179
94,671
Add: Irregular expenditure – relating to prior
year
368,999
25,495
Add: Irregular expenditure – relating to
current year
436,387
33,295*
Less: Amounts condoned (refer slide 15)
(15,338)
(86,964)**
(3,853)
(40,318)
812,374***
26,179
Opening balance
Less: Amounts not recoverable (not
condoned) (refer slide 16)
Irregular expenditure awaiting condonation
(refer to slides 5 )
4
GENERAL REMARKS
5
Irregular expenditure awaiting condonation as 31 March 2010 amounted to R
812 374 000 and can be divided into three distinct main groups:
A. Irregular expenditure incurred during the operations of the Department.
R 96 808 000 - 11.9% (refer to slides 6 to 19)
B. Irregular expenditure as a result of incorrect application of the principles
relating to lease expenditure. Did not obtain Treasury approval for the
continuation of lease contracts after the initial lease period.
R 34 605 000 – 4.3% (refer to slides 20 to 25)
C. Irregular expenditure as a result of the incorrect principles implemented
for the procurement of goods and services. Contravention of the Preferential
Procurement Framework Act.
R 680 961 000 – 83.8% (refer to slides 26 to 38)
5
6
A.
Irregular expenditure incurred during
operations
6
7
Irregular expenditure incurred during the operations of the Department must be
viewed in the light that further investigation confirmed that an amount of R 66 687
000 included in the R 96 808 000 is indeed not irregular
Lechabile
Original tax clearance certificate was not on the file. The
scheduling documentation indicates that the certificate was
submitted but misfiled. It was confirmed that the tax affairs of
the supplier is in order. Confirmed by National Treasury Amount is not irregular
R 13 821 315
Born to Protect
Bid was re- evaluated for the second time after the DBAC found
inconsistencies in the ratings by the first evaluation.
The AG was concerned that reason the supplier was not
recommended by the first evaluation was not considered by the
second evaluation. The matter was investigated and found that
the reasons was considered in the second evaluation.
R 30 617 999
Colett Security
The AG performed a tax verification through SARS website as
part of the audit. Investigation by the Department indicated that
the SARS website was not updated
R 21 857 419
Frama
The AG indicated that the amount is irregular as the requisition
was not approved by the delegated authority. However, the
matter related to the loading of franking machine that does not
constitute a competitive bid process but a transversal contract
and is therefore not found to be irregular
R
360 000
7
8
Ordainlest 9 Trading
AG indicated that the amount is irregular as the requisition
was not approved by the delegated authority. Investigation
confirmed that the signatory was appointed in an acting
capacity
R
28 326
Other
The AG indicated that the matter is irregular because a
three quotations was not invited. The procurement deals
with subscriptions to specific news papers and therefore
three quotations is not needed
R
2 266
R 66 687325
8
9
Amount condoned since 31/3/2010 (refer to slide 9)
R 295 504
Amount awaiting condonation (Letters to relevant
authority) (refer to slide 10)
R 28 726 516
Not condoned, not recoverable (refer to slide 12)
R 607 127
Under investigation (refer to slide 13)
R 491 060
R 30 120 207
9
Amount condoned (Refer to slide 8)
10
Background on case
Reason condoned
Condoned by
Amount
Case 101-Conference
facility
Cost and efficiency was considered.
No loss was suffered.
DBAC
R 32 234
Case109 – Conference
facility
Cost and efficiency was considered.
No loss was suffered.
DBAC
R 78 632
Case 122 (1) –
Procurement of
software
Only compatible software available.
The software can only be obtained
from the supplier
DBAC
R 103 769
Case 123 (1) –
Procurement of laptops
Official acted in favour of the
Department.
Accounting
Officer
R 80 869
R 295 504
10
Awaiting condonation (Refer to slide 8)
11
Background on case
Relevant Authority to consider condonation
Amount
Case 160 – Procurement of
cutlery
DBAC – Three quotations not invited. Value for
money was received. No malicious action could be
identified
R 2 892
Case 161 - Entertainment
Judicial Education Institute
DBAC –Three quotations not invited. Value for
money was received. No malicious action could be
identified.
R 18 000
Case 162 – Psychiatric
services
DBAC - Three quotations not invited. Value for
money was received. Psychiatric services does not
justify the invitation of three quotations. Delegations
will be amended
R 3 011
Case 120 – Appointment of
consultants
Accounting Officer - Tax clearance certificate- It was
confirmed that the tax affairs of the supplier was in
order. Tax certificate was a certificate of one of the
subsidiaries.
R 24 414 519
Case 122 (2) –
Procurement of software
DBAC - Three quotations not invited. Value for
money was received. No malicious action could be
identified
R 9 105
Case 122(3) - Power supply
unit for access control
system
DBAC - Three quotations not invited. Value for
money was received. No malicious action could be
identified
R 7 978
11
Awaiting condonation (Refer to slide 8)
Background on cases
Relevant Authority to consider condonation
Case 123 (2) –
Procurement of vehicles
Accounting Officer – Requisition not approved on
correct level. The signing of the payment at the
incorrect level is regarded as an oversight. Official
has since passed away.
Case124 - Overtime
Accounting Officer - Overtime policy not approved.
Principles of the Basic Conditions of Employment
was applied. No malicious action could be identified
12
Amount
R 845 011
R 3 426 000
R 28 726 516
12
Not condoned and not recoverable (Refer to slide 8)
13
Background on
cases
Not condoned, not
recoverable
Amount
Case 128 – Quality
assurance internal audit –
Did not invite bids
Goods/Services were rendered
satisfactorily, value for money, no loss
suffered
R 276 167
Case 76 – Training
initiatives –DBAC
approval was not
obtained for sole supplier
R 275 167
Case 131 – Promotional
items- Requisition not
approved on the correct
level
R 35 000
Case 134 – Procurement
of stationary- requisition
not approved on the
correct level
R 20 793
R 607 127
13
Matters under Investigation (Refer to slide 8)
Back ground on case
Case 117 - Cartridges for printers
Case 132 - Maintenance of office plants
Case 163 – Appointment of council
14
Amount
R 9 500
R 200
R 386 031
Case164 – Installation of ramp for disabled persons
R 48 450
Case 165 – Professional services programme director
R 35 000
Case 166 – Procurement of IT equipment
R 990
Case 170 – Procurement of stationary
R 8 101
Case 169 – Cartridges for printers
R 2 788
R 491 060
14
Condoned (Reported at 31/03/2010 in the Financial Statements)
(refer to slide 3)
15
An amount of R 15 338 000 is reflected as condoned. The amount
condoned consists of R 12 284 000 condoned with regard to leases
entered into in terms of State Tender Contract (RT 3) and automatically
condoned in terms of National Treasury Practice Note.
A further R 3 054 000 was condoned in 23 cases relating to the
200/2008 financial year by the DBAC for training venues utilised by
Justice College. The Department did not invite three quotations.
Value for money was received and no malicious actions could be
identified.
The matter was rectified by the appointment of an in-house travel
agent.
15
Not condoned, not recoverable (Reported at 31/03/2010 in the Financial
16
Statements) (refer to slide 3)
An amount of R 3 853 000 representing 30 cases was reported as not condoned and not
recoverable.
• Competitive bid process not followed – R 492 280 (1 case)
• Competitive procurement process not followed – R 2 494 744 (8 cases)
• Approval for procurement not obtained from DBAC - R 866 261 (21 cases)
The Department acknowledge that instances of deliberate non-compliance do
occur but are dealt with once and when identified. These cases are normally
referred for forensic investigation. The recovery of irregular expenditure is only
possible if a loss can be determined (However, disciplinary action can be
instituted). In the cases referred to, it was confirmed that value for money was
received and no malicious activities could be identified during the investigations.
It must be highlighted that it is not correct to typify irregular expenditure as
wasted or that it resulted in losses or it that it was misappropriated by malicious
actions. Irregular expenditure is sometimes technical in nature and is incurred as
a result of the lack of knowledge, wrong interpretation and administrative
oversights. Practice Note 4 of 2008 is strictly applied in dealing with these
instances of non-compliance.
16
Disciplinary action taken
17
Disciplinary action is taken if required. The nature as well as the
circumstances surrounding the irregular expenditure are considered
prior to disciplinary action being taken. As indicated in slide 16,
irregular expenditure is sometimes technical in nature and is
incurred as a result of the lack of knowledge, wrong interpretation
and administrative oversights.
Since 31 March 2010 disciplinary action were instituted/
recommended or are in the process of being instituted in six cases.
17
Current interventions to mediate irregular expenditure
18
A circular is in the process of being issued dealing with, inter alia, the
following:
1. Governance framework for the procurement of goods and services including
leases.
2. Application of the Preferential Procurement Regulations.
3. Process in dealing and reporting of irregular expenditure.
4. Prohibition of Restrictive Practices.
5. Responsibility for disciplinary action.
6. Implemented a checklist to be attached to payments to identify
instances of non-compliance. Ensure that all irregular expenditure is
identified. Ensure compliance with the prescripts.
7. Delegations - Included an Oversight Committee to oversee process and
ratify recommendations on recovery, disciplinary action and
condonations. Committee in the process of being appointed.
8. Training initiatives ongoing. –Procurement of goods and servicesPPPFA versus B-BEE - Dealing with irregular expenditure
9. An official was appointed to deal with the backlog on irregular
expenditure.
10. Increased monitoring and escalating of non-compliance.
18
Restatement of figures for the previous year
19
• * An amount of R 69 000.00 was erroneously included as
irregular expenditure during the previous financial year as
relating to current year and has been corrected.
An amount of R 34 615 000.00 previously disclosed as irregular
expenditure (current year) in respect of finance leases was
reduced with R 1 693 000 and has now been restated as R 32
976 000. During the Leases Project amounts were identified that
should not have been included
• ** An amount of R 34 615 000.00 reflected as condoned in the
previous year has been reduced and restated to R 12 503
000.00. The amount was incorrectly classified as condoned in
terms of finance leases entered into in respect of RT3 and in
terms of Practise Note 5 of 2008/09
19
20
B.
LEASES
20
21
Irregular expenditure as a result of incorrect
application of the principles relating to lease
expenditure. Did not obtain Treasury approval for the
continuation of lease contracts after the initial lease
period. R 34 605 000
The following are the categories of non-compliance for
period 1 April 2009 to 31 March 2010 against which
Office Heads have been requested to take action against
responsible officials: (In progress)
– Leases exceeding the allowed period – 32 %
– Use of non-approved suppliers – 7 %
– Leases agreements signed by non-delegated
officials – 61 %
21
Leases project
22
The Leases Project which started 1 April 2010 ended 31 July 2010
entailed the following:
– To assist with reconstruction of the leases database, obtaining
supporting contracts
– Clean-up of lease payments accounts
– Updating of the lease register including the confirmation of the
existence of leased assets
– Ensure availability of relevant documentation
– Checking of validity of lease agreements in place
– Clean-up the entire lease register
The above project was based on the following findings of the
financial year 2008/2009:
–
–
–
–
–
That the leases register was incomplete
Lease agreements were signed by incorrect officials
That contracts run after expiry dates
That non-approved suppliers were used
Certain documentation were not available therefore not provided to the
Auditors
22
Leases project
23
Although irregular expenditure was identified during this exercise
, it must be noted that the Department managed to achieve the
desired outcome of the exercise which included, amongst
others, the following for the year ended 31 March 2010:
–
–
–
–
Supporting contracts or supplier confirmations for all leased items
Complete and accurate lease register
Lease amortization tables
Purified leases payments account
23
Leases project
24
Maintaining the Lease register
– Due to capacity constraints, the current lease register is 80% verified in
terms of completeness.
– Additional capacity has been approved and the register should be 100%
verified for completeness by the 31 March 2011.
24
Current Intervention to mediate against Irregular Expenditure
25
Some of the control measures already put in place are:
– A circular dated 29 December 2009 detailing the procedures to be
followed in the administration of leases. This circular was directed to all
offices and officials of DOJ+CD.
– Clear indication of who should sign the lease agreements (addendums)
– Monthly reporting by various offices (Regions) (submission of copies of
signed lease agreements /addendums)
– Enhanced financial delegations (which clearly indicates responsibility
around the leases)
Progress
– Leases are approved by the relevant RCC (Regional Control
Committee) or DBAC
– Copies of Addendum are forwarded to National Office for reviewing and
record purposes.
25
26
C.
Preferential Procurement
Framework Act
26
Background
27
 Incorrect use of the preference goals as contemplated in
section 2 (d) (i) and (ii) of the Preferential Procurement Policy
Framework Act in respect of:
• Contracts via the bid process since 1 April 2005 financial
year
until 31 December 2009
• Quotations from April 2005 to 30 November 2010
27
Implementation of the B-BBEE

The incorrect preference goals were transparently applied
across the broad, however the department regret that we did
not apply the PPPFA

Incidentally there is a move by Government to implement the
B- BBEE within the 2011/2012 financial year, as indicated by
Senior Officials from National Treasury, at a meeting dated 24
February 2011.
28
28
Implementation of the B-BBEE

Was conducted through a fair, transparent, competitive and
cost effective manner through a point system (90/10 and
80/20).

Service providers responded to the department’s
requirements knowing exactly the set criteria to be applied in
the evaluation of the bids and therefore none of the service
providers were prejudiced in the process.

B-BBEE criteria were consistently and uniformly utilized
throughout the department’s procurement process.
29
29
Methodology in determination of non-compliance
30
In the process of quantifying the irregular expenditure
1) The Department consulted and engaged National Treasury for
guidance and assistance
2) The department was of the view that tracing all source documents
and verifying all transactions was not cost effective
3) In the engagement with NT they agreed that the methodology to
quantify the irregular expenditure should be based on
– Sundry payments as per the financial systems
– procurement transaction on JYP
4) The department also excluded all transaction not subjected to the
DOJ&CD direct internal procurement processes such
interdepartmental claims from Government printers and GG
Transport
30
CURRENT INTERVENTIONS TO ADDRESS THE NON COMPLIANCE
31
 Since September 2010 reports were requested on a monthly basis
from SITA to ascertain the magnitude of the irregular expenditure
 During September 2010 – PPPFA learner guides were developed
Training initiatives
 In October 2010, the Department embarked on the capacitation of
targeted officials nationally on the compliance of the PPPFA
(manual process), which was completed by 12 November 2010.
31
CURRENT INTERVENTIONS TO ADDRESS THE NON COMPLIANCE
32
 On 29 Nov 2010, a circular dealing with, inter alia, the
following was issued:

On the application of the Preferential Procurement
Regulations – which detailed the procedures to be followed

The JYP system is configured such that upon evaluation and
approval of the quotations on the system based on the BBBEE, a purchase order is created. With effect from 1
December 2010, the preference points system in terms of the
PPPFR is calculated on an excel comparative price
schedule, which must be signed by a compiler and the
verifier (SCM). In certain instances, it may necessitate the
SCM official to override the award on the JYP balance
scorecard to align to the recommendation to the PPPFR
scoring.
32
CURRENT INVENTIONS TO ADDRESS THE NON COMPLIANCE
33
 Issued a circular dealing with, inter alia, the
following:

1 December 2010 – the department updated and improved the
checklist to be attached to payments to identify instances
of non-compliance.
 Delegations - Enhanced financial delegations (which
clearly indicates responsibility around the procurement of
goods and/or services)
33
Legal/Disciplinary Action
34
 Although the irregular expenditure was identified due to
the incorrect application of the preference goals, it must
be noted that the Department managed to attain value
for money, the contracts were beneficial to the
department, goods/services were rendered satisfactorily,
no losses were suffered and no
malicious activities
were involved.
 The Department will initiate disciplinary action for non –
compliance, upon establishment of the full quantum of
the problem.
34
Preventative measures going forward
35
 Improved and revised checklist to be attached to payments to
identify instances of non-compliance.
 Regional Heads and the National Office Director: SCM monthly
report in the MFMMM on PPPFR compliance
 Future identified cases of non –compliance to PPPFR, institute
disciplinary action against offenders
 Initiate a 10% random check across the department
 Enhance system to perform evaluation in terms of the PPPFR
35
Preventative measures going forward
36
 Finalise the evaluation of the new suppliers and update the
procurement system with suppliers details in terms of PPPFR
requires
 Engaged National Treasury on the possibility of implementing the
Integrated Financial Management System (IFMS)
36
37
2.
FRUITLESS AND WASTEFULL
EXPENDITURE
37
FRUITLESS AND WASTEFUL EXPENDITURE REPORTED
38
2009/10
R’000
Opening balance
Fruitless and wasteful expenditure-relating to prior year
(refer to slide 42)
Fruitless and wasteful expenditure-relating to current year
(refer to slide 42)
Less: Amounts condoned
Fruitless and wasteful expenditure awaiting condonation
222
2 039
(61)
2 200
38
Paragraph 23 (page 147) of the Report of the Auditor-General
39
2008/09 Financial Year – Paragraph 23 of the Report of the Auditor-General (page
147) and Disclosure note 12 (page186) to the Annual Financial Statements
• AG raised a finding on possible fruitless and wasteful expenditure-user asset
Management plan (UAMP). DOJ&CD did not participate in a process where the DPW
appointed a service provider to compile UAMP’s on behalf of the Departments.
• The Department agreed with the AG to appoint an independent evaluator/assessor to
assess and report on the contract awarded by DOJ&CD in support of the statement that it
can’t be regarded as fruitless expenditure.
•. An independent evaluator was appointed and he submitted his Report on 19 February
2010.
“Conclusions
It is my expert opinion that the funds the DoJ&CD has spent on the UAMP Project (RFP
2006 04) was effectively and proactively applied and has, at that stage, put the DOJ&CD
one step ahead of other Departments that followed the DPW route”.
• The AG on 30 June 2010 agreed that the expenditure is not fruitless and wasteful.
39
Fee charged for officials not boarding flights or not using reserved
accommodation
41
• The reasons for “no shows” are normally as a result of unforeseen
circumstances such as ill health and other urgent official matters
with a higher importance that needed attention.
• Cases are referred to the legal section where it is thoroughly
investigated and liability is determined.
41
42
Interest paid on late payment – R 1 000: This is an isolated case
that originated from the 2007/08 financial year amounting to R 578
and paid to the Government Printer. The amount is part of an
investigation were stationary ordered was stolen and the payment
deliberately delayed.
Fee charged for reserved lecturing facility not used – R 2 000:
The expenditure (R 1 692) is as result of the late postponement of a
course.
42
Lease agreements – option not exercised to pay lower rates after
the initial lease period lapsed
43
• The AG, during 2008/09, raised a finding indicating - RT 3
transversal contract was irregular as the leases were in operation for
periods longer than 36 months.
• A Lease Project was launched in order to determine the extent of
the problem in order to deal with the matter. This Project, apart from
the irregular expenditure, identified fruitless and wasteful
expenditure amounting to R 1 690 000.
• Option was not exercised by the Department in cases where the
leases where continued with after the lease period had lapsed.
• Standard clause in the lease agreements that the lease tariff is
lowered once the initial lease period has lapsed. The Department is
currently engaging the relevant managers in order to initiate the
appropriate action and recovery against the responsible officials.
43
Fruitless and wasteful expenditure condoned (refer to slide 40)
•
A total amount of R 61 000 was condoned during the financial year.
•
The bulk of the amount condoned (R 60 000) refer to cases where officials
did not board flights or did not used reserved accommodation.
•
Cases were referred to Legal Liability for investigation and the
determination of liability.
•
The legal outcome of the process is that the officials, in these cases, are not
liable for the losses as good reasons existed (e.g. ill health)
•
An amount that was outstanding since the 2007/08 financial year was only
paid to the Government Printer in the 2009/2010 financial year. This
resulted into the Department having to pay interest of R 578 on the late
payment. This case was referred to Legal Liability for the determination of
liability. Liability could not be determined.
•
Cases condoned were duly written-off by the Departmental delegated
authority.
44
44
Condoned / Recovered after 31/03/2010
45
• 20 cases with a value of R 55 550.68 were condoned.
• The cases were submitted to Legal Liability for the determination of
liability. In all cases it was concluded that the officials are not liable
for the fruitless expenses as good reasons exist.
• e.g. attending to a matter with higher priority/ill health/final logistical
arrangements was not received due to communication failure.
• 7 cases with a value of R 11 257.42 were recovered.
45
Current interventions to mediate fruitless and wasteful expenditure
46
A circular is in the process of being issued dealing with, inter alia, the
following:
1) Fee charged in respect of officials not boarding the flights or not using
reserved accommodation.
2) Fruitless and Wasteful Expenditure Transversal Contract RT 3 (Leases).
3) Justice College – Dealing with Fruitless and Wasteful Expenditure Process
in dealing and reporting of fruitless and wasteful expenditure.
4) Responsibility for disciplinary action.
5) Implemented a checklist to be attached to payments to identify
irregular expenditure. Ensure that all fruitless and wasteful expenditure
is identified.
6) Amend the delegations - Included an Oversight Committee to oversee
the process and ratify the recommendations. Committee in the process
of being appointed
7) An official was appointed to deal with the backlog on fruitless and
wasteful expenditure.
8) Increased monitoring and escalating of non-compliance
46
Results of the remedial action
47
Result of the appointment of a temporary capacity to deal with the
backlog on fruitless and wasteful expenditure.
 Current status.
Amount
Cases
R 2 860 127.88
1 629
Written Off/Condoned
R 46 440.27
81
Recoveries instituted
R 40 975.41
33
R 2 947 543.56
1 743
Annexure K with Legal Liability under investigation
47