PRESENTATION TO THE PORTFOLIO
COMMITTEE ON PUBLIC SERVICE AND
ADMINISTRATION
EVALUATION OF SUPPLY CHAIN
MANAGEMENT PRACTICES WITHIN THE
R200 000 THRESHOLD
10 March 2010
OUTLINE OF THE PRESENTATION
 INTRODUCTION
 LEGISLATIVE FRAMEWORK
 OVERVIEW OF FINDINGS IN RESPECT OF ALL TRANSACTIONS
EVALUATED
 RECOMMENDATIONS
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INTRODUCTION
 In spite of comprehensive legislation and measures implemented by government to
manage the risks of fraud and corruption in the procurement environment, incidents of
financial mismanagement remain prevalent.
 Many of the complaints that have been lodged with the Public Service Commission
(PSC) in terms of the Complaints Rules pertain to allegations of irregularities, fraud
and corruption within the supply chain management framework of government
departments.
 The PSC has also noted that transactions that fall within the R200 000 threshold (the
point at which it is required that a bid or tender evaluation process is to be
undertaken) are generally susceptible to abuse.
 In view of the above, the PSC commissioned an Evaluation of Supply Chain
Management Practices within the R200 000 threshold within the national and
provincial departments of Public Works and Housing.
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LEGISLATIVE FRAMEWORK
 Section 217(1) of the Constitution states that when an organ of state in the national,
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provincial or local sphere of government, or any other institution identified in national
legislation, contracts for goods or services, it must do so in accordance with a system
which is fair, equitable, transparent, competitive and cost effective.
Section 38(1)(a)(iii) of the Public Finance Management Act (PFMA) states that the
accounting officer for a department must ensure and maintain an appropriate
procurement and provisioning system which is fair, equitable, transparent, competitive
and cost effective.
Section 76(4)(c) of the PFMA provides for National Treasury to make regulations or issue
instructions applicable to institutions for determining a framework for appropriate
procurement and provisioning systems which are fair, equitable, transparent, competitive
and cost effective.
Sections 2 of the PPPFA prescribes that an organ of state must determine its preferential
procurement policy and implement it within a framework that sets out a preference point
system relating to specific goals.
SCM Regulation 3 issued in terms of the PFMA, prescribes that the accounting officer or
accounting authority of an institution must develop and implement an effective and
efficient supply chain management system. Such a system must be fair, equitable,
transparent, competitive and cost effective.
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LEGISLATIVE FRAMEWORK (continued)
 Practice Note Number SCM 2 of 2005 sets out the threshold values, detailed below, for
the procurement of goods and services, hiring or letting of anything, acquiring or granting
any right or disposing of movable state property, by way of price quotations or through
the competitive bidding process.
Up to a value of R2 000 (VAT included)
Accounting officers/authorities may procure without inviting bids or quotations by means
of petty cash.
Above the value of R2 000 not exceeding R10 000 (VAT included)
Accounting officers/authorities may procure by obtaining at least three verbal or written
quotations from, where applicable, a list of prospective suppliers.
Above the value of R10 000 not exceeding R200 000 (VAT included)
Accounting officers/authorities should invite and accept written price quotations from as
many suppliers as possible that are registered on the list of prospective suppliers or from
other suppliers where no suitable suppliers are available on the supplier list.
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TERMINOLOGY
 Transactions of departments were assessed in terms of compliance to each step of
the procurement process as follows:
Procurement step
Type of analysis
(a)
Assessment of the availability of documentary
Evidence of invitation of quotation
evidence of invitation of quotations, either verbal or
written
(a)
Evidence of appropriate quotations
Appraisal of the number of quotations on file to test
compliance with the number of quotations that
were prescribed
(a)
Evidence of evaluation of quotations
Review of available documentary evidence to
verify that the appropriate quotation is accepted
(a)
Evidence of request for services/goods from
Analysis of evidence of an instruction, e.g. an
service provider
order,
to
the
service
provider
to
provide
goods/services
(a)
Evidence of payment
Examination of evidence of an invoice on file
corresponding to a payment advice or equivalent
document and other correspondence
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OVERVIEW OF FINDINGS IN RESPECT OF ALL
TRANSACTIONS EVALUATED
 The average rate of compliance to procurement rules relating to invitation of
quotations is 71%. It is of concern to the PSC that only 5 provinces are above this
average
Department
Evidence of
invitation of
quotations
Average rate of
compliance
National
54%
71%
Eastern Cape
83%
71%
Free State
81%
71%
Gauteng
58%
71%
KwaZulu-Natal
65%
71%
Limpopo
72%
71%
Mpumalanga
97%
71%
North West
87%
71%
Northern Cape
64%
71%
Western Cape
47%
71%
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OVERVIEW OF FINDINGS IN RESPECT OF ALL
TRANSACTIONS EVALUATED (continued)

In terms of evidence of appropriate quotations being available, i.e. receipt of the required number
of quotations or in the event of deviation from this, appropriate written authorisation being kept on
file, a compliance rate of only 55% was identified. It is particularly alarming that at a National level
and in 4 provinces,compliance in this area was below the 55% average.
Department
Evidence of
appropriate
quotations
Average rate of
compliance
National
40%
55%
Eastern Cape
79%
55%
Free State
65%
55%
Gauteng
19%
55%
KwaZulu-Natal
53%
55%
Limpopo
62%
55%
Mpumalanga
84%
55%
North West
69%
55%
Northern Cape
41%
55%
Western Cape
42%
55%
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OVERVIEW OF FINDINGS IN RESPECT OF ALL
TRANSACTIONS EVALUATED (continued)
 The average rate of compliance to procurement rules relating to the evaluation of
quotations is 54%. This is also unacceptably low and it indicates that the application of
the criteria for awarding of orders for goods/services is not well controlled and monitored
and is therefore prone to abuse.
Department
Evidence of
evaluation of
quotations
Average rate of
compliance
National
38%
54%
Eastern Cape
72%
54%
Free State
65%
54%
Gauteng
19%
54%
KwaZulu-Natal
49%
54%
Limpopo
62%
54%
Mpumalanga
80%
54%
North West
72%
54%
Northern Cape
45%
54%
Western Cape
42%
54%
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OVERVIEW OF FINDINGS IN RESPECT OF ALL
TRANSACTIONS EVALUATED (continued)
 Compliance to procurement rules relating to requests for goods/services from service
providers is at an average of 69%. 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 good/services.
Department
Evidence of requests for
goods/services from service
providers
Average rate of
compliance
National
88%
69%
Eastern Cape
91%
69%
Free State
87%
69%
Gauteng
71%
69%
KwaZulu-Natal
24%
69%
Limpopo
60%
69%
Mpumalanga
50%
69%
North West
93%
69%
Northern Cape
56%
69%
Western Cape
72%
69%
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OVERVIEW OF FINDINGS IN RESPECT OF ALL
TRANSACTIONS EVALUATED (continued)
 Compliance with the due payments process is high with an average rate of
compliance of 94%. This level of compliance indicates that due diligence is exercised
over the payment process. This should continually be encouraged.
Department
Evidence of payment
Average rate of
compliance
National
93%
94%
Eastern Cape
85%
94%
Free State
96%
94%
Gauteng
98%
94%
KwaZulu-Natal
98%
94%
Limpopo
99%
94%
Mpumalanga
92%
94%
North West
90%
94%
Northern Cape
94%
94%
Western Cape
92%
94%
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RECOMMENDATIONS
 The PSC based on its findings is making the following recommendations to improve
supply chain management:
o Ongoing forensic or other specialised audits within the supply chain management
process.
o Regular fraud detection reviews.
o Ensuring segregation of duties.
o Ensuring adequate supervision of the procurement process.
o Encouraging whistle-blowing on maladministration and corruption.
o Issuing formal requests for quotations.
o Recording deviations in the supply chain management process.
o Payment of invoices should only be made on the basis of the original quotation,
order form and invoice.
o Maintaining an updated list of service providers.
o Declaration of conflicts of interest.
o Performance ratings of suppliers contracted to departments
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THANK YOU!
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