Corruption in government procurement, how are they doing it?

It has been estimated unofficially that R30-billion per year, 20% of the overall government procurement budget of R150-billion, is being lost or is disappearing into a black hole of corruption. Much of the loss is through rip-offs, overpricing and the failure of contractors to deliver on their promises, says Carol Paton, of the Financial Mail, who wonders if the government has the political will to stop it.

SmartProcurement would like to know which fundamental Procurement disciplines have been ignored and which would counter this national dilemma?

How bad is the problem?

The SIU, an agency of 600 people, has spent much of the last ten years rooting out corruption, and now with renewed attention from the Department of Trade and Industry (DTI), the Auditor-General (AG) and the National Treasury, there is some hope for improvement.

Paton quotes Willie Hofmeyr, head of the Special Investigating Unit (SIU) saying that “on the state procurement side, [supply chain corruption has] become worse”, despite recent increased political focus on the issue.

However, reports about corruption in procurement at the Department of Correctional Services and more recently at the Company and Intellectual Property Registration Office (Cipro) involve large figures and raise questions about procurement governance. The tender for the IT data management system at Cipro is worth R153-million and was awarded to a company that at that time was only three months old and has no track record. It has since transpired that there was no SARS tax clearance certificate provided, the composition of the evaluation committee was manipulated and the tender score sheet may have been changed. The tender was handled in association with SITA, the state’s information technology agency. The DTI has given notice to the chosen supplier, Valor IT, to cancel the contract but this has not yet been finalised and is being contested by the supplier.

This situation can be attributed to a failure in the checks and balances on the part of the relevant Bid Committees. Paton alleges that the Bid Evaluation Committee was manipulated. However, it is the function of the Bid Adjudication Committee to ensure that the Evaluation Committee followed the correct process in recommending a tender award; that bidders comply with tender rules; and that a deal is in the best interest of the organisation. Are we looking at a situation where a corrupt Bid Committee’s activities went unnoticed by another Bid Committee unaware of its duties?

How does this happen?

The Public Finance Management Act of 1999 (PFMA) was legislated to manage government and provincial procurement through decentralisation of the activities within clearly defined standardised tender processes. The same principles have been adopted in the Municipal Finance Management Act. One of the rules is that public servants and their families cannot enter into business with the State.

However, through a combination of denial, complacency and a despite the promulgation of the new Prevention and Combating of Corrupt Activities Act to control conflicts of interest, not a single company has been blacklisted. In her article Paton attributes much of the problem to weaknesses in the political structures.

“Corruption is tied into self-perpetuating networks of patronage and power where the people who are in power control the access to resources to help them stay in power. Politically connected officials in local and provincial government become more powerful than their bosses”.

Supplier selection must conform to basic rules, such as the right quality, the right quantity, delivery to the right place, performance or delivery on time and at the right price. However, these rules mean nothing if the quality, quantity, delivery, performance and price are constantly negotiable.

What is being done to tackle the problem?

We can see fresh momentum coming from National Treasury and Auditor General Terence Nombembe is raising his game. He has been checking on the government employee payroll vs. company registration documents and finding many anomalies. He is also undertaking forensic audits in provinces and municipalities on high value tenders.

Skills training and retention of qualified and experienced procurement staff within the public sector is a challenge. At a recent conference, Henry Malinga, Chief Director of Supply Chain Management Policy at the National Treasury stated that they are devising a more effective skills retention plan. In addition, they have undertaken a project to upgrade the training and qualifications of procurement personnel in conjunction with the Chartered Institute of Purchasing (CIPS) in South Africa.

Although not a formal government strategy, the Minister of Finance, Pravin Gordhan, has undertaken a project to tackle corruption in government’s supply chain using the SIU resources and involving each government agency that reports to him. The intention is to avoid manipulation of tenders by those people wanting to pursue personal and political agendas and thereby exercise more control over the use of state resources. One focus area is the procurement process at the SABC.

The accountability of the personnel in the award process is under the spotlight. It is clear that collusion can be effectively countered by a scrupulous application of Procurement guidelines. Based on the facts at hand, the winning bidder was unfit for the award and should have been disqualified based on:

1. The bidder’s ability to fulfill the contract requirements being under question.
2. The bidder not submitting proof that its tax affairs were in order, as required in the tender process.
3. Questionable decisions by the relevant Bid Committees.

Corruption in a supply chain is a risk that every practitioner in the Procurement environment needs to identify, manage and elliminate.

Procurement and supply risks can be detrimental to an organisation, mishaps have the potential to radiate out of control, long after and much wider than might have been expected.

Don’t miss SmartProcurement’s ½-day session on identifying, analysing and managing risk in Procurement and the Supply Chain.

Carol Paton’s article ‘A looter continua’ was published in the Financial Mail on May 22, 2010.

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