PFMA 2019-20 Report

on national and provincial audit outcomes 71 A total of 199 auditees incurred fruitless and wasteful expenditure in both the current and the previous year, of which 171 had incurred such expenditure for the past three years. Section 5 includes more detail on the fruitless and wasteful expenditure incurred. Except for the work done on material irregularities (as discussed in section 3), our audits in 2019-20 did not include an assessment of the actual financial impact of non-compliance by auditees. It is the role of those charged with governance to investigate non-compliance and the impact thereof, which could include financial loss through excessive expenditure (uneconomical use of funds), fruitless and wasteful expenditure, lost revenue, failure to recover debt, and avoidable penalties and interest. Often findings on non-compliance with supply chain management legislation are viewed and commented on as procedural issues or possible fraud. But the potential for losses to government due to the correct processes not being followed is often overlooked. In 2019-20, 106 departments (67%) and 99 public entities (44%) did not comply with supply chain management legislation, resulting in unfair or uncompetitive procurement processes. Most often this means that all potential suppliers were not given a fair chance to compete for work. Less competition often leads to higher prices being paid for goods and services. Similarly, the 67 departments (42%) and 46 public entities (21%) that did not comply with legislation on contract management open up the state to losses when contracts are not in place or performance is not monitored. As detailed in section 3, the most material irregularities identified to date were in the area of non-compliance with supply chain management legislation – we identified 29 such instances with an estimated financial loss of R3,2 billion. The non- compliance resulted in an unfair or uncompetitive procurement process, leading to auditees either paying a higher price for the goods and services than they should have or appointing a supplier that could not deliver at the quality required. EXAMPLE: What is the effect of unfair or uncompetitive procurement processes and non-compliance with contract management legislation? A project of the North West Department of Health involved the construction of the Mmabatho Nursing College in Mahikeng, with a contract value of R241 million. The project had a commencement date of 5 February 2016 and a planned completion date of 4 May 2017. The project was extended various times due to contract instructions not being issued or being issued late, which ultimately resulted in a revised completion date of 31 March 2019. However, the project had still not been completed at the time of the 2019-20 audit. No evidence could be provided of a revised timeline or the impact on project costs and deliverables. As a result, the delays cost the department an additional R8,5 million (over and above the R241 million). This is indicative of inadequate project and contract management. Further examples are included in section 3 that deals with material irregularities.