Third Special Report

Third special report on the financial management of government’s covid-19 initiatives 38 Nkomazi Themunicipality appointed a supplier to provide fumigation services in March 2020 for a total amount of R2 620 000. We noted the following non-compliance aspects and possible fraud red flags in evaluating the appointment of, and payments to, this supplier, which could collectively indicate possible preferential treatment of the supplier: • There was insufficient audit evidence available to confirm the fairness and transparency relative to obtaining written price quotations frompotential suppliers. There was no documented evidence that potential suppliers other than the appointed supplier were contacted. • No reasonablemeasures were employed to establish the reasonability of the final price awarded and the consequent payments made to the supplier. • The supplier was not registered on the CSD at the time of the award. • The supplier was not tax compliant at the time of the award. • The supplier has no previous order history with themunicipality for the previous financial year. • We could not confirm the nature of the supplier’s business and whether this was aligned to what they were appointed for, as the supplier has no internet presence. Since the supplier was appointedwithout following a proper procurement process, and in some instances key documentation was not available to confirm fairness and transparency in the appointment of the supplier, themunicipality is not in compliance with legislation. Johannesburg Water (City of Johannesburg Metro entity) On two occasions, Johannesburg Water appointed a supplier through a deviation process. The appointments were for the supply of covid-19 PPE items (disposable protective coveralls and surgical masks) in March and April 2020 for a total amount of R1 706 014. The funding used for this procurement was the entity’s own internal funds. We noted the following contraventions of section 36 of the Municipal Finance Management Act SCMRegulations, which raise questions and possible fraud around the appointment of the supplier: • The reasons for procuring 3 000 disposable protective coveralls froma supplier via a deviation was not recorded and the deviationmemorandumwas not approved by the accounting officer or the delegated official. • On a different purchase order, 40 000 surgical masks were procured from the same supplier through a deviation without obtaining prior written approval from the accounting officer. The purchase order was issued to the service provider on 26 March 2020 and the request for ratification of these deviations was only submitted to the accounting officer on 8 April 2020. Although the deviation was subsequently ratified, as required by SCM regulation 36(1) (c), the procurement process followed was still susceptible to abuse andmanipulation due to a lack of review and prior approval of these deviations by the accounting officer or a delegated official. As the deviations fromnormal SCM processes were not approved in one instance and were approved after the supplier had been appointed in the other instance, this raises a concern that these goods were not procured in themost cost-effective manner possible. Awards made to officials employed by the state Municipalities need to ensure that they implement appropriate controls to identify and prevent the procurement of PPE items fromsuppliers that did not submit declarations of interest or fromsuppliers with owners who are related to or employed by the state. This is also prescribed by SCMRegulations. Threemunicipalities procured PPE items to the amount of R10 592 818 fromsuppliers and/or employees that are in service of the state, including the examples noted below.