In my previous article I singled out supply chain management (SCM), commonly referred to as the tender process in South Africa, as one of the focus areas for national and provincial role players. It is an area across all spheres of government (national, provincial and local) on which citizens are raising major concerns as billions of rands are spent through SCM to procure goods and services.
To ensure proper regulation of procurement/supply chain management, our country adopted some of the most advanced policies, laws and regulations in the world. To put this article into context: the laws and regulations adopted by our country provide clear direction to the public sector on the manner citizens expect procurement to be dealt with in the public sector.
The principles of contracting for goods and services in a manner that is fair, equitable, transparent, competitive and cost effective come from our Constitution. The Public and Municipal Finance Management Acts and their regulations (PFMA and MFMA) prescribe the processes and rules to be followed in the public sector in order to apply the constitutional principles consistently and correctly and safeguard the process against abuse. The preferential procurement framework issued by the National Treasury further gives effect to the constitutional principle of giving preference to the previously disadvantaged in the allocation of work by the public sector. Finally, legislation provides for specific measures to ensure the system is not abused in order to favour certain officials and their own businesses or those of their family members or associates.
All citizens have a critical role to play in ensuring clean administration Despite the above measures being in place, supply chain management is still one of the areas that demand focus from national and provincial role players.
During a recent series of interviews broadcast on radio stations on my office's latest general report on the local government audit outcomes, many members of the public who called in to these talk shows consistently raised issues relating to supply chain management at departments, public entities and municipalities.
processes at departments, public entities and municipalities are being handled in a way that financially benefits a few individuals and that laws and regulations governing SCM are intentionally ignored or flouted by government officials in order to give state officials and their families and associates unfair advantage over other competitors or would-be service providers to government.
Many of the callers asked what my office is doing to curb such malpractices. My first response is that, while my office is playing a watch-dog role, all citizens, civil society fraud prevention agencies and leadership within the public sector have an important part to play in ensuring that our country's public administration procures goods and services efficiently and cost-effectively. Specifically, members of the public and state employees should continue to report to the relevant authorities any form of irregularity they detect. Further, citizens should insist that their elected officials are held accountable and take steps to ensure that the measures citizens have assessed as necessary, and therefore voted into law, are adhered to and enforced.
The role of the audit office On our part my office, since 2009, has included SCM as a specific audit focus area across all spheres of government and identified SCM as a specific focus area for executive leadership and legislative oversight bodies. This focus was motivated, in no small measure, by our endeavours to promote, through auditing, public confidence in our democracy – in this instance, the aims and objectives relating to supply chain management legislation and regulations.
The aim of our audits of SCM policies, practices and controls is to establish whether departments, public entities and municipalities have put in place effective procurement processes and internal controls that ensure a fair, equitable, transparent, competitive and cost-effective SCM system, comply with legislation and minimise the likelihood of fraud, corruption and favouritism as well as unfair and irregular practices.
Leadership commits to ensuring compliance with SCM regulations Our annual audits still continue to uncover many instances of non-compliance with such regulations. Our 2009-10 MFMA audits included specific tests to determine if officials or their family members had an interest in the suppliers of metros and the larger high- capacity municipalities (40% of our municipalities). We found that awards valued at some R76 million had been made to employees and councillors of municipalities and R102 million to their close family members. The AGSA reported these findings to those charged with governance of the municipalities in question, including provincial role players, to ensure these instances are investigated for undue influence and possible fraud; as in many cases the relationship was not declared by the supplier as required by legislation. The audits turned the spotlight on this matter and many municipalities have committed to improving their controls.
The audits of departments and public entities included similar testing for conflicts of interest. The 2009-10 audits identified incidents of conflict of interests and non-compliance with legislation in this regard, but in smaller measure than at local government.
The most common finding from our audits across all auditees is deviation from legally prescribed SCM processes. It is important that prescribed processes are followed in order to ensure the selected supplier has the capacity to deliver the goods and services and that it is done at a reasonable price. Inadequate management of projects and contracts remains a weakness in the public sector and more so at local government level. Our audits included an assessment of the basics of contract management and raised findings on the lack of written contracts, payments made in excess of contract amounts, irregular amendments/extensions to contracts and inadequate monitoring of contracts. In most cases the reason for these weaknesses was insufficient capacity and skills to manage contracts.
In addition to the AGSA's audits, investigations initiated by auditees themselves continue to high- light that the SCM processes are handled to benefit a few individuals, or that SCM legislation is intentionally ignored or deliberately bypassed. We will continue to increase our focus in this area, as shortcomings result in delays, wastage and fruitless expenditure which impact directly on service delivery to the citizens.
The complete results of our analyses are available in our general reports on the national, provincial and local government audit outcomes for 2009-10 (www.agsa.co.za).
To accelerate the elimination of tender process irregularities, every accounting officer/authority, chief financial officer and senior official needs to discharge their PFMA- and MFMA-prescribed obligations diligently. They are required to take reasonable steps to prevent irregular expenditure by developing and implementing internal control systems that ensure fair, equitable, transparent, competitive and cost-effective SCM processes that could prevent and detect fraud, non-performance by suppliers, and non-compliance with SCM legislation.
Strong ethical leadership needed to turn the situation around It is encouraging to note that those charged with public governance and oversight have recently again committed to take the lead in turning around our auditees' non-compliance with SCM legislation and ensuring a strong ethical culture within the public sector.
Active governance and involvement by internal audit and audit committees can also go a long way in meeting the tender process challenges, thus helping the public sector move faster in its march towards clean administration by 2014 and beyond.
Non-compliance must have consequences and accountability must be enforced at all levels. For example, there should be severe consequences for those who intentionally neglect regulations that govern strategic areas such as SCM. There must be a conscious decision by political and administrative leadership to take action against transgressors. Only when the leadership has set that tone of decisively dealing with such malpractices would the citizenry have confidence in our public sector procurement and financial management systems.
To conclude, SCM is the area where the bulk of the activities are concentrated in all three spheres of government. Continued non-adherence to SCM regulations therefore defers restoration of the public's confidence in the ability of state officials to systematically take care of their interests – and deprives citizens of much needed services in all areas of service delivery including within the health, education or housing sectors.
The level of service delivery to citizens and the degree to which government's socio-economic objectives are promoted are directly and significantly helped or frustrated by the degree to which the procurement systems of departments, municipalities and other public sector entities comply with legislation and prescripts.
As I indicated earlier, every citizen of this country has an important role to play in ensuring our public administration, and by extension our democracy, works efficiently. And I look forward to hearing more testimonies about South Africans who are working closely with their elected representatives or law enforcement agencies in thwarting supply chain management irregularities that could undermining our democracy.
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Personal history Terence was born on 30 September 1961 in Qumbu, Transkei. He matriculated at Umtata Technical College in 1979. He was awarded a BCom degree by the University of Transkei in 1982 and BCompt (Hons) by the University of South Africa in 1986. He qualified as a chartered accountant in 1990.
Terence gained valuable experience during his work in the private sector which developed his technical competencies as an accountant, external auditor and internal auditor. He also developed solid management and leadership competencies upon which he bases his leadership style.
Terence is married to Nokwanda and has three children, Mphiwa, Fezekile and Kamvalethu.
Career developments Terence started his career as a trainee accountant with KPMG in Umtata in 1983. He left KPMG in 1987 and joined Unilever in Durban as internal auditor and later as an accountant in the Lipton Tea and Soup factory in Pietermaritzburg. He then joined BP Southern Africa (BPSA) in Cape Town in 1991 as senior internal auditor. While with BP, Terence joined BP Botswana in Gaborone as finance manager in 1994. He returned to BPSA in Cape Town as market research manager in 1996.
In May 1997, Terence helped establish and was a partner-in-charge of the auditing firm Gobodo Incorporated in Cape Town where he initiated the formation of Gobodo Corporate Governance Services, an internal audit division which operates nationally with regional offices in Cape Town and Pretoria.
Auditor-General Terence joined the Auditor-General on 1 June 2000 in the capacity of Deputy Auditor-General and Chief Executive Officer. He brought to the organisation a firm commitment to supporting mechanisms for instituting stable governance within government. In December 2006 he was appointed to the position of Auditor-General of the Republic of South Africa. He is the first African to hold the position of Auditor-General in the organisation’s 100-year history.
His contribution to the accounting and auditing profession includes participation in some of the most prestigious professional bodies, such as:
He currently serves in the following capacities:
Terence believes that the vision of the Auditor-General of South Africa, namely “To be recognised by all our stakeholders as a relevant Supreme Audit Institution (SAI) that enhances public sector accountability”, is his biggest motivator. Terence regards this as a powerful vision that should be carried through.
"We operate in a constantly transforming and developing country. To be relevant in such a changing environment, my office is continuously redefining itself to meet challenges presented by change. For example, to make a meaningful impact we had to first acknowledge that public sector auditing is more challenging and different from private sector auditing. Public sector audits go beyond merely expressing an opinion on the financial statements. When we audit the public sector, we also comment on the effectiveness of key management processes and give feedback on compliance with laws and regulations. This qualitative approach enables public sector managers better to understand the financial impact of the identified problems and assists in helping them to prioritise the corrective actions. This is how we add value and help improve public sector financial management and our contribution to service delivery," says Terence.
Terence has committed his office to the continued unearthing and grooming of young chartered accountants and financial managers who will, in turn, use their acquired skills to help boost and continue upgrading the public sector financial management systems.
"South Africa is a rich mine of young, bright and talented youths. It is our task to help unearth and polish this latent talent. Through our trainee accountant scheme we have started that search, and we are going to all corners of the country looking for future auditors and auditors-general who will take over from us and continue helping our country manage its public resources effectively."