Cobie van Antwerpen | Director | Risk Advisory Services | BDO South Africa | mail me |
Too many powerful and well-remunerated people in our public sector are letting South Africans down by continually failing to achieve the strategic objectives of the entities they manage.
Officials in the public sector must employ clean governance principles across every aspect of their operations. This is the only way to ensure that unqualified and clean audits can be achieved, as well as the objectives each department and entity has set out to achieve from the onset.
The office of the Chief Financial Officer and supply chain management must be capacitated to deal with the vast number of procurement activities which occur throughout any financial year.
Losing trust
The public sector is fast losing the trust of the people of South Africa. My primary concern is our ability to restore trust in public sector procurement processes.
Part one of the Judicial Commission of Inquiry into State Capture Report states it clearly that procurement has a legitimate transformation role to play in South Africa. State institutions are permitted to use procurement as a policy tool to advance the interests of various designated groups.
But, the commission found, through evidence, that the ideals of empowerment were grossly manipulated and abused to advance the interests of a few individuals, which is really disappointing.
We saw a loss of trust in our government, and, in many regards, in the role and function of supply chain management. It is now crucial that the public sector restores the pride in the social purpose of supply chain management, which is to empower the citizens of RSA and not just a few individuals.
Damning numbers
In December 2021, the Auditor-General of South Africa (AGSA) Tsakani Maluleke released a damning general 2020/21 Audit Outcomes Report.
Irregular expenditure increased from R109.82 billion reported in the previous year, to R166.85 billion. In reality, irregular expenditure could be even higher. As per the AGSA’s acknowledgement, this would be due to as much as 30% of the audits being qualified because of incomplete disclosures related to irregular expenditure.
As much as R2.14 billion worth of contracts could not be audited due to a lack of supporting evidence. Maluleke also reported that the Development Bank of Southern Africa (DBSA) was the only state-owned entity (SOE) to achieve a clean audit in the 2020/21 period, warning that the financial health of parastatals is very poor across SA.
A clean audit is termed an unqualified audit without findings, and, in a well-run society, this is the norm and is not considered to be a pipe dream.
How can supply chain management change to embed trust?
Driving and striving for clean audits has lead to supply chain management where officials are no longer able to think strategically. They focus only on the number of checklists that they have put in place, not to miss any step of the policy and procedure manuals given to them.
There is no doubt in my mind that supply chain management is at the forefront of service delivery for each entity – when you get the acquisition processes wrong – you will firstly, not achieve the objectives set by the accounting officers and authorities and, secondly, you will increase the already unacceptable number of irregular expenditure.
We expected President Ramaphosa to start to address these issues in SONA 2022 this week, and for the Minister of Finance to further address the Procurement Bill during the 2022 budget speech – as the legislated environment needs to be addressed appropriately to empower supply chain management units.
We believe that the Minister should also consider, after the most recent outcomes of the AGSA PFMA reports, and the up and coming report on MFMA, including the outcomes of the State Capture report – re-opening the procurement bill for discussion. This will allow further enhancements, as recommended by industry and the sector.
Current state of affairs in supply chain management units
Instead of investing in appropriate skills, systems and processes – building adequate capacity in supply chain management and truly understanding why functions are performed – supply chain managers and practitioners rather create checklists and manage through them, to ensure they don’t trigger irregular expenditure.
It is time that supply chain management officials take their rightful space, and that the system stops dumbing SCM them down. These checklists still do not achieve the desired outcomes. The stigma, and at times, justifiably so, that officials are perceived as corrupt or incompetent, or both, can only be changed when we capacitate supply chain management units and officials in the public sector.
Further to that, the instructions issued by National Treasury also need to be appropriately analysed in terms of its applicability and practicality for all entities involved in the space.
At times, although with the best intentions in mind, instructions are issued that simply do not cater for the operational needs of departments and entities, and create a compliance burden that constantly needs justification. Departments, public entities and state-owned-entities are then unable to achieve their core objectives in a smart and timely manner.
I firmly believe that the public sector must implement a Comprehensive Renewal Plan for Supply Chain Management. We urge the Minister of Finance and the Director General of Treasury to consider this suggestion for inclusion in the budget speech. This suggested plan entails four steps to be implemented.
Leadership at the top
Our leadership structures through the accounting officers, authorities and executive management, must lead through integrity, transparency and demand quality form supply chain management.
Supply chain management training, upskilling and capacity
Supply chain management training, upskilling and capacity building must be prioritised by the Chief Procurement Officer’s Office. Supply chain management must be upskilled through training and capacity building. Programmes must be implemented to assist supply chain managers in achieving its objectives in each department.
Filling the vacancy of the Chief Procurement Officer – to drive strategic and compliant procurement in the public sector – must be prioritised at National Treasury. The intention of this office is to create stability in supply chain management.
National Treasury should consider promoting the creation of a chief procurement officer in each department and entity, to achieve compliant SCM processes. This role needs to be at an executive level, similar to that of the CAE, CIO and CRO.
Ethical supply chain management
Effective performance of the state can only be achieved by ethical supply chain management – driven by ethical procurement processes. This includes that all involved in procurement activities reduce their narrow focus on maximising self-interest and enrichment.
Continuous performance audits by internal audit units will assist in independent reports on supply chain management. I believe that this will reduce rampant greed, as noted during the State Capture Report, both Part 1 and 2, as launched in December 2021 and February 2022 respectively. It will also have to include consequence management.
Consequence management does not only drive punitive measures – it has to start with positive and progressive processes related to the training and education of all involved.
Continuous monitoring and reporting on performance forms critical part of consequence management. Hereafter, when upliftment has failed, and continuous flouting of processes, rules and regulations occurs, firm disciplinary action must be taken.
Probity and pre-tender award reviews
This process will cover a proactive response to procurement and compliance risk to assist in firm governance processes.
The result of a pro-active process will include and stimulate integrity, impartiality, accountability, transparency and contracts, creating value for money for each department. This is where internal audit can play a significant role in enhancing governance processes, where they independently review the compliance processes followed, from start to finish.
However, probity reviews can also be conducted after the award was concluded. The proactive impact will therefore be lost, however it can still play a tremendous role in curbing corrupt activities through sound lifestyle audits (also being promoted by the Public Service Commission), establish links between bidders and officials, and achieve a reactive result in the aim of the probity review.
The value of internal audit measures
Public sector officials must look inwards and audit all of their systems and not be shy to ask for help from relevant authorities in government. They must administer pre-tender audits and reviews, thereby giving chief financial officers assurance that processes are being followed and that they are tendering for legitimate work, legitimately.
Internal auditors must check for compliance with laws and regulations, must review fair, transparent and equitable processes, check for possible conflicts of interest and also administer lifestyle assessments and due diligence reviews.
We must see consequence management in action. This involves commitment by management to programmes and then implementation and monitoring and measuring thereof.
Finally, there must be continual improvement. That is how a public sector entity can impress the auditor general, businesses and the man on the street.
