National departments & entities deviations & expansions in 2018: National Treasury report

Meeting report

The Chairperson emphasised the Committee’s role in plugging the leaks on deviations and expansions. It was interested in understanding how the whole process was managed, to stop the abuse of the provision of deviations and expansions, which had become a matter of great concern. The objective of the Committee was to cut down on deviations and expansions from departments and to stop unnecessary requests for them.

Deviations and Expansions: National Treasury briefing

Mr Dondo Mogajane, Director General (DG): National Treasury, said the Department’s current work in progress included reviewing Treasury regulations, delegations of authority, the role of provincial treasuries, strengthening procurement planning, strengthening contract management and enforcing consequence management.

In the third quarter of 2017/18, the top deviations had been recorded by Eskom (R401.3 million), Defence (R372.4 million) and the Government Communication and Information System (GCIS) (R206.3 million). The top expansions had been Eskom (R1. 747 billion), the South African Revenue Service (SARS) (R801.1 million) and the State Information Technology Agency (SITA) (R91.2 million).

In the fourth quarter, the top deviations had been the Department of Defence (R362.5 million), SITA (R288.5 million) and Eskom (R152.7 million). The top expansions had been Eskom (R9.481 billion) and the South African Social Security Agency (SASSA) (R29.5 million).

Some of the challenges faced by the Department included:

• the lack of reporting for deviations below competitive bids;
• the participation in deviations arranged by other institutions where there was no obligation for departments to report;
• the attitude of accounting officers who thought deviations were an entitlement;
• the lack of consequence management for employees;
• departments going ahead with deviations after Treasury’s disapproval for them;
• the use of emergencies to enter long-term contracts; and
• the conducting of sham tenders to eliminate competitors.

Discussion

Mr M Booi (ANC) said that SCOPA had supported the centralization of procurement by National Treasury (NT) to eliminate the abuse of procurement in provinces, but as time had gone by, it had been unable to show how it handled the matter for the benefit of the whole country. There was a problem with how NT ran its transformation programme, because deviations were assisting those who already had the money, were in the system or had a contact in Treasury, instead of assisting the newcomers. Treasury guidelines should therefore focus on managing this process rather than looking into decentralising procurement, because the problem of procurement started at the provinces. Treasury should instead focus on strengthening its internal capacity so that it would have the sole authority for purposes of accountability, while at the same time allowing SCOPA to have access to the procurement officer to account. Departments had started splitting the amounts on tenders below the R500 000 threshold that did not require departments to report, and this needed to be dealt with.

Ms T Chiloane (ANC) requested the control of Treasury regulation 16(A) 6.4 to avoid abuse from departments. Departments also did not comply with Practice Note 8, adopted in 2011. Treasury should develop a system of detecting abuse on deviations below the minimum threshold, which had become a concern. The 15%, or R15 million, threshold on expansions had also become a trend that was creeping into Government departments and entities that needed to be looked into. The lack of proper planning and procurement management within departments was a concern and needed the attention of Treasury and Parliament to the extent of not approving budgets for non-compliant departments.

Mr M Hlengwa (IFP) asked for correspondence between departments and National Treasury for the top 20 deviations and expansions, to allow the Committee to look further into the details of the reasons given, and the accompanying narrative. Tender splitting had become the norm for bypassing the system, and it was important for Treasury to build a system that tracked tenders for amounts below the R500 000 threshold in departments and R200 000 in municipalities. It was possible that departments requesting deviations above the minimum threshold were actually more legitimate than those below the threshold, where the abuse was taking place. It was concerning that in spite of the findings of SCOPA’s 2014 report and those of the Auditor General on the abuse of deviations and expansions, there had been no action. Could the Department and Committee get to the point where specific individuals bore the consequences of irregularities, so that charges could be instituted against them? Could the DG go and study the correspondence on deviations, expansions and approvals for Transnet? This could be used as a pilot for investigation, because it appeared that Treasury had raised concerns over a request to deviate but despite the concerns raised, Treasury had gone ahead and approved it. Treasury’s credibility was also on the line in such instances.

Mr D Ross (DA) was pleased that the need for a framework change to strengthen regulations had been admitted. Regarding the centralisation of procurement, what was the progress on procurement legislation? Procurement was currently structured in the Constitution and section 3 (8) of the Public Finance Management Act (PFMA). Were these regulations being taken seriously, or were they being ignored by accounting officers and entities? Was the procurement process strong enough that it was structured in the regulations, in small bits of legislation and the overall constitution, or was there a need for a Procurement Act? When a request for deviations or expansions was received, did departments follow with an advertisement, and was there proof of these advertisements from departments? When Treasury refused deviations, did it immediately notify the Auditor General of South Africa (AGSA)? How could the Committee enforce transparency in terms of a competitive bidding process when departments did not comply, and what would the implications be? Did Treasury have the capacity to monitor the process of deviations granted to prevent irregular expenditure? What were Treasury’s proposals on restructuring regulation? Could these be provided to the Committee?

Mr E Kekana (ANC) raised concern over Treasury instruction 8.1 and 8.2 on deviations for emergencies and sole suppliers, in terms of Treasury not having a proper system to understand when a deviation was being sought because of an emergency or sole supplier. Could Treasury tighten its checks and balances and have penalties for people deviating, which was even worse in local government? Treasury should find a mechanism for monitoring deviations, because this was where corruption was taking place.

Treasury’s response

Mr Dondo Mogajane responded that Treasury was looking into how to modernise, customise and use technology to monitor and tighten its checks and balances, as well as to strengthen its internal processes and capacity. SCOPA was requested to assist in ensuring that systems functioned in their entirety, to hold municipal managers and chief executive officers (CEOs) accountable. The Department would use the Committee’s suggestions to clean up processes when building its new framework to strengthen regulations, prevent malpractices, fraud and corruption, as well as enforce consequence management.

The deviations, expansions and approvals of Transnet would also be considered and reported back to the Committee. He agreed that deviations should not be the norm, and said tender splitting called for the use of technology to modernise and customise the Department’s systems so that it was a step ahead of other departments.

The idea of not passing budgets for non-compliant departments was welcome, because it spoke to proper planning and appropriation processes. Treasury had come a long way in its procurement processes, but recognised that in centralising, the PFMA Act and Municipal Finance Management Act (MFMA) placed responsibilities on the municipalities and not necessarily Treasury. Following this, the Department had since set up a procurement framework for practices that needed to change. Not all procurement processes had been centralized, but the function of approving deviations and expansions was centralised.

The Department did not have the power to sanction or suspend, so it had no control over departments that went ahead with deviations which had not been granted approval by Treasury. The mandate of Treasury in terms of consequence management was not clear as a result.

Mr Solly Tshitangano, Chief Director: Supply Chain Management (SCM) Monitoring, NT, confirmed that the Department had 23 employees in the monitoring unit but did not have the capacity to follow up on processes after deviations had been granted because they were not physically present in the departments requesting deviations. The process was complicated, because some information was not properly given and Treasury relied on the good faith of accounting officers. Problems came about where departments did not fully report on the amounts for which they procured, or manipulated the process of procurement -- for example, by asking for quotations from suppliers at different time frames so that some suppliers did not meet the deadline for submission. Treasury, however, had the responsibility of putting controls in place and would adopt some of the recommendations given by the Committee. Eskom was particularly problematic with the process of deviations and expansions, and there were also cases where departments went ahead with deviations that Treasury had not approved. For all deviations that were not granted, Treasury provided letters to AGSA with reasons for not approving, and had quarterly meetings with them.

Mr Willie Mathebula, Acting Chief Procurement Officer: NT, clarified that there was an internal Treasury system that had members from the budget group who made recommendations to the duly appointed person to approve deviations that were peculiar in nature. Treasury regulation 16A 6.4 also needed to be looked into, to avoid people from abusing deviations, but should also take care of section 79 of the PFMA which granted authority to Treasury to grant approval of deviations. Regulation 16A 6.4 was also similar to section 32 of the municipal law that allowed officials to ride on contracts raised by other organs of state, which had experienced huge abuse in the past even though the regulation required similarity in scope and for contractors to support participation.

Expansion of contracts over unreasonable periods unnecessarily created a barrier to entry for new suppliers, preventing the transformational agenda of government. The 15% and 20% cap, or R15 million threshold on expansions, was a result of contracts being entered into at R400 000 but ending up being R10 million, and would indeed be looked into to avoid abuse.

Treasury was quite serious about enhancing the monitoring process by publishing procurement plans, in the absence of which deviations would not be granted. The Public Procurement Bill that sought to eliminate procurement fragmentation in the country would be the single framework overarching all procurement processes. It had been submitted to the office of the State Law Advisors in December 2017, and comments had been received in mid-January, which Treasury had effected and sent back to the state law advisors. Feedback had been received on 18 May, but the Bill would not be delivered by June 2018 as planned.

The Chairperson re-emphasized the need for a stern process for handling approvals to stop deviations and expansions from being normal. Could National Treasury also provide a report on applications for deviations and expansions, showing those that had been approved and those that were denied, to give an overall picture of departments? It should also include a section for applications which Treasury had declined but departments had gone ahead and deviated, or where departments had provided the wrong information. Did Treasury have a system of tracking cost escalations caused by delays in the procurement process and if not, could the Department look into it?

Going by the revelations of the South Africa Social Security Agency (SASSA), which had several deviations below R500 000, it was necessary for deviations below the minimum threshold to be reported to Treasury. Any deviations approved by departments must also be reported to Treasury. Were there amounts that required the level of approval of the board in a situation where amounts for deviations were abnormal, because it was important for Treasury to tighten responsibility for approval amounts per job level? Could the Department also look into the time frames for deviations in terms of how long the deviation would last? Was it three months, or six months? AGSA should also be included in future meetings on deviations. Was the Integrated Financial Management System (IFMS) forensic audit report out?

Mr Booi asked the Department to indicate the trend within companies when showing the trend on deviations and expansions, for purposes of transparency. SCOPA was looking to build a relationship with Treasury to help the Department deal with deviations and expansions, but required it to provide information on procurement which would particularly be useful in catching departments that misled Treasury. Treasury had been isolated as a department, because nobody knew what it was doing, but it should internalise an approach where they reported deviations and expansions to SCOPA, even the ones below the minimum threshold, to help Treasury in decision-making.

Ms Chiloane raised concern over deviations for cleaning services, which were being abused. Without consequence management, there would be no impact, so talk needed to be backed by action. Other than the relevant authorities conducting investigations, there could be other means of collecting money from individuals.

The Chairperson hoped that SCOPA got to the point, probably outside the reach of journalists and cameras, where the Committee was empowered to hold individuals accountable.

Ms N Khunou (ANC) suggested it was important for the meetings to go beyond what they were currently doing, to get to the bottom of the issue of deviations and expansion, and avoid the abuse of the government. It was important to ensure that everyone had a fair chance at competing.

Mr Ross said some progress had been made in dealing with the fragmentation of legislation and the information on the Procurement Bill. However, the systemic problems in local government where irregular expenditure was at R28 billion, was a concern. Progress had been made in engagements concerning deviations and expansions, but SCOPA should go further and engage directly with institutions.

Mr Mogojane requested that the Department be given time to get back on the IFMS forensic report. National Treasury accepted the comments made and would provide a cleaned up and modernised report that would include all the categories requested by the Committee. He understood the frustration of the Committee regarding Treasury’s internal processes, but requested space to address the Treasury guidelines which would back the signing of documents. The next draft would be more detailed and the Department was ready to come back and report on a quarterly basis. Treasury also appreciated the work and pressure of the Committee, which ensured that systems functioned effectively.

The meeting was adjourned.