Quarter 4 2021/22 National deviations & expansions; Treasury Instruction Note 3 of 2021/22

Public Accounts (SCOPA)

03 May 2022
Chairperson: Mr M Hlengwa (IFP)
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Meeting Summary


In this virtual meeting, National Treasury briefed the Committee on the deviations and expansions for National Departments and entities for quarter four of 2021/22.

There was a total of 88 Government institutions that applied, numbering 172 applications, worth a grand total of R14 356 311 098.01. Some of the common reasons for expansions and deviations included business strategy operations, service delivery urgency, extensions on current contracts due to new tender processes not being concluded in time, value for money and extension of accommodation leases. Some of the trends and observations noticed included poor procurement planning, poor implementation of projects leading to either contract expansion or single source deviations, poor governance structures and non-implementation of consequence management on officials who caused irregular expenditure.

National Treasury also briefed the Committee on the new instruction note 3 of 2021/22 issued on 31 March 2022 and the implication of the instruction. The instruction was issued to provide measures to improve accountability and transparency in the procurement of goods and services; reduce the abuse of the Supply Chain Management (SCM) system; and ensure value for money.

The Committee noted with concern that there was high level of non-compliance with Treasury instructions and regulations. Entities, even when they were not supported, went ahead with procurement. In many cases it resulted in fruitless and wasteful expenditure. Did Treasury have the details of these different Departments and what it was that they were doing to deal with these particular cases? What had Treasury done to deal with such cases where entities continued to ignore what Treasury was saying?

Concerns were raised about service providers. Service providers came back to bid for more work from municipalities. Yet, they had been given work with municipalities and not delivered. How did Treasury curb this kind of situation? Many of the members were not comfortable with the responses given by Treasury. Government could not rely on Accounting Officials and Accounting Authorities to report cases.

The Committee expressed its concern about the normalisation of expansions and deviations as opposed to them being an exception in the procurement processes of Government. There was an increase in fruitless, wasteful and irregular expenditure. The Committee remained having heightened concern in this regard. The Departments and entities were being left to their own devices with very little safeguards, and checks and balances.

The Committee was worried that Treasury was engaged in a regressive policy step. The Committee would assess this decision moving forward. Treasury needed to consider very strongly that Government had been down this road before. The preventative measures or the restrictive measures that were in place had now just been thrown out of the window. It was a very slippery slope that Treasury was set on. It was regrettable that the Committee was now being informed about this policy decision and had not been consulted about it.

Meeting report

The Chairperson welcomed the members to the Committee meeting on the changes which had been made to instruction note 3. The Committee would receive that briefing. A presentation had been circulated. The Committee would then field questions after. The Minister was in Cabinet this morning and the Deputy Minister was presenting, on behalf of the Minister, to the Standing Committee on Finance, the annual performance plan ahead of the budget votes. He had received those apologies in writing for this meeting. The Acting Chief Procurement Officer was present and was the line function insofar as what the Committee was dealing with.

The Chairperson welcomed the members to the first meeting of the term, following the recess period and oversight visits that had taken place. The Committee’s oversight visit had been to Eskom. The Committee would be starting off the term with National Treasury.

The Chairperson handed over to National Treasury to do their presentation. Thereafter, the Committee would ask questions.

Briefing by National Treasury on deviations and expansions for National Departments and entities for quarter four of 2021/22

Mr Molefe-Isaac Fani, Acting Chief Procurement Officer, National Treasury, briefed the Committee on the deviations and expansions for National Departments and entities for quarter four of 2021/22. The presentation detailed the legislative basis, the definitions, the deviations for quarter four, the contract modifications for quarter four, and common reasons for deviations and modifications. The trends and observations were also detailed. The presentation concluded with the operational challenges and remedies.


The rand value of the deviations for the top 20 Government institutions totalled R14 107 502 861.57. The number of applications for those top 20 Government institutions were 64. The rand value of the deviations for the other 68 Government institutions totalled R248 808 236.44. The number of applications for the other 68 Government institutions were 108. There was a total of 88 Government institutions that applied, numbering 172 applications, worth a grand total of R14 356 311 098.01.

Common reasons for deviations and expansions

• Sole Supplier and/or Single Source.

• Closed bid process (Limited market).

• Business continuity.

• Business Strategy/operations. Recently found with SOCs with their turn around Strategies.

• Service Delivery Urgency.

• Extensions on current contracts due to new tender processes not concluded in time.

• Failed tender processes. Restart tender processes.

• Value for money.

• Extension of accommodation leases.

• Continue using existing software.

• Exceeding the 15%/R15m or 20%/R20m threshold for expansions, especially SOCs with large projects.

• Government to Government Procurement.

• Expansion of scope (time & material).

Trends and observations

• Increased departure from the competitive bidding process.

• Continuous modification of contracts that keep same service providers.

• Increasing audit disputes.

• Poor procurement planning.

• Poor implementation of projects leading to either contract expansion or single source deviations.

• Poor governance structures.

• Non implementation of consequence management on officials who cause irregular expenditure.

Briefing by National Treasury on the new National Treasury instruction note 3 of 2021/22 issued on 31 March 2022 and the implication of instruction

Mr Fani briefed the Committee on the new instruction note 3 of 2021/22 issued on 31 March 2022 and the implication of the instruction. The presentation detailed the rationale for the revision of the instruction, the purpose and context of the revised instruction and the restrictions of persons from conducting business with the State. The instruction was issued to provide measures to improve accountability and transparency in the procurement of goods and services; reduce the abuse of the Supply Chain Management (SCM) system; and ensure value for money.

General requirements

The Accounting Officer/Accounting Authority:

• may not invite price quotations or bids where no provision has been made in the budget;

• must ensure that cash flow is sufficient to meet contractual obligations;

• must pay suppliers within 30 days of receipt of invoice or the period provided for in the contract;

• may not place orders with suppliers for goods and services to be received in the current financial year and arrange with suppliers to be invoiced and payment to be made in the next financial year, except in the case of a multi year contract; and

• must ensure that no prepayments are made prior to receipt of goods and services, unless required by the contract with the supplier.

(See Presentations)


Mr A Lees (DA) said that the Office of the Chief Procurement Officer (OCPO) came into existence on 1 April 2015. Those involved in drafting that legislation and many others were hopeful that the establishment of that OCPO, then under Mr Kenneth Brown, would have a far-reaching impact on the levels of corruption and fraud. Sadly, that had not happened. Mr Kenneth Brown left two years after the establishment of the office. There had not been a fulltime Chief Procurement Officer since then. He thanked Mr Fani for acting in that position.

One of the issues that faced the fight to prevent corruption and fraud was for institutions, particularly institutions like Eskom, to be light-footed and to be able to move quickly. Looking at the presentation, there was quite a number of referrals to ‘prior approval’ by the relevant treasury. He wanted to know from the Acting CPO, what kind of time restrictions were there on this? How long did it take for the relevant treasury to respond and was this quick enough? He asked this because when Mr Vuyani Jarana took over as CEO of SAA, it was one of the first issues he raised was the slow responses in trying to run a commercial operation like an airline. He eventually left. It was also something raised again during the Committee’s visit to Medupi and Kusile, in terms of being able to keep the lights on and being able to rapidly make decisions and take action. Were there any time restraints on the approvals being given to ensure that services continued unabated?

He raised the issue of sole source. What the Committee found at Medupi and Kusile was emissions control itself being an issue. The establishment of the plant being a sole source was being challenged by National Treasury. The supply of the plant used subcontractors for certain parts within the plant. This was inhibiting the progress on modifications and maintenance of the emission control plants. Which in turn, during one of the worst weeks of loadshedding, caused losses in generation capacity.

He discussed the ability of National Treasury or the OCPO to find ways of getting these determinations done quickly on applications but even when it came to defining what a sole source was. The Committee had been shown a whole lot of applications, some were approved, and others not approved. Could the Committee be told what number of applications were made after the fact? Those that were not approved, did they proceed, or did they not proceed in terms of the knowledge of the OCPO? He assumed that the OCPO or National Treasury monitored once the approval or non-approval was given. He had high regard for SARS despite its capture by Mr Tom Moyane for a while. He was curious about the relatively large numbers of applications coming in from SARS. SARS, like Eskom, needed to be light of foot. When SARS was originally set up, it was set up outside of the public service so that decent salaries could be paid. He thought that the public service, in terms of salary levels, had surpassed SARS. What were the reasons for SARS’ applications? He wanted some idea. Obviously, the details would not be able to be given now.

Mr S Somyo (ANC) said that what Mr Lees had raised was a key aspect of the last presentation. It sought to negate the first presentation and the crux of referrals to treasuries for various approvals and finalisation of other expansions or deviations to be finalised by the Accounting Officers.

He discussed the role of the OCPO in terms of the initiation of the ‘naughties’ that had been presented to the Committee. The first presentation told the story that the justification of movement of the quantity and quality aspect of service delivery, in terms of time and price, was a very subjective movement. The piling up of reports according to various quarters in the financial year would counsel the justification of the movement by Treasury to reduce the new form in as far as matters of procurement were concerned. He failed to understand what the key driver was of seeing Treasury coming up with this latest publication, which sought to even weaken the ability of the State to account for matters of expenditures in terms of procurement. The same Accounting Officers who were being empowered to make their own decisions, were the same Accounting Officers who made referrals to Treasury. He failed to understand why Treasury came with these so-called improved operational mechanisms insofar as the procurement was concerned. This new approach sought to deepen the current problems that was found in irregular expenditure. He expected irregular and fruitless expenditure to be heightened. What was the basic informing objective of Treasury to move towards this type of direction?

Ms V Mente (EFF) asked a question related to the first presentation. What was it that National Treasury has done so far to deal with the Departments that had continued to procure and use systems that were not favourable to the procurement systems and their expenditure? 63% that were not allowed, continued with their procurement.

Mr Fani responded to the questions asked by Mr Lees. He discussed when the OCPO received in the past, using instruction note 3 of 2016/17, where National Treasury was required to support or not support depending on the circumstances applicable to the application that was sent through. It was generally accepted or expected by the organs of state that National Treasury applied its mind and supported or did not support. There were instances where National Treasury requested additional information because there were blurry areas that Treasury needed to ensure were covered before it voiced its opinion with regards to supporting or not supporting of the deviations or modifications. That had resulted in some of the applications that were sent through to be prolonged. Firstly, Treasury could have been waiting for information. Secondly, the information provided was irrelevant and inconclusive. Thirdly, the organs of state had not submitted that information. Fourthly, there were instances where Treasury needed to have a conversation, for example where public finance needed to indicate what would be the financial risks of approving such a deviation. Or where the division that played an oversight responsibility on SOEs would also have to pronounce on that application. An application would vary from time to time.

Mr Lees had indicated that there were sole supplier applications that were sent to National Treasury. Instruction note 3 was very specific in that in instances where an organ of state wanted to use a sole supplier, the Accounting Officer had the authority to approve such a supplier. There was no need for anybody to bring an application for a supplier for sole source to National Treasury. There had been quite a number of statements made by Eskom, specifically, that National Treasury took too long and wanted to approve the sole suppliers. That was not correct. Sole suppliers were delegated to the Accounting Officers to adjudicate on. National Treasury intervention was not required. It was still not required. Where National Treasury received an application for a single source, it adjudicated that as such. If National Treasury had received in the past an application for a single source but based on the information at its disposal that it was a sole supplier, that would be referred back to the Accounting Officer to adjudicate. All the matters that National Treasury officiated on and formulated an opinion on, whether it was a single source or not, it had given reasons why it supported or not supported in that instance. Treasury had tried as fast as it possibly could to process these. Treasury had reduced the time considerably. The volume of work that had been received for the deviations was one of the secondary reasons why Treasury wanted the instruction note to place an accountability on the Accounting Officers.

He responded to Mr Lees’ question about which requests for deviation and modification happened after the fact. If such happened after the fact, then Treasury’s response would have been that it did not support such a deviation or modification, because it happened after the fact. Treasury would have captured those under the ‘not supported request for deviations and modifications’ in the presentation.

He responded to the questions of Mr Somyo and Ms Mente. In the presentation, Treasury had given the reasons why it wanted a new instruction to be issued. Treasury wanted to ensure that organs of state timeously and speedily respond to emergencies and their operational requirements by making sure that the Accounting Officer took an appropriate decision and was held accountable for the decisions that they took. The Accounting Officers were to account to their relevant executive about the decisions that they had taken. The move to have National Treasury to declare on whether something was single source or not was a secondary reason for the introduction of the new instruction note. The Accounting Officers needed to take accountability. The PFMA indicated what it was that the Accounting Officers could do. The Accounting Officers managed money. They were provided with the budget that they were supposed to work with. They used procurement as one of the mechanisms to spend the money that had been disbursed to them. National Treasury needed to provide a framework under which the Accounting Authority would exercise their responsibilities when they would disburse the amount of money that was allocated to them. The Accounting Officers needed to be held accountable with their compliance or non-compliance to the procurement transactions that they would have approved.

Ms Mente asked what National Treasury had done so far to deal with organs of state that procure irregularly. The responsibility of holding the Accounting Officers accountable rests with the Accounting Authorities and the executive. National Treasury followed up about all the audit findings through its condonation processes to make sure that all deficiencies that happened in the process of taking the decisions that led to irregularities had been rooted out. All officials that should be held accountable for the irregular procurement would be brought to book about the irregular expenditure framework that Treasury applied for all the irregular expenditure. The internal audit processes and audit committees were supposed to make sure that all the irregular expenditure or audit findings that had been raised by the AGSA were followed through and that the corrective actions had been put in place, even before those entities came before Treasury for a condonation process. The Accounting Officer needed to sign off after they had made sure that the control measures were put in place. The executive authority must ensure that they took appropriate action about the Accounting Officers and Accounting Authorities that had not exercised their authority appropriately and that led to irregularity in the procurement processes.

Dr Sakhile Manyathi, Director: SCM Governance, Monitoring and Compliance, National Treasury, discussed the applications of SARS. The issue of SARS surprised Treasury. The number of applications were not normal for SARS. After Treasury’s analysis, it was indicated that the issue of SARS jumping to number two mainly had to do with the ICT systems for tax collection. SARS wanted to improve their ICT systems that related to tax collection. That was mainly on the expansion side. There were several items that were indicated by SARS. For example, there was a contract that needed to be expanded because their office lease agreement needed to be extended. There was also a network carrier infrastructure services, which related to the ICT modernisation of tax collection, and there was the issue of legal services. They incurred legal services and those cases needed to be extended. In South Africa some of the court cases could go on and on. In those cases, extensions were required. Those were the cases of expansions.

The expansions of Eskom related to R841 million. Out of that R841 million, the bulk of the applications were not supported. There was one that was conditionally supported. The other applications were supported. Those were the reasons for expansions and Eskom jumping to number two, which was not normal.

He discussed the deviations. Similar cases were noted there. SARS had sniffer dogs that needed to be used when it enforced law. SARS had a contract there that it had wanted to deviate to service the dogs that they had been using in their investigations. Most of their deviations also included accommodation in rural areas that did not have official accommodation. Most deviations were in residential areas. There was also the issue of sale of generators from SARS Revenue building in Benoni. That created the issue of deviation and that amounted to R438 thousand, and Treasury had supported that deviation. Another one that might have had a big impact which Treasury conditionally approved, amounted to R2.3 billion, was the issue of business flow chart within SARS. That had to do with the tax registration, tax audit and there were many issues that related to tax collection. That was within the SARS main core function. Treasury supported that on conditions. That was the only deviation that was supported on conditions. There were various others that had to do with lease agreements. He noted that the OR Tambo SARS office had the issue of unarmed guarding services. Those were supported and amounted to R5 million and the other one amounted to R1.6 million. SARS moved to the number two spot because of those peculiar conditions. The majority of those were not supported, followed by those that Treasury supported but with conditions.

Ms K Mkhonto (EFF) said that there was an entity in the Department of Employment and Labour called Supported Employment Enterprises (SEE). Was National Treasury aware of the existence of that entity and its key performance area being employment of people living with disabilities? The SEE complained that the procurement policies subjected them to compete with well-established businesses. Hence, their existence was compromised. Those entities might be lost and that would be a big blow when it came to the plan to employ people with disabilities in Government.

She discussed the issue of the CCMA regarding the contract modification and application. She looked at the amount and value of that. Knowing the annual budget of CCMA, it looked like almost all their budget went to contract modification. She asked if details about that could be made available? She discussed the register of the abuse of the SCM system. According to the presentation that was in the hands of the executive committee. They were just notified, and no instruction was given to them. Were there any follow ups? The presentation spoke of disclosure by the officials responsible. Did that have anything to do with public servants that did business with Government? If that was only given back to the executive to deal with it, were there any follow ups by Treasury to make sure that the executives responsible did execute consequence management?  

Ms Mente said that there was high level of non-compliance with the Treasury instructions and regulations where entities, even when they were not supported, went ahead with procurement. In many cases it resulted in fruitless and wasteful expenditure. Did Treasury have the details of these different Departments and what it was that they were doing to deal with these particular cases?

She raised the issue of Land Bank. When the Standing Committee on Finance paid an oversight visit to Land Bank and it was established that it was bankrupt. It continued to procure whatever services it wanted to procure and borrowed money. They did not return any of that money. There was therefore no value for money on anything that they had done. What had Treasury done to deal with such cases where entities continued to ignore what Treasury was saying? These cases often ended up with no fruitful results. It ended up with fruitless results.

She discussed the situation of service providers. She had just dealt with one of the municipalities where consultants came back to bid for more work from the municipality. Yet, they had been given work with that municipality and not delivered. When the bid committees sat with a new list of which consultants should come in, the very same consultants would score very high giving them an opportunity to come back to the municipality and be given some more work. How was Treasury dealing with that area because this was a similar case that the SIU was dealing with in relation to Beitbridge? A service provider had come in, did a shoddy job but continued to receive more work and being paid. Treasury did nothing about such instances. How did Treasury curb this kind of situation? There should not be consultants in a municipality which failed to deliver and required the municipality to pay even when the consultants had not met its deadline. Yet, when it came to the new bidding season the same consultants would bid and score high points. They had all the equipment, all the expertise yet they were not doing what was supposed to be done.

Mr Lees wanted clarity on the responses received. He discussed ‘after the fact’ applications and them being not supported. Were there such applications? In the category of ‘not supported’ which had been given to the Committee, were there such applications? What action was taken? What happened? Were they left to the Auditor-General to deal with? One of the key aspects of the establishment of the OCPO was the central supplier database that was going to be established. As he understood it had been established. Was it kept up to date? How effective had it been in being used nationally by all the Government entities and SOEs?

He thanked Treasury for the response on SARS. It was encouraging to note that it seemed to be under control. One issue was the sale of generators at the SARS Benoni office. It was not a big amount. What was the application for? There was the sale of the national airline which did not need Treasury concurrence or anything. But here were some generators, relatively small amount, needing Treasury approval of some sort. He was curious as to how that worked.

Mr Fani responded to the questions of Mr Lees. The Central Supply Database (CSD) was kept fresh all the time. The CSD interfaces with some of the databases in Government. For example, the tax matters of suppliers were kept fresh because it interfaced with SARS. The banking matters of suppliers were kept fresh because it generated exception reports based on the banking details. The database was relatively fresh. Where suppliers registered and there was no activity that happened, unfortunately Treasury could not delimit the suppliers. The suppliers still needed to be on the database so that when the quotations were sought, and the organ of states filtered based on the services that they required then they might be able to pick up these suppliers. There was a chance of them being included in the quotation system. No supplier was dropped unless indicated otherwise by a legal means. The CSD was kept fresh and was updated on a frequent basis. There were numerous enhancements that were implemented. He discussed what happened when issues were picked up. For example, there was an issue where suppliers were blacklisted and went to open a new company. The CSD assisted Government because the ID numbers of the directors were blacklisted and therefore that information had to be the latest information.

He responded to the comments made about supported or not supported. When a submission was not supported it was flagged as a submission that needed to be followed up, depending on the impact of that submission to Government. There were a number of those submissions that Treasury had flagged. For example, the issue of coal supply at Eskom. There was a submission sent which was not supported. That was flagged and specific reporting had been requested from the Accounting Officer to Treasury. It was just one example of one submission that was not supported. Any request for deviation or modification or variation that had not been supported was flagged by Treasury for the Auditor-General. This was done so that when the AGSA did its audits it might pick that up. With the new instruction Treasury was trying to pick up such trends, with regards to the not supported, and who had submitted those that had not been supported. With AGSA, Treasury would be in a position to identify the risks and put together interventions to make sure that the impact of the risk was minimised for the fiscus as well as for Government with regard to service delivery.

He responded to Ms Mente’s questions. Where Treasury did not support it flagged the risky ones and follow through on them. In some instances, Treasury had asked what the action plan would be for the organs of state since Treasury had not supported. The organs of state would then need to indicate to Treasury on that matter. There had been one or two instances where organs of state had not responded to Treasuries request. That had been flagged as a possible audit finding. Treasury would follow through on it and ensure that the Accounting Officer was held responsible for having taken a decision that had not been supported. They should be accountable to the AGSA and to the executive authority for having implemented a decision that had not been supported. National Treasury’s responsibility was to support or not support. The Accounting Authority was ultimately responsible for the implementation of a wrong decision. The Accounting Authority needed to be taken to task for having done that.

He responded to the Land Bank issue. There were two divisions that were involved. There was public finance, that managed finances of organs of state. The OCPO was to ensure that procurement happened in a manner that was allowable by the legislative environment. In the new instruction, Treasury had been deliberate by indicating that the Accounting Officer and Accounting Authority must ensure that there was a budget. They needed to ensure that they were accountable for having spent the money that was not being budgeted for. The past instruction note was not as explicit regarding that but the current one was. Treasury would be able to manage this by taking all the deviations and modifications that did not appear on the procurement plan that was issued to Government. The Accounting Officer would then have to explain how come they procured any goods and services that did not appear on the procurement plan and how they reprioritised their finances or budgets to ensure that those procurements came through. Treasury would then work with public finance to make sure that the information provided to it mirrored what they had at their disposal regarding spending patterns of those organs of state. Treasury was looking at making sure that there was a marriage between public finance and procurement regarding the new instruction. The Accounting Officer would be held accountable for having spent what had not been budgeted for.

He discussed the issue of consultants that bid for more work when there had been non-performance. Treasury invoked the provision of the PFMA with regards to the restriction of suppliers. The organs of state must notify Treasury for any non-performance that happened. The organs of state must notify Treasury about what they intended to do about the non-performance of the supplier. If one of the actions that they wanted to invoke with regards to non-performance was restriction of a supplier, Treasury would then seek them to follow through the provisions given in line with the PFMA, in line with the new instruction and the invalidated regulations. The onus was on the organs of state to inform Treasury of non-performance and whether the supplier could not be rehabilitated or whether the supplier should be put through a process of making sure that they understood some of the principles. For example, if they were struggling with budgeting and the management of their finances then intervention by the Department of Small Business Development should be sufficient in assisting them with regards to that matter. Or was this absolute non-performance? Should the supplier be restricted and what were the requirements for restriction of a supplier? Treasury had the mechanisms to do that, but it had to have the information submitted to it. There were thousands of suppliers doing business at any given time. There was no one single repository to manage supply performance. Therefore, Treasury relied on Accounting Officers where there were those instances. Treasury would continue to lobby those organs of state regarding non-performance.

He discussed the issue of when suppliers entered into an environment where they had transgressed with regard to procurement. In Treasury’s engagements with SCOA, it had indicated that it would work very closely with the Hawks and all other law enforcement agencies. Treasury had started working quite closely with the Office of the Presidency in making sure that the restriction of suppliers was followed through. National Treasury would use the list provided by the Accounting Authority to follow through on issues that may have been picked up from the law enforcement agencies. Treasury relied heavily on the Accounting Officers to provide that information to it. Treasury would interrogate that information and work through it.

He responded to Ms Mkhonto’s question about whether Treasury was aware of the SEE within the Department of Employment and Labour. Treasury was aware that SEE existed. In principle Treasury did support it. However, there was no legislative framework at the moment that allowed organs of state to set aside procurement for certain designated groups unless otherwise indicated by any primary law or any subsequent regulations. What Treasury would be trying to do with the new Public Procurement Bill was ensure that it was explicit with regards to support for women, support for youth, support for people with disabilities and support for any other designated groups. Procurement also needed to be a lever for transformation within broader society. For now, Treasury had to ensure that the BBBEE provisions were carried through as legislated. He hoped that the new Public Procurement Bill would address some of the issues that the current legislative environment could not deal with. One of them was setting aside procurement for certain designated groups. It was one of the things that Treasury was looking at.

He discussed the issue of disclosure and doing business with Government. The first disclosure that needed to happen was the annual disclosure where the employees and officials of Government must disclose if they were doing business with Government. Treasury would take that information and ensure that such suppliers were flagged, and such individuals were discouraged from doing business or taking part in activities or in leadership roles in companies that do business with Government. Where there had been violation of such a disclosure by officials of Government, Treasury would certainly flag that. All organs of state were supposed to go through all employee-related databases to ensure that they picked up any suppliers that has officials that were employees of Government. The Central Supplier Database on a continuous basis spoke to all other databases to pick up any employees that were directors in companies. This would be flagged, and such a supplier would not be able to do business with Government until the directorship had been sorted out, and such an employee had been deregistered within the CSD space. However, there were limitations. Any organs of state whose employee databases were not linked to CSD; Treasury might not be able to pick them up. However, such a disclosure was required by suppliers. One of the standard bidding documents required of potential bidders to disclose if any of the directors were employees of State. Such a disclosure was taken seriously. Treasury dealt with that when it adjudicated on the tenders that it received.

Dr Manyathi responded to the issues related to the SARS generator and the CCMA matter. He provided some background on the SARS generator. SARS was using a building in Benoni. Based on the lease agreements SARS decided to leave the building. SARS had industrial generators in the building and had used them for various purposes. Since they were industrial generators, it was costly and needed special transportation measures when they were moved from one building to another. If the generators were moved to another building that building needed to be suitable and ready to accommodate those industrial generators. SARS then decided to sale the generators to the owner of the building. To avoid incurring costs of having to move the industrial generators to another building or to keep them in SARS head office it was best to sell the generators. Those were the reasons why SARS sought permission to sell the industrial generators. The building was being decommissioned and it no longer needed the generators. He responded to the CCMA matters. 17 applications were contained in terms of the R70 million of the CCMA application. The amount that was applied for was almost equal to the annual budget of the CCMA, as it was decreasing on an annual basis. He discussed the 17 applications in detail. 15 of the applications were about the lease agreements. Two of the applications were about the cleaning services in the East London office and Rustenburg office. Those were expansions so Treasury had supported those two. The 15 applications related to the lease agreements which was the bulk of the R70 million. Some of the lease agreements were in remote areas. There were 15 lease agreements that were extended and six were not supported. Treasury had told the CCMA to go back to the market and text the market. The other nine was supported by Treasury. Those nine lease agreements were situated in rural areas or in towns where properties developed as such to have plenty of available office space. Treasury had supported the cleaning services of the East London and Rustenburg contracts. That totalled 17 applications that came from the CCMA. He fully agreed that it was a high amount considering the institution was small, in terms of the budget allocated to it. R70 million accounted for 17 applications.

Ms Mente said that she was not comfortable with the response from Treasury. Could there be a clear indication of what method Treasury had to track the databases in Government? Those databases that were in the operation space. She understood that there were thousands of them in the database. The moment a service provider received work and got paid for that work there ought to be a tool of monitoring not by the municipality or by the Department, only. There should be a tool that also informed National Treasury in a mandatory form, whether quarterly or monthly. Of the service providers, what were their statuses in terms of service delivery and payments thereof? There were service providers who did not deliver. Government received prices that were inflated, or service providers demanded more money to be paid because there was under-quotation and prices had changed. The Committee did not receive comfort from Treasury that there was a proper tracker. All of these procurement areas and all of these services that were procured, when they were not supported, they were just flagged for the Auditor-General. Government was running the risk on no one doing anything. Government could not rely on Accounting Officials and Accounting Authorities in other cases to report these out of their own willingness. In municipalities everyone knew the politics that were at play. Everyone knew the kind of corruption that was there. In municipalities, if a council sitting did not adopt a report, it therefore meant that Treasury did not know what was happening. There should be a tracker of Treasury which was mandatory. The tracker should identify what was the status quo and what were the timeframes. When Treasury did not support, and the entity continued to pay that same service provider then Treasury just flagged that case. She was not comfortable. She wanted a clear explanation. If there was no proper tracker in place, when was it going to be put in place?

Mr Fani said that Treasury had discussions with the Sub-Committee. Treasury had indicated that one of the enabling environments was technology. Government, at the moment, had barriers, concerning the electronic procurement systems that it was using. One of the objectives of putting together IFMS was to ensure that all Government procurement happened under one umbrella and all other functions that were of a generic nature or that cut across organs of state, within the ambit of IFMS. This assisted Treasury quite extensively with making sure all procurement transactions were tracked. Treasury could draw the exception reports. Treasury could customise the reports that it required for it to do monitoring and ensuring compliance on a continuous basis. In the absence of such an integrated system Treasury relied heavily on its Accounting Officers to ensure that the existing governance structures do work. Within organs of state there was an internal audit function. The internal audit function’s responsibility was to ensure and manage the risks that may result in an audit environment. They audit the financials. They audit procurement. They audit all aspects and have the risk register. It indicated what were the risks pertaining to procurement and ensure that there were control measures in place. Treasury could not emphasise enough the audit function within an organ of state. Chief audit officers needed to exercise their accountability in making sure that risks were detected, and risks were mitigated. Another governance structure that existed to make sure that there were no financial overruns and that organs of state procured in line with their budget was the audit committees. Treasury sought to emphasise that the audit committees were meeting on a frequent basis and looking at their financials. Their primary responsibility was to ensure that there was no fiscus overrun. In instances where there had been an excessive expenditure it would be dealt with before it became an apparent issue in the national space where Treasury detected it. With the lack of technology that Government had, Treasury was unable to detect these things. However, at the coalface the internal audit and audit committees were able to do that. There was bidder adjudication. Committees and the council exercised an oversight responsibility and approved the procurement transactions. They should be the ones asking the pertinent questions about the bid specification and the supplier bid documents. They also needed to have a track sheet and controls where the CFO was accountable to ensure that no procurement or publication of tenders for goods and services where there was no budget. The CFOs knew that, and they were not supposed to sanction any publication of tenders where there was no budget allocated or where they had not reprioritised their budgets to ensure that that procurement activity was catered for within the environment that they had. That responsibility rested with the CFO within the organs of state. The Accounting Officer also would not sign for any awarding of tenders where there had not been any budget allocated or where the supplier had not been performing. There were mechanisms in place to make sure that Treasury did not have to get involved in their operations and detection. Even in the absence of detection through technology, those gatekeepers and those mechanisms were put in place with regards to the current legislative environment. This was to make sure that Government carried out procurement in a sound, organised and coordinated manner. He emphasised the importance of the internal audit and audit committees in combating corruption and misuse of finances within the organs of state. Treasury could not distance itself. The public finance division within Treasury had a scrutiny of the finances and took up instances where there had been an over expenditure without reprioritisation, in the organs of state. It was done at either an activity level or a cluster level, like the security cluster or health cluster. Treasury would intensify its monitoring and governance in terms of the procurement plans that it required at the beginning of the year. All the tenders would be published as an E-tender. E-tender publications would marry the procurement plans so that any spikes about a tender that was published where it had not been part of the procurement plan would then require explanation from the Accounting Officers. The situation would be remedied accordingly, and the public finance division would be flagged within Treasury, of an imminent expenditure where reprioritisation or reallocation had not taken place accordingly. Treasury did have those mechanisms in place. Treasury would like those to be fully functional to make sure that Government works.

The Chairperson made a few comments. The Committee had repeatedly expressed its concern about the normalisation of expansions and deviations as opposed to them being an exception in the procurement processes of Government. Treasury has acted as a fundamental element of check and balance to ensure that Government pushed back on the frontiers of abuse. At times there was a lazy outlook as far as due diligence was concerned. There was an increase in expansions and deviations, fruitless, wasteful and irregular expenditure. The Committee remained concerned in this regard. Why did he get the sense that Treasury was now shirking off this responsibility? Treasury was now sending it back to the problematic operational spaces, which was the various Departments and entities. The Departments and entities were being left to their own devices with very little safeguards, and checks and balances. He did not see why there was now a need to fix what was not broken. The checks and balances that were in place was fine. What needed to be improved upon was Treasury’s agility and turnaround time to respond to Departments and entities on issues that they had presented. These were the very same people who were not giving Treasury adequate information whom Treasury had turned down at times, who were now going to be left to their own devices to do these things. He was worried that Treasury was engaged in a regressive policy step.

He discussed the extent of the consultation that Treasury did. How far did that go? Who did Treasury consult on these very pertinent changes that had been made? The fundamental issue was that Treasury was dealing with an increase in expansions and deviations. There was one policy matter that the Committee still needed to deal with, and it was coming next week. That was the disposal of assets. The Committee and Treasury was not on the same page here. He was not sure what would have motivated that such a major shift was necessary to take place when this was a problematic element in any case in procurement. The Committee was relying on Treasury to be a safeguard notwithstanding the limitations which existed with agility and turnaround time. He wanted Treasury to submit the swot analysis of this change. The Committee needed to know the inherent risks and threats that were involved in it. He wanted Treasury to take the Committee along as to why these changes were made. He saw these changes as backwords steps.  

Mr Fani said that the concern the Chairperson has was the concern that Treasury had. Treasury had been able to analyse the data that it had and the trends that had been picked up regarding the number of submissions that had not been supported and the number of submissions that had been indicated with conditions. The PFMA required that the Accounting Office be empowered to make the decisions that Treasury was advising them on about the support or non-support of procurement. Treasury needed to make sure that when an Accounting Officer made a correct decision then they needed to be rewarded. Where an Accounting Officer made an incorrect and horrific decision with regards to the application of deviation and modification appropriate action needed to be taken to make sure that such a behaviour did not become perpetual within Government. Treasury also wanted to enable operations to take place at the pace that it wanted to take place. One of the concerns that Treasury had was that if it had continuous comments that indicated to Treasury that speedy decisions were required with regards to deviations and modifications at a pace that would satisfy the Accounting Officers. Accounting Officers for the likes of Transnet, SAA and Eskom needed to take up market opportunities where they had to bid for goods and services from the market. Transnet had to compete with road transportation and therefore there needed to be a readiness to take up the market without having to come to Treasury to ask for a deviation process. However, it was required of the CEO of Transnet to be apply their mind and make sure that the balances and checks were taken. They needed to be accountable for the decision that had been taken. If such procurement was irregular, then they needed to be accountable for that irregular expenditure that took place. Treasury on the other side needs to ensure that they intensified the monitoring of the procurement that happened in the high-risk environments. That periodic reporting needed to be analysed. Organs of state would be required to supply supporting documentation for those decisions that had been taken. Treasury expressed its opinion on whether such a deviation or modification was warranted or justified and jointly agree on a mechanism to remedy the situation. Government had to work. Treasury had limited resources in most of these deviations that came through. Treasury would like to ensure that operations happened, and that Government was not rendered inoperative by Treasury. Accountability needed to rest with the Accounting Officers. Should the trends indicate otherwise moving forward then Treasury would not hesitate to issue a new instruction note to remedy the situation. Treasury hoped that the interventions it put in place would ensure that the trends would come downwards and that the Auditor-General would not pick up a number of irregular expenditure or contracts on their side. The Accounting Officers would need to engage with the Auditor-General regarding the treatment of procurement in instances where some of the irregular expenditure would have been avoided if the framework was avoided or applied differently. Those conversations with the Auditor-General were ongoing. If there was a spike in irregular expenditure, then how were issues of irregularity going to be dealt with within the auditing space?

The Chairperson said the Committee was landed with the situation where Government was going back to where it used to be. Instruction note 3 was in response to what Mr Fani had said now, in the event that there was an increase and so on. Treasury had been concerned about the lack of due diligence in relation to some of the requests that it received. Now Treasury was handing it back to the very people who were the culprits? He was not sure how logical that was. He would have imagined that if the question was about capacity, then Treasury should build up its capacity. The capacity should be built up to ensure that the safeguards were put in place and that the agility and speed in turnaround time was in place. Treasury was experimenting now with something that Treasury already knew about. He believed that Treasury was taking the easy route. The implications of this now were that change of scope in contracts was a heightened reality. The check and balance of ensuring that APPs across the Government spectrum and SOEs spectrum were not going to be as tight as it would have been because this opened the doorway for changes. Who did the check and balances that Treasury used to do, now? It was not as if there had not been an escalation in requests for expansions and deviations over the past few years. He believed that there would be a major increase now that it was actually in the hands of those who requested. He did not understand why Treasury did not build up capacity. Treasury was shirking off its responsibility here. It made oversight and accountability even more difficult and complex. It was very easy to zoom in on Treasury and it presenting what it had received. The Committee would assess this moving forward. Treasury needed to consider very strongly that Government had been down this road before. The preventative measures or the restrictive measures that were in place had now just been thrown out of the window. It was a very slippery slope that Treasury was set on. If Treasury did not have the capacity imagine the extent of the lack of capacity in the spaces where this had been taken. He did not think that this was thought through from the other perspective. It was regrettable that the Committee was now being informed about it and not consulted about it. The Committee had heard it and will see how it went.

Mr Somyo said that the Chairperson had dealt with what he wanted to deal with. His initial question was not answered satisfactorily. He noted the institutionalisation of chaos which Treasury was getting into and as a result the outcome would be worse. If they did this consciously, they would have done it even better, without denying the fact that the Accounting Officers needed to be at the forefront and accounting for their own action. Treasury attested to the difficulty in making the Accounting Officers account for their ill-conceived decisions as far as matters of procurement were concerned. Nevertheless, Treasury had issued the notice. The Committee needed to have a sharp eye on these matters, for the outlook of accountability and oversight. Treasury would be responsible for how these matters developed. There would be no way to escape it because Treasury had opened the doors wide for such actions.

The Chairperson said that the KwaZulu-Natal SCOPA was dealing with an accumulation of R48 billion of irregular expenditure in that province. He wanted a response from Treasury.

Mr Fani responded that the concern of the Committee was noted. What happened when instruction note 3 of 2016/17 was put in place, Treasury’s intent at that time was to ensure that there was central point where balances and checks were done regarding the deviations and modifications. At that time, it was important that Treasury exercised a thorough analysis of what was happening. That need still existed even now. What had not been considered at the time was how crippling that would be on the operational requirements of some of these organs of state. In some of these organs of state the operational challenges required a decision immediately. What Treasury had put in place now was to ensure that it exercised its oversight responsibility by making sure that reporting happened periodically, and Treasury interrogated. Treasury’s methodology for interrogating the reports that it received would not be incidental. Treasury would intensify its analysis based on historical information and based on what it perceived to happen moving forward. The whole methodology regarding analysis of the data would not be linear in nature with regards to what Treasury was receiving. What Treasury would not be able to immediately justify when it analysed the data would be the authenticity or the validity of whether that was a legitimate single source or if it was a legitimate modification. Treasury would be able to curb Government irregular expenditure based on an incorrect decision. He indicated that at present the PFMA’s intent was to put in place a framework under which the Accounting Officers would operate. The Accounting Officers needed to be made responsible and accountable for the decisions that were made, correctly and incorrectly. Government had been shying away from for years was making sure that the Accounting Officers were held accountable by the executive and all other law enforcement agencies in instances where incorrect decisions or irregular decisions were taken. Treasury’s responsibility which was not seen to be as effective was how it exercised its oversight responsibility and analysing the reports that it received. Even if Treasury were to withhold some of these responsibilities from the Accounting Officers temporarily until they put mechanisms in place, Treasury would do that. Treasury would comply fully with the PFMA in ensuring that Accounting Officers took accountability. Monitoring of these trends needed to happen from Treasury. Treasury had already started putting together the methodology it would use. It would finalise that and get it signed off by the executive within Treasury. The reporting requirements had already been issued with the instruction note. Treasury would analyse them as it received them. From a human resource perspective, the behavioural changes had not happened. Even when Treasury instituted investigations and put balances and checks in place, Treasury was obligated to review the decisions that had been taken to make sure that a better corrective action was put in place. This would ensure that Government worked and worked in a manner that these oversight sub-committees required of Treasury. The concern of the Committee would be relayed to the Director-General of the Department so that he was aware of it.  

The Chairperson said that it would be favourable for the Committee and Treasury to have further discussions. Two things emerged from the responses that were given. One was that Treasury had not been able to build up the capacity required to manage these services since the instruction note was issued in 2016. The second point was about the accountability of Accounting Officers. It was a point that was well taken but that came at the tail end and was post the fact. What was in place was a system of check and balance, analysis and critique, and a matter of due process to curb a situation where expansions and deviations were abused and exploited. Expansions and deviations should not be the norm but an exception. The Committee had repeatedly said that.

The Chairperson asked Mr Fani to convey the concerns of the Committee on this matter. The Committee would reflect on it and consult with the Standing Committee on Finance as well. There may be a need to review this. The Committee might need to include the Standing Committee on Appropriations as well. Its application has not been consistent prudent financial management in the current climate that the country was in and the trends which had emerged. The Committee would come back to Treasury on this matter so that members would be allowed to look at it afresh. The Committee’s research team would interrogate it further, having heard the presentation that had been made. The Committee would meet next week with Treasury as well. A draft programme of the upcoming meetings would be sent to the members. The Committee was just awaiting the finalisation of the schedule of the budget votes.

The meeting was adjourned.

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