Question 17 (20 Marks)

As stated in the Public Finance Management The purchasing of goods and materials and the acquisition of services probably constitute major government expenditure through which service delivery is achieved. Sadly, the public (sector) supply chain management (PSC) processes are also where much inefficiency and dishonesty often manifest themselves. Thus PSC is of great importance for good public sector financial management.

Elsewhere, the Public Finance Management also states: The General Procurement Guidelines are issued by the government not only as a prescription of standards of behaviour, ethics and accountability but also as a statement of the governments commitment to a procurement system which enables the emergence of sustainable small, medium and micro businesses which will add to the commonwealth and the achievement of enhanced economic and social well-being of all South Africans (adapted from the General Procurement Guidelines issued by the government of South-Africa). In terms of these guidelines, it is maintained that government procurement is based on the so-called five pillars that prescribe a minimum set of standards.

Step 1: Read and understand the first four of the pillars mentioned bellow (i.e. you may just note, but in your answers below exclude the fifth one, Equity). (No Marks):

1. Value for money. Prices are not necessarily a reflection or indication of whether value for money will be achieved as an essential outcome. In terms of the procurement guidelines, a principle is adhered to that best value for money means the best available outcome when all relevant costs and benefits over the procurement cycle are considered, and to this effect, aspects to be considered are:

• Avoid any unnecessary costs and delays for themselves or suppliers.
• Monitor the supply arrangements and reconsider them if they cease to provide the expected benefits.
• Ensure continuous improvement in the efficiency of internal processes and systems.

2. Open and effective competition. You would recall that one of the aspects related to government legislation is to effect particular objectives in society. You should also reflect about some of the deficiencies inherent in the market system (Topic 2 of the study guide), which restricted persons from participation in the economy. With that in mind, it is therefore logical that the second pillar of the General Procurement Guidelines refers to open and effective competition, which requires:

• A framework of procurement laws, policies, practices and procedures that are transparent, i.e. they must be readily accessible to all parties.
• Openness in the procurement process.
• Encouragement of effective competition through procurement methods suited to market circumstances.
• Observance of the provisions of the PPPFA.

Therefore, departments need to get the best possible outcome from the market by ensuring that:

• Potential suppliers have reasonable access to procurement opportunities and available opportunities are announced at least in the Government Tender Bulletin.
• Where market circumstances limit competition, departments recognise this fact and use procurement methods that take account of them.
• Adequate and timely information is provided to suppliers to enable them to bid.
• Bias and favouritism are eliminated.
• The costs of bidding for opportunities do not deter competent suppliers.
• Costs incurred in promoting competition are at least commensurate with the benefits received.

3. Ethics and fair dealing. With regard to ethics and fair dealing, officials dealing directly with suppliers or potential suppliers are required to:

• recognise and deal with conflicts of interest or the potential therefor deal with suppliers even-handedly.
• ensure that they do not compromise the standing of the state through acceptance of gifts or hospitality.
• be scrupulous in their use of public property.
• provide all assistance in the elimination of fraud and corruption.

4. Accountability and reporting. Openness and transparency in administration, by external scrutiny through reporting, are one of the primary elements of public sector accountability. Therefore, within the procurement framework:

• Heads of department are accountable to their ministers for the overall management of procurement activities.
• Heads of procurement and senior procurement directors are accountable to heads of department for various high-level management and coordination activities.
• Individual procurement officers are accountable to heads of procurement, and to their clients, for the services they provide.
• All people exercising procurement functions must regard these guidelines and are accountable to management.

5. Equity. In terms of the General Procurement Guidelines, the word equity means the application and observance of government policies that are designated to advance persons or categories of persons disadvantaged by unfair discrimination. In accordance with the Reconstruction and Development Programme, SMMEs and HDIs need to play a bigger role in the economy. Therefore, greater participation in the economy and more diversified representation of black people and gender in ownership is essential. The Preferential Procurement Policy Framework Act is the foundation on which all procurement activities are based, with the aim to:

• advance the development of SMMEs and HDIs.
• promote women and physically handicapped people.
• create new jobs.
• promote local enterprises in specific provinces, in a particular region, in a specific local government, or in rural areas.
• support local products.

Step 2: CASE STUDY

Unfortunately, the pillars prescribing a minimum set of standards for sound PSC that you read about in Step 1 above are often not maintained and at times are even grossly violated in real life. The article REVEALED: 18 of the worst municipal money horror stories in SA that appeared in Business Insider SA on 3 July 2020

(https://www.businessinsider.co.za/worst-municipality-mismanagement-according-to-ag-report- 2020-7 [Accessed 12 July 2020]) reports, among other things: The latest report from the auditor- general on local government financial management found shocking instances of fraud and lack of financial control. (The auditor-general referred to is the South African Auditor General (AG).)

Below, you are provided with a few extracts from this article. Where sentences are in quotation marks, the article quoted them directly from the AGs report.

Required:

• In each case (i.e. for each extract) you must simply write down the capital letter identifying the extract, then decide and name which of the pillars in your reading in Step 1 was violated (synonyms: transgressed; not adhered to; not complied with) the most in the case and, finally, briefly (12 sentences) substantiate your answer i.e. link the relevant theory you found after doing Step 1 above to the reality of every case in Step 2.
• Example (fictitious): [Letter:] X [Name the pillar:] Equity. [Students substantiation:] In this case, we see that no new jobs were created and local products were not supported.

Notes:

• It is possible that more than one of the pillars are applicable in some cases. Remember, you must select the one which in your opinion is the most applicable.
• Some of the pillars could possibly be applicable more than once and others not at all.
• For every case (extract), 1 mark is allocated for naming the relevant pillar and 1 mark for your substantiation.

The cases (extracts):

A Madibeng: Municipal money was used to pay for clothes and AMC cookware:

Debit orders against the municipalitys bank account were used to pay accounts of private individuals for items such as clothing, DSTV and AMC cookware.

B: Metsimaholo [Spending on a municipal sports complex]: In the previous year, the municipality ... spent almost R22 million on the Oranjeville Sports Complex. For the amount spent, only a fence was visible during our site visit, the AG says. C

C Bela-Bela: Leadership simply does not care:

The AG was scathing in its assessment of the municipality, which also didnt address problems with irregular, fruitless and wasteful expenditure.

As far as the audit outcomes are concerned, there was no improvement at the municipality and no collective effort by the political leadership to address outcomes and service delivery issues (for example, the roads in town are in a very poor condition), despite the town being a popular tourist destination. The perception is that leadership simply does not care.

D Dihlabeng: Millions spent on a shoddy road:

Situated in Bethlehem, the municipality spent R1.5 million more on a new tarred road than budgeted and the project was also completed six months late. When management inspected the road immediately after completion, they identified cracks and patches, as well as the absence of storm water channels in critical sections. This led to the recording of an impairment of R3.5 million in the financial statements, says the AG. No consequences had been implemented against the contractor or the official who allowed the project to be completed with poor-quality workmanship at a cost higher than the contract value.

E Ngaka Modiri Molema District: Overpayment for water tankers that travelled further than physically possible:

There was a frequent overpayment for water tanker services in the district. The district failed to ensure that claims received from the supplier were appropriately checked before payments were made, resulting in payments made for distances longer than those actually required to be travelled to deliver water to rural communities, the AG found.