Probe uncovers irregularities at Cipro

The Auditor General (AG) on Wednesday tabled a report identifying irregularities amounting to millions of rands in procurement processes at the state-owned Companies and Intellectual Property Registration Office (Cipro).

The purpose of the report is to make known the findings of an independent investigation conducted by the AG at the request of Cipro following concerns raised in the AG’s 2004/05 regularity audit management letter.

Cipro, a trading entity within the Department of Trade and industry, exists to register businesses and intellectual property rights, maintain related registries and develop information for disclosure to stakeholders.

It was formed in March 2002 from the merger of the South African Companies Registration and the South African Patents and Trademark offices.

The investigation focused on the process followed by Cipro in the procurement of goods and services from 24 different service providers. The findings were that there was a general non-compliance with the Procurement Procedural Manual and Policy (PPMP) and other procurement prescripts such as the State Tender Board user manual and directives to the departments in respect of procurement, 1998 (ST 37) and the Public Finance Management Act.

The investigation found that:

• In six procurements totalling R11 486 680, role-players did not consider and approve the procurement of goods and services as required; For the procurement of goods and services of more than R1 000 three quotations were not always invited. In three cases totalling R381 293 no quotations were considered. In 36 cases totalling R15 405 704 only one quotation was considered and in two cases totalling R808 830 only two quotations were considered;

• During the review of the procurement documentation for a service provider, a risk of collusive quoting was identified as quotations from three service providers showed similarities. Furthermore, no departmental service provider database existed for the period under review and the filing system at Cipro revealed a lack of internal controls as some of the requested procurement and payment documentation could not be provided;

• In 18 cases the Procurement Operational Committee (Procom) evaluated and approved requests that did not comply with value-added tax (VAT) requirements;

• In eight cases totalling R10 587 943 rand IT-related goods and services were procured without consulting or approval from State Information Technology Agency (Sita). Furthermore, a quotation was requested and received from a service provider for the rental or purchase of two servers. The purchase price quoted was R5 986 908 (including VAT) or a rental amount of R181 749 (including VAT) per month for three years totalling R6 542 992. No tender process through Sita was followed;

• In six cases totalling R11 486 680 procurement requirements amounted to more than R500 000, the basic quotation process was followed instead of public tender invitations. Furthermore, tenders for the outsourcing of he filing system of Cipro were only invited from three service providers thereby following a closed tender process. The tender was awarded to a

  service provider for the total ceiling escalated value of R21 877 740 including VAT for five years;

• The procurement documentation for a service provider indicated that the special project in the corporate information unit was extended seven times. The total amount for the seven extensions accumulated to R2 335 548, which required the tender process to be followed. Furthermore, the procurement documentation for another service provider was split into two phases. If the services were not split in two phases the tender process should have been followed and not the quotation process;

• In the procurement documentation it was noted that service providers charged VAT without supplying VAT details on invoices. Further, in one case the VAT details supplied by a service provider were invalid;

• Two members of the Cipro management board had interest in two service providers with which Cipro contracted for services, which were not declared in declaration of interest forms. Officials at management level did not provide declaration of interest forms required by the PSA for the 2004/05 financial year;

• In contradiction of Treasury regulation, Cipro sponsored a yacht for participation in the Vasco race for R233 746; and a supply chain management and preferential point system was not developed and implemented for the period under review.

The AG has recommended, among other measures:

• Cipro should comply with the Procurement Procedural Manual and Policy until the Framework for Supply Chain Management is implemented. Cipro seeks legal advice on action to be taken regarding financial misconduct as stated in the PFMA;

• Disciplinary actions against Cipro officials and other relevant role-players who did not ensure compliance with the prescripts in the procurement and payment process; and other action should be considered against officials who are no longer working for Cipro. – I-Net Bridge

Cipro responds

The Auditor General’s report comes as no surprise to the present Cipro’s management since Cipro’s audit committee instructed the investigation. However, Cipro’s new management takes the AG’s report in a very serious light and has already implemented an action plan in keeping with the AG’s recommendation.

Nowhere in the AG’s report is the word fraud mentioned, instead he identified irregularities. The time frame under investigation was 2003 to 2005. The Director General of Department Trade and Industry has appointed a new chief executive officer in August 2006 and an acting chief financial officer in June 2006, which means already measures are in place for stricter financial control.

Legal advice is being sought and disciplinary action will be taken against Cipro officials and other relevant role-players who did not ensure compliance with the prescripts in the procurement and payment process; and other action is being considered against officials who have been implicated and who are no longer working for Cipro. Names of individuals and companies concerned will be withheld pending the outcome of legal advice.