Tender traps: How state employees are cashing in

R680-million. That’s the value of local government tenders awarded to suppliers in which councillors and other local government and state employees have financial interests.

Government employees – including a municipal manager, accounting officers as well as senior and junior management and administrative officials — are directors, managers, principal shareholders or stakeholders in suppliers who won awards for goods and services to the municipalities at which they work, according to numbers published in the latest local government audits released by the auditor general on July 30 2014, which covers the 2012/2013 financial year.

If you include the R164-million in awards to suppliers in which close family of local government employees have a financial interest, the total rises to close to R850-million.

These R850-million awards are classified under the category of irregular expenditure, or costs “not incurred in the manner prescribed by legislation”, in the audit reports.

It doesn’t necessarily mean that fraud was committed or that the money was wasted, said the auditor general, Kimmi Makwetu, in a media statement. But it does indicate that legislation, which aims to ensure procurement processes are competitive and fair, is not being adhered to and that controls to prevent non-compliance are not in place in most of South Africa’s municipalities.

The total amount of irregular expenditure uncovered in the latest audits was a staggering R11,6-billion — the bulk of which was the result of non-compliance with supply chain management requirements, the auditor general told the media.

With only 22 municipalities receiving clean audits (or around 9% of the municipalities and municipal entities audited) despite 2014 being the deadline set by government for all municipalities to get a clean bill of health, there is clearly work to be done.

Municipal supply chain management regulation 44 prohibits the awarding of tenders to people in service of the state, or to companies in which those people are a director, manager, principal shareholder or stakeholder.

In addition to this the Municipal Finance Management Act states that a municipality’s supply chain management policy must include “requirements for compulsory disclosure of any conflicts of interests prospective suppliers may have in specific tenders and exclusion of such bidders from such tenders or bids”, said the office of the auditor general.

Legislation doesn’t prohibit municipalities from awarding tenders to close family members of state officials. But it does require the official of the municipality to disclose the interest his/her family member has in a tender and that the bidder declare his/her relationship with the person who is a state employee.

Also, all awards above the value of R2 000 made to close family members must be disclosed in the notes to the municipalities’ annual financial statements.

In a statement at the launch of the audit results, Makwetu said: “It is our considered view that when government business is conducted outside the controlled environment, in all likelihood it becomes a free for all where any transaction is capable of being executed without the related accountability. As a result, opportunities for realisation of service delivery objectives are lost and recovery becomes almost a nightmare.”

Gauteng tops the list in rand value – R64-million – for 22 awards made to suppliers in which councillors and municipal employees had an interest. This works out to an average of about R3-million per award.

Although those 22 awards were a small percentage of the 1 528 awards by local government in the province in 2012/13, their value was nearly 62% of the total value of those awards (R104 000 000).

The Eastern Cape municipalities handed out by far the most awards to suppliers in which their employees and councillors had interests – 109, worth a total of R7,2-million. The average value of each award was far lower that those of Gauteng, though, at around R66 000.

In Gauteng 83% of the councillors and municipal employees declared their interests in the suppliers, but only 50% of the suppliers did, according to the Guateng audit report.

In the Eastern Cape 62% of the suppliers declared their interests and 56% of the councillors and municipal employees did.

The Northern Cape local government awarded the most tenders to suppliers in which close family members of their councillors and employees had interests with 81 awards worth just over R1-million.

But KwaZulu-Natal which came in second for the number of awards (77) was way ahead of the other provinces in terms of their total value (R90,5-million). The average value of each award was R1.2-million.

Use the graphic above to explore the numbers.

Download the data here

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