Auditor-General report

More than 1,500 company directors under investigation for receiving R350 Covid-19 grants

By Estelle Ellis 9 December 2020

Auditor-General Tsakani Maluleke. (Photo: Twitter)

The South African Social Security Agency said all the flagged beneficiaries are being investigated and planning is under way for an appropriate debt recovery process.

More than 1,500 directors of companies doing business with the state received grants during the pandemic, Auditor-General Tsakani Maluleke said on Wednesday, stressing that her office had flagged the 1,513 beneficiaries for investigation.

“It might be that they do not receive remuneration as directors,” she said.

The South African Social Security Agency (Sassa) said all the flagged beneficiaries are being investigated and planning is under way for an appropriate debt recovery process.

Maluleke said a similar trend was picked up in disbursements made by the Tourism Relief Fund, but auditors were told that doing business with the government did not necessarily disqualify beneficiaries.

Maluleke explained that the second part of their audit into the Covid-19 relief funds found significant deficiencies in the procurement and contract management processes and that more could have been achieved had the funds and initiatives been better managed.

Maluleke, whose seven-year fixed term as Auditor-General started on 1 December, dedicated the report to her late predecessor, Kimi Makwetu, “as he passed on while making the final touches on what last governance messages he wanted to share with the country through this report before he left office.

“As such, in releasing it today, we have become his mouthpiece – conveying the final wisdom and patriotic counsel he left for our country.” 

The ongoing special audit by the Auditor-General looks into how the R500-billion for the health response to Covid-19 and relief of social and economic distress was spent.

“We must not lose sight of the fact that these initiatives were designed and implemented very quickly, as a matter of emergency, and not everyone had been at their desks,” Maluleke said. 

“But for the weaknesses that were inherent in the system, we could have achieved much more with these initiatives. We could have reached many more people, quicker and in a more efficient way.

“An emergency is when accountability and transparency should have been foremost in our minds. We need to use this crisis and the response as an opportunity to learn and take urgent action to fix our systems. These basic disciplines had let us down.” 

Maluleke said her office was sharing information with the fusion centre set up by the government to further investigate suspected Covid-19 malpractice and recoup public funds where possible. A third report focusing on local government will be released in mid-2021.

She said she was impressed with the response of the Department of Labour and the Unemployment Insurance Fund (UIF) following the damning findings in the first report that dealt with the payment of Temporary Employee/Employer Relief Scheme (Ters) benefits to people who were below the legal age of employment, deceased, working in government, receiving social grants, or receiving other UIF benefits.

“The subsequent transactions following our audit look a lot better. The exceptions are still there. Things are not perfect yet, but consequences were meted out to those who performed poorly.

“It is encouraging to note that, as at October 2020, the fund has recovered about R3.4-billion of funds that may have been disbursed incorrectly.”

She said that Sassa’s outdated, limited databases and inadequate verification controls had resulted in people who were not in distress receiving the Social Relief of Distress Grant, also known as the R350 grant, while those who were in distress were sometimes unfairly rejected.

In response to the September report, Sassa stopped these grants pending proof that people qualified, but their efforts had not yet “borne fruit” and auditors are still identifying people not qualifying for the grant who are receiving it.

Maluleke said they had found several problems with the distribution of emergency food parcels by Sassa, including collusive bidding for transport costs, and inadequate planning, record-keeping and guidelines, which had caused inconsistencies in the delivery of food parcels, including people receiving food parcels multiple times, grant recipients also receiving food parcels and approved beneficiaries not receiving food parcels.

After the September report, “The Department of Agriculture, Land Reform and Rural Development undertook to re-evaluate relief applications by farmers that were rejected, but commitments made to address the weaknesses we identified [in their systems] were not adequately and timeously implemented.” 

Auditors had picked up beneficiaries of agriculture relief that were appearing on multiple government databases and these had been flagged for investigation.

“These include government employees, farmers who receive support from other agricultural support programmes and those who received other relief such as the Temporary Employee/Employer Relief Scheme and social grants payments.”

Maluleke said their September report highlighted instances where PPE was procured at prices that were higher than market-related rates.

A similar problem had been encountered with grants from the Sport, Arts and Culture relief fund.

“The distribution from the relief fund remained slow, with only 34% having been paid out by the end of September 2020. The payments went to assist artists, athletes and technical personnel affected by cancellation and postponement of sport and arts events and to fund digital solutions.

“The auditors identified 286 beneficiaries of the fund who potentially also benefited from Ters payments, the Social Relief of Distress Grant and government pensions, or who were government employees.” 

Maluleke said a multidisciplinary team of financial, forensic and IT auditors, as well as health experts, were dispatched to audit the personal protective equipment (PPE) procurement process. By the end of September, she said, the government had spent R4.6-billion on PPE.

“We selected a sample of contracts and transactions, focusing on those that displayed certain risk indicators and visited a selection of sites that we deemed to be representative. 

“During the audit for this report, we had improved access to the information we required in this area, but we continued to have difficulty obtaining sufficient and appropriate documents to audit some of the procurement processes in the health sector as management prioritised the work in response to the pandemic and therefore did not respond in good time.” 

The Auditor-General’s key findings were that there were instances where competitive processes were not followed, resulting in the contract being awarded to a specific supplier or group of suppliers without the necessary motivation or approval for such deviations.

“Through the National Treasury instruction notes, it was made clear that the standing requirement to favour local producers must be applied. The auditors did not see this requirement applied consistently in all the PPE procurement processes.”

She added that many PPE contracts had been awarded to suppliers whose tax affairs were not in order.

“Businesses that provide PPE across the country were not treated in a fair and equal manner, as some were disqualified based on not complying with the requirements, such as tax clearance certificates, declarations of interest, registrations as companies and small business, or on their status as local producers, while others were not.

“The audit identified various instances of contracts being awarded to businesses that do not have a history of providing PPE – often working in a different industry or even being formed or registered just before a contract was awarded. We recommended that these contracts be investigated, as such circumstances can be a red flag for fraud or abuse of the supply chain management process.” 

Maluleke said their September report highlighted instances where PPE was procured at prices that were higher than market-related rates.

“It is becoming apparent that such higher prices are quite prevalent in both the health and education sectors. Not only did the sectors potentially suffer financial losses as a result, but this also demonstrates unfairness in the procurement processes as some suppliers that quoted at high prices were given contracts while others were not. 

“Some suppliers delivered PPE that did not meet the required specifications or was not what they had been contracted to deliver, or they under-delivered or delivered late. Despite this, the suppliers were still paid by most of the departments.” 

There were several shortcomings in the planning, procurement, transportation, warehousing and recording of medicines by the Department of Defence – in particular the procurement and import of an unregistered medical drug from Cuba.

About the programme to supply emergency water to communities, she said auditors could not reconcile some of the information on the registers of the water tanks with what they found at the sites. 

“We could not find some of the tanks at the locations specified in the registers, and there are unconfirmed claims that the tanks were moved by the municipalities. At some of the sites, we found tanks that were empty and tanks with poor quality installations.

“A large proportion of the schools that received water tanks did not need them and some schools that received water tanks were not on the original project list. In addition, the payments made for some of the water tanker services were questionable because the supporting documentation was inadequate, calculation errors were made and payments were made for water supplies to schools and other sites that were not part of this programme.”

Addressing the construction of field hospitals, Maluleke said auditors had identified non-compliance with legislation in the appointment process of some of the contractors and suppliers.

“This non-compliance included competitive procurement processes not being followed and all required declarations and bidding documentation not being requested and evaluated.”

They were concerned about the management and enforcement of some of the contracts and had found overpayment for goods and services. She said that at some quarantine sites, auditors found that hotels had overcharged the government, while the use of others had not been approved by the Department of Health, and in some cases, there was no evidence of payments being approved.

The lack of coordination between, and accountability in, the public works and health sectors was evident during site visits. 

More than 19,000 people employed by the Expanded Public Works Programme to assist the Department of Health to carry out public education and screening did not receive adequate monitoring and training from the non-profit organisations, not all participants were provided with the requisite PPE and there were delays in the payment of wages to participants.

There were several shortcomings in the planning, procurement, transportation, warehousing and recording of medicines by the Department of Defence – in particular the procurement and import of an unregistered medical drug from Cuba.

“Approximately 40% of the vials were exposed to temperature variations that could have compromised the integrity of the drug, which may result in these drugs not being usable and the money spent being wasted.”

Maluleke said her office had engaged extensively with all the relevant government ministers and members of the executive councils on the findings and risks in the first report. 

“We found them to be committed and ready to do what is necessary for the Covid-19 initiatives to succeed and to support the accounting officers and authorities to address the shortcomings we identified.

“We hope our findings would inspire accounting officers to fix what was wrong.” DM/MC

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