OUR REPUTATION PROMISE/MISSION

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1 KWAZULU-NATAL Report of the Auditor-General of South Africa on a performance audit of the use of consultants at selected departments of the KwaZulu-Natal Provincial Government NOVEMBER 2013

2 PERFORMANCE AUDIT An independent auditing process to evaluate the measures instituted by management to ensure that resources have been procured economically and are used efficiently and effectively.

3 OUR REPUTATION PROMISE/MISSION The Auditor-General of South Africa has a constitutional mandate and, as the Supreme Audit Institution (SAI) of South Africa, it exists to strengthen our country s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence. By Authority 2 AUDITOR-GENERAL OF SOUTH AFRICA PERFORMANCE AUDIT REPORT 2013

4 TABLE OF CONTENTS FOREWORD 5 AUDIT SCOPE 10 KEY AUDIT FINDINGS 14 OVERVIEW 15 EXECUTIVE SUMMARY 17 Key findings 22 Comments received 24 Conclusion 25 RECOMMENDATIONS 27 DEPARTMENTS 31 Findings across departments 32 Department of Agriculture, Environmental Affairs and Rural Development 34 Department of Health 38 Department of Transport 46 REGULATORY FRAMEWORK 51 Supply chain management 52 Standard Chart of Accounts 53 Public Service Regulations 53 PERFORMANCE AUDITING 55 Mandate 56 Purpose of performance auditing 56 Advantages of performance auditing 56 Differences between performance auditing and other types of auditing 57 Performance audit process 58 Focus areas and key audit questions 58 Performance audit report to the KWAZULU-NATAL provincial legislature 3

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6 FOREWORD 5

7 FOREWORD I am honoured to present the results of a performance audit on the use of consulting/ professional services, contractors and agency/outsourced services at the following departments of the KwaZulu-Natal Provincial Government (collectively referred to as the departments): Department of Agriculture, Environmental Affairs and Rural Development Department of Health Department of Transport. For the purpose of this report, the terms consulting/professional services, contractors and agency/outsourced services have been grouped under the general term consultants. The focus areas of this performance audit are applicable to all of these third parties. In our current environment, the partnership between the private and public sectors has become important in driving South Africa towards its development goals. To optimise the value of this partnership, this report identifies areas that need to be managed to get the best value for money. The termination of consultancy services in the public sector is not advocated. However, attention is drawn to those areas where the use of consultants duplicates existing costs incurred, and where value for money spent on consultancy services was not secured. Performance audits on the use of consultants by government were conducted in 1996 and The main findings of this audit mirror the findings of the two previous audits. A report on the use of consultants at selected national departments, which was tabled in Parliament on 24 January 2013, also paralleled those findings. The National Treasury and the Department of Public Service and Administration had issued various guidelines and regulations to improve the overall management and use of consultants. However, many weaknesses still exist. This performance audit report highlights instances of inadequate planning and vacant key positions. Inadequate financial and performance management, and a lack of training and transfer of skills were also prevalent. These deficiencies adversely affected the economical, efficient and effective use of consultants. 6 AUDITOR-GENERAL OF SOUTH AFRICA PERFORMANCE AUDIT REPORT 2013

8 ECONOMY Internal capacity constraints and high vacancy rates at the departments sometimes led to the use of consultants. However, strategic planning for the use of consultants was not always done and the departments did not have a strategy and policy on the use of consultants. A robust supply chain management process was not always followed. EFFICIENCY Consultants work was not always monitored and evaluated to ensure that the projects succeeded in achieving their objectives. Payments to consultants were not always aligned to the actual services rendered. In some instances, consultancy projects were regularly extended. EFFECTIVENESS The departments did not always retrospectively analyse projects to determine whether the desired objectives were achieved. In some instances, deliverables were only partially completed. Consultants did not always transfer skills to staff, creating a dependency on the consultants. KwaZulu-Natal Department of Agriculture, Environmental Affairs and Rural Development spent R0,7 billion, the Department of Health R4,3 billion, and the Department of Transport R9,7 billion. The outcomes of this audit have been shared with the management of the audited departments and with provincial executives. The departments have made a number of commitments; key among these is the institution of immediate action to address the findings and recommendations identified in this report. Key aspects of this report have been integrated into our financial audits to ensure regular monitoring by the departments. I wish to thank the staff of the KwaZulu-Natal Department of Agriculture, Environmental Affairs and Rural Development, the Department of Health and the Department of Transport for their assistance during the audits. Auditor-General of South Africa Pretoria November 2013 The above observations did not conform to the principles of economy, efficiency and effectiveness, as reflected on pages 19, 20 and 21 of this report. The weaknesses identified were caused largely by the lack of rigorous review processes to ensure that existing prescripts were followed. These, and issues of inadequate planning and financial and performance management, adversely affected the economical, efficient and effective use of consultants. The recurrence of these issues is cause for concern. In the to financial years, the KwaZulu-Natal Provincial Government spent a total of R17,6 billion on consultants; R5,3 billion on consulting/professional services, R9,6 billion on contractors, and R2,7 billion on agency/outsourced services. The audited provincial departments spent R14,7 billion on consultants (84% of the total provincial expenditure of R17,6 billion). Of this amount, the Performance audit report to the KWAZULU-NATAL provincial legislature 7

9 8 AUDITOR-GENERAL OF SOUTH AFRICA PERFORMANCE AUDIT REPORT 2013

10 AUDIT SCOPE KEY AUDIT FINDINGS OVERVIEW 9

11 AUDIT SCOPE The performance audit on the use of consultants was conducted at three departments of the KwaZulu-Natal Provincial Government and covered 34 contracts with an estimated value of R772 million. Three provincial departments were selected for audit, based on our assessment of possible weaknesses in the use of consultants as identified through other audits, as well as spending trends: Agriculture, Environmental Affairs and Rural Development Health Transport The KwaZulu-Natal Provincial Government incurred operational expenditure 1 of R143,8 billion during the to financial years. Of this amount, its total expenditure on goods and services was R37,6 billion. Expenditure on consultants amounted to 12% of the provincial government s operational expenditure and 47% of its expenditure on goods and services. KwaZulu-Natal Provincial Government s operational expenditure during to ,8 37,6 17,6 R billion Expenditure on consultants Expenditure on goods and services Operational expenditure The total expenditure on consultants by the audited provincial departments amounted to R14,7 billion (84% of the total provincial expenditure of R17,6 billion on consultants) for the three-year period to Operational expenditure includes compensation of employees, goods and services, and interest and rent on land 10 AUDITOR-GENERAL OF SOUTH AFRICA PERFORMANCE AUDIT REPORT 2013

12 Total expenditure on consultants at the KwaZulu-Natal Provincial Government R million % 56% 34% 49% 14% 17% 27% 58% 15% Consulting/ professional services Contractors Agency/outsourced services Audits similar to this provincial audit were conducted nationally and at selected departments of all the other provinces. The report of the audit at selected national departments was tabled in Parliament on 24 January For the purpose of this report, the Standard Chart of Accounts terminology of consulting/ professional services, contractors and agency/outsourced services have been grouped under the general term consultants. The Standard Chart of Accounts defines these terms as follows: CONSULTING/PROFESSIONAL SERVICES:...specialist services and skills provided that are required for the achievement of a specific objective, with the aim of providing expert and professional advice on a time and material basis. It is unnecessary to maintain these skills in-house since they are required on a onceoff or temporary basis Total expenditure on consultants at the KwaZulu-Natal departments of Agriculture, Environmental Affairs and Rural Development, Health and Transport CONTRACTORS:...required to provide services that are of a non-specialised nature that are not core business of the department AGENCY/OUTSOURCED SERVICES: R million the relevant department ordinarily has the capacity and expertise to carry out these services, but for some reasons are not utilising their own staff Agriculture Health Transport { {{ Agriculture Health Transport Agriculture Health Transport Consulting/professional services Contractors Agency/outsourced services (Amounts that were not material are not indicated on this graph) Performance audit report to the KWAZULU-NATAL provincial legislature 11

13 EXPENDITURE ON CONSULTANTS Below is an overview of the expenditure on consultants by the KwaZulu-Natal Provincial Government for the to financial years. Total expenditure on consultants per department in the KwaZulu-Natal Provincial Government for to Agriculture, Environmental Affairs and Rural Development Education Health Human Settlement Provincial Treasury Public Works Sports and Recreation Social Development Transport Community Safety and Liason Office of the Premier 97 Provincial Legislature Cooperative Governance and Traditional Affairs Royal Household 252 Arts and Culture R million Economic Development and Tourism 12 AUDITOR-GENERAL OF SOUTH AFRICA PERFORMANCE AUDIT REPORT 2013

14 Below is an overview of the expenditure on consultants by the Department of Agriculture, Environmental Affairs and Rural Development, the Department of Health and the Department of Transport of the KwaZulu-Natal Provincial Government for the to financial years. Total expenditure on consultants at the Departments of Agriculture, Environmental Affairs and Rural Development, Health and Transport % 13% % R million % 14% 85% 44% 12% { {{ 82% 33% 17% 86% Consulting/professional services Contractors Agency/outsourced services (Spending under 5% is not indicated on this graph) % 44% 52% 87% 35% 50% 8% 44% 60% Agriculture Health Transport Agriculture Health Transport Agriculture Health Transport Performance audit report to the KWAZULU-NATAL provincial legislature 13

15 KEY AUDIT FINDINGS The table below summarises the key audit findings of the Department of Agriculture, Environmental Affairs and Rural Development, the Department of Health and the Department of Transport of the KwaZulu-Natal Provincial Government, as they relate to the aspects of economy, efficiency and effectiveness. KEY FINDINGS ECONOMY EFFICIENCY EFFECTIVENESS Economy The economical acquisition of consultancyrelated resources includes a competitive procurement process for the appointment of consultants and the creation and maintenance of a permanent staff capacity where required Efficiency The efficient use of consultants requires the achievement of an optimal relationship between the outputs produced by consultants and the resources expended by departments to remunerate these consultants. The management of the process to achieve this relationship is also a key consideration Effectiveness The use of consultants is considered to be effective if the objectives that informed the appointment of consultants are met Key findings at the audited KwaZulu-Natal Provincial departments in this regard include the following: A strategy and policy on the use of consultants was not in place. As a result, the cost-effectiveness of using consultants and the long-term effects were not analysed. This resulted in substantial expenditure on consultants A comprehensive needs assessment was not always done before commencing with consultancy projects A competitive procurement process was not always followed. Many of the appointments were based on a singlesource selection, which does not ensure the lowest possible cost for the quality required Internal capacity constraints and high vacancy levels were experienced, which sometimes necessitated the appointment of consultants by the departments, to support the continuity of service delivery Key findings at the audited KwaZulu-Natal Provincial departments in this regard include the following: Contracts with some consultants were not signed. This resulted in the terms, conditions and processes regulating the relationship between the parties, not being formalised Some consultancy contracts were regularly extended Consultants were sometimes appointed to perform core functions and daily operations. Internal vacancies were not always advertised and filled on time Contracts and payments were not always properly monitored to ensure that deliverables were met The effectiveness of the use of consultants at the audited KwaZulu-Natal Provincial departments was adversely affected by the following: Transfer of skills was sometimes not included in the contract or was not done, as required by the contract Some projects were not retrospectively analysed to determine whether the proper processes had been followed and whether the desired objectives had been achieved 14 AUDITOR-GENERAL OF SOUTH AFRICA PERFORMANCE AUDIT REPORT 2013

16 OVERVIEW The KwaZulu-Natal public sector cannot easily dispense with partnering with the private sector due to the specialised nature of some activities. In addition, departments experienced numerous human resource and other challenges. These challenges are recognised by the KwaZulu-Natal Provincial Government and, in many instances, necessitate the use of consultants. When used correctly, consultants can be beneficial and provide access to skills that are not cost-effective for a department to build or maintain itself. While recognising the above benefits, it is necessary to remain mindful of the manner in which consultants are used by the provincial government. Section 195 of the Constitution of the Republic of South Africa of 1996 notes that the efficient, economic and effective use of resources must be promoted. The Public Service Commission, in its 2001 Report on the State of the Public Service, highlighted the use of consultants as a concern. In the report, the Commission stated: The Public Service Commission is of the view that the use of any consultant needs to be justifiable and open to intense scrutiny. This is particularly true when specialist, high cost professional services are utilised or when former state employees are involved. In 2001, the Department of Public Service and Administration instructed departments to: Undertake an institutional assessment of capacity to absorb outside assistance before tenders are issued Prepare sound and realistic tender specifications, which match the ability to implement and sustain the outcomes of projects Include skills transfer in the contracts and monitor the delivery thereof Undertake regular performance audits of consultancy assignments Assess the total cost of using consultants in relation to cost-effectiveness before a decision is made to appoint a consultant Include information on the use of consultants in the annual report of a department to: Provide a more balanced view of personnel expenditure in the public service Provide information regarding expenditure on consultants, and the type and value of projects Improve the monitoring of government on the use of consultants Promote the sharing of learning products in government. The lack of skilled staff to carry out departmental duties has been highlighted in several recent reports of the Auditor-General of South Africa. Performance audit report to the KWAZULU-NATAL provincial legislature 15

17 The Department of Public Service and Administration also indicated that a database of reports produced by consultants would be compiled and updated annually, envisaging that it would contribute to: The reduction of the number of consultants appointed by different departments to develop virtually the same policies or systems Guidance in support of decision-making on the future use of consultants Sharing of learning products in the public service. Where consultants are the preferred option to deliver a service or programme, the departments capacity to monitor and evaluate projects must be strengthened. This will ensure that all project deliverables and related objectives are achieved. In instances where deficiencies are detected, corrective action must be imposed promptly. ABOUT THIS REPORT This report is presented in an environment where the partnership between the private and public sectors has become important in driving South Africa towards its development goals. Consultants provide specialist services to the public sector. However, this performance audit also revealed that consultants were appointed to provide core departmental functions. These include the preparation of financial statements at two departments for which the departments should have had internal staff. Since such skills were not available internally or departments were not successful in recruiting suitable staff, they relied on consultants to perform these functions. These, and issues of inadequate planning and financial and performance management, adversely affected the economical, efficient and effective use of consultants. The National Treasury and the Department of Public Service and Administration had issued various guidelines and regulations to improve the overall management and use of consultants. However, despite these, many weaknesses still exist. The reasons for this include a lack of monitoring and enforcement of compliance. Appropriate action is also not taken against those who contravene existing laws, regulations and policies. 16 AUDITOR-GENERAL OF SOUTH AFRICA PERFORMANCE AUDIT REPORT 2013

18 EXECUTIVE SUMMARY 17

19 EXECUTIVE SUMMARY Attention to the following focus areas is crucial in ensuring the economical, efficient and effective use of consultants by departments. This performance audit centred on the focus areas presented below: Planning and appointment processes Closing and finalising projects Extension of contracts AUDIT FOCUS AREAS Performance management and monitoring of consultants Internal capacity at departments Training and transfer of skills from consultants to employees 18 AUDITOR-GENERAL OF SOUTH AFRICA PERFORMANCE AUDIT REPORT 2013

20 SUMMARISED AUDIT OUTCOMES DEPARTMENT OF AGRICULTURE, ENVIRONMENTAL AFFAIRS AND RURAL DEVELOPMENT CLASSIFICATION FOCUS AREAS WHERE DEFICIENCIES WERE IDENTIFIED DURING THE AUDIT E AFFECTED NO. PROJECT BEST AVAILABLE VALUE OF CONTRACT 2 (R) CONSULTING/ PROFESSIONAL SERVICES CONTRACTORS AGENCY/OUTSOURCED SERVICES PLANNING AND APPOINTMENT INTERNAL CAPACITY TRAINING AND TRANSFER OF SKILLS PERFORMANCE MANAGEMENT AND MONITORING EXTENSION OF CONTRACTS CLOSING AND FINALISING PROJECTS ECONOMY EFFICIENCY EFFECTIVENESS Supply chain management services (Page 34) Dip tank rehabilitation programme (Page 35) Fencing project (Page 36) Legal services (Page 36) Chief financial officer services (Page 37) Grazing for cattle (Page 37) Supply equipment and analysing air pollution data Drafting business plan Supply air monitoring equipment and conducting health study Develop and implement online information system 2 11 Preparation for audit Advertising posts and tenders Subtotal: The best available value is the contract value plus extensions. Where the contract value was not available, the actual payments were used 3 Findings are not material and therefore not included in the report Performance audit report to the KWAZULU-NATAL provincial legislature 19

21 DEPARTMENT OF HEALTH CLASSIFICATION FOCUS AREAS WHERE DEFICIENCIES WERE IDENTIFIED DURING THE AUDIT E AFFECTED NO. PROJECT BEST AVAILABLE VALUE OF CONTRACT 4 (R) CONSULTING/ PROFESSIONAL SERVICES CONTRACTORS AGENCY/OUTSOURCED SERVICES PLANNING AND APPOINTMENT INTERNAL CAPACITY TRAINING AND TRANSFER OF SKILLS PERFORMANCE MANAGEMENT AND MONITORING EXTENSION OF CONTRACTS CLOSING AND FINALISING PROJECTS ECONOMY EFFICIENCY EFFECTIVENESS Home and community-based carer programme (Page 39) Adult basic education and training (Page 42) Minor renovation programme (Page 43) Personnel agency (Page 44) Forensic investigation into procurement and human resource processes (Page 45) Forensic audit of procurement irregularities Evaluation of clinic gardens and nutrition intervention Auditing of the implementation of the National Integrated Plan Recruitment of personnel Project management services Subtotal: The best available value is the contract value plus extensions. Where the contract value was not available, the actual payments were used 5 Findings are not material and therefore not included in the report 20 AUDITOR-GENERAL OF SOUTH AFRICA PERFORMANCE AUDIT REPORT 2013

22 DEPARTMENT OF TRANSPORT CLASSIFICATION FOCUS AREAS WHERE DEFICIENCIES WERE IDENTIFIED DURING THE AUDIT E AFFECTED NO PROJECT BEST AVAILABLE VALUE OF CONTRACT 6 (R) CONSULTING/ PROFESSIONAL SERVICES CONTRACTORS AGENCY/OUTSOURCED SERVICES PLANNING AND APPOINTMENT INTERNAL CAPACITY TRAINING AND TRANSFER OF SKILLS PERFORMANCE MANAGEMENT AND MONITORING EXTENSION OF CONTRACTS CLOSING AND FINALISING PROJECTS ECONOMY EFFICIENCY EFFECTIVENESS 23 Computerised learner and driver licence testing system (Page 47) Chief financial officer services (Page 48) Road infrastructure services (Page 48) Road safety public awareness (Page 49) Research and develop labour techniques 27 on road construction (Page 49) 28 Exit strategy for contractor s programme (Page 49) Manage public transport associations Manage the contractors programme Support to the emerging contractors association Design, construct and manage bus shelters Promoting the road safety campaign Advertising and communication services Subtotal: Grand total The best available value is the contract value plus extensions. Where the contract value was not available, the actual payments were used 7 Findings common across projects and grouped together in the report Performance audit report to the KWAZULU-NATAL provincial legislature 21

23 KEY FINDINGS ECONOMY ECONOMY ECONOMY Strategic planning for the use of consultants was not always done. The departments did not always differentiate between services that should be contracted to consultants and services for which internal capacity should be created. As a result, the departments had high vacancy rates and their expenditure on consultants increased. Planning and appointment processes Comprehensive needs assessments prior to appointing consultants were sometimes not undertaken or not adequate. This led to contract extensions or additions to the original scope of work. Some consultants were not appointed through a competitive bidding process. Appointments were, therefore, not necessarily made at the lowest possible cost and in the best interests of the departments. Some consultants did not have contracts or contracts were not concluded before the work commenced. ECONOMY EFFICIENCY EFFECTIVENESS In some cases, the requirements of National Treasury and KwaZulu- Natal Provincial Government Supply Chain Management prescripts were not observed. As a result, planning and appointment processes were not followed consistently, including: The completion of terms of reference Following competitive bidding processes, especially when consultants contracts were extended Signing consultancy contracts. Internal processes to appoint staff were, in some instances, inefficient because vacant positions were not advertised and filled in time. As a result, consultants were sometimes appointed to perform core functions or daily operations at the departments. Some consultants were required to transfer skills. However, in some instances, this requirement was not included in the contract or was not met. This led to a dependence on consultants. Internal capacity at department Training and transfer of skills from consultants to employees EFFICIENCY 22 AUDITOR-GENERAL OF SOUTH AFRICA PERFORMANCE AUDIT REPORT 2013

24 EFFICIENCY Consultants work was sometimes not comprehensively monitored and evaluated during the contract period. As a result, deliverables were sometimes not met within the time frames agreed. However, the Performance management and monitoring of consultants EFFECTIVENESS The departments did not always retrospectively analyse projects to determine whether the proper processes were followed and whether the desired objectives were achieved. 8 The National Treasury prescribes a retrospective analysis and an assessment at the completion of each project, which should be available for future reference. EFFECTIVENESS EFFICIENCY EFFICIENCY consultants were paid in full for their services. Payments to consultants were not always monitored. This sometimes resulted in consultants being paid more than their contracted amounts. In some instances, consultants were paid without proof that services were rendered. Contracts and contract periods were regularly extended. This was due to a lack of capacity and poor project planning. Alternative options were not evaluated prior to extending contracts. Extension of contracts EFFICIENCY Certain information requested by the audit team could not be provided by two departments. This resulted in some audit procedures not being carried out to verify management control measures. The departments did not effectively maintain their archiving systems to ensure that all documents were safely stored and retained. Not providing information to the Auditor-General of South Africa for audit purposes is a contravention of Limitation of scope the Public Finance Management Act. Some project objectives were not fully achieved. This was because EFFECTIVENESS implementation plans were not always in place. Closing and finalising projects 8 This does not refer to the close-out reports compiled by consultants. Performance audit report to the KWAZULU-NATAL provincial legislature 23

25 COMMENTS RECEIVED Department of Health The following feedback was obtained from the departments relating to the implementation of measures based on our recommendations. These corrective actions are monitored during the Auditor-General of South Africa s annual financial audits. Department of Agriculture, Environmental Affairs and Rural Development The department will apply its supply chain management policy and related prescripts to consultants, until it has developed a policy on the use of consultants Supply chain management procedures are followed for all bids A contract management unit in supply chain management ensures that service level agreements are in place. Designated managers will be responsible for ensuring compliance Single-source selection will apply only where there is evidence of a single provider for the service Deviations will be dealt with in accordance with the supply chain management delegations The use of consultants, especially in administrative functions, has been reduced significantly The accounting officer will approve the use of consultants after careful consideration and assessment of the department s internal capacity A human resource plan is in place to manage appointments Terms of reference will be compiled to include the objective, scope and goals of the assignment, and the transfer of skills Contracts will have a fixed duration. Contract periods will be tracked and project managers will be advised six months in advance of contract terminations Projects requiring further investigations have been handed over to the KwaZulu-Natal Provincial Treasury s internal audit unit. It will conduct the relevant investigations on behalf of the department. These are expected to be completed during the financial year Contracts that stipulate comprehensively the consultant s obligations are now drawn up by the department s legal services unit The department is in the process of developing a strategy/policy governing the use of consultants The department developed a Health Investigation Management System, which will track all forensic investigations The services of private personnel agencies for the appointment of staff have been stopped Although there is a moratorium on the filling of posts, guidelines have been put in place on the procedures to be followed in filling critical posts The department hires tutors and uses the Department of Education for its Adult Education and Training Physical verification of caregivers and the authenticity of identity numbers are being performed The policy on remunerative work outside the public service has been drafted and circulated for comments The department s investigation units will, where applicable, investigate payments made to the consultants and recover overpayments Supply chain management processes for the awarding of tenders will be evaluated. This will ensure the adjudication of all tenders in accordance with predetermined and specified criteria. Recruitment processes are monitored and timelines improved. 24 AUDITOR-GENERAL OF SOUTH AFRICA PERFORMANCE AUDIT REPORT 2013

26 Department of Transport The recruitment and selection policy has been updated to include time frames Labour-based methods of construction have been incorporated into road infrastructure projects Advertising of posts identified as critical has commenced An electronic register was implemented to report limited-bidding transactions over R1 million to the KwaZulu-Natal Provincial Treasury and the Auditor-General of South Africa A request for proposals for the appointment of district consultants was advertised. The mentoring of staff has been factored into the request for proposals Needs assessments and feasibility studies have been implemented for single-source selection of consultants All contract documents are being reviewed by legal services A strategy on the use of consultants and the extension of contracts will be incorporated into the draft supply chain management policy. Training and transfer of skills from consultants to departmental staff are optimally applied and monitored, where applicable Consultants performance is monitored and managed to ensure that deliverables are achieved on time Contracts are only extended in exceptional cases, based on valid and documented reasons Consultancy contracts are properly closed through retrospective analyses where the processes followed and the objectives achieved are evaluated. CONCLUSION Government s success in optimising the value and benefits of using consultancy services will only be achieved if: Proper systems of financial management and controls are established and adhered to in departments Officials and accounting officers are held responsible for the economical, efficient and effective use of resources Compliance with regulations and policies is enforced Planning for the use of consultants is improved and is part of the departments strategy and business plans Sufficient internal capacity is created to enable departments to deliver on their mandates Performance audit report to the KWAZULU-NATAL provincial legislature 25

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28 RECOMMENDATIONS 27

29 RECOMMENDATIONS 1. PLANNING AND APPOINTMENT 1.1 The types and extent of services to be contracted out should be strategically considered, taking into account the following: The long-term objectives and needs of the department The cost of contracting out versus the cost of creating and filling internal capacity. 1.2 A comprehensive strategy and policy governing the use of consultants should be developed and implemented. 1.3 Prior to appointing consultants, a comprehensive needs assessment should be conducted to determine the best option based on costs and benefits. This should include considerations such as whether internal capacity is available to perform the specific project. 1.4 All supply chain managers, including members from the bid evaluation and bid adjudication committees, should be trained in supply chain management policies and regulations. The supply chain management regulations should be applied in a consistent and fair manner. 1.5 Competitive bidding processes should be followed for new appointments and contract extensions. If an emergency necessitates a non-competitive bidding approach to be followed, the reasons should be properly motivated, documented and approved. 1.6 Departments, especially the bid evaluation and bid adjudication committees, should pay specific attention to compliance with the supply chain management policies and regulations. 1.7 Contracts should be in accordance with the general conditions of contract prescribed by the National Treasury, and should include: Clear, specific and measurable deliverables Clearly defined roles and responsibilities for both the department and the consultant. 2. INTERNAL CAPACITY 2.1 Internal vacancies and capacity should be assessed regularly and processes that hinder the filling of vacancies should be addressed. 2.2 Management should have a plan and prioritise filling vacant posts on time, to reduce the reliance on consultants for the continuity of service delivery. 3. TRAINING AND TRANSFER OF SKILLS 3.1 Contracts should make provision for training and transfer of skills. Where this forms part of the project, the departments should ensure that consultants honour their contractual obligations in full. 3.2 Staff should be made available for skills transfer interventions. They should also be evaluated to determine the effectiveness of the skills transferred. 28 AUDITOR-GENERAL OF SOUTH AFRICA PERFORMANCE AUDIT REPORT 2013

30 4. PERFORMANCE MANAGEMENT AND MONITORING 4.1 The contract and the work performance of consultants should be monitored closely and regularly. This should be done to ensure that the quality of the work performed matches the agreed deliverables. 4.2 Payments for actual services rendered should be monitored to ensure that the total payments to consultants remain within the approved contract value. 4.3 Invoices should be validated to ensure that the services paid for have been rendered. 5. EXTENSION OF CONTRACTS The extension of contracts and contract periods should be carefully considered, taking into account the original deliverables and future cost implications. 6. CLOSING AND FINALISING PROJECTS 6.1 The detailed requirements for implementing the deliverables, such as cost and other resources and timelines, should be planned and budgeted for in line with an approved implementation plan. The departments should actively pursue the timely implementation of the plan to ensure that project objectives are achieved. 8. GENERAL 8.1 The Provincial Treasury should monitor compliance with relevant prescripts. In addition, it should enforce appropriate actions where departments deviate from such prescripts. 8.2 The departments should include extensive coverage on the use of consultancy services in their strategic and business plans. These plans should be intensively reviewed by internal audit and portfolio/audit committees. 8.3 The accounting officer s section in the annual report should cover the element of accountability for the use of consultants. This should focus on the extent to which economy, efficiency and effectiveness have been achieved in appointing consultants. 8.4 Specific oversight on the use of consultants should be performed quarterly by the relevant committees, including portfolio committees and the Provincial Public Accounts Committee. 8.5 Internal audit should include the use of consultants by departments in their internal audit plan, and perform regular audits in these areas. 6.2 A retrospective analysis to determine whether the proper processes were followed and whether the desired objectives were achieved, should be done at the end of each stage and project. 7. LIMITATION OF SCOPE The Department of Agriculture, Environmental Affairs and Rural Development and the Department of Health should address the lack of proper filing and archiving systems. This will ensure that documentation and information are readily available to support transactions and management decisions. Performance audit report to the KWAZULU-NATAL provincial legislature 29

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32 DEPARTMENTS 31

33 FINDINGS ACROSS DEPARTMENTS The following findings were noted at all three of the departments audited. 1. STRATEGY AND POLICY ON THE USE OF CONSULTANTS The departments did not have a strategy and policy on the use of consultants, and did not plan on a strategic level for the use of consultants. As a result, the costeffectiveness of using consultants was not analysed. The departments also did not distinguish between areas where internal capacity was required and areas where consultants should be used. As the departments did not plan strategically for the use of consultants, consultants were appointed on an ad hoc basis without considering the long-term effects. The expenditure on the use of consultants at the departments was substantial. Table 1 details the total expenditure of R14,7 billion incurred over three financial years. Table 1: Expenditure on consultants per financial year DEPARTMENTS EXPENDITURE ON CONSULTANTS (R) Agriculture, Environmental Affairs and Rural Development Health Transport Total Consultants performed key functions in terms of service delivery because of the high vacancy rates at the departments. Except for the abolishment of posts by the Department of Transport, strategic initiatives were not taken to reduce the vacancies. Table 2 below indicates the overall vacancy rates. Table 2: Vacancy rates DEPARTMENTS VACANCY RATES Agriculture, Environmental Affairs and Rural Development 20,5% 27,9% 41,0% Health 23,0% 27,4% 19,3% Transport 28,0% 32,0% 3,0% 32 AUDITOR-GENERAL OF SOUTH AFRICA PERFORMANCE AUDIT REPORT 2013

34 2. CONSULTANTS APPOINTED THROUGH SINGLE-SOURCE SELECTION (LIMITED BIDDING) Sixteen consultants were appointed based on single-source selection (without following a competitive bidding process). The total contract value for these consultants amounted to R , as detailed in table 3 below. Table 3: Single-source appointments DEPARTMENT NUMBER OF SINGLE-SOURCE APPOINTMENTS CONTRACT VALUE OF THESE APPOINTMENTS R Agriculture, Environmental Affairs and Rural Development Health Transport Total LIMITATION OF SCOPE In terms of section 41 of the Public Finance Management Act, an accounting officer must submit information and documents to the AGSA as requested. The Department of Agriculture, Environmental Affairs and Rural Development and the Department of Health did not effectively maintain their archiving systems. This would have ensured that all documents were safely stored and retained. Therefore, they could not submit certain information and documentation requested by the audit teams. As a result, some audit procedures to evaluate management measures could not be carried out. The departments could not demonstrate that market analyses or transparent preselection processes were done prior to appointing these consultants. This was required by paragraph of the National Treasury s Supply Chain Management: A Guide for Accounting Officers. The main reason provided for single-source appointments was that the consultants were required urgently. Therefore, it could not be determined whether these appointments were made in the best interests of the departments and at the lowest possible cost. In addition, 14 of these consultants contracts individually exceeded R1 million. National Treasury Practice Note 8 of requires all departments to report on limited bidding above R1 million to the Auditor-General of South Africa (AGSA) and the KwaZulu-Natal Provincial Treasury. The departments acknowledged their oversight in not reporting accordingly. Performance audit report to the KWAZULU-NATAL provincial legislature 33

35 DEPARTMENT OF AGRICULTURE, ENVIRONMENTAL AFFAIRS AND RURAL DEVELOPMENT Total expenditure on consultants ( to ) R679 million Number of consultancy projects audited 12 Value of projects audited R97 million Average vacancy rate ( to ) 29,8% Graph 1 provides a breakdown of the expenditure on consultants per category and per financial year. Graph1: Expenditure on consultants at the Department of Agriculture, Environmental Affairs and Rural Development A. KEY FINDINGS PER PROJECT 1. SUPPLY CHAIN MANAGEMENT SERVICES The department appointed consultants in June 2009 to supplement and support its supply chain management (SCM) unit. This was done in preparation for the forthcoming planting season. An amount of R was paid to the consultants over a period of three months. 1.1 Consultants were appointed due to vacancies in the SCM unit. These vacancies resulted from a lack of human resource planning within the department. The vacancy rates in the SCM unit over the to financial years are shown in table 4 below. Table 4: SCM unit vacancy rates R million % 52% 35% 3% 44% 5% 60% 5% 8% Consulting/ professional services Contractors Agency/outsourced services FINANCIAL YEAR NUMBER OF POSITIONS ON STAFF ESTABLISHMENT NUMBER OF POSITIONS FILLED NUMBER OF POSITIONS VACANT VACANCY RATE % % % 34 AUDITOR-GENERAL OF SOUTH AFRICA PERFORMANCE AUDIT REPORT 2013

36 The department paid consultants R more than it would have paid its own staff to do the same job. A comparison Consultants cost the between the costs of using consultants department R6 million more and employing staff at each job level is than own staff to do the same work shown in table 5 below. Table 5: Comparison cost of consultants versus cost of staff POSITION IN WHICH CONSULTANT WAS USED COST PER CONSULTANT 9 R COST PER STAFF 10 R DIFFERENCE IN COST R NUMBER OF CONSULTANTS USED TOTAL DIFFERENCE IN COST R Director Project manager Legal SCM practitioner Senior SCM practitioner Senior SCM practitioner SCM practitioner Total These consultants were appointed based on a single-source selection. The appointment was motivated by the A lack of planning resulted urgency of the procurement demands in the urgent need for consultants brought on by the planting season. As the department considered the appointment as urgent, the invitation for competitive bids was viewed as impossible and impractical. The lack of human resources planning for SCM functions did not justify a deviation from competitive bidding processes. This is based on National Treasury s Practice Note 6 of Since a competitive bidding process was not followed, it could not be determined whether the appointment was made in the best interest of the department and at the lowest possible cost. 2. DIP TANK REHABILITATION PROGRAMME On 24 November 2004, a consultant was appointed based on single-source selection to provide dip tank rehabilitation services at a cost of R The contract was extended for an additional R from 11 July 2007 to 30 September The total value of the contract was R A needs assessment was not performed before appointing the consultant. As a result, the period during which the Only 66% of dip tanks department would require the rehabilitated despite contract consultant s services was not properly extension of R10,9 million defined at the onset of the project. Consequently, the initial contract with the consultant was extended at an additional cost of R (75% of the original contract value). Despite the contract extension, the rehabilitation of dip tanks by the consultant fell short of the department s needs. Only 985 of dip tanks (66%) were rehabilitated between 2005 and Over the contract duration of three months 10 Total annual cost to company pro rata for three months Performance audit report to the KWAZULU-NATAL provincial legislature 35

37 2.2 The consultant was required, as part of its contract, to transfer skills and provide mentorship to livestock associations. The department could not demonstrate that No evidence of skills transfer the mentorship had occurred. In addition, a structured programme to transfer skills was not developed. Monitoring and evaluation of skills transferred was not performed due to capacity constraints. This was contrary to the KwaZulu-Natal Provincial Treasury Practice Note SCM-05 of Towards the end of the consultant s contract, a process was initiated to appoint another consultant to continue with the project. On 14 August 2009, proposals for this second tender were requested from suitably qualified consultants. The bidders for the second tender were required to submit their bids in two separate envelopes one envelope with the technical proposal and a second with the price proposal. This was to ensure the integrity of the process and is required by the KwaZulu-Natal Provincial Treasury Practice Note SCM-05 of However, bids for the second tender containing both technical and price proposals in a single envelope were accepted by the department. This led to an appeal to the KwaZulu-Natal Bids Appeal Tribunal by an unsuccessful bidder. Consequently, an appointment was not made and the project s objectives were not achieved. 3. FENCING PROJECT The department identified that fencing was required to control livestock in rural areas. Contracts with five consultants (totalling R ) were concluded, from January 2009 to March Incorrect estimates used during the project s planning phase led to cost overruns and project delays. The department Actual project cost was estimated that 250km of fencing was 62% more than the contract required for the project. This was, amount however, not based on the actual perimeter requirement. The consultants subsequently ascertained that 615km of fencing was required for the project. As a result, the actual cost (R ) exceeded the contract value by R (62%), and the project was delayed by 15 months. It was completed in June 2010, instead of March LEGAL SERVICES Following a forensic investigation, the member of the executive council (MEC) for Agriculture, Environmental Affairs and Rural Development dismissed the directors of a public entity of the department on 18 September The directors opposed the dismissal. The MEC s office engaged an attorney to provide legal representation to the MEC, from 25 September 2008 to 19 June The attorney was paid R for this service. 4.1 The legal services directorate undertakes all legal representation for the department and the MEC. On 25 September, 2008, the legal services directorate advised the MEC s office to allow the state attorney to represent the MEC in this matter. The office of the MEC proceeded to appoint an attorney, without liaising with the legal services directorate, as required by departmental circular 7 of As a result, the directorate was not able to initiate SCM processes to appoint the attorney. Accordingly, it could not be determined whether the appointment was cost-effective. 36 AUDITOR-GENERAL OF SOUTH AFRICA PERFORMANCE AUDIT REPORT 2013

38 4.2 Paragraph 1.6 of the KwaZulu-Natal Provincial Treasury Practice Note SCM-05 of 2006 states that the work undertaken by a consultant should be regulated by a contract. As legal representation for the MEC was required urgently, the MEC s office did not conclude a contract with the attorney. As a result, the amount paid to the No contract for payment of R4,2 million attorney could not be evaluated against any documented terms of reference. 5. CHIEF FINANCIAL OFFICER SERVICES On 4 June 2008, a consultant was appointed based on single-source selection to act as chief financial officer (CFO), from 17 June 2008 to 30 June 2009, at a cost of R Thereafter, the consultant was employed by the department on a fixedterm contract as acting CFO until 31 March A permanent CFO was employed on 8 November GRAZING FOR CATTLE On 8 May 2006, a farmer was contracted for a period of six months to provide grazing land for the department s cattle at a cost of R These cattle were to be Contract extended to 807% of the original cost distributed to identified beneficiaries. The contract with the farmer was regularly extended between November 2006 and August Extensions amounted to R , representing 807% of the original cost. The reason for the extensions was the lack of an implementation plan to distribute the cattle within the time frame of the contract. Therefore, the grazing land was needed to ensure a continuity of grazing for cattle that had not yet been distributed. 5.1 The recruitment and selection policy did not include time frames to fill vacant posts. The CFO post remained vacant for 43 months (10 April 2007 to 31 October 2010). This CFO position was vacant for 43 months was a contravention of the Public Service Regulations. A consultant was appointed to perform the core function of CFO. 5.2 On 1 July 2009, the consultant performing the function of CFO was employed by the department as acting CFO. The acting CFO s annual salary was R In terms of a Department of Public Service and Administration circular, the minimum annual salary for a CFO was R A job evaluation to support the additional salary, as required by the Public Service Regulations, was not conducted. A lack of ongoing monitoring over compliance with the relevant legislation contributed to this. Performance audit report to the KWAZULU-NATAL provincial legislature 37

39 DEPARTMENT OF HEALTH Total expenditure on consultants ( to ) R4,362 billion Number of consultancy projects audited 10 Value of projects audited R329 million Average vacancy rate ( to ) 23,2% Graph 2 provides a breakdown of the expenditure on consultants per category and per financial year. Graph 2: Expediture on consultants at the Department of Health R million % 14% 44% 13% 47% 43% 33% 17% 51% Consulting/ professional services Contractors Agency/outsourced services A. KEY FINDINGS ACROSS PROJECTS 1. PROCESS OF APPOINTING CONSULTANTS The function of appointing consultants was decentralised to district offices and hospitals. However, a policy to manage this process was not developed. This resulted in the following: Cost-benefit analyses were not conducted to determine the cost-effectiveness of appointing consultants Analyses were not undertaken of needs, specialist skills required and roles the consultants would be required to fulfil Internal resources and expertise were not considered before consultants were appointed. In addition, district offices and hospitals did not liaise with the department s Human Resources and Development (HRD) directorate for guidance on appointing consultants. 2. VACANCY RATES The department experienced high vacancy rates between the and financial years. Some vacancies dated back to As a result, the department used consultants to supplement its work force. 38 AUDITOR-GENERAL OF SOUTH AFRICA PERFORMANCE AUDIT REPORT 2013

40 Table 6: Vacant posts and cost of consultants FINANCIAL YEAR VACANT POSTS COST OF CONSULTANTS R Total The department was not able to analyse and monitor the use of these consultants. This was due to the decentralisation of the procurement of consultants to the various district offices and hospitals. As a result, data necessary for effective analysis and monitoring was not collated at a departmental level. Consequently, the department became reliant on personnel agencies. It was not able to substantially reduce this dependence by appointing and investing in the training of its own staff. 3. CONTRACTS Contracts were not in place to properly regulate the work of 10 consultants who were paid R The work of a consultant should be regulated by a contract in terms of Practice Note Number SCM 3 of 2003, issued by the National Treasury. The process to formalise contracts had not been properly documented. As a result, the legal relationships between the parties were not regulated. Such contracts also allow management processes to be implemented, to ensure that the deliverables and timelines are met. 4. CLOSE-OUT REPORTS AND THE EVALUATION OF CONSULTANTS The department did not always review the work of consultants when contracts came to an end. Project close-out reports were not prepared due to the lack of a policy on project management and low awareness that projects should be closed off. The absence of close-out reports impaired the following key project management activities: Determining whether project deliverables were achieved Determining whether all contractual requirements were complied with Comparing actual and planned deliverables Documenting project results and capturing/sharing lessons learnt Presenting final reports Implementing project deliverables and outcomes. B. KEY FINDINGS PER PROJECT 1. HOME- AND COMMUNITY-BASED CARER PROGRAMME The first consultant (consultant A) was appointed for the period 1 October 2006 to 30 September 2009 at a cost of R This excluded the cost of reimbursing the consultant for the community health care workers (CHCWs). Consultant A was appointed to: Develop, administer and implement the home- and community-based carer programme in the districts Train CHCWs Identify and develop local non-governmental organisations to take over the employment, monitoring and supervision of the CHCWs. Performance audit report to the KWAZULU-NATAL provincial legislature 39

41 On average, carers on the consultant s payroll were paid a monthly allowance of either R1 000 or R These payments amounted to approximately R6,4 million per month and were claimed back monthly from the department. An amount of R was paid to the consultant during the contract period. In the case of the second consultant (consultant B), to whom payments amounting to R were made, no signed contract could be submitted for audit purposes. However, the purpose and responsibilities identified from the addendum to the unsigned contract included the following: Assume the role of paymaster for the organisation to pay allowances to home-based carers Provide mentorship to the organisation and build capacity to ensure sustainability of the organisation Conduct a skills audit and intervene with skills development through training. 1.1 Some CHCWs received two incomes, as they were employed by both consultant A and the provincial administration. One Government employees hundred and twenty seven cases of also performing other individuals who were employed by both remunerative work consultant A as CHCWs and the provincial administration, were identified. Of these, consultant A paid 47 provincial employees monthly allowances of R1 000 each, while 80 provincial employees were paid monthly allowances of R1 488 each. Consultant A recovered these monthly payments of R from the department. Provincial employees were contracted by Consultant A to render services as CHCWs for 40 hours a week. At the same time, they were obligated in terms of their employment contracts to work the same number of hours for the provincial administration. This translated into a requirement to work 16 hours per day, affecting their effectiveness in performing either role. No evidence was available that staff was authorised to accept additional outside work as CHCWs. Provincial employees require such approval to perform remunerative work outside of their official duties. This is required by the Public Service Act. In addition, Consultant A did not screen applicants to disqualify government employees who were not authorised to take on additional work outside of the department. 1.2 Claims were submitted by consultant A for the payment of the CHCW allowances. Consultant A did not validate these claims and the department had no Invalid payments made to consultant review procedures in place to ensure the validity of payments. This resulted in the following anomalies: Payments amounting to R were made to 73 deceased CHCWs Payments amounting to R were made to 39 CHCWs with invalid identity (ID) numbers. 1.3 Payments to consultant A exceeded the approved contract amount. The department s project manager did not Consultant was paid reconcile the administration fees R5 million more than invoiced with the contract (as required contracted amount by clause 10 of the contract). The project manager was under the impression that the department s financial section controlled all the finance-related matters. This indicates that the different role players were not clear about their roles and responsibilities. As a result, the department paid consultant A R more than the contract amount. 1.4 An invoice amounting to R was paid twice. No recovery was made, although consultant A informed the department of the overpayment. Duplicate payment was made to consultant Subsequent invoices were paid without setting off the overpayment. 40 AUDITOR-GENERAL OF SOUTH AFRICA PERFORMANCE AUDIT REPORT 2013

42 As not all payments were checked against statements and invoice details, double payments were made on two invoices to consultant B, amounting to R A system feature on the Basic Accounting System (BAS) that highlights duplicate invoices and prompts the capturer for a response before continuing with the payments, was not used. Management controls to query late and duplicate payments, such as checking statements and past payments, were inadequate to prevent duplicate payments or detect them in time. 1.5 In terms of the contract, an impact study should have been carried out by 30 November 2009 by a joint committee, Consultant was paid comprising representatives of the R1,2 million five months in department and consultant A. The main advance of services rendered purpose of the impact study was to evaluate whether the objectives of the contract were met. Consultant A presented an invoice for R to the department, which was paid on 28 October However, on 11 January 2010, consultant A subcontracted the impact study at a cost of R and with a completion date of 23 March The impact study was completed five months after the department had paid for the study. The subcontracted amount was also R less than the department s payment to consultant A. 1.6 Consultant A s contract stipulated its deliverables should be evaluated annually. Although the contract period was three years, only one evaluation report (for 2008) was provided, in which material Deliverables as per the contract not met shortcomings were revealed. The shortcomings were due to the contract not being properly managed by both parties. In addition, due to time constraints, the evaluation did not include interviews with the clients/beneficiaries, to assess whether outcomes had been achieved. The evaluation report did emphasise that the shortcomings were of an urgent nature and required immediate action. However, a departmental action plan to address the issues raised in the report could not be made available for audit purposes. 1.7 Payments amounting to R were made to consultant B during the period 24 March 2006 to 28 December 2007, without the necessary supporting R2,7 million payment to consultant unsupported documentation being requested from the consultant. The services rendered and corresponding payments are shown in table 7. Table 7: Payments to the consultant for services rendered SERVICE RENDERED AMOUNT R Training and assessment Payment of allowances Monitoring and evaluation Assessments Total Examples of documentation supporting the payments would include: Names ID numbers Dates of training/courses for home-based carers, administrators and other attendees Data for home-based carers indicating new appointees, and confirmation of resignations and deaths. Performance audit report to the KWAZULU-NATAL provincial legislature 41

43 Consequently, management could not provide assurance for the accuracy, validity and completeness of the payment of R ADULT BASIC EDUCATION AND TRAINING A consultant was appointed by the department on 11 November 2005 to implement and manage Adult Basic Education and Training (ABET). This programme was provided by the department to its illiterate and semi-literate employees. The consultant was used for a period of three years, with effect from 1 December 2005, and was paid R The terms of reference for the engagement with the consultant could not be produced for audit purposes. This was because management controls over the safekeeping and submission of documentation were insufficient. Therefore, the objectives, nature, scope, time frames and evaluation criteria for the engagement with the consultant could not be confirmed. In addition, the suitability of the consultant s experience, quality of methodology, key personnel and ability to transfer knowledge could also not be determined. There was also no evidence that the department evaluated the consultant and subcontractor against the tender criteria. Such an evaluation would have included: Determining whether the staff of the consultant had relevant prior experience in ABET tuition Determining whether their ABET level 4 tutors were registered with the Sector Education and Training Authorities. Numerous complaints were received from students in respect of the ABET programme. Some of the complaints were that the tutors were not trained to teach ABET level 4 and had no tutoring experience or qualifications. 2.2 The programme information compiled by the department was inconsistent with the programme information submitted by the consultant. There was no indication of corrective action taken to address the discrepancies. The information submitted by the consultant in terms of learner numbers was overstated. For example: The department carried out a survey on 13 November 2007 to establish the correct number of ABET learners; the statistics reflected students The consultant s report, dated 31 December 2007, showed the total number of ABET students to be This is 417 more than the reported in the department s survey The consultant s report reflected 121 students attending ABET classes in certain districts, while the department s survey indicated no student involvement in these districts In July 2008, the consultant reported that students were participating in the programme, compared to reported by the department. This is a difference of 176 students. The cost of the project is determined with reference to the numbers of registered learners. As the costing schedules for 2007 and 2008 could not be furnished for audit purposes, the impact of the above discrepancies could not be quantified. 2.3 Transfer of skills did not take place. The tender submission of the consultant indicated that transfer of skills would be provided No transfer of skills took to 20 identified departmental staff in the place, although this was first year, with a fully comprehensive indicated in the tender submission accreditation process. This would reduce the costs for years 2 and 3, as some of these staff could be used. 42 AUDITOR-GENERAL OF SOUTH AFRICA PERFORMANCE AUDIT REPORT 2013

44 The department did not develop a strategy for the transfer of skills from the consultant to departmental staff. As a result, skills were not transferred to staff that could have been used as tutors. This meant that the department had to employ tutors at a cost of R2 747 per month per tutor. The training of departmental staff in the first year of the contract could have decreased the payments made to the consultant by R over two years. 2.4 The department duplicated payments for ABET examination registration fees. This was due to a lack of coordination and monitoring of payments. The consultant was responsible for arranging all examinations and associated costs. In practice, hospitals and clinics paid examination registration costs, although this was included in the consultant s fees. This was confirmed by minutes of meetings between the department and the consultant, and minutes of meetings of the District Health Education Training and Development Committee. The hospitals and clinics paid an amount of R for examination registration fees from 25 May 2006 to 20 January The department also paid the consultant R in the first year of the contract (2006) for examination registration fees. Amounts paid to the consultant for examination registration fees, over the remaining years of the contract, could not be provided by the department. 2.5 The consultant indicated in its tender response that the fee for the first academic year (2006) would be R However, the department s tender award letter reflected a fee of R for the first academic year. Furthermore, actual payments made to the consultant for the first academic year amounted to R No approval could be traced for the excess payment of R over the amount reflected in the tender award letter. In addition, the approval for the second and third years of the contract, as required by the contract, could not be traced. The Pre-approval for payments department paid R and totalling R16,8 million could R respectively for these years. not be submitted The tender submission clearly stated that monthly tax invoices, with supporting documentation, should be submitted for payment. However, there was no breakdown on the invoices of the costs incurred, and documentation supporting the invoice could not be furnished. Payments could therefore not be properly vouched for, and in the absence of documentation, management could not confirm the validity and accuracy of the payments. 3. MINOR RENOVATION PROGRAMME A consultant was appointed on 27 November 2006 as a project manager for the Minor Renovation programme at the department s hospitals and clinics. The department agreed on a fee of 3,5% of construction value per project. During the period 13 March 2007 to 17 October 2008, R was paid to the consultant. 3.1 Although the consultant was paid, the department could not demonstrate that the work, as per the terms of reference, had been completed. For example, evidence could not be produced that the consultant had performed the following functions: Ensuring that minor renovation projects meet overall planning objectives and specific key performance indicators Monitoring and evaluating associated administrative functions, such as project registration and evaluation of reports Management of the database used for monitoring and preparing reports Compiling socio-economic impact assessments, detailing the impact of the programme on communities and municipalities (in terms of skills development and improvement of the lives of the communities) Performance audit report to the KWAZULU-NATAL provincial legislature 43

45 Development of an efficient work programme and appropriate programme management mechanism. 3.2 Fifteen minor renovation projects had not been completed within six months, as required by the approved project Fifteen projects not completed management plan. The delays were due within six months, as to the department not adequately stipulated in the project management plan monitoring project timelines. In addition, the consultant was not penalised for not completing the contract. The department consequently had to manage all the incomplete projects, at its own cost of R46 417, as the consultant s services had been terminated. 3.3 The actual expenditure for the districts managed by the consultant was R , including variation orders. Based on this expenditure, the consultant s 3,5% fee Overpayment of consultant fees by R1,9 million should have been R The department instead paid the consultant R , an excess payment of R PERSONNEL AGENCY A consultant was used to provide personnel for essential services, such as nursing staff to a hospital. The consultant was paid an amount of R for services rendered over the to financial years. 4.1 Many nurses earned a secondary income as they were employed by both the department and the consultant a Nurses used by consultant practice referred to as moonlighting. This were also employed by the presented a risk of the department department providing poor quality nursing services due to nurses fatigue. The following are examples of the extent of this practice: Some nurses worked 13 hours per day for the consultant. This work was performed at the hospital where they were also employed by the department The consultant submitted an invoice of R for nursing services rendered at a hospital. Fifty of the 60 nurses named on the invoice were also employees of the department at the same hospital. An amount of R was paid to the consultant in respect of departmental employees. This was 87% of the invoice amount of R In a memorandum dated 10 October 2008 to the acting head of department, the CFO referred to the (moonlighting) practice being found at other hospitals as well. No evidence that departmental nursing staff were authorised to accept additional work was available. In terms of the Public Service Act, provincial employees require such approval to perform remunerative work outside of their official duties. 4.2 The department made duplicate payments amounting to R to the consultant. Of the 161 payments, 81 were duplicates, most of which were authorised by the same official. A system feature on BAS that highlights duplicate payments and prompts the capturer for a response before continuing with the payments, was not used. Similar findings from a forensic investigation done at the request by the department were brought to the attention of the previous CFO on 20 May However, corrective action was not taken. 44 AUDITOR-GENERAL OF SOUTH AFRICA PERFORMANCE AUDIT REPORT 2013

46 5. FORENSIC INVESTIGATION INTO PROCUREMENT AND HUMAN RESOURCE PROCESSES Consultant C was appointed based on single source selection in February The consultant was required to carry out a forensic investigation into alleged irregularities in the procurement and human resource processes at a hospital. Consultant C issued a forensic report in April An amount of R was paid to consultant C. Consultant D was subsequently appointed, on 27 August 2008, to review/investigate six of consultant C s findings. These findings related to alleged qualification fraud. An amount of R was paid to consultant D. 5.1 The department considered the appointment of consultant C as urgent. SCM procedures of the department outline the criteria set for urgent appointments. These criteria were not met in respect of the following: The circumstances were not urgent Reasons why the appointment was deemed to be urgent were not recorded At least three quotations were not obtained. Furthermore, reasons for this were not documented A fair/market-related price was not obtained The consultant s tax certificate was not on file The VAT registration number on the consultant s invoice was invalid. The department did not determine Consultant C s competency to conduct the investigation prior to its appointment. Second consultant appointed Consultant D contested five of the six to review work of first findings that it reviewed. Despite this, consultant consultant C was appointed to conduct similar investigations at four other hospitals at a cost of R Performance audit report to the KWAZULU-NATAL provincial legislature 45

47 DEPARTMENT OF TRANSPORT Total expenditure on consultants ( to ) R9,685 billion Number of consultancy projects audited 12 Value of projects audited R346 million Average vacancy rate ( to ) 21% Graph 3 provides a breakdown of the expenditure on consultants per category and per financial year. Graph 3: Expenditure on consultants at the Department of Transport R million % 85% 17% 82% 13% 86% Consulting/ professional services Contractors Agency/outsourced services A. KEY FINDINGS ACROSS PROJECTS 1. TRANSFER OF SKILLS Three contracts (totalling R ) required the transfer of skills from consultants to take place. In all three instances, a skills transfer programme was not developed. In addition, monitoring and evaluation of skills transferred through these three contracts were not performed due to capacity constraints. As a result, the department could not demonstrate that skills transfer from consultants had occurred. This also contravened the KwaZulu-Natal Provincial Treasury Practice Note Number SCM-05 of EXTENSION OF CONTRACTS Seven contracts were extended at a cost of R On average, the cost of the extensions exceeded the original contract value by 208%. The reasons given for the extensions included: High vacancy/staff turnover rates Poor planning Not having a strategy to prevent over-reliance on consultants 46 AUDITOR-GENERAL OF SOUTH AFRICA PERFORMANCE AUDIT REPORT 2013

48 Table 8: Analysis of extended consultancy projects ORIGINAL PROJECT Chief financial officer services Road infrastructure services Road safety public awareness Research and development programme on road construction Manage public transport association Management of contractor programme Support to the emerging contractor associations ORIGINAL CONTRACT VALUE R TOTAL EXTENSION COST R EXTENSION COMPARED TO ORIGINAL CONTRACT VALUE TIMES EXTENDED PERIOD OF EXTENSION (MONTHS) % 1 4, % % % % % % 1 14 Total % Three consultants were initially appointed based on single-source selection. These contracts were extended without following a competitive bidding process. A competitive bidding process is required by the KwaZulu-Natal Provincial Treasury Practice Note Number SCM-05 of The continuous extensions made the department reliant on the consultants. In addition, the department was not able to demonstrate that the extensions were in its interests and at the lowest possible cost. B. KEY FINDINGS PER PROJECT 1. COMPUTERISED LEARNER AND DRIVER LICENCE TESTING SYSTEM During 2005, the consultant proposed a computerised learner and driver licence testing system to the department. The purpose of the system was to address fraud and corruption around drivers licences and learners licence testing. The consultant was appointed on 24 June 2005 to implement the system at four departmental drivers licence testing centres. The cost of implementation was R This amount included a sum of R for the delivery of 21 vehicles equipped with onboard monitoring systems for use during driving tests. On 1 August 2008, the consultant was again appointed to implement the system at 31 municipal drivers licence testing centres, at a cost of R The consultant also provided support and maintenance for the system at an additional cost of R Needs assessments and feasibility studies were not done on the consultant s proposal. As a result, the department R8,4 million was paid for acquired systems and goods that it was specially equipped vehicles unable to use. For example, the specially that were not used for the purpose intended equipped vehicles were not used by driving tests candidates, as the National Road Traffic Act allows them to use their own vehicles for the driving test. The vehicles were redeployed for administrative and training functions. 1.2 The cost of the specially equipped vehicles consisted of R for the monitoring systems and R for the vehicles. However, the vehicles could have been bought for R through a transversal government vehicle procurement Performance audit report to the KWAZULU-NATAL provincial legislature 47

49 contract. This would have been R cheaper than the sum charged by the consultant. 1.3 The use of the consultant was not confined to the services required for implementing the system. For example, the consultant supplied: Insurance and tracking for the driving test vehicles at a cost of R Various consumables (printer cartridges/rolls/ribbons etc) at a cost of R This contravened the KwaZulu-Natal Provincial Treasury Practice Note Number SCM-05 of The contract concluded with the consultant did not protect the interests of the department in respect of the development of the system software. According to the terms of the contract: The system software code developed during the project remained the intellectual property of the consultant. The department thus would not assume ownership of the system software or have access to the system source code at the end of the contract. This despite the department having paid for its development No provision was made for training departmental staff to maintain and support the system. Consequently, the department was dependent on the consultant to maintain and support the system at drivers licence testing centres, at a total cost of R between the and financial years. 2. CHIEF FINANCIAL OFFICER SERVICES The post of the CFO became vacant on 30 June A consultant was appointed in the post from 11 July 2007 to 13 June 2008, for R Thereafter the financial accounting manager acted as CFO until 31 August 2008, when the permanent CFO was appointed. 2.1 The recruitment and selection policy did not specify time frames to fill vacant posts. The CFO post was not filled in time and remained vacant for 14 months (from 1 July 2007 to 31 August 2008). This was a contravention of the Public Service Regulations. The period during which the CFO post remained vacant did not significantly exceed the maximum limit outlined in the regulation. However, it resulted in the Consultant was appointed to perform core function of CFO strategic and critical functions of a CFO being performed by a consultant for 11 months. 2.2 The consultant, acting as CFO, supported motivations to select two other consultants from its own firm, based on single-source selection. Although the conflict of interest was declared, the consultant was not removed from the selection processes. This was because the department s procedures required the CFO to support motivations for using consultants on the basis of single-source selection. These consultants, from the same firm as the acting CFO, were appointed by the department at a cost totalling R ROAD INFRASTRUCTURE SERVICES An engineering consultant was appointed on 1 April 2007 for a two-year period to design and administer the construction, maintenance and development of roads. The consultant provided the department with three engineers to render these services. The consultant was paid R from 1 April 2007 to 31 March On 1 April 2009, the contract was extended for a further two years. The consultant was paid R from 1 April 2009 to 31 March In total, R was paid to the consultant between 1 April 2007 and 31 March AUDITOR-GENERAL OF SOUTH AFRICA PERFORMANCE AUDIT REPORT 2013

50 The department could not attract and retain engineers because its salaries were not market-related. The annual maximum package provided by the department for Engineers salaries not marketrelated these positions was R per annum. This also led to the extension of the contract. 4. ROAD SAFETY PUBLIC AWARENESS A consultant was appointed based on single-source selection to provide the department with communication support. The contract was from 13 September 2007 to 30 April 2009, at a cost totalling R The support included broadcasting time slots on television and radio to air road safety awareness messages. The single-source appointment was approved subject to the consultant being able to provide specific prime airtime slots on television and radio. at a cost of R from 1 October 2005 to 31 March The contract was extended until 30 June 2008, at a cost of R The total cost of the contract was R The policies and manuals researched and developed by the consultant were partially implemented. This was because there was no strategy/plan to inform or guide the implementation process. The consultant was paid for policies and manuals that were not used productively. 5.2 The Zibambele contractors programme formed part of the department s poverty alleviation programme. An exit strategy was necessary to allow the contractors to complete the programme with productive skills. To develop an exit strategy a consultant was appointed at a cost of R on 1 August Although the consultant supplied the exit strategy, it was not fully implemented due to the lack of an implementation plan. As a result, the project objectives were not achieved. However, the department did not monitor and manage the deliverables. As a result, some of the required airtime slots were Consultant did not deliver not provided. prime time media slots for road safety messages Therefore, the road safety messages were not aired as required and did not reach their target audiences. 5. TWO PROJECTS ON ROAD INFRASTRUCTURE PROGRAMME The cost of the contracts relating to the roads infrastructure programme amounted to R and pertain to the following two projects: 5.1 A consultant was appointed during 2005 to research and develop labour-based techniques and programmes for road construction. The consultant was appointed Performance audit report to the KWAZULU-NATAL provincial legislature 49

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52 REGULATORY FRAMEWORK 51

53 REGULATORY FRAMEWORK While the Constitution of the Republic of South Africa of 1996 makes provision for the procurement of services by the public sector, various laws, regulations and policies, documents and guidance material pertaining to consultants have been issued over the past 10 years. Among these are: Supply Chain Management: A Guide for Accounting Officers (February 2004), National Treasury Practice Note Number SCM 3 of 2003 (December 2003) and KwaZulu-Natal Provincial Treasury Practice Note Number SCM 5 of 2006 (February 2006) Standard Chart of Accounts Toning Project Summary Report (21 December 2007), issued by the National Treasury Public Service Regulations (2001), issued by the Department of Public Service and Administration Guide on Hourly Fee Rates for Consultants (annual publication), issued by the Department of Public Service and Administration Use of Consultants in the Public Service (September 2001), issued by the Department of Public Service and Administration A guide to managing consultants (2001), issued by the Parliamentary Support Programme. SUPPLY CHAIN MANAGEMENT In Supply Chain Management: A Guide for Accounting Officers (February 2004), National Treasury Practice Note Number SCM 3 of 2003 (December 2003) and KwaZulu-Natal Provincial Treasury Practice Note Number SCM 5 of 2006 (February 2006), the following are stated with regard to consultants: The term consultant includes, among others, consulting firms, engineering firms, construction managers, management firms, procurement agents, inspection agents, auditors, other multinational organisations, investment and merchant banks, universities, research agencies, government agencies, non-governmental organisations (NGOs) and individuals. Accounting officers may use these organisations as consultants to assist in a wide range of activities such as policy advice, accounting officer s reform management, engineering services, construction supervision, financial services, procurement services, social and environmental studies and identification, preparation and implementation of projects to complement accounting officers capabilities in these areas. Consultants should only be engaged when the necessary skills and/or resources to perform a project/duty/study are not available and the accounting officer cannot be reasonably expected either to train or to recruit people in the time available. 52 AUDITOR-GENERAL OF SOUTH AFRICA PERFORMANCE AUDIT REPORT 2013 The relationship between the accounting officer and the consultant should be one of purchaser/ provider and not employer/employee. The work undertaken by a consultant should be regulated by a contract. The accounting officer is, however, responsible for monitoring and evaluating contractor performance and outputs against project specifications and targets, and should take remedial action if performance is below standard.

54 STANDARD CHART OF ACCOUNTS According to the Standard Chart of Accounts Toning Project Summary Report, consultants, contractors and agency/outsourced services are categorised as consulting/professional services, contractors and agency/outsourced services. Consulting/professional services refer to specialist services and skills provided that are required for the achievement of a specific objective, with the aim of providing expert and professional advice on a time and material basis. It is unnecessary to maintain these skills in-house, since they are required on a once-off or temporary basis. It further states that a consultant is a professional person appointed by the department to provide technical and specialist advice or to assist with the design and implementation of specific projects/ programmes. The legal status of this person can be an individual, a partnership or a corporation. PUBLIC SERVICE REGULATIONS In terms of the Public Service Regulation (PSR) J.3, Part III: Planning, Work Organisation and Reporting of Chapter 1 of the PSR, 2001, a consultant means: A natural or juristic person or a partnership who or which provides in terms of a specific contract on an ad hoc basis any of the following professional services to a department against remuneration received from any source: The rendering of expert advice The drafting of proposals for the execution of specific tasks The execution of specific tasks which are of a technical or intellectual nature, but excludes an employee of a department Contractors are required to provide services that are of a non-specialised nature and that are not core business of the department. It is normally not cost-effective to maintain these skills within the department. Agency/outsourced services refer to services where the relevant department ordinarily has the capacity and expertise to carry out these services, but for some reason is not utilising its own staff. The reasons might include temporary incapacity or the outsourcing of services to save costs, for example cleaning, security and recruitment. Performance audit report to the KWAZULU-NATAL provincial legislature 53

55 54 AUDITOR-GENERAL OF SOUTH AFRICA PERFORMANCE AUDIT REPORT 2013

56 PERFORMANCE AUDITING 55