EMERGENCY PROCUREMENT AND NT MEASURES TO PREVENT CORRUPTION JOINT MEETING: STANDING COMMITTEE ON FINANCE AND SELECT COMMITTEE ON FINANCE 05 August 2020 1 EMERGENCY PROCUREMENT INSTRUCTIONS DURING COVID-19 The National Treasury issued various instructions since the Disaster was declared for both PFMA and MFMA organs of state: • Instruction No. 8 of 2019/20 : EMERGENCY PROCUREMENT IN RESPONSE TO NATIONAL STATE OF DISASTER (19 March 2020) MFMA Circular No. 100 - Emergency procurement in response to Covid-19 • Instruction No. 3 of 2020/21: COVID-19 DISASTER MANGEMENT CENTRAL EMERGENCY PROCUREMENT STRATEGY FOR PFMA ORGANS OF STATE (15 April 2020) MFMA Circular 101 – Covid-19 Bulk Procurement Strategy for Government Institutions • Instruction No. 5 of 2020/21: EMERGENCY PROCUREMENT IN RESPONSE TO NATIONAL STATE OF DISASTER (5 May 2020) MFMA Circular 102 – Emergency Procurement in Response to National State of 2 Disaster NT INSTRUCTION NO. 8 OF 2019/20 MFMA CIRCULAR NO. 100 • National Treasury’s first response to the disaster. • Issued on 19 March 2020 • This instruction facilitated procurement of PPE items that were already on National Treasury Transversal Contracts. • Also provided a list of Suppliers (from previous transversal contracts) who gave NT quotations on bulk supply for items not on Transversal Contracts Limitations: • Demand overshadowed the supply (Countries were competing against each other). • Prices on Transversal Contracts were no longer reflective on the new market conditions • Available stock quickly ran out 3 NT INSTRUCTION NOTE NO. 3 2020/21 MFMA CIRCULAR NO. 101 Instruction No.3 was the second instruction which advocated a central procurement agent approach. • PPE products were experiencing unprecedented and global demand, resulting in significant price increases and global shortages. • Some of these products could be locally produced in South Africa, but at the time ramping up domestic production would take some time, and possibly not be able to deliver most required products immediately. • In trying to secure PPE products like surgical and other masks, gloves, bodysuits,. many manufacturing countries had also imposed export bans, where the items were available, prices rose sharply, made worse by the depreciation and volatility of the rand. • Further, even where such products had been secured, immediate up-front payments were required, and suppliers faced a huge challenge in arranging immediate delivery of such stock to SA. • Hence the need to engage a Central Implementing Agent to provide a system for 4 the procuring, warehousing and distributing of such products. NT INSTRUCTION NOTE NO. 3 2020/21 MFMA CIRCULAR NO. 101 Limitations: • Upfront payments required to procure in bulk • Government do not have the central systems in place, hence required the intervention of a central procurement agent. • Negative perceptions and mis-information • Thus, a decision for a public and private sector central procurement strategy was made at the National Joint Operational and Intelligence Structure (NATJOINTS). The NATJOINTS accepted voluntary support from Business South Africa (BSA) to provide the services of Imperial Health Sciences (IHS) as a Central Implementing Agent for the public and private sectors to utilise its logistical expertise and capabilities on a non-profit basis. • Mis-information about the process, issues of local participation and process followed in appointing the private sector service provider, interference by interest parties and negative media publicity made this approach impossible to implement. 5 NT INSTRUCTION NOTE NO 5 OF 2020/21 MFMA CIRCULAR 102 • Instruction No. 5 of 2020/21 is the last and valid emergency procurement instruction. • National Treasury returned to Emergency Procurement regulations as described earlier having also extensively engaged with a wide range of stakeholders • 4 Conditions applied: 1. PPE items must be to the specifications of WHO, NDOH and DTIC (for cloth masks) 2. The Prices must be equal or lower than the benchmark prices set by NT 3. Suppliers / Manufacturers must be registered on the Central Supplier Database; and 4. Items must meet the stipulated minimum threshold % for local production for Textiles, clothing, leather and footwear sector. • This instruction provided lists of possible suppliers/ manufacturers supplied by the Department of Small Business as well as from the National Bargaining Council for the Clothing Industry. 6 NT INSTRUCTION NOTE NO 5 OF 2020/21 MFMA CIRCULAR 102 Limitations: • Emergency procurement sits at the heart of government’s reaction to the pandemic, and is particularly prone to exploitation. • Controls were set so as not to be a barrier to responding to the pandemic and decentralising the procurement of PPE to respond to the COVID-19 crisis. Good financial management procurement procedures remain in place. • However rampant misuse and abuse of public resources in COVID 19 related procurement has manifest. • In addition to law enforcement responses, NT is considering additional preventative measures and updating this instruction note. 7 NT INSTRUCTION NOTE NO 7 OF 2020/21 MFMA CIRCULAR NO. 103 The National Treasury issued PFMA Instruction 7 and MFMA Circular 103 that deals with Preventative Measures in response to the Covid-19 pandemic. • These instructions were issued to give Accounting Officers/Authorities proactive guidance on how to revisit their control environment in response to COVID-19. • As requested by FOSAD an emergency procurement working group of large PPE procurers was established under the chairpersonship of DG NT to provide input into this process PURPOSE • Provide for preventative measures as a result of COVID 19 emergencies and the need to be responsive and flexible, whilst ensuring value for money and minimising the risk of fraud, corruption, negligence, error and incapacity • Ensure that internal control systems of a department, constitutional institution and public entity consider, amongst others: • the change in operating activities of the existing control environment; • risk assessment processes; • designing and/or amending control activities to address new or elevated risks; • identifying information required to support the effectiveness and efficiency of controls; • reassessing internal and external communication; and • identifying any additional internal control monitoring activities. • Reporting remains critical for a transparent control environment and monthly, quarterly and annual reports must be in place. 8 EXPENDITURE ON THE COVID-19 RESPONSE • The 2020 Supplementary Budget Review proposes R145 billion for the COVID-19 relief package, of which R122.4 billion was allocated • To date, national and provincial departments have recorded R10.4 billion in spending against these allocations, within their financial systems • All spending reports are extracted directly from the financial systems, in order to provide and audit trail and eliminate audit queries • However, the expenditure report underestimates substantive portions of the allocated resources, these include the following: • • • • Social grant payments are not recorded against the appropriate line items in the system and must still be separated through appropriate journals Departments of Defense and Police will only provide expenditure data for July in the first week of August Higher education payments and support to entities must still be paid and identified within the financial systems Support to municipalities included in equitable share payments, these transactions must still be separated within the system 9 SPENDING TO DATE: APRIL TO JULY • Data for July extracted 12 July, no data for Defense, Police and Free State province for July • Transactions for numerous departments not captured correctly in April and May, journals will be passed within the next months Allocations for COVID Response: 2020/21 R million Support to vulnerable households for 6 months 2020 Supplementary Budget 40 891 National: Expenditure April to July 938 Provinces: Expenditure April to July Health 21 544 93 Support to municipalities 20 034 151 151 Other frontline services 13 623 2 250 2 250 Basic and higher education 12 541 – Small and informal business support, and job creation and protection Support to public entities 6 061 18 18 5 964 – – Other COVID-19 interventions 1 766 132 2 044 2 176 122 425 3 581 6 836 10 417 Allocated for COVID-19 fiscal relief package Land Bank equity investment Provisional allocations for COVID-19 fiscal relief package Total Source: National Treasury 3 514 Total expenditure April to July 938 1 278 3 607 1 278 3 000 19 575 145 000 10 NATIONAL DEPARTMENTS National departments: Expenditure recorded for 2020/21 for COVID Response R'000 Support to vulnerable households for 6 months S A Social Security Agency: Social grants Health Vote 18: Health Support to municipalities Vote 4: Cooperative Governance and Traditional Affairs Other frontline services Vote 05: Home Affairs April – May 7 938 June 929 628 July – – 7 938 929 628 – – 64 467 13 213 15 143 92 823 – 64 467 13 213 15 143 92 823 – 150 970 – – 150 970 – 150 970 – – 150 970 1 143 326 – 937 566 618 248 460 657 27 540 2 249 771 10 876 3 072 955 14 904 – 721 873 Vote 19: Defence and Military Veterans 86 694 233 827 401 352 Vote 22: Correctional Services 21 337 64 783 27 009 1 035 295 308 761 29 224 – 6 453 4 815 6 073 625 Vote 23: Police Year to date 937 566 26 585 139 714 1 373 280 Basic and higher education Small and informal business support, and job creation and protection Support to public entities Other COVID-19 interventions Total – – – – 17 967 – 11 885 52 559 51 354 16 301 132 099 1 161 665 898 996 1 460 926 59 608 3 581 196 11 PROVINCES Provinces: Expenditure recorded for 2020/21 for COVID Response April 462 467 May 858 404 June 1 327 531 July 865 320 Eastern Cape 4 875 15 256 78 663 24 146 Free State 4 233 2 460 614 92 298 355 438 526 321 530 074 1 504 131 KwaZulu Natal 121 079 242 481 290 169 107 411 761 139 Limpopo Province 159 168 128 892 150 459 82 853 521 372 15 903 79 966 142 965 30 784 269 618 455 3 550 13 093 5 807 22 905 Northern Cape 1 034 255 2 824 460 4 574 Western Cape 63 421 30 106 122 423 83 785 299 736 Basic education 3 483 70 844 807 945 395 348 1 277 619 Other COVID-19 interventions (all provinces) 135 004 411 761 1 292 962 204 564 2 044 290 Total 600 953 1 341 008 3 428 438 1 465 232 6 835 631 R'000 Health Gauteng Mpumalanga North West – Year to date 3 513 721 122 940 7 306 12 NEW CONTROLS BEING CONSIDERED FOR PPE PROCUREMENT • AGSA with NT publishing Preventative Control Guides. Preventative controls assist management to identify the risks of misappropriation, fraud and corruption before a transaction takes place. It provides accounting officers with a toolkit of possible solutions to make preventative controls a reality • Emergency procurement for PPE and Protective Clothing is ended and institutions revert back to open procurement processes. • Procurement must be compliant with all existing instructions for procurement. • Instruction • NT will lock an absolute price for all PPE and listed Protective Clothing procurement. Permission to be sought for any amount above the absolute price. • Institutions to provide NT with the names of all PPE and Protective Clothing appointed service providers for publishing on the NT website and analysing aggregated data across all procuring agencies 13 PUBLIC PROCUREMENT –ISSUES TO CONSIDER • New Procurement Bill process is underway • Review of the PFMA and MFMA including and regarding emergency procurement procedures and strengthening the accountability by accounting officers/authorities Also • Modernising public procurement including automating public procurement system with enhanced due diligence and increased efficiency in processing requests • Continuous information exchange between prevention, investigation and prosecution so that future preventative measures are informed by investigation lessons learnt and prosecution outcomes so to close gaps • PEPs participation in public procurement will require a more stringent review including age of business and history of same/similar type of service provision • Hybrid model of for national procurement and local distribution for listed services to allow for economies of scale and increased anti-corruption measures 14 THANK YOU national treasury rt t3 Nz?gnzrarllipeasury HOME REPUBLIC OF SOUTH AFRICA SAVE