SANRAL has explained irregular expenditure to SCOPA, after an unqualified audit report from the Auditor General.
The South African National Roads Agency (SOC) Limited (SANRAL) appeared before the Standing Committee on Public Accounts (SCOPA) on 7 March 2018 to clarify incidents of “irregular, fruitless and wasteful” expenditure.
SANRAL received its 14th consecutive unqualified audit report from the Auditor General in 2017.
This means the agency achieved 32 out of its 37 targets related to corporate performance, which translates into an 86% achievement.
Some of the irregular expenditure is a roll-over from 2015, such as routine road maintenance (RRM) contracts. These contracts are in effect on all of Sanral’s network.
These contracts are a great incubator of small, medium and micro enterprises (SMMEs), and in line with SANRAL’s policy of ensuring that a significant amount of work is awarded to them. RRM contracts are awarded for three years and renewable for two years, subject to satisfactory performance.
The finding of irregularity was made because neither the Preferential Procurement Policy Framework Act (PPPFA) nor its regulations define the lowest acceptable price, and SANRAL had, in the past, used a method to determine a viable lowest price that would be acceptable.
SANRAL’s outgoing Board Chair, Roshan Morar, said: “As a result, SANRAL developed and introduced a statistical method to establish the lowest acceptable price for each RRM contract. This method is independently calculated by the University of Pretoria for every contract. It allows for the appointment of a contractor with the most realistic rates at which SMMEs can do the work and be financially viable.”
A 63% decrease in irregular expenditure
The Preferential Procurement Policy Framework Act was in use for over 11 years with the AG’s knowledge of the rationale. During this time, there were no findings from the AG or complaints from contractors. However, in 2013 the AG declared the method non-compliant with the PPPFA.
Morar said: “We have been rectifying the irregularity in a phased approach as we had contracts in place that we left to run their course in order not to incur cancellation claims. The last contracts concluded in 2017, but the expenditure is still reported as irregular.
“It should be indicated that the 2017 irregular expenditure of R424-million is a 63% decrease from the R1.1-billion irregular expenditure of 2016. Of course, we are working hard to reduce it to zero. Considering we have a cumulative irregular expenditure of R10-billion from March 2012 to March 2017, we are beginning to see our corrective measures reversing this trend.”
Morar added that SANRAL had applied for condonation each year (from March 2012) to National Treasury but only received correspondence for the first time, in the first week of March 2018, requesting more information.
The committee also raised concerns about the frequency and extent of variations and deviations, as well as reiterating the urgency for transformation within SANRAL.
Skhumbuzo Macozoma, SANRAL CEO, said: “We take cognisance of the procurement deficiencies that may exist within our organisation, as pointed out by Scopa during a robust session. We also wish to put on record that SANRAL remains 100% committed to operating within the legislative prescripts of the PPPFA, which guides our actions.
“As SANRAL we recognise the problem of irregular, fruitless and wasteful expenditure, and we are committed to eliminating these as we take heed of the committee’s recommendations in terms of our accountability and the application of legislation. As such, we have already embarked on interventions to improve compliance, strengthen the institution and prevent non-compliance in our supply chain management processes. We are making concerted efforts to reduce variations and deviations, and intensify our appeal for cabinet to approve our transformation policy. In taking this approach, we can move from an unqualified audit, to a clean audit.”