IMFO 2017 “Contract Management In the Public Sector: A tool aimed at reducing irregular expenditure” Presented by: Kirsch Bezuidenhout OCTOBER 2017

Introduction What is Contract Management? The holistic and comprehensive approach to the administration of contracts from their inception right through to their review and closeout Planning (conceptualisation) Closeout and Review Contract Management requires all units to provide inputs, monitoring and support for the proper administration of contracts (SCM, Legal, Risk, Finance, End-user) NB: institutionalisation of Contract Management for success to be achieved KZN Provincial Treasury

Identification of Irregular Expenditure Municipalities disclosed a total of R10.7bn Irregular expenditure A further R6bn was discover by the AG during his audit. This means Municipalities are themselves failing to identify what irregular expenditure they are incurring

Irregular Expenditure Related to Contract Management Out of the 236 Municipalities who incurred irregular expenditure, 167 (i.e. 63%), had findings in relation to a lack of compliance with or no Contract Management system in place.

Why all the fuss about irregular expenditure? Irregular expenditure at a basic level comes back to service delivery. Irregular expenditure has effects on services that should rightfully be for the benefit of our communities which is our primary role as local government. Irregular expenditure is not merely about the Rands and Cents, it takes away, in many instances, scarce resources from important service delivery needs.

Reducing Irregular expenditure Contract Management is mandated by s 116 of the MFMA and requires all Municipalities to have some contract management systems in place. Mandates Active Monitoring of a contract Extends to financial, technical, legal and risk management aspects Contract Management goes beyond the simple monitoring of contractual documentation and requires proactive action constantly taken

Reducing Irregular expenditure continued Key to reducing irregular expenditure is being able to identify the source of irregular expenditure. A contract register can be used as a primary tool to assist in identifying irregular expenditure. Contract register should contain information relating to: Details enabling the identification of unique contract (contract ID, suppliers details, contract type, description of goods and service and order number); Contract status information (start and end date of contract, contract status, contract extensions, variation and amendments

Continued…… Financial Information (contract value, details of payments made against the contract, balance of contract value, MSCOA details, values of extensions and variation, value of escalations, payment milestones, penalties, ect.) Legal Information (termination clauses, performance standards, early termination, penalty clauses) The contract register should allow the viewer to identify at a glance, the potential irregular expenditure, as the contract register is a “snap-shot” of contracts.

Continued... Once potential irregular expenditure has been identified, strategies must be put in place to either rectify it, if possible, and if not, condonation must be examined. National Treasury Circular 68; Risk Register entries should be made; Strategies put in place to prevent similar incurring of irregular expenditure in the future.

Non-compliance with section 33 of the MFMA The main suspects….. Document Management Non-compliance with section 33 of the MFMA Lack of understanding of Regulation 32 Non-compliance with National Treasury Circular 62 Non-compliance with s 116 (3) of the MFMA

Lessons learnt from KZN Institutionalisation of Contract Management is key Management needs to “spear-head” the continued implementation of contract management Ownership needed within the Municipality Clear Policy, coupled with SOP’s is crucial Officials need clear contract management directives and parameters setting out respective roles and responsibilities Dedicated officials needed to implement contract management Contract Management is very important and should have dedicated officials attending to this function

Continued.… Contract Management Function needs to be properly resourced Computers, equipment, stationary, storage facilities, human capital, etc Co-operation from other Units/Departments is essential Contract Management relies on the supply of information from the various components within a Municipality. For contract management to function, co-operation from role players essential

KZN Provincial Treasury