Twelfth Report of the Standing Committee on Public Accounts on the Report of the Auditor General on the 2008/09 Financial Statements of the Companies Intellectual Property Office in South Africa, dated 25 August 2010

1. Introduction

The Standing Committee on Public Accounts (the Committee) heard evidence on and considered the contents of the Annual Report and Report of the Auditor-General on the 2008/09 financial statements of the Companies Intellectual Property Registration Office in South Africa (CIPRO). The Committee noted the qualified audit opinion, highlighted areas which required the urgent attention of the Accounting Authority and reports as follows:

2. Revenue

The Auditor-General reported the following:

a) “CIPRO’s accounting policy of recognising revenue from annual returns on a cash basis was not consistent with the substance of the transactions and the accrual principle.

b) CIPRO only recognised revenue for companies that had submitted their annual returns during the financial year and not for all companies that were liable to lodge a return.

c) Consequently, revenue, accounts receivable, the accumulated surplus and the corresponding figures were understated.

The corresponding figures for 31 March 2008 have been restated as a result of an error discovered during the year ended 31 March 2009”.

The Committee recommends that the Accounting Authority ensures that:

a) Policies and procedures related to financial reporting are established and implemented;

b) Regular follow-ups are done on companies and close corporations that have not submitted their annual returns;

c) Companies and close corporations that persist in not complying with the provisions of the Companies Act should are de-registered;

d) An effective debtor’s management system is implemented for annual returns; and

e) Ongoing monitoring and supervision are undertaken to enable an assessment of the effectiveness of internal control over finances.

3. Fruitless and Irregular Expenditure

The Auditor-General reported that “the annual report reflected that an amount of R86 778 was identified as irregular as a result of the prescribed approval process not having being followed”.

The Committee recommends that the Accounting Authority ensures that:

a) Strict rules and regulations are implemented to prevent irregularities and that disciplinary steps are taken against transgressors; and

b) No expenditure is incurred that is in conflict with the provisions of any law or prescripts.

4. Investigations

The Auditor-General reported on the following:

With regard to “deficiencies in procurement process followed by SITA in accrediting suppliers on the list for contract 398 to supply Enterprise Content Management Solutions to CIPRO;

a) Inaccuracies were noted in the calculations on the scoring sheets completed by SITA’s bid evaluation committee during the evaluation of tenders for contract 398. The sheets were not signed and it was impossible to determine whether these were combined scores or scores of individual members of the evaluation committee;

b) No evidence could be submitted that the financial position/status of bidders had been evaluated before they were placed on SITA’s approved suppliers list; and

c) No business case had been approved for the tender by the Department of Public Service and Administration after consultation with the Government Information Technology Officers Council. SITA and the Department of Public Service and Administration did not comply with SITA’s regulations”.

The Committee recommends that the Minister of Public Service and Administration and the SITA Board of Directors must improve processes and regulations in the following areas:

a) SITA must improve contract administration by ensuring that score sheets are processed accurately and are properly safeguarded and that those responsible be held accountable in cases where this standard practice is not adhered to;

b) Regulations must be improved to clearly state the responsibilities of SITA and that of its clients with regard to a transversal framing term contract and the evaluation of the financial sustainability of suppliers; and

c) SITA must comply with procurement regulations in order to mitigate a potential risk to government departments.

With regard to “deficiencies in process followed by CIPRO to procure the Enterprise Content Management (ECM) system

a) The estimated vendor cost according to the business case for the tender was R141 million. The Auditor-General reported that the business case had been furnished only to the successful bidder for the ECM system and that some information in the proposal of the successful bidder was almost exactly the same the information in CIPRO’s business case. The tender prices of the various bidders ranged from R52 million to R181 million;

b) The evaluation of the functional specifications was conducted by two evaluation teams. However, the bid evaluation committees were not appointed according to prescripts. Scoring by the two evaluation teams on certain functional criteria varied as much as 67% per criteria in instances where the scores were expected to vary very little;

c) CIPRO did not evaluate the financial position of bidders as part of the process. According to CIPRO they accepted that, as part of SITA’s transversal framing term contract process, the financial stability of the various bidders would have been verified by SITA to ensure continuity and sustainability of project implementation; and

d) According to the bid proposal, the design phase included the design of a blueprint, and once approved, the software could be procured. However, in the contract signed in March 2009 the stipulations of the proposal were changed and the software licences amounting to R56 million were paid in April 2009, although the blueprint was only approved in June 2009”.

The Committee recommends that the Accounting Authority assesses the risk of the supplier not being financially sustainable and should implement measures to address the related risks.

5. Conclusion

The Committee noted that the Department of Trade and Industry has since cancelled the contract with the chosen bidder. The Committee commends the Minister for Trade and Industry for acting promptly in resolving the matter,

The Committee further recommends that the Executive Authority submits a progress report on the implementation of all the above recommendations to the National Assembly within 60 days of the adoption of this report by the House.

Report to be considered