MDPOPERATIONS & SUPPLY CHAIN

MANAGEMENTPublic Sector Context

Key constructs, cursory issues and challenges

Professor Mogie Subban

24 June 2020

Introduction

• Lets begin with a story we are all familiar with, and one that generates a lot of conflict and disagreement in the workplace around SCM and public sector procurement ……..

How do we strike a balance between these 3 key determinants to instill quality in SCM and public procurement?

Introductory approach to Public Sector SCM

• CONCEPTS• CONTEXT• OPERATIONS

CONTRACT MANAGEMENTWhy BPR …

• PARADIGM SHIFT• IT CANNOT BE BUSINESS AS USUAL!!!• WHAT IS THE MODUS OPERANDI?

LATIN TWIST ….

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Inputs-Outputs-Outcomes-Impact• What is the nexus?• Why this approach?• What are the cursory issues?• What is the linkage/synergy?• How can value be instilled?• Whereto from here?• Clean audits & unqualified audits …• What is the significance for SCM and public sector procurement?

3 Es (Statutory Performance Measures linked to SCM & Public Procurement)

• Efficiency• Effectiveness• Economy • Fiduciary responsibilities• Public value system• Impact on the triple bottom line

S195 Constitutional obligations

• Transparency• Responsibility• Accountability• Values and Principles of Public Admin• How do they resonate with SCM?• How do they resonate with public • Procurement?

CORPORATE GOVERNANCE & PUBLIC FINANCE

• Why this focus?• Ethics and ethical stewardship • Integrity management• Corporate citizenship

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WHAT CONSTITUTES GOOD GOVERNANCE IN SCM AND PUBLIC PROCUREMENT?

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INPUTS OUTPUTSFUNCTIONSSTRUCTURE

FEEDBACK

EASTON’S SYSTEMS MODEL

CLEAN AUDITS & UNQUALIFIED REPORTS

• What are the cursory issues to consider?

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PFMA

• Accountability and responsibility framework: national & provincial

• Regulate financial performance: individual vs institutional

• PFMA provides a clear regulatory framework for the integration of planning and budgeting

• Constitutional basis and imperatives• Sect: 214/5• 3 significant typologies …

MFMA• Accountability and responsibility framework:

municipal context• Regulate municipal financial governance• Geared towards effective and efficient municipal

service delivery

SPATE OF REFORMS• From administration to management• Fiscal decentralization• Financial autonomy• Inputs to outputs• Silo to whole-of-government approach• Annual reporting to in-year monitoring• Cash-based accounting to accrual system• Linking planning to strategic planning• Normative guidelines: GRAP & GAAP, GAMAP, SCOA & MSCOA

WHAT IS THE STATE OF SUPPLY CHAIN MANAGEMENT & FINANCIAL MANAGEMENT?

• CONFLICT OF INTEREST• FRAUD• CORRUPTION• DISHONESTY• UNETHICAL BEHAVIOUR• LACK OF VALUES• GREED• POOR M & E• LACK OF OVERSIGHT ROLE

• POOR / NON SERVICE DELIVERY

• POLITICAL PROFITEERING• PLUNDERING OF STATE

RESOURCES• ROBBING THE POOR• POOR GOVERNANCE• FLOUTING THE LEGISLATION• OUTPUTS NOT LINKED TO

OUTCOMES• FRUITLESS, IRREGULAR,

UNAUTHORISED & WASTEFUL EXPENDITURE

WHAT IS THE STATE OF SUPPLY CHAIN MANAGEMENT & FINANCIAL MANAGEMENT/GOVERNANCE?

• INABILITY TO HOLD OFFICIALS ACCOUNTABLE

• FAILING TO INSTITUTE CONSEQUENCE MANAGEMENT MEASURES FOR MANAGERS RESPONSIBLE FOR UNATHORISED AND IRREGULAR EXPENDITURE

• FAILURE TO EXERCISE OVERSIGHT OVER SCM PROCESSES

• FAILURE TO MAINTAIN PROPER RECORDS OF SUPPLY CHAIN AND FINANCIAL TRANSACTIONS

FAILURE TO INVESTIGATE ALLEGATIONS OF MALFEASANCE AND MALADMINISTRATION AGAINST SENIOR MANAGERS AND THOSE WHO OVERSEE SCM PRACTICESMONITOR AND MANAGE CASH FLOW

FINANCIAL RISK MANAGEMENT & GOVERNANCE

Risk registerPre-risk strategiesPost-recovery strategiesMitigating factorsEWSDRR

CONSTITUTIONALITY OF PUBLIC FINANCE

• Section 213 – 219 • Most important provisions for procurement, supply chain, proper

accounting procedures and practices

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CONSTITUTIONALITY OF PUBLIC PROCUREMENT

• … S217(1)“When an organ of state in the national, provincial or local sphere of government, or any other institution identified in the national legislation contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.”

LINKED TO SCM“SCM in the public sector - integral part of Financial Management that seeks to introduce internationally accepted best practice.

Bridges the gap between traditional methods of procuring goods and services and the balance of the supply chain whilst addressing procurement related matters that are of strategic importance”

(Policy to Guide Uniformity in Procurement Reform Processes in Government: 2003)

KEY ELEMENTS (link to outputs & outcomes)

• DEMAND MANAGEMENET ( Planning, specifying, analysis, research)

• ACQUISITION MANAGEMENT (Management,compliance, bid documents, criteria for evaluation and adj.)

• LOGISTICS (Stock/ inventory management, warehousing, transport, supplier payment, vendor, performance

• DISPOSAL ( Obsolescence planning, disposal strategy)

1994 Election of 1st Democratic Government of South Africa

1995 Identification of broad focus areas for government procurement reform: promotion of principles of good governance and introduction of preferential system to address socio-economic objectives

1996 Task Force produced a “10 Point Interim Strategy” which included principles and policies for equitable and transparent public procurement and simplification of the procedures

TRANSFORMATION EVENTS IN SCM

• 1996 The Constitution of the Republic of South Africa, 1996 adopted on 8 May 1996 and amended on 11 October 1996 by the Constitutional Assembly. It was amended by the Constitution of the Republic of South Africa Amendment Act, 1997 (Act No 35 of 1997)

• 1997 Green Paper on Public Sector Procurement Reform in South Africaproduced for public discussion

• 1999 Public Finance Management Act (No 1 of 1999 as amended by Act No 29 of 1999) promulgated

CONTINUED ……

2000 Preferential Procurement Policy Framework Act, 2000 (No 5 of 2000) promulgated

2000 The Report on Opportunities for reform of Government Procurement in South Africa was endorsed for implementation in November 2000

2001 Preferential Procurement Regulations, 2001 in terms of S5 of the PPPFA gazetted which incorporated the 80/20 and 90/10 preference point system

2001/2 Joint Country Procurement Assessment Review (CPAR) undertaken by Government and the World Bank

CONTINUED ……

2003 The CPAR Report on Refining the Public Procurement System: Summary of Findings and Recommendations was presented in February 2003

2003 NCOP conducted hearings to assess the success of the PPPFA.

2003 Policy to Guide Uniformity in Procurement Reform Processes in Government was approved by Cabinet on 10 September 2003

2003 National Treasury issued “General Procurement Guidelines” or “5 Pillars of Procurement” to serve as the basis for transformation of procurement practices within the public sector. The Regulatory Framework of SCM was gazetted in December 2003 as part of National Treasury Regulations.

2003 In December 2003, National Treasury issued• Amendment to Regulations of the State Tender

Board Act in terms of Section 13 of the State TenderBoard Act, 1968 (Act 86 of 1968); and

• Regulations in terms of the PFMA, 1999: Framework for Supply Chain Management

2003/4 Broad Based Black Economic Empowerment Act (No 53 of 2003) promulgated

2003/4 Municipal Finance Management Act, 2003 (No 56 of 2003) promulgated

2004 National Treasury issued Supply Chain Management: A Guide for Accounting Officers/Authorities” in February 2004

2005 Local Government MFMA: Municipal Supply Chain Management Regulations were gazetted on 30 May 2005

2005 Supply Chain Management Guidelines for Accounting Officers of Municipalities and Municipal Entities were issued by National Treasury in October 2005

2005-07 MFMA Circulars issued on various SCM topics to assist with implementation

• National Treasury issued “General Procurement Guidelines” – basis for transformation of procurement practices within public sector:

• Enhance government’s commitment to preferential procurement• Assist in transformation process• Broader understanding by all stakeholders

National Treasury Website: http://www.treasury.gov.za/divisions/sf/sc/GENERAL%20PROCUREMENT%20GUIDELINES%20-%202.pdf

PRINCIPLES FOR SCM

“…These guidelines are issued by the Government not only as a prescription of standards of behaviour, ethics and accountability which it requires of its public service, but also as a statement of the Government’s commitment to a procurement system which enables the emergence of sustainable small, medium and micro businesses which will add to the common wealth of our country and the achievement of enhanced economic and social well-being of all South Africans” (National Treasury)

Rationale for SCM Principles

FIVE PILLARS OF PROCUREMENT

•Proper and successful government procurement rests upon the five pillars of procurement

FIVE PILLARS OF PROCUREMENT

VALUE-FOR-MONEYOPEN AND EFFECTIVE

COMPETITIONETHICS AND

FAIR DEALINGACCOUNTABILITY

AND REPORTING

EQUITY

LEGISLATIVE FRAMEWORK• Linkage between the Constitution and the other key acts affecting Local Government and Municipal

Supply Chain Management

SIGNIFICANT CONSTITUTIONAL LINKAGE TO FINANCIAL

MANAGEMENTConstitution

S217(1)“When an organ of state in the national, provincial or local sphere of government, or any other institution identified in the national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.”

S217(3) issues national legislation with the requirement to prescribe a framework which provides for preferential procurement to address social and economic imbalances of the past.

MFMA LINKAGE

S112(1) “The supply chain management policy of a municipality or municipal entity must be fair, equitable, transparent, competitive and cost-effective and must comply with a prescribed regulatory framework for municipal supply chain management…”

ENABLING LEGISLATION FOR PREFERENTIAL PROCUREMENT SYSTEM

(PPPFA)

• PPPFA gives effect to S 217 (3) of the Constitution• Provides framework for implementation of

procurement policy contemplated in S 217(2) of the Constitution

• Provide for matters connected therewith

CONTINUED …

• Promulgation and implementation of PPPFA and regulations were followed by the publication of a “Broad Based Black Economic Empowerment Bill” and supporting strategy

• Basis on which amendments to the Preferential Procurement Regulations were to be undertaken.

BBBEE PRINCIPLES (BBBEE STRATEGY)

ROLE-PLAYERS, FUNCTIONS AND SUPPORT STRUCTURES FOR SCM

• What are the responsibilities of some of the key-role players in SCM?

• NATIONAL TREASURY:• Monitor implementation of SCM in all spheres of government• Develop policies, procedures and practice notes/circulars to assist the three spheres of

government in achieving the broader policy objectives as set out in the PFMA/MFMA and further legislation

CONTINUED…

• PROVINCIAL TREASURY:• Promote co-operative government among role-players• Assist NT by monitoring delegated municipalities in terms of

compliance to National and Provincial Treasury norms and standards

• Measure improvements in supply chain performance • Set complementary standards• Monitor and publish reports by municipalities and share

information• Take intervention measures for breach of the act by a municipality

CONTINUED …

• MUNICIPAL COUNCIL AND COUNCILLORS:• Provide political leadership and direction to a municipality’s

operation through policy and oversight responsibilities• Oversee financial management and service delivery of a municipality• Approve the SCM policy for a municipality• Monitor and evaluate SCM implementation process through regular

reporting to political structures.

Role of the Accounting Officer

• ACCOUNTING OFFICER:• Implementation of SCM system• Establish a SCM unit within the CFO’s structure with the necessary

delegations.• Develop municipal SCM policies and procedures in accordance with

national and provincial guidelines and directives• Establish the necessary SCM Committees with clear delegations and

responsibilities • Ensure that adequate controls are in place to prevent over- or

under-expenditure• Ensure efficient anti-corruption and anti-fraud mechanisms are

implemented• Contribute towards local economic development, SMME development

and BBBEE through targeted procurement spending• Report to National Treasury/Provincial Treasury on SCM

implementation

Role of Other Officials

• Why other officials?

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FINANCIAL GOVERNANCE FRAMEWORK linked to NATIONAL TREASURY

• Responsibility• Oversight• Accountability

COMMITTEE SYSTEM FOR COMPETITIVE BIDS

• The following committees are required to be established in terms of the SCM guidelines:

• Bid Specification Committee • Bid Evaluation Committee • Bid Adjudication Committee

COMBATING ABUSE OF SCM SYSTEM

It is the responsibility of the AO, through the SCMP to provide measures:• To take reasonable steps to prevent abuse of the SCM system;• To investigate all allegations against an official or other role-player of fraud,

corruption, favouritism, unfair or irregular practices or failure to comply with the SCMP and where justified

• Take appropriate steps against such official or role-player;• Report any alleged criminal conduct to SAPS;

How can public financial management be improved?

•CAPACITY BUILDING•WHISTLEBLOWING•RECOGNITION OF HONEST SCM STAFF

•MORE MGT. VIGILANCE•EFFECTIVE INTERNAL AUDIT

•MORE VISIBLE PUBLIC PROTECTOR

•CREATE CULTURE OF PRIDE AND PROFESSIONALISM

•“CLEAN” SCM CAMPAIGN•PROFESSIONAL BODY OF SCM PRACTITIONERS

•RESOURCE CENTRES•BENCHMARKING•SHARE BEST PRACTICES•POLITICAL WILL

Concluding remarks …

• 3 Cs:• Collective commitment (joint responsibility)• Compliance (intra-vires)• Corporate governance (ethical stewardship)

“What lies before us and what lies behind us are small matters

compared to what lies within us.

And when we bring what is within out into the world, miracles

happen.” Henry David Thoreau

THANK YOU