Public Servants Still Profit from State Procurement

Wednesday, 12 August, 2009 - 13:46

A year after an Auditor-General’s report found widespread breaches of the Public Service Code of Conduct in the process of state procurement, a large number of the public servants identified have faced no disciplinary action. With more such cases being reported, at what point does corruption become so systematised that it becomes almost irreversibly ‘the way business is done’ – the expected norm

A troubling question is increasingly asked about South Africa: At what point does corruption become endemic? When does corruption become so systematised that it becomes almost irreversibly ‘the way business is done’ – the expected norm?

The hearings on 6 July 2009 before Parliament’s Standing Committee on Public Accounts (SCOPA) may provide a profoundly disturbing response. If nothing else, the evidence of persistent and widespread failure by government departments to implement reasonably clear ethics standards and procedures suggests there is little comfort from that quarter that our country will not reach this point.

Lack of capacity to discipline offenders
SCOPA heard that many government departments still lack the systems and skills to enforce the ethics and disciplinary standards applicable to public servants. Almost a year after an Auditor-General’s report found widespread breaches of the Public Service Code of Conduct in the process of state procurement, a worryingly large number of the public servants identified have faced no disciplinary action.

Easy escape routes for offenders
One of the reasons is that officials resign and escape discipline. There is, thereafter, no functioning system to prevent officials finding employment in another government department. Recent research by Idasa found that a blacklist of convicted tender offenders required by the Corrupt Activities Act is not operative as, despite the frequency of reported tender irregularities, there have been no convictions in the five years since the law’s enactment.

A related gap in the anti-corruption framework – one that shows no sign of being plugged – is the absence of post-employment restrictions. There is no prohibition on public servants leaving the public sector to take up employment in the private sector: a government official is therefore free to join a company to which he shortly beforehand irregularly awarded a government tender contract.
Code of Conduct ineffective, with low levels of compliance.

The evidence heard by SCOPA follows a Public Service Commission (PSC) report finding three years ago that the Code is ineffective in preventing especially two related types of unethical and unlawful behaviour by public servants - favouring friends or family, and unauthorised outside remunerative work.
The PSC report recorded a lack of cooperation by several departments with the Commission’s investigation, which suggests low levels of compliance with the Code. In a number of departments, the Code had never been referenced in disciplinary proceedings.

“In terms of … conflicts of interest the favouring of friends appears to present the biggest problem,” the PSC concluded. It found that a comprehensive review of the Code is overdue and recommended that it should take account of this factor, as it is ‘vital for building sound integrity systems’.

The Commission recommended the tightening of the Code, finding that its aspirational and obligatory components cause confusion. It also recommended the introduction of ‘strong penalties if there is non-compliance’. This review has not yet taken place.

Standards of ethical conduct
What are the standards of behaviour required of public servants, including those responsible for administering the state’s procurement of goods and services?
The Public Service Act (103 of 1994) and the Code of Conduct contained in Chapter Two of its Regulations (of 2001, as amended) elaborate on the requirements of section 195 of the Constitution (1996) that public administration must be characterised by a high standard of public ethics, and that public services must be provided impartially and efficiently to the general public benefit. Public servants are obliged to place the public interest first in the execution of their duties.

These standards are reinforced by the provisions of the Public Finance Management Act (1 of 1999, PFMA) and the Prevention and Combating of Corrupt Activities Act (2004), with particular emphasis on prudential state procurement of goods and services from the private sector.

For example, Section 17 of the Corrupt Activities Act stipulates that any person employed in the Public Service who, without prior managerial consent, knowingly acquires or holds a private interest in any contract, agreement or investment emanating from or connected with the department, component or office in which he or she is employed, is guilty of an offence.

The Code declares that it aims to ‘give practical effect’ to the constitutional provisions and to be a ‘guideline’ for public servants’ conduct. Serious breaches constitute misconduct, while dismissal and criminal charges are possible sanctions. Public servants are obliged by the Code to report allegations of fraud and corruption. The PSC’s 2006 report recommended a review of the state’s whistle-blower mechanisms. Despite a review initiated in 2005 under the auspices of the State Law Reform Commission, substantive reforms are still awaited.

Section 34 of the Corrupt Activities Act also creates a duty on persons holding positions of authority to report corrupt transactions. A failure to report, where a person knows or ought reasonably to have known or suspected, a corrupt transaction, is an offence.

However, the failure by senior managers to act on information reaching them – even, as SCOPA has heard, from the Auditor-General – apart from being a criminal offence, is calculated to disincline ordinary public servants to take seriously their own duty to report irregularities.

Conflicts of interest
Public servants are required to avoid a conflict between their public duties and their private interests. The Code sets a high standard in this regard, stating in clear and obligatory terms that employees must recuse themselves ‘from any official action or decision-making process which may result in improper personal gain, and this should be properly declared by the employee’. Any belief that favouring friends or family, without direct personal benefit, does not fall within this prohibition should be dispelled by reference to the overarching constitutional obligations of impartiality.

Clear steps are set out in the Code and numerous Treasury regulations to assist government managers to ensure that this high standard is maintained. The regulations require that, where a possible conflict of interest arises in the making of any decision relating to a public servant’s duties, another appropriately designated official should take the decision, if a panel of at least two ‘independent persons’ believe this is necessary. If the relevant manager deviates from the panel’s recommendation, ‘she or he shall record the reasons for the deviation in writing’.

Treasury regulations specify further that no procurement decision may be taken unless and until every member of the bid committee has signed and lodged a declaration that their impartiality in the particular procurement decision will not be compromised by any private interest.

Declaration of financial interests
The identification – and avoidance – of sensitive situations should be assisted by the requirement that public servants, and especially senior managers and anyone involved in procurement, must make an annual declaration of their financial interests. The PSC found that senior managers are the category of public servants most likely to be exposed to the risk of conflicts of interest. Financial interests include shareholdings, directorships or consultancies. In addition, any remunerated outside work requires prior disclosure to and consent from a senior manager.

Failure to disclose, or willfully misleading disclosure, constitutes misconduct.
Heads of departments are required to assist the PSC to maintain a register of the financial interests of senior managers, and to keep their own registers of all staff involved in procurement ‘supply chain’ activities.

The integrity paper-trail should, therefore, exist.

However, despite ever more detailed regulations from National Treasury over the years, and additional codes of conduct for specific industry sectors, such as construction, the Auditor-General and the PSC continue to report low levels of compliance with these reporting requirements.

The inevitable consequence of senior managers’ failure to ensure adherence to annual and transactional filing obligations is that red flags are not raised when employees fail to voluntarily recuse themselves from a decision where a conflict of interest is a real possibility.

The truth may yet emerge, but only after contractual obligations have been incurred, payments made, and it has become prohibitively expensive to recover this unauthorised, and frequently fruitless and wasteful, expenditure.

Some managers refuse to disclose their interests
Several investigations by the Public Service Commission and the Auditor-General over past years have identified many of the same problems, with no noticeable improvement in the way the state conducts its business. On the contrary, large numbers of serious breaches continue to be identified, involving payments of large amounts of taxpayers’ money to the businesses of public servants’ (and public representatives’) friends and family.

In fact, the PSC’s Director-General, Odette Ramsingh, informed the Committee that there is a regression in disclosure and monitoring of conflicts of interest. In some cases, non-compliance had become habitual, with about 10 percent of senior managers actively refusing to disclose their financial interests. No evidence was presented of remedial or disciplinary action.

Bureaucratic obstacles
SCOPA heard that two mundane practical problems prevent comprehensive annual disclosure of a particular category of financial interests - outside remunerative activities. Such activities include, but are not necessarily limited to, participation in a company that does business with the state.

First, rather curiously, it is not certain that directors’ fees constitute outside remuneration. Second, while there is an obligation on public servants to obtain their manager’s prior informed consent for such activities, the current standard form does not explicitly require that these outside activities be disclosed. Despite amendment of the PFMA to require such annual disclosure, the form remains unchanged – apparently awaiting executive (ministerial/cabinet) approval.

Best-practice standards
The view was strongly expressed during the hearings that serious consideration should be given to completely outlawing outside remunerative activities by public servants, particularly senior managers. Such a ban would make a significant contribution to simplifying public administration, and to reducing the ethical complexities and suspicion that continue to cloud public life in South Africa.
Furthermore, at the very least, international best practice would require that all financial interests are placed under independent administration, such as in a ‘blind trust’, where public officials have reduced direct control and influence over the intersection between their public duties and their private interests.

SCOPA’s firm response
SCOPA has correctly responded firmly to official responses, indicating ineffectual management may amount to dereliction of duty. The possibility of contempt proceedings was raised, and some members suggested a few resignations would be appropriate, although this option would seem to merely compound the culture of impunity from direct disciplinary action.

SCOPA has promised that heads of department will be ‘called to account’. Whether this means they will be ‘held accountable’ – responsible – is unclear. Similarly uncertain is whether SCOPA will grasp the nettle and direct that tougher regulations – along the lines suggested above – are urgently introduced.
Nevertheless, SCOPA has signaled a welcome continuation (albeit uneven) of the more robust approach to Parliamentary oversight since the ANC’s December 2007 Polokwane conference, when Jacob Zuma was elected party leader.

Promise of Ministerial accountability
As national President, Jacob Zuma has promised that his ministers will be held to account for their performance. This undertaking should mean, for example, that he will allow SCOPA (and Parliament) to assert its authority and refuse any longer to accept excuses from Ministers’ hand-picked Directors-General. It should also mean that his executive should urgently approve the new declaration of interests form.

Parliament’s own compliance in question
But credible oversight by Members of Parliament requires that they should promptly correct their own tardiness in complying with their own disclosure obligations. Not only are many MPs reportedly late in filing their assumption of duty financial interest disclosure forms, but their party leadership in Parliament seems unacceptably unconcerned. If Parliament wishes its standard-bearer committee to be taken seriously, its Members need to convince us, and the public servants who account to them, of their own integrity and leadership.

Gary Pienaar is the Senior Researcher: Governance and Public Ethics at Idasa.

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