MDPOPERATIONS & SUPPLY CHAIN

MANAGEMENT

Public Sector ContextWhat are the key constructs, cursory issues and

challenges?

Professor Mogie Subban (UKZN)15-16 September 2018

IntroductionLets 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 ……..

PERCEPTIONS or REALITY??

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-ImpactWhat 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 FINANCEWhy this focus?

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WHAT CONSTITUTES GOOD GOVERNANCE IN PUBLIC FINANCE?

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INPUTS OUTPUTSFUNCTIONSSTRUCTURE

FEEDBACK

PUBLIC ADMINISTRATION ENVIRONMENT

CLEAN AUDITS & UNQUALIFIED REPORTSWhat are the cursory issues?

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PFMAAccountability 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 …

MFMAAccountability and responsibility framework: municipal context

Regulate municipal financial governance

Geared towards effective and efficient municipal service delivery

SPATE OF REFORMSFrom 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

SPATE OF REFORMSFrom 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

FINANCIAL RISK MANAGEMENT & GOVERNANCE

Risk register

Pre-risk strategies

Post-recovery strategies

Mitigating factors

EWS

DRR

CONSTITUTIONALITY OF PUBLIC FINANCESection 213 - 219

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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 Tender

Board 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%20GUIDEL

INES%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

COMPETITION

ETHICS AND FAIR DEALING

ACCOUNTABILITY AND

REPORTINGEQUITY

LEGISLATIVE FRAMEWORKLinkage between the Constitution and the other key acts affecting Local Government and Municipal Supply Chain Management

SIGNIFICANT CONSTITUTIONAL LINKAGE TO FINANCIAL

MANAGEMENT

Constitution

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

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FINANCIAL GOVERNANCE FRAMEWORK linked to NATIONAL TREASURY

Responsibility

Oversight

Accountability

SCM in Municipalities (eg)SCM Units required to be established within all municipalities and municipal entities

Where possible, unit must operate under Chief Financial Officer or an official to whom this duty has been delegated in terms of S79, 82 and 106 of the MFMA

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

SUPPLY CHAIN MANAGEMENT POLICY (value add)

S111 of the MFMA is very specific in the requirements of a

Supply Chain Management Policy (SCMP) within a

municipality and gives Effect to S217 of the Constitution.

The SCMP must:

be fair, equitable, transparent, competitive and cost-effective;

comply with the regulatory framework for municipal supply chain management;

be consistent with other applicable legislation and with the national economic policy concerning the promotion of investments and doing business in the public sector;

not undermine the objective of uniformity in SCM systems between organs of state in other spheres.

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 …

Thank You