The real horror story is that flaws within state procurement remain – and have not been lost on those with nefarious intentions.
In recent weeks, two of the most prominent beneficiaries of state contracts in South Africa have found themselves thrust in the spotlight in a manner they would have preferred to avoid.
The first is Shauwn Mkhize, and the second is Hangwani Maumela.
Mkhize has ended up in a debt crossfire with the South African Revenue Service (Sars), which seized and then auctioned her assets to recover the debts due to them.
The nature of the assets seized – from luxury bags and fancy trinkets to exotic cars – formed part of her portfolio of bling that we had all been accustomed to, thanks to her proclivity for displaying it across different platforms.
Over the years, as her stranglehold on state contracts, particularly in Durban, was entrenched, Mkhize never shied away from displaying the excess of riches she accumulated from her business endeavours.
The curious thing is that while rumours persisted about the quality of services she provided, no one really demonstrated that hers was an illicit enterprise fleecing the state.
ALSO READ: Sars bites: MaMkhize’s Lamborghini, paintings, LV and Gucci bags on auction
Rather, it was an enterprise that capitalised on that longstanding loophole in state contracting – the ability to master the nexus between popularity, proximity to decision-makers, and the desperation of a state that is heavily reliant on third parties to deliver critical services.
Mkhize’s downfall was her casual approach to compliance, which resulted in unpaid taxes. Sars’s attempts to enforce compliance included the use of its dispute resolution process.
During the process of negotiating a solution between Mkhize and Sars, the latter’s appointed representative – Advocate Coreth Naudé – survived an assassination attempt whose mastermind is still unknown.
While nothing ties Mkhize to the assassination attempt, the fact that it occurred on the day of a dispute resolution meeting created uncomfortable questions and illustrated the dangers faced by those who act on behalf of state enforcement agencies.
ALSO READ: Former Gauteng Health CFO facing criminal charge for role in Tembisa hospital saga
Tembisa Hospital
Meanwhile, a bigger story relating to Tembisa Hospital procurement problems was published by the Special Investigating Unit (SIU).
The SIU – with a rather strange mandate that requires presidential proclamations to tackle red flag issues and institutions – finally published its findings regarding the state of procurement at the hospital.
A few years ago, a vigilant finance specialist at the Gauteng Department of Health – Babita Deokaran – raised the alarm regarding some unusual trends in the procurement processes within the hospital. The volumes of transactions conducted at the hospital seemed much higher than its size and profile warranted.
The report issued by the SIU detailed how R2 billion had been looted from the hospital by a few syndicates that had mastered the procurement systems in use at the time.
ALSO READ: Court orders MamKhize’s Royal AM to pay back R27 million to Msunduzi Municipality
The big question …
Naturally everyone is curious – how could it all happen with no one raising the alarm?
The simple answer is that the procurement system in place across the state has some fatal flaws that were simply exploited by those with the patience to study the system and its loopholes, and grease the right palms.
The country’s model of leveraging the state’s large procurement budget in order to foster redistribution of the economic pie comes with guardrails that are meant to ensure that the state does not get fleeced in the process.
The quest to balance practicality, transparency and cost-effectiveness, has resulted in a spectrum of procurement practices that are well understood by those who contract regularly – and perhaps exclusively – with the state.
For low-value procurement, supply chain functionaries are allowed greater discretion to work with an existing database of suppliers in order to ensure speedy procurement.
The trade-off is straightforward. Given the low value of products to be acquired, they are likely to relate to routine requirements and the protracted process of public tenders may lead to delays that imperil daily operations.
ALSO READ: Sars strikes: MaMkhize’s luxury cars up for auction
On the financial risk spectrum, low-value acquisitions are unlikely to collapse entities unless some seriously aggressive fraud is committed.
For higher value products – where R500 000 was used as the reference point when the Tembisa scandal started – the need to cast the net wide and get the most cost-effective products is clear. Under the model, such tenders require external publication to give many suppliers a chance to tender, and then an evaluation process to ensure the best are selected.
In an ordinary world within the field of state procurement, the pendulum across the R500 000 line has important dimensions.
Anecdotally, the procurement of goods and services below the threshold represents lower risk and hence a reduced sense of vigilance should be appropriate – assuming the supply chain functionaries keep their eyes on the ball.
Beyond the R500 000 benchmark, the value of goods to be acquired is significant and hence the risk attributed to those procurement decisions warrants additional guardrails.
For transactions below R500 000, those already in the procurement database can essentially compete with each other. When transactions exceed R500 000, the canvas of bidders is much wider as the law requires public advertisement of tenders with minimum lead times aimed at ensuring that the word is spread widely during the open window.
As it turns out, the world of state procurement has now become a place where the pendulum is abused on an egregious basis.
ALSO READ: Fort Hare corruption case split into five parts to speed up prosecution
Using some of the most horrifying case studies already in the public domain, we now know that procurement functionaries can manipulate even the low-value purchases by simply allocating contracts to their preferred suppliers within the master list.
In the case of the University of Fort Hare, the practice was to ensure that the supply chain managers alerted the contractors on the list that a potential request was pending – and as long as the minimum number of bids was received, the procurement decision could be made.
By alerting particular contractors and instructing them to submit bids, the procurement specialist is in a position to simply tailor the work towards preferred providers and such a procurement decision can pass scrutiny because the minimum number of bids criteria is met and whoever emerges from that process is the legitimate winner.
When the ‘competing’ bids all emanate from related bidders or even the same individuals who just happened to have registered entities under different names, the process is compromised simply because the competitive element – which is meant to ensure cost-effectiveness wins – is completely undermined.
ALSO READ: Fort Hare corruption case split into five parts to speed up prosecution
The ‘sweet spot’
When it comes to the magical R500 000 limit, the benefits of staying on one side of the pendulum are enormous.
If transactions can be kept below the R500 000 threshold they can be finalised without the extreme levels of scrutiny that are applied to the high-value transactions above R500 000.
If one can master that model, then the ability to push through many deals without being red-flagged is high.
In 2021, when Deokaran conducted an analysis of the Tembisa Hospital transactions, it emerged that despite being one of many hospitals in the province (and not even the largest), Tembisa Hospital was responsible for generating 63% of the purchase orders that were in the range of R400 000 to R500 000.
ALSO READ: Another accused in R172m University of Fort Hare fraud case released on R50k bail
Empire revealed
A year later, when News24 first published details of the empire of a certain Hangwani Maumela, it noted that a sample of six transactions linked to his companies were all valued between R491 000 and R497 000.
The relevance of this sweet spot is that it allows one to maximise the value of transactions that can be processed without triggering the elevated scrutiny that kicks in at R500 000 and beyond.
Naturally, given the obvious risk of manipulation where high-value transactions can be split into micro transactions falling below the R500 000 threshold, there is an explicit instruction that micro-transacting is actually illegal and procurement specialists would be expected to be extra cautious on transactions that sail so close to the wrong side of the pendulum.
It is in this dimension that the Tembisa syndicates found a solution by investing in an army of enablers within the system who would specifically overlook these trends and enable transactions to be processed.
In simple terms, the syndicates had multiple companies on the database that could bid against each other and therefore enable procurement specialists to meet the requirement of ‘casting the net wide’. They also had specialists who were alert to the model and would not raise any alarms when clear instances of micro-transacting were in play.
According to the SIU, the network of enablers within the hospital was made up of at least 15 officials who received varying levels of inducements and gratifications amounting to at least R122 million.
ALSO READ: Retired employee must pay R2m back to University of Fort Hare for tenders awarded to her son
Even more egregious …
The problem did not just end at the fact that such transactions were manipulated to benefit the syndicates – the bigger problem was that in many instances the goods and services were actually not delivered yet the hospital employees signed them off as ‘received’.
The issue here is that it is one thing to deliver overpriced goods because ultimately, something arrives at the hospital.
When nothing arrives and someone signs off that it did, the consequences to patients is fatal.
Further, the loss of lives attributable to the actions of such syndicates will simply never be known.
The manipulation of the procurement system in spite of the guardrails that were in place is a terrible indictment on the greed of those who not only manipulated the systems but did so at an institution where lives and livelihoods are at stake every single moment.
ALSO READ: Bodyguard of University of Fort Hare vice-chancellor shot dead in ‘assassination attempt’
How to counter such greed?
Can anything be done to counter such greed without making procurement processes completely impractical?
This is a question that needs to be traversed for as long as the state has a need for procurement; dodgy characters have a desire to loot; and pliable functionaries exist within state institutions.
Of all the syndicates that have been identified thus far, the Hangwani Maumela syndicate – which amassed over R816 million in contracts awarded – has served as the best illustration of the greed inherent in the conduct of the syndicates.
In the raid on his property in Sandton, the SIU seized multiple luxury vehicles like Lamborghinis – which some of us only know so well thanks to the activities of Mkhize.
If one things ties the stories of the two together; it is the story of contrasts.
One contractor who managed to stay on the right side of the procurement pendulum but faltered on the tax compliance, while showing us all that there was a life of extraordinary luxury for those who master the system.
ALSO READ: Gauteng vows action after SIU report on Thembisa Hospital syndicates
Another contractor whose mastery of the system was so subtle that no one knew much about him, and whose trappings of luxury remained hidden from the public eye because even the most brazen of looters must have some limit on how they can show off their excess.
In between, one assassination and an attempted assassination whose intention to deter the efforts of those seeking to do the right thing have failed to stop the quest for accountability.
Mkhize and Maumela have lost access to the Lamborghinis but the inherent flaws in the systems that create such stories remain unresolved across multiple dimensions and have not been lost to those with intentions to loot.
And until we have a system that can pick up the glaring errors between the wealth on display and the taxes paid; and a procurement system that can be insulated from the greedy and the pliable, the fight against tax evasion and corruption will linger on.
This article was republished from Moneyweb. Read the original here.
