Saturday, October 20, 2012

That Ernst & Young Report: Our Analysis

So a lot has been said and DAFF has thrown its toys out of the cot about the leaking of Ernst & Young’s October 2012 Phase 1 Report into possible irregularities pertaining to the SMIT Amandla Marine vessel management tender. 

Before we go any further, it is important to point out two facts. One, the fact that the report's investigative ambit is limited to the Smit tender and did not include the unlawful allocation of the R800 million tender to Sekunjalo is important as it again shows the Minister’s hand and perhaps involvement in the latter. Ultimately, we will have to wait for the Public Protector to pronounce on this matter. 

Two, the E&Y Report was supposed to have been published on the department’s website according to the Acting DG of the Department. He made this clear on 2 October. The fact that it failed to appear there was a clear give-away that the report simply did not say what the department and its tainted Minister wanted it to say and in fact had said anyway in their prematurely bizarre press statement issued on 1 October 2012.

But what did the report – even if just preliminary – find? The short answer is ... nothing. 

Paragraph 145 states – 

Paragraph 146 proceeds to however note certain concerns but none of these concerns are substantive particularly if one considers the rather bizarre content of the paragraph 150 pertaining to “Outstanding Procedures”, which reads as follows – [You need to actually read it as “E&Y must still …”]

E&Y actually drafted a preliminary report about the procurement of SMIT’s services without even understanding the procurement regime applicable to the tender and extensions! This is incomprehensible. 

But it explains a number of E&Y’s “summary of findings” under paragraphs 146 and 147. For example, E&Y states that the Marine Living Resources Fund is simply a creature of statute established under the Marine Living Resources Act and that it is not a legal entity with powers to contract. Not correct. The MLRF is in fact a Schedule 3A Public Entity established under the Public Finance Management Act. 

The E&Y Report notes that the Agreement with SMIT is for 5 years while the State Tender Board prescriptions “as a rule” limit contracts to “two years”. Again, not correct. Directive ST 37 of the State Tender Board makes it clear that this is a “general rule” and that where contracts for a longer period are required, prior approval from the State Tender Board is required. Did E&Y determine if such prior approval was given? No they did not and they should have. In fact, both the original Agreement and the Extension Agreement signed in 2004, were not only submitted to the Office of the State Attorney for approval but were approved by the Chief Financial Officers of both the MLRF and the national Department of Environmental Affairs prior to them being signed by the DG of Environmental Affairs at the time, Dr Crispian Olver who was the Accounting Officer for the MLRF in terms of the PFMA. 

It is also important to note that the State Tender Board was done away with in January 2004. The Extension Agreements were signed in July and December 2004. 

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