Public Protector releases investigation report
Public Protector Adv. Thuli Madonsela on Thursday released a report titled Unsettled Settlements, relating to a dispute between the Gauteng Department of Health (the Department) and CKB Washroom Sales and Services CC (CKB), a small business that supplied hygiene equipment to several health clinics around the province.
CKB was contracted by several individual clinics to supply hygiene equipment such as air freshener dispensers, soap dispensers, paper towel dispensers, hand dryers and sanitary bins, among other things, on a rental basis while providing related support services.
When the Department cancelled some of the service agreements, CKB instituted court action, which culminated in an out-of-court settlement. The settlement extended the agreements to the end of July 2010 and the Department extended them to 30 September 2010.
CKB turned to the Public Protector in July 2011, complaining that the Department had failed to pay an amount of R2 960 112.60 which was allegedly owed for services that CKB continued to provide to the department’s clinics beyond 30 September 2010.
The company further alleged that the department wrote to Standard Bank in March 2011, confirming that it owed R1 448 790.06 to CKB in the context of a bridging finance application made by CKB and granted by the bank and that the Department subsequently repudiated CKB’s claim.
After analysing the complaint, the Public Protector identified the following issues for investigation:
- Whether the Gauteng Department of Health improperly caused the Complainant’s hygiene equipment to remain in its Health Services Centres (clinics) after the period agreed to in an out-of-court settlement and mutually extended ?
- Whether the Gauteng Department of Health improperly represented to Standard Bank that it owed the Complainant R1 448 790.06 and which it later improperly refused to pay;
- Whether the conduct of the Gauteng Department of Health had prejudiced the Complainant;
- If all or some of the above were answered affirmatively, what would it take to place the Complainant as close as possible to where he would have been had the improper conduct not occurred.
Following an investigation, which included the gathering and analysis of various documents, legal research, meetings and interviews with witnesses and respondents, the Public Protector made the following findings:
- The Department failed to take resolute action to get the Complainant’s company CKB to remove its equipment from its clinics and to prevent the continued use of CKB’s hygiene equipment thus causing the clinics continue to benefit from the Complainant’s property beyond the agreed service period.
- On a balance of probabilities, some of the complainant’s equipment, including sanitary bins, continued to be used by the clinics from 01 October 2010 until date of removal.
- Having decided that it would not pay CKB the money it had initially determined to be owed to CKB for rental beyond 30 September 2010, the Department failed to verify the equipment rental claim and to adjudicate it timely to ensure that payment or a determination on payment was done within 30 days as required under Regulation 8.2.3 of Treasury Regulations issued under the PFMA during March 2005.
- The impact of the Department’s action is that it failed to subject the Complainant to an appropriate procurement system that is fair, equitable, transparent, competitive and cost-effective in violation of section 38 of the Public Finance Management Act. It equally failed to provide the Complainant with timely, accurate and accessible information regarding the claim he believed to have against it, in violation of section 195(1)(g) of the Constitution.
- From a general governance point of view, the Department failed to ensure financial risk management and to prevent unauthorised and irregular expenditure in violation of section 38 of the Public Finance Management Act and to ensure efficient, economic and effective use of public resources in violation of section 195 of the Constitution.
- The Department’s conduct regarding failure to take decisive action to prevent the unauthorised retention of the Complainant’s hygiene equipment after 30 September 2010 and to adjudicate his claim for payment properly and expeditiously, constitutes maladministration as envisaged in section 6 of the Public Protector Act and improper conduct as envisaged in section 182 of the Constitution
- Mrs N Mekgwe, a Chief Director in the Gauteng Department of Health, issued, in her capacity as such, a letter: Acknowledging that the Department owed CKB the sum of R1 448 790.06 for work done for the Department; stating that the Department was not in the position to make this payment to CKB and that a payment would be made into the accounts of a clinic in April 2011 and; requesting the bank to assist CKB with bridging funding to allow it to run its operations without interruptions in the meantime.
- It does not matter in the circumstances whether the Department vicariously incurred liability through Mrs N Mekgwe’s actions. All that matters in the circumstances is that a senior manager of the Department made a written undertaking that placed the Complainant in a position where he legitimately expected to be paid shortly and on the strength of the promise incurred further debt instead of cutting his losses.
- Mrs N Mekgwe’s issuing of the letter of commitment to Standard Bank without properly adjudicating CKB’s claim and following the necessary authorisation procedure for regularising unauthorised expenditure constitutes maladministration as envisaged in section 6 of the Public Protector Act and improper conduct as envisaged in section 182 (1) of the Constitution.
- The Department probably continued to use and derive value from the continued possession and use of some of the hygiene equipment by its clinics while the complainant suffered a financial detriment principally due to the rental he continued to pay to the principal renting company and business overheads.
- The Department’s failure to competently and expeditiously assess the Complainant’s claim while failing to pay for a period of four (4) years has also prejudiced the Complainant.
- The Complainant was treated unfairly and suffered an injustice or prejudice as envisaged in section 6(4)(a)(v) of the Public Protector Act when Mrs N Mekgwe negligently communicated an acknowledgement of debt to Standard Bank without properly assessing the Complainant’s claim and regularising the unauthorised expenditure that would have arisen from expenses incurred by the Department for rental beyond 30 September 2010 as such expenses would have been incurred without an agreement or proper approval.
- The Department failed to the manage the exit of CKB’s services from its clinics and to ensure a seamless transition to properly procured hygiene equipment and related services in its clinics thus prejudicing the Complainant from competing in an open tender process that should have taken place by 30 September 2010;
- The Department’s untidy handling of the procurement of hygiene equipment and related services in pursuit of the out of court settlement in 2010 has, without doubt, risked systemic service failure regarding the provision of hygiene equipment and related services at the affected clinics. It is worth noting that such equipment and services form a critical part of the National Department of Health’s efforts aimed at cleanliness and preventing infections in clinics and hospitals as part of its national priorities that are linked to Millennium Development Goals.
- The conduct of the Department regarding the poor handling of the procurement of hygiene equipment and related services for affected clinics constitutes maladministration as envisaged in section 6 of the Public Protector Act and improper conduct as envisaged in section 182(1) of the Constitution.
As part of the remedial action, the Public Protector directed the following:
The Head of Department must:
- In consultation with the Complainant, subject CKB’s invoices submitted in March 2012 (totalling to R 2 960 112.60) to an audit process and determine a reasonably payable amount for rental chargeable for the period starting on 1 October 2010 until the equipment was removed, taking into consideration the overpayment already made to the Complainant in the amount of R 295 180.20, and pay the Complainant accordingly within sixty (60) days after the issuing of this report.
- Take urgent action to ensure that finality is attained regarding the procurement of hygiene equipment and related services for affected clinics, giving serious consideration to purchasing things that should ideally not be rented and where rental is opted for, to rent from a manufacturer rather than a middle company.
- Expeditiously finalise disciplinary proceedings currently underway against Ms Mekgwe in terms of section 38(1)(h) of the Public Finance Management Act, 1999.
- Ensure that all of its management and general staff, including those in health centres, are trained on the correct Supply Chain and Procurement Processes and Procedures in order to avoid the recurrence of a similar matter in the future.
The MEC to:
- Request the Auditor General to audit all payments made in respect of hygiene equipment and related services in hospitals and clinics;
- Decide whether or not disciplinary action should be taken against all the officials who are responsible for exposing the Department to unauthorised expenditure and other financial risks in violation of the PFMA; and
- Look into a possible systemic deficiency within the Department of Health regarding the payment of monies owed to service providers, particularly small business enterprises as non-payment contributes to their demise and loss of jobs.