30 JANUARY 2007
                         PROVINCES IN PARALYSIS
                                 Executive Summary

Audit Opinion
Eastern Cape        Disclaimer of opinion
Limpopo             Qualified
Free State          Emphasis of matter
North West          Qualified
Gauteng             Qualified
Northern Cape       Disclaimer of opinion
Western Cape        Emphasis of matter
Kwazulu-Natal       Emphasis of matter
Mpumalanga          Emphasis of matter

                                  Procurement and Tendering
The reports contain evidence of widespread collusion between tendering companies and
departmental officials to avoid financial controls, with the apparent intention of raising
tender prices and swinging bids in favour of certain individuals
Eastern     • Numerous examples of inadequate or non-existent monitoring of procurement
Cape           processes and numerous breaches of procedure.
Limpopo • Numerous examples of by-passing of tender procedures.
            • “Extremely inflated” prices as a result of restricting tender bids to historically
               disadvantaged individuals.
            • Inadequate records of procurement decisions.
Free        • Sufficient tendering problems to justify a separate report - in the process of
State          being compiled.
North       • Proper procurement policies not always complied with, and payments
West           sometimes not properly authorised.
Northern • Permission to by-pass tender regulations granted for no good reason.
Cape        • Evidence of VAT avoidance and manipulation of tendering processes by
               tendering companies, including setting up fictitious companies.
            • The province has two bank accounts, but the transactions on only one
               account were submitted for auditing.
Western • Poor planning necessitated the use of emergency tendering procedures.
Cape        • Certain institutions were procuring goods from unapproved suppliers.
Mpum-       • Rules on use of preferential points systems and performance monitoring not
alanga         always applied.

                                  Personnel Management
The reports show that provincial personnel management systems are often chaotic, and it
appears that these systems are widely abused to, for example, pay salaries to non-existent
“ghost” workers and award unearned benefits to employees.
Eastern      • Incomplete or missing information in personnel files.
Cape         • Indications of ghost workers on the payrolls.
Limpopo      • Inadequate supporting documentation for performance award payments.
             • Important documents missing from personnel files.

Free State   •   Indications of ghost workers – not all salary recipients had been certified.
                 No process to identify human resource requirements.
N West       •   Medical staff allowances sometimes simply not paid.
Gauteng      •   Actual leave forms often did not match records in the files.
Northern     •   Crucial documents missing from employee files.
Cape         •   Many deficiencies in the management of travel and subsistence allowances.
Western      •   Overtime paid to 1 564 officials while they were on leave.
Cape         •   Employment contracts did not always exist, or had expired.
             •   Proof of actual hours worked was not always available.
             •   Controls to prevent payments to fictitious employees applied ineffectively.
Kwazulu-     •   The human resources plan had not been completed.
Natal        •   Staff vacancy rate of 33%.

                                    Health Infrastructure
The reports suggest the maintenance of existing health infrastructure and the construction
of new clinics and hospitals is compromised by poor and probably often corrupt practices in
drawing up construction plans, awarding construction tenders and managing projects.
Limpopo      • Some newly constructed buildings already showing signs of disintegration.
             • Construction of facilities that were not needed.
Free State • Substantial delays in the completion of construction projects.
North        • Long delays in construction and R283 million in unnecessary expenditure.
West         • No staff for newly constructed specialist facilities.
Northern     • No proper budgets for Hospital Revitalisation Grant projects.
Cape         • Implementation plans not properly approved.
             • No evidence of environmental impact studies for construction projects.
Western      • Major deviations between budgets and actual expenditure.
Cape         • Poor quality construction and major delays in construction projects.
             • A failure to impose penalties and timeframes on contractors.
KZN          • Conditions attached to grant expenditure not adhered to.

                                   Hospital Administration
The reports show that public hospitals are hugely disorganised. Ineffective or non-existent
billing and debt recovery systems have resulted in the accumulation of millions of rands in
unpaid debt, and many hospitals make very little effort to keep track of their assets.
E Cape       • No revenue collection policy and no audit trail to follow a patient from
                admission to discharge, resulting in a total of R300 million in unpaid fees.
             • Records of furniture, equipment, computers and cell phones either did not
                exist or were outdated and inaccurate.
Limpopo • No hospitals visited had proper asset registers or had conducted recent stock
             • Obsolete and redundant stock had not been identified and was often still in
Free         • Outstanding patient debt of R147 million, but no interest was levied on
State           outstanding patient fees as required by law.

          •   Assets worth R1.4 million could not be physically traced.
N West    •   Only 52% of all visits to hospitals were billed for.
          •   Medicine storage facilities were inadequate.
Gauteng   •   Patient files contained inadequate information to determine the amounts that
              they should have been billed; eg. discharge dates generally not captured.
          •   Serious breaches of environmental management, occupational health and
              infection control policies at some hospitals.
N Cape    •   The debtor system did not always record the discharge of patients.
          •   No regular follow–up of debtors and interest on outstanding fees not
          •   Income assessment cards not used.
          •   Billing sheets often did not contain information about procedures and
          •   Many patient files and patient admission forms missing.
          •   No complete, centralised asset register.
          •   No maintenance plan in existence.
          •   Some hospital assets were not in working condition.
          •   Medicine stock records often out-of-date or inaccurate.
W Cape
KZN       •   Serious health risks found at some hospitals as a result of the mishandling of
              medical waste.

                       PROVINCES IN PARALYSIS:

                                  Procurement and tendering
E Cape    •   Various shortcomings in the processes used to procure goods worth R150
              million. Among other things, procedures for obtaining quotations were not
              adhered to and the provincial Department of Public Works could not provide
              minutes for meetings at which bids were evaluated and awarded. “The
              possibility of collusion, fraud and corruption” could not be excluded.
          •   The Independent Development Trust was involved in two questionable
              hospital construction projects. In one case, contracts for work at St Lucy’s
              Hospital and Frontier Hospital were initially awarded to WBO/ Azcon and
              Llima Projects. But before these companies had started, a contract for the
              same two jobs was awarded to the IDT – and a pre-payment of R21 million
              was made.
          •   Many critical documents, including tender documents, simply could not be
          •   There were various breaches of procedure, including a decision by the
              accounting officer to condone R51million in irregular expenditure although he
              did not have the authority to make this decision.

Limpopo   •   Orders for some goods and services were split between different suppliers to
              keep individual orders below R50 000 – the level requiring head office
          •   Some orders were made without contracts, and therefore there were no
              specifications or service guarantees.
          •   Tender bids were only accepted from individuals categorised as historically
              disadvantaged. No attempt was made to establish whether their bids were
              market-related, which led to “extremely inflated” prices.
          •   Some purchases were made from businesses belonging to departmental
              employees, but these vested interests were not approved or recorded.
          •   Some cases were found where the highest quotation for work required was
              accepted, not the lowest, for no good reason.
          •   The department was unable to supply a list of all tenders awarded, nor of all
              tenders where the best qualified applicant had not been accepted.

Free      •   There were enough problems with procurement to justify a separate report on
State         this subject, and this report is in the process of being compiled. The Auditor-
              General mentioned a few specific problems:
               o Insufficient quotations were obtained for the purchase of goods and
                 services amounting to R2 million.
               o The invoice price and the tender price for computer equipment amounting
                 to R1.4 million did not match.
               o Several quotations were obtained for purchases worth R218 000, but
                 these quotes were from companies that were all related to each other.

N West    Proper procurement policies were not always complied with, and payments were
          sometimes not properly authorised.


N Cape   •   In four cases, several fictitious companies were set up to compete with one
             real company. This happened in regard to:
              o The procurement of antennas and mobile radios worth R460 000. The
                  contact person at one of the other tendering companies was the same as
                  the contact person at the winning bidder.
              o The procurement of promotional material and clothing worth R410 000.
                  Competing bids were faxed from the same number. The order was also
                  split into four parts to circumvent the requirement that all purchases over
                  R200 000 be subject to a tender process.
              o The procurement of a launch manager for R2.4 million. All quotations for
                  the procurement provided the same fax number.
              o The procurement of a closed circuit television system worth R1.7m for
                  the Letele Medicine Depot. Permission to deviate from tender procedures
                  was obtained, and only the winning bidder was found to actually exist.
         •   On several occasions, departments were granted permission to by-pass
             tender regulations despite inadequate reasons for such permission.
         •   Overpayments were made because invoices were higher than the agreed
         •   There were differences between quantities ordered and quantities paid for.
         •   Some of the entities from which goods were bought did not have VAT
             numbers, so it is probable that they were not registered for VAT.
         •   The lowest quote was not always accepted. In the cases of the purchase of
             some televisions, a quotation of R202 000 was accepted for televisions that
             the tendering company simply bought at a retail store for R100 000.
         •   The department obtained special deviation from tender procedures to procure
             an oxygen unit, but oxygen is already being supplied in terms of a national
             tender so the expenditure was pointless.
         •   The province has two bank accounts, but the transactions on only one
             account are recorded in the financial statements and only this account was
             submitted for auditing.

W Cape   •   Because of poor planning, goods worth R4.2 million had to be procured using
             urgent and emergency procedures, when this should not have been
         •   Approved suppliers complained to the Auditor-General that certain hospitals
             and institutions were procuring goods from unapproved suppliers, thereby
             breaching supply chain management prescripts.

Mpum     •   Tenders were not always invited for goods and services over R200 000.
         •   The preferential points system was not always used.
         •   The department did not monitor the performance of contractors.
         •   Tender committee members did not always have the necessary training.

                                   Personnel management
E Cape    •   Records for leave totaling R787 million could not be verified because of
              incomplete or missing information (such as doctors’ certificates) and data
              errors on the system.
          •   Records of staff debts were not reconciled and reviewed regularly.
          •   There were indications of ghost workers on the payroll because a number of
              officials were “not available for physical verification”.
          •   Resignations and transfers were not always reflected on the personnel and
              salary system, and the necessary documentation (such as debt clearance
              forms) was not always in place.

Limpopo   •   No documentation was available to substantiate expenditure of R197 million,
              supposedly on thirteenth cheques and performance awards.
          •   Performance bonuses were paid out at a flat rate of 6% to everyone,
              irrespective of performance.
          •   Many important documents, such as letters of resignation and evidence of
              leave payments, were not available.

Free      •   The individual responsible for salary payments did not certify that everyone
State         who was paid a salary was entitled to it, and not everyone signed the payroll.
          •   There was no evidence that the department had compiled and implemented a
              human resource plan as required by law, so the department did not know
              what positions it needed for specific functions.
          •   Various deficiencies in the recording of leave.

N West    •   Scarce skills and rural allowances were sometimes simply not paid.
          •   Because of errors in an application to Treasury for additional funds to allow
              for the employment of additional staff, no new staff could be appointed.

Gauteng   •   Actual leave forms often did not match records in the files.

N Cape    •   Employee files did not always contain all the necessary documents, including
              leave forms.
          •   Numerous problems with travel and subsistence allowances, including failure
              to identify the purpose of foreign trips and authorising trips only after they
              had been taken.
          •   Widespread abuse of rental accommodation made available to employees,
              with employees sometimes not paying the nominal rental they are charged
              and not declaring this benefit for tax purposes. However, the department also
              failed to send out accounts regularly and no amounts for accommodation
              were deducted from salaries.

W Cape    •   There had still been no review of commuted overtime contracts, although this
              subject was identified as a problem in the 2005/06 report. There were
              additional problems in this regard, including that commuted overtime
              payments were not reduced by leave taken, resulting in overpayments, that
              commuted overtime claimed for was not checked by supervisors, and that
              there were no attendance registers.
          •   As a result of serious staff shortages, overtime payments amounting to R21
              million were made to individuals above the 30%-of-salary limit. This
              amounted to almost 40% of total leave payments.

          •   Overtime amounting to R882 500 was paid to 1 564 officials while they
              were on leave.
          •   Employment contracts did not always exist, or had expired.
          •   Proof of actual hours worked was not always available.
          •   Controls to prevent payments to fictitious employees were not applied

KZN       •   The human resources plan had not been completed.
          •   The departmental vacancy rate was 33%, when the norm was 5%, and it
              took an average of 15 months to fill a vacancy when the norm was five


                                   Health Infrastructure
E Cape
Limpopo   •   Four hospitals were supposed to benefit from the Hospital Revitalisation Grant
              but there were major problems at all of them:
              o The new Nkhensani hospital was due to have been completed by March
                  2006, but by the time the Auditor-General visited it, only the recreation
                  facility and a ward had been completed and it was evident that the
                  hospital would not be completed by the deadline. There was a Marula tree
                  growing in the newly completed basketball court.
              o At the Dilokong Hospital, there was no provision for a laundry in the
                  construction plans. Laundry is transported over a 10km gravel road to the
                  HC Boshoff Hospital, where two of the dryers are broken so laundry is
                  hung outside to dry. The department had planned to outsource cleaning,
                  despite the fact that the nearest facility was 150kms away.
              o At the Jane Furse Hospital, in the new paediatric ward, geysers and
                  toilets were not working and the roof was leaking. In the new maternity
                  unit, the roof was leaking, the kitchen walls were cracked, tiles were
                  loose, and the floors were cracked.
              o At the Lebowakgomo hospital, the new roof was leaking and a screening
                  room was too small to accommodate the machine purchased.
              o Plans for three of these hospitals included the construction of
                  incinerators, despite the fact that contracts had already been entered into
                  for incineration of medical waste outside of the province. It is doubtful
                  whether these incinerators will ever be used.
          •   No plans had been formulated to close down old facilities once new ones had
              been built, with the result that usable equipment was being left unattended
              and patient records were still being stored in buildings that had been closed

Free      •   The construction of the trauma unit at Pelanomi Hospital was found to have
State         been delayed by an estimated two years as a result of various problems that
              could have been avoided.
          •   In two other cases, projects to build paediatric wards had been completed.
              But in one case the ward had only been opened a year after completion, and
              in the other case the ward had been completed in February 2005 but had still
              not been opened by May 2006.

N West    •   Infrastructure had been allowed to deteriorate to the point where 24% of
              clinics and 13% of hospitals were classified as unsuitable to render a health
          •   Mismanagement of Hospital Revitalisation Grant funds resulted in avoidable
              expenditure amounting to R283 million.
          •   Poor co-ordination of projects resulted in substantial delays.
          •   New hospitals had been equipped with specialist facilities, but no staff had
              been employed so the facilities were wasted.
N Cape    •   Business cases and implementation plans for Hospital Revitalisation Grant
              projects did not include detailed budgets of equipment and construction
              costs, so progress could not be evaluated.
          •   Some project implementation plans had not been approved by the necessary
          •   Environmental impact studies were not included in tender documentation.
          •   Monthly and quarterly reports were often not done.
          •   Payments amounting to R753 000 did not meet the objectives of the
              revitalisation grant.

W Cape    •   There were major deviations between budgets and actual expenditure on
              many provincial infrastructure projects. These included 12 projects on which
              no money was spent and five projects that did not appear on the budget.
              Furthermore, the completion dates for twenty-seven projects had had to be
              extended, adding an average of 13 months to the completion time of these

          •   Construction in terms of the Hospital Revitalisation Grant was frequently
              found to be of poor quality, damaged, poorly designed or incomplete. These
              problems were caused by:
              o Ineffective project management and poor communication.
              o Failure to impose penalties and timeframes on contractors.
              o Failure to provide information on cost per square meter incurred.

KZN       •   Conditions attached top the Hospital Management and Quality Improvement
              Grant were not adhered to. For example, business plans sometimes did not
              accord with measurable objectives outlined in legislation. There was also no
              evidence that there had been any monitoring to ensure that the portion of the
              grant which was supposed to be spent on revitalisation was actually spent on
          •   The province requested the roll-over of the full amounts for four conditional
              grants, in contravention of Treasury regulations.


                                  Hospital administration
E Cape    Patient fees
          • No revenue collection policy existed.
          • There was no audit trail to follow a patient from admission to discharge, so
              there was no way of knowing whether services were actually charged for and
              whether revenue was received and recorded.
          • This resulted in a total of R300 million in unpaid fees owed to the province,

    of which 40% was older than three years.
•   Hospitals sometimes used outdated tariff registers.

Asset management
• Records of furniture, equipment, computers and cell phones either did not
   exist or were inaccurate. This was largely because there was no framework
   for the management of asset and inventory registers, and asset and inventory
   counts had in fact not been carried out at all for the financial year. In
   addition, loss control registers were incomplete or were not maintained at all.

Limpopo   Asset management
          • None of the hospitals and district offices visited had proper asset registers.
             Some assets were simply not recorded, or information on price, purchase
             date and asset number were missing. It was therefore impossible to
             determine the monetary value of stores.
          • None of the hospitals visited had conducted stock counts or even established
             stock count procedures. Hospitals could often not say when last a stock
             count had been conducted.
          • Equipment that should not have been in use any more was still being used
             because no analyses had been undertaken to identify obsolete and redundant
             stock. Sometimes obsolete equipment was standing outside, exposed to the
             sun and rain.

          Medical waste
          • Municipalities in the province did not provide medical waste disposal services
             and medical waste was found on general municipal landfill sites.
          • The province had entered into a contract for the disposal of medical waste,
             but it included only hospitals, not clinics. As a result, clinics were using illegal
             landfill sites on their premises to store medical waste, including needles and
             bloodied materials, or burning waste illegally, posing a serious health risk.

Free      Patient fees
State     Patient fees amounting to R147 million were outstanding, of which R45 million
          were probably irrecoverable. Although patient fees of R21 million had been
          handed over to debt collectors, only 6% had been recovered. No interest was
          levied on outstanding patient fees, as is required by law.

          Asset management
          Assets worth R1.4m on the asset register could not be physically traced.

N West    Patient fees
          • Only 52% of all visits to hospitals were billed for, suggesting that another
              R30 million should have been billed but was not.
          • Patients and medical aids owed R11 million to hospitals dating from prior to
              31 March 2004, but inadequate steps had been taken to recover this money.

          Asset management
          Storage facilities were inadequate, so medicines and stationery were being stored

Gauteng   Patient fees
          • The BAS system and the stand-alone debtor management systems of
              hospitals showed different amounts owing in patient fees – R376 million for
              the stand-alone systems and R296 million for the BAS system.
          • Patient files contained inadequate information to determine the amounts that
              they should have been billed. For example, discharge dates and identity
              numbers were often not captured. Proof of payment was also sometimes not

          Asset management
          At various hospitals, asset registers were not available “for extended periods of

         time”, so additions had to be made on spread sheets and added to the asset
         register later, which raised concerns about reliability of the information.

         Medical waste
         During visits to certain hospitals, it was found that there were serious breaches
         of environmental management, occupational health and infection control policies.

N Cape   Patient fees
         • The amount stated as owing to the department in patient fees was
             understated by an estimated R5 million because patients who had been
             discharged were not recorded as such on the debtor system.
         • Debts owed to the department aged more than 5 months amounted to R43
             million and the likelihood of recovering these debts “could not be confirmed”.
             The department had made no disclosure about the debts that were potentially
             irrecoverable, although it was obliged to in terms of accounting policy. There
             was also no regular follow–up of debtors, the department had no proper
             policy in place for debt recovery and did not charge interest on outstanding
             patient fees, in contravention of Treasury regulations.
         • Several hospitals did not use income assessment cards, so there was no way
             to tell whether patients were being billed accurately according to their
             income. Billing sheets often did not contain adequate information about
             procedures and medication.
         • There were many inaccurate recordings of admission and discharge dates.
         • Many patient files and patient admission forms were missing.
         • Examples were found where no remittance register was in use to record
             payments by post.
         • Examples were also found of differences between amounts received and
             amounts banked.

         Asset management
         • No complete, centralised asset register existed and some assets were not
            marked with a unique number.
         • There was no maintenance plan in existence.
         • Some assets at hospitals were not in working condition. Some non-functional
            assets had been sold, but not enough information was available to determine
            whether they had been sold at the best price.
         • Some physical assets could not be traced on the register, and some assets on
            the register could not be found.
         • Medicine stock records were often out-of-date or inaccurate, and stock
            requisitions were sometimes not properly authorised. Medicines were
            sometimes not stored properly, and expired medicines were not disposed of.

         Medical waste
         Various instances were found of failure to dispose of medical waste properly. At
         Kuruman Hospital and Greenpoint Clinic, for example, medical waste was simply
         disposed of with municipal waste.

W Cape
KZN      Medical waste
         Although it had been raised in the previous report, audits at certain hospitals
         showed that serious health risks were still being created by the mishandling of
         medical waste. Medical waste was not always placed in the prescribed

       containers, and access was not always properly controlled. Sometimes medical
       and municipal waste was mixed together.



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