Broadband Infraco's incompetence exposed

Broadband Infraco the state owned entity tasked with bringing down the cost of broadband has been found to be a haven of incompetence, unauthorised expenditures and a feeding ground for its own executives.

Broadband Infraco was formed in 2006 by the Department of Public Enterprises (DPE) as an intervention to rapidly normalise telecommunications market efficiency and address the cost of broadband to other industry players and end users. Although new, it is an amalgamation of Transnet’s and Eskom’s long-distance telecommunications infrastructure.

It is 100% owned by government as represented by the DPE, which holds a 74% stake and the Industrial Development Corporation (26%).

In October last year audit firm Deloitte was commissioned to conduct an urgent internal audit “to review the controls in relation to the contract management function, evaluate the adequacy and effectiveness of key operational and financial controls, and test compliance with the applicable legislation, policies and procedures”. The transactions and documentation selected during the internal audit review covered the period April 1 2010 – September 30 2010. Of the listed findings, 11 out of 19 were identified as having a potential “catastrophic impact in the department or strategic focus area under review and should be resolved immediately”. 

Director of Risk Advisory at Deloitte, Zama Dlamini concluded that “although there are set policies, procedures, guidelines and processes to effectively effect the contract management process, we noted in many instances that these are not complied with, unintentionally or otherwise”. Dlamini added that, “roles and responsibilities have been defined, but it appears that there is disregard of these governance structures and or communication breakdown between different business units, which at the end, exposes [the] company to undue risks.

“For example, we identified cases where contracts are concluded without the commercial unit’s knowledge and involvement, cases where the commercial unit only gets involved when there are payments that need to be effected, contracts renewed outside of the contract management process. The same stands true for matters relating to lack of supplier performance management, where the business does not involve the commercial unit in the performance meetings (where they happen) to track progress of resolution and effect recourse clauses where needed”.

Dlamini lamented that the audit found, “inaccurate contract management reporting, due to incomplete, invalid and inaccurate information from the register, such as terminated contracts not removed from the register. Maintenance of contracts and related information is not adequate as access to the documentation is not restricted. There is no clear communication between the end user departments and the commercial unit in terms of contract management, thus [the] end user at times make contractual decisions that change the terms of contracts (ie, modifications, extensions) without knowledge of the commercial unit.

“…at times, user departments engage the finance department directly for payments of service providers, thus payments are sometimes made to service providers without involvement of the commercial unit in the procurement processes.

“The process of monitoring performance of service providers is not documented and formalised. Validity and accuracy of payments made to service providers could not be confirmed as some of the service providers are paid based on hours worked however these could not be substantiated. Non adherence to the service level agreement (SLA) where timesheets are not submitted by the service provider as required in terms of the SLA”.

Other key findings:

Missing documents

According to section 3.4.3(d) of the approved procurement process, “the contract administrator should keep the contract documentation up to date and ensure that all documents relating to contracts are consistent, and all parties have the correct version”. However, the audit found that “all 25 contract files reviewed had incomplete procurement related documentation. In addition, the following two contracts Coral-I and Eventec had to be acquired from the end user department due to the contract documentation…” having gone “missing from the contract files”. The audit found that there is a “lack of evidence that appropriate procurement procedures are followed in the conclusion, renewal, and termination of the contracts”.

Officials who evaluate tender bids don’t declare their interests

Despite Broadband Infraco’s procurement policy stating that “prior to evaluating the bids the Cross Functional Evaluation Team (CFET) / Cross Functional Specifications Team (CFST), also known as Bid Evaluation Committee shall sign the conflict of interest form to declare if they have or do not have a vested interest in any of the bids received as captured in the bids register list, it was found that, “ there is no evidence that the Bid Evaluation Committee members declared if they have or do not have a vested interest in any of the bids received as captured in the bids register list, and it was further noted during an enquiry held with one of the Bid Evaluation Committee Member[s] and it was confirmed that the members were not required to declare any interest they may have on the any of the bidders on the tender register”.

This shocking discovery allegedly created the necessary environment for corruption to thrive, according to the audit report, “evaluations may be performed by the Broadband Infraco officials who have vested interest[s] on any of the bidders or on the tender, this may compromise the objectivity and independence of the evaluator” it was also noted that as a consequence “the evaluation process may not appear to be fair, objective and transparent”.

Unqualified officials evaluate tender bids

It was also noted that despite it being best practice for the bid evaluation committee members to be formally appointed to eliminate unqualified officials from serving on the committee this did not happen. From the audits findings there was no evidence that the officials who were involved in the evaluation of tenders “were formally appointed to evaluate the tender[s]”. This creates an environment which allows bids to “be evaluated by unauthorised Broadband Infraco or officials who do not qualify to perform the evaluations, which may lead to bids not properly evaluated and this may result in a deserving bidder not being awarded the bid”.

According to the audit, in terms of Broadband Infraco’s procurement policy “the Commercial Unit shall arrange for the bids to be opened and registered by at least two administrative members of the unit who are not involved in the actual invitation of the bid,” however it was found that “the bids were opened by the two officials who were not independent from the bid invitation process, evaluation process and one of them is not an administrative member of the commercial unit” ie, Mbulelo Hlobo, the person responsible for the invitation of bids process for the tender also appeared on the invitations. Mkhululi Mhlanga who is not a member of the commercial unit but a member of the capital programme unit formed part of the bid evaluation committee; he also evaluated the technical aspects of the bid.      

The above non-compliance meant:

1. The involvement of officials who were or are also involved in the invitations and evaluation of the bids may lead these officials to being bias towards certain bidders, which may compromise the objectivity of the evaluators;
2. Could lead to the results of the tender process being discredited or may not appear to be fair, equitable, transparent and competitive;
3. Could lead to Broadband Infraco not being compliant with relevant supply chain related legislations and regulations;
4. Due to the non-compliance Broadband Infraco faces the prospect of such expenditure being classified as “irregular” as defined in the Public Finance Management Act and Treasury regulations.

When asked about the contents of the audit report, Broadband Infraco’s media liaison co-ordinator Thamie Mthembu said, “The questions listed in your e-mail of 26 January 2011 seek to elicit internal and commercially sensitive information and as such we are not responding to your questions.  However, like any other company, we are constantly working to improve the systems, processes and, ultimately, the performance of the company. Naturally and to the extent that we are required to report in terms of the Public Finance Management Act and/or in terms of our corporate governance obligations we will do so.”

Through Moneyweb’s own investigations it was found that of the 11 board members serving at Broadband Infraco, three of them had shares in companies which were awarded contracts by Broadband Infraco.

Broadband Infraco’s incompetence exposed << Comments and views

Source: Moneyweb