The Department of Labour (DOL) has attributed its clean audit report for the 2010/2011 financial year from the auditor-general (AG) to its resolution of problematic areas within its contract with Siemens.
In February, the IT contract between Siemens and the department to deliver IT systems was put under investigation.
At a committee meeting in March, the DOL said it would not renew its contract with Siemens to deliver its IT systems, and will negotiate an early termination of the contract for October 2011.
However, this has not happened, although DOL spokesperson Musa Zondi says an early termination is in the process of being achieved, and the contract will be concluded by year-end.
Reconciliation
The reasons for the department receiving a qualified audit in the 2009/2010 financial year included a main focus on capital assets, due to the reclassification of its IT public-private partnership (PPP) contract from an operational lease to a financial lease.
For this reason, the AG included IT assets as a contributing factor to the qualified opinion.
“To meet the standards of the AG, the department developed and stringently implemented an action plan aimed at correcting the deficiencies identified during the audit of the department's assets, as well as the IT-PPP assets,” says the DOL.
The department explained that despite the PPP contract stipulating that Siemens should make the IT-PPP assets available to the department, methods to enforce this stipulation did not yield favourable results.
“The department developed an action plan to address the audit findings, which required officials to work alongside officials from the PPP partner, to locate, record and reconcile all IT assets in the control of the PPP partner, from contract inception to date.”
This exercise included the financial information that had never been presented to the department since the inception of the contract.
The AG was then satisfied with the results, and thus issued an unqualified audit report for the 2010/11 financial year.
“This exercise has proved that sufficient in-house capacity exists to manage the assets of the department, contrary to popular belief that such expertise had to be acquired externally.”
Backhand 'donations'
Labour parliamentary portfolio committee chairman Elleck Nchabeleng said several matters around the controversial contract needed to be delved into due to the many irregularities that arose in a KPMG diagnostic report.
Democratic Alliance shadow minister of labour Ian Ollis previously said the matter was handed over to the standing committee on public accounts for investigation.
He added that the allegation made was that some form of backhand was being deployed, and there were people in the department receiving untoward “donations” for allowing poor performance to continue.
“The problem is that the initial contract was drafted extremely poorly and this was admitted by the Department of Labour.”
He says it included very little method to hold Siemens accountable, or to terminate the contract upon non-delivery of service or poor performance, which has been the case.
Rocketing costs
The PPP between the DOL and Siemens began in 2002, and apart from escalating costs, was plagued by other irregularities and challenges. The DOL sought outside help in the form of a diagnostic analysis by audit firm KPMG.
Siemens had subcontracted the delivery of its services and the department was not happy with this.
The partnership had initially been costed at R1.2 billion, but then rose to R1.3 billion. The department said this increase is due to the rise in the consumer price index, services relating to the annual report, and an increase in end-user devices.
The projected cost at the end of the contract in November next year was expected to be R1.9 billion.
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