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Industry Research : Millions Wasted on ICT Consultants
The auditor-general found instances in which departments overpaid for ICT projects, or never received what they paid for.
The auditor-general’s latest report has found that a total of R102 billion was spent on consultants between the 2008/9 and 2010/11 financial years, and more than a billion of this amount went to IT projects that were overpaid, or never completed.
The auditor-general’s performance audit on the use of consultants at selected departments included correctional services, defence, environmental affairs, health, police, rural development, transport and water affairs.
The largest single amount spent on contractors for a system that was never completed was at the police department, where a contract for a firearm control system spiralled to R412.5 million from the initial signing price of R92.8 million. In addition, the eNatis contract increased from R594 million to R936.2 million as the Department of Transport paid for services not included in the deal.
In total, the police department spent 12%, or R4 billion, on contractors during the period under review. According to the report, correctional services spent 6%, or R2 billion on consultants, while environmental affairs spent 2%, or R551 million. Health spent R416 million, or a percent, while transport spent R1.86 billion – 6%.
A Department of Transport deal to implement the Electronic National Traffic Information System (eNatis) grew from R594 million to R936.2 million over four years, and included services that were not in the contract.
A transfer management plan was meant to move the system from the third-party to department by May last year, which never happened, resulting in the contract extending on a month-to-month basis and including payment for services that should not have been paid for.
The department is in the process of forming a trading entity that will take over eNatis.
The police department’s contract for a firearm control system was inked in 2004 for R92.8 million, relating to the core solution after negotiations dropped the price from the State IT Agency’s (SITA’s) recommended R102.6 million.
Yet, four addendums to the deal led to a total contract value of R412.5 million, as a result of changes to the business process and technical specifications provided for in the tender. As of March last year, the department had paid the consultant R341.6 million; however, the system was only 80% completed by last September.
The department indicated to the AG that it is in the process of evaluating the outstanding deliverables and a number of options are being considered for its completion.
The AG noted the Department of Correctional Services signed a total of just more than R58 million-worth of service level agreements with SITA during the period of the audit. However, the AG found that cost/benefit analyses were not done to compare the cost of using consultants with the cost of appointing permanent staff, leading to increased costs.
Services were rendered and payments of R12.5 million were made to SITA before four service level agreements were signed. In addition, payments to SITA were not monitored by the department and were not in accordance with the service level agreement for the systems development directorate, leading to excess payments of R18.5 million.
In addition, a project to install a new IT server and provide training, inked in 2009 for a value of R11.7 million, was paid for in May 2009, although the project had not been completed.
The AG also found that a consultant who compiled the needs assessment for a nationwide network infrastructure project worth R21.1 million was the only service provider asked to quote, contrary to regulations. In addition, the project was meant to have wrapped up in March 2007, but has yet to be implemented, although the consultant has been paid.
The department has said it will implement a new IT structure, and payments will only be made based on milestones. It will also audit all current projects and investigate deviances from supply chain policy. It has also appointed the chief deputy commissioner and junior staff to address the lack of internal capacity.
The Department of Environmental Affairs appointed a consultant to develop phase one of the South African Air Quality Information System. The contract was worth R4.9 million over 18 months, but was extended by another nine months due to a lack of skills and the incompatibility of the system, which "stemmed from imprecise specifications in the terms of reference".
Environmental affairs says it has introduced a monitoring mechanism and will link payments to project deliverables.
At the Department of Health, a 90-day contract to conduct a situational and needs analysis to develop a national call centre, at a cost of R476 320, was finalised 10 months late, the AG found. This was due to the fact that the department did not consider all relevant factors.
In addition, the AG notes that an IT support services deal, worth R27.3 million at the Department of Rural Development and Land Reform, was extended three times and eventually totalled 67% more than the bid price.
The department has since decided to build its own capacity on all skills levels instead of relying on service providers.
The AG says the "weaknesses identified are caused largely by the lack of rigorous review processes to ensure that existing laws, regulations and policies are followed". It says the audit shows consultants are often employed to provide competencies for which departments should have internal staff.
"However, since these skills were not available internally or departments were not successful in recruiting suitable staff, they relied on consultants to perform these functions. While this issue is concerning, it is not new."
Bart Henderson, president of the South African Institute of Corporate Fraud Management, notes there are a myriad of challenges facing the effective selection, design and implementation of effective ICT products and services. These include an aging and shrinking skills base, jobs not being filled by government, and lack of continuity and loss of institutional memory as a result of a highly mobile workforce.
Posted by Veronica Silva Cusi, news correspondent
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