Department of Agriculture, Forestry and Fisheries (DAFF) Acting Director-General on investigation into tender irregularities in fisheries
2 Oct 2012
In April 2012 the Department of Agriculture, Forestry and Fisheries (DAFF) commissioned the forensic auditing firm, Ernst & Young, to investigate alleged procurement irregularities specifically in respect of goods and services procured by the Marine Living Resources Fund (MLRF) from Smit Amandla Marine (Pty) Ltd (SAM) for the period 1 January 1999 to 31 March 2012.
Phase one of these investigations has been concluded and I have taken possession of this report yesterday morning.
Subsequently, I considered it prudent to inform the Minister of this department about its content and have done so.
The investigation looked into agreements and extensions of agreements signed with SAM during the period and concluded that one agreement was signed, an addendum was attached to that agreement, an extension of 5 years was agreed to, an annexure was added to the first addendum, and a second, third and fourth extension were granted on the same agreement to the same service provider during this period.
Main Ship and Crew Management Agreement, signed on 4 April 2000
The investigation found that this Agreement was concluded between the South African government and Smit Pentow and found that the nature, scope and extent of the agreement were such that its terms and conditions are unusual and appear to be unfavourable to the state, in particular the lengthy period of the contract, the unusual payment provisions, the fact that no contract price was specified and the amount payable was left to the contractor to determine.
This suggests on the face of it, that there is the possibility that tender requirements may not have been met.
Addendum 1 to the Ship and Crew Management Agreement, signed on 16 July 2004
In this case, the investigation found that this addendum substantively extends the scope of the main agreement by conferring additional duties on the contractor for an additional financial consideration, in particular the appointment of the contractor to support the replacement programme and monitoring of the programme for new-build vessels, the management of new-build vessels and the management of seized vessels.
It further notes that that the subject matter of the addendum was such that it cannot be said to be a mere extension or expansion of scope, but in fact is a new agreement.
The investigation could however not find any evidence available at this point to suggest that any such process was carried out.
It should be noted that the contractor is named in the Addendum as Smit Marine – this is the name to which Pentow Marine had been changed; it remained however the same legal entity.
Extension of the Main Agreement for 5 years until 2010 - letter to Smith Marine dated 20 December 2004
According to the report, an extension of this extension was effected by means of a letter to Smith Marine but could not find evidence of a bilateral agreement with Smit Marine. The purported effect of the extension was for a further fixed period of five years. Whether this amounts to a new agreement or merely an extension, it appears that no tender process was applied.
Annexure 3 to Addendum 1 to the Ship and Crew Management Agreement signed in October 2006
The report notes that even though it is styled as an ‘Annexure to an Addendum’ this document in effect constitutes an agreement with Smit Marine for the management of a high speed patrol vessel, Chase 1. Certain provisions of the main agreement are incorporated by reference.
As in the case of the main agreement, the nature, scope and extent of the Annexure are such that its terms and conditions are unusual and appear to be unfavourable to the state; in particular, the lengthy period of the contract, the unusual payment provisions, the fact that no contract price was specified and the amount payable there under was left to the contractor to determine suggest, on the face of it, that tender requirements may not have been met.
It further notes that prior to the signing of this agreement, the business of Smit Marine had been transferred (in 2005) to Smit Amandla Marine. Strictly speaking, therefore, Smit Amandla was a completely different contracting party yet the Annexure does not seem to recognize this factor.
Extension of the main agreement to 31 March 2011 (2nd extension) – signed in March 2010
The investigation found that this particular agreement was preceded by a letter to SAM in which the intension to extend the agreement was notified.
The agreement, in addition to extending the main agreement, made certain amendments, the main effect of which was to change payment intervals from quarterly in advance to monthly in advance. As in the case of the first extension, this extension committed the parties to an additional fixed term.
Extension of main agreement to 30 September 2011 (3rd extension) – letter signed 7 March 2011
It was also found that in a letter dated 7 March 2011 to SAM, it was stated that the main agreement would be extended for a further six months until 30 September 2011.
An agreement which purportedly reflected this agreement was made available to the investigation, but a signed copy has not been made available. The document is imprecisely drafted and contains an unusual provision to the effect that ‘the department shall pay in addition to any amount detailed in the main agreement a further R56 million.’ There is no available evidence to suggest that any procurement process was followed.
Extension of Main Agreement to 31 March 2012 (4th extension) – letter signed on 28 September 2011
Lastly, even in this case, the investigation found that a letter, dated 28 September 2011 was sent to SAM in which it was stated that the main agreement would be extended for a further six months until 31 March 2012.
The investigation found that the letter was counter-signed on behalf of SAM on 5 October 2011, stating that the contract is further subject to the signing of a service level agreement. The investigation could not find evidence that such an agreement was ever signed.
Analysis of invoices
South African Police Services (SAPS) provided the investigation with 492 documents which they had lifted from the MLRF of which a total of 474 related to invoices amounting to over R1.5-billion and 18 related to credit notes amounting to almost R10-million for the period February 2006 to March 2012. An additional 650 invoices dating prior to 2006 were also obtained and are still under review.
The following anomalies were noted on the invoices:
- 29 invoices were not sequentially numbered in comparison to the date when the invoice was submitted,
- Two invoices had hand written alterations made to invoice numbers,
- On one of the invoices, the date was erased,
- Alphanumeric numbers were added to pre-numbered invoices,
- Finally, descriptions on some invoices indicated the same service type in respect of amongst others fishing masters, training and manning fees relating to monitoring and research respectively. It would appear upon review on these invoices that the same expense may have been charged twice,
- 222 instances, worth over R750-million, were identified where invoices were not approved or allocated to a cost centre and would appear to have been processed for payment,
- 292 instances, worth more than R1.03-billion, where invoices did not include VAT charges were identified, and
- 65 duplicate invoices worth over R234-million were identified.
We would like to emphasise that the investigation is ongoing and that the final forensic audit report will guide the course of action to be followed. Secondly, this report confirms our initial drive to consolidate and syncronise our procurement and administration systems across the Department as we also aim to create a single Department of Agriculture, Forestry and Fisheries.
We call upon anyone with information that could assist the investigation further to come forward.
Finally, this department is committed to open, transparent and good governance towards the creation of a better life for all.
Further enquiries contact:
Cell: 083 635 7346
Cell: 076 267 5838
Issued by: Department of Agriculture, Forestry and Fisheries
2 Oct 2012
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