Overpricing is where government’s real leakage sits, says Treasury’s Kenneth Brown

Kenneth_Brown.jpgIt is South Africa’s equivalent to the proverbial $640 Pentagon toilet seat — a paper binding machine that the government buys from its suppliers for the rand equivalent of almost $2,000, about 13 times what it should cost.

Chief Procurement Officer Kenneth Brown cited the binding machine as an example of the massive waste that means as much as 40% of the government’s R600-billion budget for goods and services is being consumed by inflated prices from suppliers, and by fraud.

Addressing this would mean that "without adding a cent, the government can increase its output by 30%-40%," he says. "We could be building more roads, more schools without even adding more money to the current budget."

Brown says the government plans to save as much as R25-billion a year by modernising its supply chain.

Since the office was set up in 2013, Brown and his team of 93 have led a Treasury drive to contain spending and renegotiate business deals that has taken on new urgency as SA faces a possible credit-rating downgrade to junk.

Brown says a major problem is fraud, including collusion between business people and government officials to inflate prices.

"That is where the real leakage in the system actually is," he says. "People can order things they don’t need, and they can take them home."

Making progress

The office has helped negotiate new contracts for the 20 000–30 000 cars it buys each year, getting state departments as much as 30% in discounts. It has also concluded contracts, including a deal with Vodacom, which provides cellphone and data deals to about 400 000 of the state’s 2.2-million employees.

So far the procurement office has stopped 9 000 public servants using companies they own to try to do business with the government, according to Schalk Human, a chief director in the procurement office. That was the result of the unit putting together a "central supplier database" where 325 000 companies were listed, and owners were verified through an automated system.

Adapted from an article published in BusinessDay

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