Executive statement by Minister Jeff Radebe on payment of service providers by government within 30 days- National Assembly, 17 November 2016
Honourable Speaker, Cabinet Colleagues and Deputy Ministers, Honourable Members, ladies and gentlemen and fellow South Africans!
It is important to reflect on the question – “why is it so important to pay service providers on time and within 30 days of a valid invoice?”
In this regard, it should be noted that is this government’s stated intent and policy to encourage and support all business growth and development, as a general rule. But, we are, in particular, shining the brightest light on the challenges faced with the small business sector and its growth and development in instances where this horrendous practice of not paying invoices on time evidently prevails.
We have come to discover that many of the small business that we wished to advance were actually being placed in financial distress, grave jeopardy and prolonged hardship by the late payments for goods and services, especially by government.
It was for this reason that we recalibrated our focus and launched a deliberate strategy to turn this around. We pronounced forcefully – that as well as being unethical, the practice of deliberately paying later than the agreed terms on a tax invoice is wrong for sound economic reasons:
· It weakens small business particularly because payment is its lifeblood - it lives from day to day, quite literally;
· Late payments damages supply sources in the value chain and strains relationships with suppliers; and
· Late payments weakens the economy, both at a macro level as it does too at a micro level, and this impact on growth opportunities.
All our collective efforts, given the economic headwinds that we see, and as articulated correctly by Minister Gordhan in the MTBPS address, must be about easing the costs of doing business in our country.
So, again, why is this ‘payment on time’ so important? According to the National Development Plan, South Africa needs to create 11 million jobs by 2030 to achieve full employment.
This will not be possible if we do not aggressively support the growth and development of the small business sector. Government is fully aware of this challenge and it was for this reason that, amongst others, the Department of Small Business Development was established. Thus, it is important precisely because of the central and catalytic role a thriving small business sector plays in the achievement of the NDP goals, which I submit, cannot be over emphasised.
For instance, and it is quite staggering, 47% of South Africa’s workforce is employed by the small business sector –that is about 7, 3 million people. This sector contributes 42% to the country’s GDP! Indeed, many strong economies were built on the back of a strong small business sector.
It must be noted that in South Africa, we have already devised a lot of support for small business across government in line with the stated objectives, as contained in the NDP. This support takes many forms, from grants, tax breaks and preferential procurement built into various incentives and legislations.
However, we have various rules and practices which can serve, in hindsight, to disadvantage small business such as excessive red tape and, in particular, the lack of adherence to the payment period. Some of these interventions have had unintended consequences - but it is where these practises are intended where we as government have decided to step in. “Pay your suppliers on time, in 30 days” or else is our mantra!
In this regard, small business continues to remain vulnerable and is not realising its full potential to contribute to growth and employment. But, we have decided to act.
In terms of the PFMA (as amended), and the Municipal Finance Management Act, Accounting Officers are required to settle all contractual obligations and pay all money owing, including intergovernmental claims, within the prescribed and agreed period. On the 15th March 2005, National Treasury published regulations in terms of the PFMA on payment of invoices. These regulations specified that the prescribed period for the payment of suppliers is 30-days from receipt of a legitimate (undisputed) invoice.
The matter has further been elevated to the highest level of leadership in government, with reports on progress being tabled at the meetings of the Forum of South African Directors-General and Cabinet.
Cabinet also approved the establishment of a special Unit in the Department of Planning, Monitoring and Evaluation to tackle the problem of non-payment of suppliers within 30 days. The following shows the latest progress on payment of invoices by National and Provincial Departments as monitored by the DPME Unit.
These are significant measure and interventions. The data as at September 2016, thus covering performance for the second quarter of the 2016/17 financial year shows:
AT NATIONAL DEPARTMENTAL LEVEL: As at September 2016, the number of invoices paid after 30 days were 14 889 to the value of R201 million. This figure is high compared to September 2015, where 13 402 invoices to the value of R214 million were paid after 30 days.
However, a closer analysis of the quarter’s performance indicates that out of 40 national departments, 31 have demonstrated an improvement pattern in the payment of invoices, with 11 of those having maintained a clean record of zero invoices throughout the quarter, thus fully complying with the 30 days payment rule. This further indicates that it is fewer departments that have a challenge of timeous payment of invoices.
Members, our biggest challenge lies with invoices older than 30 days and not paid. In this regard, as at September 2016, national departments had a total of 11 951 invoices to the value of R84 million. Compared to September 2015, 5 152 invoices to the value of R188 million were not paid. In essence, the number of unpaid national invoices have doubled since September 2015.
This again confirms that the challenge of non-payment of invoices is with few departments while the majority are striving to comply with the rule. The bright spotlight that has been put on this issue has resulted in an improved level of compliance and the peer pressure that is exacted through various forums in government has seen many departments put measures in place to improve compliance.
AT PROVINCIAL DEPARTMENTAL LEVEL: As at September 2016, the total number of invoices paid after 30 days was 23 511 to the value of R2, 2 billion. Compared to September 2015, 28 603 invoices to the value of R2, 2 billion were paid after 30 days. Therefore, the number of invoices paid after 30 days over the year has decreased and the value has remained the same. Provinces such as Eastern Cape (6 314), Gauteng (5 721), Kwa-Zulu Natal (4 387) and North West (3 720) have contributed significantly to the 23 511 invoices paid after 30 days in September 2016.
Equally so, invoices older than 30 days and not paid are worrisome. As at September 2016, provincial departments had 50 785 invoices to the value of R3.9 billion unpaid, while in September 2015 a total of 32 226 invoices had not been paid to the value of R5, 3 billion. Year-on-year comparison shows that the number of invoices has increased. During the quarter, Gauteng province accounted for 29 318 (58%) of the unpaid invoices at provincial level with R2,5 of the R3,9 billion owed to suppliers by the same provincial government. Eastern Cape was the second worst performer with 9 292 (18%) of unpaid invoices to the value of R468 million. Overall, Provincial departments remain with the highest number of invoices and rand values as compared to national departments. This is due to the fact that implementation of government programmes largely takes place at this sphere of government.
Recently, the DPME Unit has concluded its visits to departments and provinces whose performance is worrisome. These include national departments of Defense, Home Affairs and Water & Sanitation, Public Works/PMTE as well as Gauteng, Northern Cape, KwaZulu-Natal and North West provinces. These visits were meant to identify the root causes of non-payment of invoices, identify blockages and assist departments in putting improvement measures. These visits were also meant to share best practices and obtain commitment from Chief Financial Officers on improved compliance with payment of invoices.
Furthermore, the Unit engages with service providers whose invoices have not been paid by government. In this regard, cases are lodged with the Unit, investigations are conducted and payment to the service provider is facilitated where invoices are proven to be legitimate.
Since the inception of the unit, a total of 144 cases have been lodged and 57 of those have been closed, 8 cases are disputed, 4 do not have supporting documents to pursue investigation and 75 cases are in progress. To date, a total amount of R207 million has been paid to various service providers as facilitated by the Unit. The Unit has received letters of gratitude from suppliers that were paid after its intervention.
The following highlights some of the testimonies:
“We really appreciate what your leg of government has done for us. We are at loss of words to tell you how thankful we are” – Tshego Motaung, Babereki Consulting Engineers.
“We are very grateful for the great service that you have done us”- Ofentse Ribane, Elt-Pro Transcriptions
“On behalf of my company I would like to take this opportunity to thank the department for resolving this matter. I wish and hope that there has been lessons learnt by the municipality with regards to the matter and that no small business should suffer the same fate we did as other small businesses cannot last for this long without payments”- Simthembile Bantubani- Mayibuye Africa
This is a living demonstration of government’s commitment and resolve to addressing the plight of small business and whilst these are encouraging developments, we are cognizant that others are depressing. We remain so committed because small business matters!
Therefore, I must say it is not government policy not to honour financial obligations, and measures are afoot to intensify our efforts in this area. We have established that at the core of non-payment of invoices are some of the following issues:
Systematic challenges: Lack of systems to track invoices and lack of financial delegations, especially when designated officials are on leave.
Non-adherence to Supply Chain Processes: Service providers are often contracted to do jobs without government following procurement and SCM processes.
Poor financial management: In some departments, the non-payment of invoices is attributed to poor budgeting by departments, lack of alignment between budget and procurement plans as well as inability to adhere to procurement plans.
Contractual disagreements: Poor contract drafting, different interpretations of the contract clauses by government and service providers.
Bad culture in the public sector: Lack of “sense of urgency” amongst officials in expediting payment of invoices.
Lack of consequence: Non adherence to the payment of invoices constitute financial misconduct. However, departments seem to be reluctant to enforce this requirement. Officials must be charged for financial misconduct where late or non-payment of invoices was due to wilful act or negligence and disciplinary actions be taken against officials that contravene the legislation or undermine systems of internal control.
Speaker, Cabinet has recently recommended that Executive Authorities of departments in transgression should take action against their Heads of Department. We have also been documenting good practices from departments that are doing well to share with the rest of government. Some pockets of excellence that were identified through our monitoring programmes include instances where some departments are paying suppliers within 4 days. These good practices have been shared with other departments to encourage them to do the same.
In addition, as part of government’s collaborative efforts, together with department and the National Treasury, we have devoted more resources to the efforts of addressing the challenges of payment of suppliers. To this end, a walk-in centre has been established at the National Treasury offices to attend to the suppliers’ queries. Queries from suppliers are being shared between the two departments. A number of measures that have already been implemented by the Office of the Chief Procurement Officer, such as the Central Suppliers Database which will go a long way in eradicating blockages in the payment processes by departments.
In the process of attending to the queries on payment of suppliers, the DPME Unit has come across very unscrupulous practices by big business. There are numerous cases where government institutions have duly paid the invoices but the main contractor refuses to pay the sub-contractor money due to them. We have also noticed with great concern governments’ flagrant abuse of the Office of the State Attorney instead of committing to finding amicable solutions to disputed invoices before they waste the taxpayers’ money in the legal processes. These practices are not in line our values of a caring government and will not be tolerated.
Part of the strategy to support suppliers that do business with the state is to educate them about government’s procurement and payment processes. This will help them to highlight instances of abuse and corruption in the payment process. I invite and call upon members of the business community to report any instances where they have been asked for bribery to expedite their payments. Official who are found guilty of any transgressions will face the full might of the law. Notwithstanding the vulnerable position that service providers find themselves in, they should not allow themselves to be partners in the commission of crime.
I want to once more reiterate the critical role of small business in the development of our economy and to assure you that, we will be exploring other ways in which the current efforts can be strengthened. My department, in collaboration with the Department of Small Business Development, will be conducting a study to understand the impact of non-payment on small business community, and the economy as a whole. This study will help us to respond appropriately to the challenges facing the sector. We will continue to search for solutions and tighten the noose around corrupt officials. I would like to request your cooperation as we work towards the attainment of the goals of a prosperous nation as enshrined in the Constitution and the NDP.
In conclusion - my message today is that at the apex, at the Presidency, we have agreed to take a much harder line on government departments that do not adhere to paying suppliers on time. The promise is to get billions in outstanding invoices settled and to get state departments to pay suppliers within 30 days as the law demands. No less, no more! We will not relent on this determination.
Despite regular warnings to officials that failure to pay bills constitutes financial misconduct, we are now looking at charging and or firing officials for such misdemeanours. This impunity has to stop and there simply has to be consequences where our policy prescripts are wantonly disregarded. Until someone gets fired for not doing his job or for being corrupt we are going to remain with this problem. And let me assure you - we have also heard of instances where businesses complain that if they make a noise about unpaid invoices they are victimised by government officials. This qualifies as misconduct and will be dealt as such.
TOGETHER, WE MOVE SOUTH AFRICA FORWARD.
I THANK YOU!
Enquiries: Tshegofatso Modubu 083 276 0786 / Mmabatho Ramompi 076 480 3513
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Issued by the Department of Planning, Monitoring and Evaluation (DPME)
#30Daypayment & #NDP2030
17 November 2016
