NHLS picking up the pieces after R2.7bn in irregular spending

NHLS picking up the pieces after R2.7bn in irregular spending

At one stage under the previous management R1 out of every R3 spent by the National Health Laboratory Services (NHLS) was irregular, the chairman of the NHLS Board Prof Eric Buch recently told MPs in Parliament. The board has subsequently after a disciplinary process dismissed the chief executive officer Joyce Mogale and the chief financial officer Sikhumbuzo Zulu. These dismissals are now subject to a Labour Court case. The NHLS is a public entity that consists of 268 laboratories countrywide that provide diagnostic pathology tests in the public sector. These laboratories do almost 350 000 tests per day and manage over 90 million tests per year.

Irregular expenditure spiralled to a closing balance of R4, 4 billion at the end of the 2017/18 financial year. In the past financial year this amount settled at about R2,7 billion – the biggest chunk of the total R3,03 billion the Department of Health and all its entities incurred over the past financial year. The R2,7 million in the 2018/19 financial year was carried over from the previous financial year. This irregular expenditure was among others due to procurement of goods and services based on expired contracts and procurement processes in contravention of the Public Finance Management Act (PFMA).

The Portfolio Committee on Health in its Budget Review and Recommendations Report (BRRR) tabled in Parliament on Tuesday noted with concern “the prolonged nature of the (disciplinary and) Labour Court case process of senior managers that were dismissed” and noted the progress made towards financial stability. The Committee recommended that the NHLS provide it with a list of actions taken against those responsible or who had overseen the irregular expenditure. The committee now expects quarterly reports on this progress.

Value for money

When Spotlight approached Buch for comment on the irregular expenditure and the actions taken against those involved in spending, he said that this does not necessarily mean the NHLS did not get value for the money it spent. In its annual report the NHLS gives a breakdown of the irregular expenditure. The figures show the largest sum – R1,2 billion was due to the entity having overspent on contracts.

“I am not saying we did not get value for the items procured, but this does open you up to collusion with providers on the price,” Buch said. “So, the procurement could be clean; it could be skullduggery. That is why we are declaring everything. It does not mean we never got the item, or we did not necessarily get value for what we spent but processes followed were irregular.”

Tighter controls

Buch said the board has put in place a whole string of mechanisms to tighten these processes. “We originally had a paper-based system but now we have put in place a procurement database. So, for tenders of reagents for example, we now have service providers tender for both the machine and reagent up front. And if we know we do 100 000 tests we can procure for the machine and reagents for that number of tests. This will help stop collusion.”

According to Buch the board are serious about consequences. “We dismissed the head of internal audit and risk for dereliction of duty and misleading the board. The head of supply chain management arrived on the morning of the hearing and resigned. The facilities and legal manager were aware we are building a case and also resigned,” he said.

The board also approached the Special Investigating Unit (SIU) last year to investigate the matters further. The SIU has since received a proclamation from President Cyril Ramaphosa empowering it to investigate the matter.

Buch stressed that the irregular expenditure does not mean the entity lost billions. “We now have to show the losses. We may have received the item like a switch, but unless there were proper processes how can we be sure that we needed the switch in the first place or that that was the actual cost? So that is why we approached the SIU – to review the contracts and help us recover what we can.”

Taking away from the poor

Buch said it is important to note that any money that is not properly spent, is taking away health care from the poor. “When we are not spending efficiently, our costs go up and provinces pay more meaning that they have less money to provide services to the poor. So, anything that reduces the value we get from money spent, is taking away healthcare from the poorest of the poor.”

Despite this the NHLS managed to improve its audit outcome from qualified to unqualified and grew its revenue and other income from R7,9 billion to R8,5 billion the past financial year. This is mainly due to improved collection from provincial departments.

Irregular spend2017/182018/19TotalCondoned by National TreasuryAwaiting
Expired Contracts1 162 9241 690 1322 853 0562 179 799142 701530 556
Contracts exceeding delegated authority246 881104 770351 651351 651
No tender procedures1 482 451800 6712 283 1221 698 982584 140
Contract overspend905 7703461 8101 267 5801 267 580
Tender – no signed contract35 73919 47055 20955 209
Expenditure before contract611 79518 282630 077130 459499 6180
Quotation splitting1 7071 7071 7078

*Source: NHLS Annual Report 2018/19