Internal auditors have blown the whistle on a R72,6m IT contract negotiated by the department of human settlements, claiming that the deal ignored mandatory tender procedures.

They also raised a red flag over a perceived conflict of interests — the department’s top IT official was previously employed by the favoured contractor, SAS Institute.

The leaking of the internal audit report to the Mail & Guardian appears to have triggered a witch-hunt in the department. Complaining that the leak “undermines the systems and processes we have put in place to ensure a clean and effective administration”, director-general Thabane Zulu said the motive behind it might have been self-interest and warned of “steps to correct such matters consistent with available remedies”.

A source in the department said the leak had caused “big trouble”.

The department has repeatedly denied that a contract existed, despite signed agreements by the department, SAS and the State Information Technology Agency (Sita), which acted as the procurement agent.

Business intelligence solution
Zulu signed a licence agreement with SAS on 29 September 2011 and signed a contract with Sita for the supply of SAS software and support for a “business intelligence solution” on 14 October.

Zulu said the matters raised in the report, distributed to five senior departmental directors on 20 December, were still being addressed.

But the audit report suggests that the contract was a fait accompli when the director of internal audit, Thapelo Mashabane, raised the alarm.

Central to the deal is Sita, which appointed the SAS Institute — a service provider on its database — to provide a business solution for the department’s housing subsidy system.

In the report, the department defends itself against charges of breaching treasury regulation by failing to put the contract out to tender.

Daniel Mashao, head of Sita’s critical systems and solutions, told the auditors that the process was permitted in terms of regulations that allowed one state entity to piggyback on a competitive tender run by another.

But the audit report says the IT agency “could not provide valid evidence” that a competitive bidding process was followed in selecting SAS.

Sita chief executive Blake Mosley-Lefatola, asked whether Sita had invited competitive bids, had not responded by the time of going to print.

The report makes it clear that, in terms of regulations, the treasury has to approve all contracts valued at R10m and more, which was not done. This and other breaches led the auditors to warn that the department could face legal action and receive a qualified audit from the auditor general.

The report also says that departmental IT chief Mandla Xaba was previously employed by the SAS Institute as its Sita accounts manager. Xaba’s jurisdiction at SAS included the office of the KwaZulu-Natal premier, Zweli Mkhize.

The report says Sita initially proposed an open-source solution to the department, but had been told that human settlements wanted to emulate a “business solution” already in use in Mkhize’s office.

Xaba told the auditors that he had declared his employment history when he joined the department on 1 June last year. Sita communications head Anthea Summers also said there was no contract between the department, Sita and SAS.

But according to documents attached to the audit report, binding agreements were signed and there was written communication between the parties showing that the deal was nearing its final stages, even though the contract might not have been finalised.

Signed and sealed
On 29 September 2011, Zulu and SAS MD Maphumuzana Nxumalo signed a five-page master licence agreement that, it clearly states, is binding on the department.

Three weeks later, on 14 October, Zulu approved a 17-page proposal with Mashao and Rodney de Koch, Sita’s operations centre chief.

Written by Mashao, the proposal outlines the services the IT agency will offer the department, stating that SAS software will be used and the “Sita project management proposal will follow as soon as the project team from both Sita and SAS has agreed on the deliverables and expectations”.

A letter from Mosley-Lefatola to Zulu, dated 9 September last year, shows that in August the agency had “received information” that the required system be similar to the one used in Mkhize’s office.

In their report, the department’s auditors also express the fear that the system may not meet the department’s needs.

Mosley-Lefatola’s letter purports to set out a competitive process proposed by Sita, but it was signed only on 23 November, long after Zulu had already approved the use of SAS.

Neither the treasury nor the SAS Institute responded to questions sent to them. — Nelly Shamase, Mail & Guardian