COVID audit finds NDMO deals with unregistered companies, serious conflict of interest

Audit into how the NDMO used COVID-19 funds has found so many breaches in law including the engagement of unregistered companies, paying money before services were delivered and insiders awarding contracts to people they were closely associated with.

The National Disaster Management Office (NDMO) comes under the Ministry of Environment, Climate Change, Disaster Management and Meteorology.

Prior to the advent of COVID-19, the Ministry for Environment, Climate Change, Disaster Management and Meteorology was allocated $1,527,423 in the 2020 budget in the account ‘disaster relief’. This was increased by $33, 617,600 in the Supplementary Appropriation of 2020 in September 2020. The audit was carried out between April to December 2020.

The audit reviewed whether the NDMO’s procurement activities for disaster relief complied with applicable Acts and Regulations. The OAG conducted the audit in accordance with International Standards for Supreme Audit Institutions (ISSAI) namely the ISSAI 400: Compliance Audit Principles and ISSAI 4000: Compliance Audit Standard issued by the International Organisation of Supreme Audit Institutions (INTOSAI).

The objective of this audit was to assess whether the National Disaster Management Office (NDMO) managed COVID-19 Procurement in accordance with relevant laws, policies and regulations of Solomon Islands Government. These include the Public Financial Management Act 2013, The National Disaster Council Act 1989, Emergency Powers Acts for COVID-19, the Interim Financial Instructions currently in force and the Solomon Islands Government Procurement and Contract Manual (PCAM).

Findings

In the sample tested, OAG identified transactions that did not comply with financial requirements in the tendering and awarding for contracts including not implementing the required competitive quotation/tendering process without an appropriate waiver, awarding contracts to businesses which did not have a valid or current business registration and failing to maintain adequate supporting documentation for transactions.

The OAG further found that internal controls cannot be relied upon to ensure that procurement will achieve best value for money or eliminate the possibility of conflict of interest and misuse or misappropriation of public funds.

The audit also found that the NDMO was unable to provide records associated with some procurement transactions, particularly in relation to the decision-making process around what to procure, how to procure and who to procure it from, but also some basic transactional documentation such as purchase requisitions, delivery dockets and evaluations reports. Compliance checklists which are used to ensure that all controls have been implemented, were also not available for all transactions.

The audit also discovered that the NDMO took a buy-now-sort-out-the-paperwork-later to pandemic related procurement so that actions were often taken before they were approved, contravening procurement regulations.

Furthermore, the audit findings pointed out that businesses which compete for tenders for government procurement must be appropriately registered. This protects Government interests in the transaction but because no tenders were submitted for procurement where bidding was waived, many suppliers were not appropriately registered.

The law provides that to be considered in a tender process, vendors must be registered with the Companies Haus. There are three classifications of registration: Business, Companies and Foreign Investments. This provides some protection the Government in that business must have some sort of formal structure and are less likely to quickly disappear if something goes wrong with procurement. Also, in order to remain active, the registered companies or businesses needs to schedule annual return filings.

As there was no tender process involved in these procurements, there was no specific requirement for chosen suppliers to be registered but the intent of the provision is that businesses providing goods and services to the Government should be registered.

OAG found that several of the businesses which were engaged to provide goods and services were not registered with the Company Haus and some that had previously been registered were no longer registered. NDMO should ensure that providers in a material procurement are registered.

Also, documentation management was inconsistent with some documents not able to be found and handwritten changes to documents after signature, reducing accountability for decisions.

Declarations of conflict of interest

The Constitution provides that public officials should avoid making any decision that could result in a conflict of interest. The law also requires that every member of a tender evaluation committee sign a Declaration of Conflict of Interest. This means that they are not in a position to benefit from the particular procurement being made.

Examples of a conflict of interest include sourcing goods or service from a relative or other associate or the promise of receipt of a gift or benefit from a vendor. As none of the procurements reviewed in this audit went to tender, no tender evaluation committee was established and no declarations were made. Officers who are not members of a tender evaluation committee but have some other role in a procurement may also have conflicts of interest.

However, the auditors found that one of the service providers in a quarantine centre and the letter supporting payment for their service was signed by an officer in NDMO who was also the a committee member of the service providers.

“This is a clear conflict of interest and should have been declared and avoided,” said the auditors.

In their response dealing with unregistered businesses, the NDMO management said: “We agree that the recommendation is an ideal one, but it is not applicable in all circumstances. For example, in the provinces and rural areas, it is difficult to have a number of registered business houses. Also as alluded to in our response to recommendation, in our quest to provide services and fight covid, at times, we have to get goods and services from suppliers that are willing to provide them on credit basis or have access to suppliers that can provide upfront goods and services on credit.”

On conflict of interest, the NDMO management agreed with the recommendation and requested that MOFT develop a suitable form for declaration of conflicts of interest involving significant procurement that does not involve tender.

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