The controversial multimillion-rand purchase of a building, through a closed process, by one of the department of higher education & training’s sector learning authorities has been flagged as irregular by the auditor-general (AG).
Leaked documents from the embattled Construction Education and Training Authority (Ceta) show auditors from the AG’s office were dissatisfied with Ceta’s process to buy the building, finding it fell foul of Treasury regulations guiding procurement.
They have now informed Ceta’s board in a communication of finding that they will be classifying the R49m used to purchase the building as irregular expenditure, citing several issues including failure by the entity to provide some of the supporting documents for the transaction.
“These resolutions [by the Ceta board to approve the deviation] did not indicate how the criteria as required by the [Treasury’s supply chain management] instruction was met, and there was no indication the transaction met any of the circumstances that would justify a deviation in terms of applicable SCM policy relating to sole source, single source, multiple sourcing, emergency or urgency were present,” the AG’s communication of finding to Ceta said.
“No further supporting documentation was provided. This transaction was also not included on the deviation register submitted to the auditors, nor was any deviation reported to the AG."
It continued: “It is recommended the accounting authority investigate the circumstances surrounding the disciplinary measures where applicable, in line with the provisions of the PFMA [Public Finance Management Act] and Treasury regulations.”
In terms of Treasury regulations, deviation from normal procurement processes is permissible only when the products or services can be procured from a single service provider, sole source or in cases of emergency.
The finding contradicts Ceta CEO Malusi Shezi’s previous defence of the procurement and his insistence to MPs that the transaction had the blessing of the National Treasury.
“With regard to the purchase of the building, I will start to indicate there was no procurement irregularities that occurred. It followed the due process,” he said.
In the meeting, Shezi said Ceta has always failed to keep its operating expenses below the 10.5% threshold of levies collected, and one reason was rentals for its offices across the country. The decision to purchase the property was an effort to curb this, and Ceta had received value because the building’s market value was “almost R78m”.
The Sunday Times has established the City of Johannesburg’s latest valuation of the property was R52m, about R26m less than what Shezi told parliament
The Sunday Times has established the City of Johannesburg’s latest valuation of the property was R52m, about R26m less than what Shezi told parliament.
The Treasury this week said its response to Ceta’s March 2024 request for approval to deviate from normal processes in the acquisition was received. And Ceta was informed in terms of supply chain instruction notes that the authority to approve deviations rested with the board “provided the reasons for deviating from inviting competitive bids must be recorded and approved by the accounting officer or accounting authority”.
Shezi said this week the Treasury did not “expressly endorse” the deviation, adding the deviation was occasioned by “exceptional and time sensitive” circumstances. These included that Ceta received a direct offer from the previous owner, who emigrated, and had given Ceta exclusive right to express interest. An "independent expert" had given the market value of the building as R73m.
Shezi also cited the “strategic risk” of the building being sold to other parties if Ceta delayed acquisition.
He said reasons for buying it included: “The avoidance of substantial relocation and decommissioning costs; and the potential income stream from subletting part of the property for the additional block that can be as per the zoning of the office park concerned.
“The purchase process for the head office building was initiated after the directive of the [then] honourable minister of higher education, science & innovation on March 14 2023, who in his communication to Ceta explicitly encouraged the acquisition of owned premises to curb the escalating costs of office rentals,” said Shezi.
“This directive formed the foundation for the Ceta’s motivation to secure a long-term, cost-effective property solution in saving the state on high-expenditure line items.”
Shezi said the AG’s audit was still ongoing and the communication of finding not yet finalised.
“The findings you are referring to are still under review by the AG. The final audit report on the Ceta affairs is expected to be released by no later than July 31.
“It is therefore premature and inappropriate to rely on or cite preliminary observations as conclusive or authoritative when they are not at that stage yet.”
Editor's note: This article has been updated to fix an error in referencing a document. We apologise for the error.
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