Infraco, the South African government-owned Broadband and long distance telecommunications provider, has been cited in a recent Deloitte audit report for a failure in internal control processes in the company’s procurement and contract management environments.
“Although there are set policies, procedures, guidelines and processes to effectively effect the contract management process, we noted in many instances that these are not complied with, unintentionally or otherwise”, stated the Deloitte report.
An increasing number of companies all over the world are failing internal controls assessments conducted by independent auditors as auditors become increasingly concerned over the lack of visibility and control that many companies have over existing contracted commitments and overall contract management procedures.
The majority of companies put most of their effort in to the negotiation of contract terms and conditions, but do not dedicate the same level of attention and oversight post contract award. This is largely because legal and business executives still do not consider contracts to be mission critical or strategic to their businesses. For many, a contract is viewed as an insurance policy for when things go wrong. Clearly auditors and industry observers, like the IACCM, see this as an outdated view and one that will only lead to increased scrutiny by auditors and regulators.
Contracts are strategic documents that outline how two parties are to collaborate with each other and the terms and conditions that govern that collaborative relationship. For those companies that are able to manage and control their contracting processes efficiently, greater competitive advantage can be achieved through cost savings in the pre-award contracting process and better exploitation of contract terms, conditions and obligations in the post award process.
Dolphin Software would argue that the most effective way to bring about total control of the contract management process and ensure that contract obligations are properly complied with is to follow clearly defined contract management procedures, to appoint a senior executive to oversee contract management from a strategic position and to automate inefficient manual processes and control contract milestones and commitments more effectively with technology.
CFOs will rapidly understand the strategic importance of effecive contract management if their auditors refuse to sign off their accounts.
**24 February 2011 – update**
Broadband Infraco CEO and Non-Executive Director resign
Dave Smith, CEO of Broadband Infraco, the South African state owned entity tasked with bringing down the cost of broadband, and Non-Executive Director Tumi Magasa have resigned with immediate effect as a result of their recent contract management woes.
In October last year audit firm Deloitte was commissioned to conduct an urgent internal audit “to review the controls in relation to the contract management function, evaluate the adequacy and effectiveness of key operational and financial controls, and test compliance with the applicable legislation, policies and procedures”.