The years of ‘Covid capture’ call for vigilance

The Covid-19 pandemic is the most challenging global economic disaster the world has witnessed in a generation. The pressure on individuals, governments and corporations is taking its toll, with the impact felt at macro and micro levels.

Unfortunately, as the call goes out for governments, corporate citizens and the person in the street to pull together to fight this pandemic, bad actors inevitably seize opportunities to unlawfully enrich themselves from government and corporate coffers.

In times of emergency, governments and corporates need to be agile and ensure the delivery of vital goods and services necessary to protect citizens and equip state facilities. From a private-sector perspective there is also a need to shift business offerings and the procurement of goods to comply with safety requirements, to keep the wheels of industry turning.

This presents a balancing act between the necessary flexibility of governance and compliance processes, and the countering need to ensure fraud and corruption does not abound as a result of the relaxing of internal controls and processes.

At a governmental level SA’s procurement legislation makes provision for deviations from the robust and stringent tender or request for proposal (RFP) process under certain circumstances. In the past three or four years, there have been countless media reports of allegations of corruption involving government contracts awarded through abuses of the standard procurement processes.

Through various judicial commissions of inquiry and the work of investigative journalists, abuse of procurement processes such as single-source appointment and unfounded justifications for deviating from competitive bidding processes have been laid bare in multiple forums.

In the 11 weeks that SA has been under lockdown, there have already been several reports of lucrative government contracts being awarded to favoured or connected service providers.

In the period that has become commonly referred to as the state-capture years, SA’s already ailing economy was looted and pilfered by systemic abuses of the government’s procurement processes. The economy was staggering to stay on its feet before, and it now faces the threat of a knockout blow from the impact of the Covid-19 pandemic. The government’s already stretched resources and funding can ill afford to be taken advantage of in the way they were during the period of state capture, otherwise we risk falling into a period that might one day be known as “Covid capture”.

A further consideration is that many emerging markets such as SA will be forced to appeal to foreign governments and international organisations such as the IMF for financial assistance. Increased levels of perceived corruption will not make accessing funding or the terms under which it may be extended any easier.

Now more than ever at the corporate level there will be pressure to be seen to be a good corporate citizen by a public that is economically depressed and fatigued. In good times the reputational damage to companies that are viewed as having corruptly taken advantage of governments is huge. Should an organisation be accused of taking advantage of a government that is reeling from the impact of Covid-19, it is likely that the associated reputational damage may not be something an organisation can recover from.

The governance and procurement processes of corporates will come under pressure as the opportunity to divert or channel company funds to selected service providers will also pervade corporate supply chain systems.

To deliver to their stakeholders, governments and corporates will be under pressures they have not experienced before. It will be challenging enough to simply survive, let alone maintain compliance with controls and systems that will by necessity need to be relaxed.

When economic survival is at stake, the role of a supply chain department or compliance officer is an unenviable one. However, as we have learnt in the past, the true costs of failing to ensure accountability and compliance are only discovered years later, when the money is already gone and the damage done.

Being vigilant in a time of crisis has never been more challenging, but it has also never been more important.

• Dunstan-Smith is a director at Herbert Smith Freehills.