How can small firms survive when state drags its heels with payments?
Public servants who fail to pay suppliers timeously should be fined
I’d like to propose a simple and foolproof way for the government to boost the small and medium enterprise (SME) sector. All it has to do is pay them on time when they do work for the state.
Using the lockdown regulations, President Cyril Ramaphosa should include a new line item that will fine the accounting officer, in their personal capacity, R5,000 per business per month should they fail to pay SMEs timeously.
It is already law that government departments or agencies should not take longer than 30 days to pay SMEs — it constitutes “financial misconduct”. Yet any small business will tell you that getting payment is the single most painful, and sometimes fatal, aspect of doing business with the government.
I know. My small business once had a government agency as a customer, back in the early 2000s. After a raft of personnel changes (including numerous ANC deployees with connections to the local government bigwigs), the agency went from efficient to non-functional. It used to take a week of daily begging phone calls and e-mails at the end of every month to get my invoice paid.
A whopping 98.5% of all businesses in SA are small, medium and micro enterprises (SMMEs), according to a 2019 report by the Small Business Institute (SBI). Yet formal, employing SMMEs are far fewer than previously believed and provide only 28% of jobs. “Small businesses are called the ‘lifeblood’ and the ‘backbone’ of our economy, but it’s clear that it will soon need transfusions and a wheelchair,” says Bernard Swanepoel, the institute’s executive director. Even though SMEs make up 98.5% of SA’s formal economy, the department of trade, industry & competition reports that 70% will fail within the first two and a half years, he adds, while a recent Global Entrepreneurship Index study suggests that only 15% of start-ups are successful.
“Small businesses need predictable cash flow to gain traction, pay their employees, market their products and services, and invest in their businesses. One of the surest ways to disrupt it is to delay paying them for their services,” says Swanepoel.
As we have seen in the numerous scandals about procuring personal protective equipment (PPE) during lockdown, government departments have no lack of capacity. This efficiency at processing corrupt transactions is what former environmental affairs & tourism director-general Crispian Olver calls being “capacitated in a very particular way”.
Now an academic, Olver was describing the wholesale corruption of Nelson Mandela Bay’s local government in pursuit of “rent-seeking” and how it nevertheless managed to process complex transactions for corrupt ends. “We don’t have a capacity problem in this country,” he told the Filling the Gapp podcast, “we have a problem of intention.”
I have no patience for accounting officers who don’t know their governing regulations. Nor can they pull a Mosebenzi Zwane-like denial after the fact. A government circular to accounting officers of March 26 2018, signed by Treasury director-general Dondo Mogajane, reminded them “to pay for services and claims within the required period, and accounting officers and accounting authorities to monitor compliance thereof”. The late or non-payment of valid invoices and claims had dire consequences for both the public and private sectors, he said, and the “delays and non-timely payment … results in negative impacts on job creation and the economy”.
Mogajane pointed out that “officials responsible for the late or non-payment of invoices and claims commit financial misconduct or ordinary misconduct”. The relevant authorities must therefore “institute disciplinary steps against those employees in accordance with the applicable disciplinary procedures”.
If the government could ban the sale of flip-flops online during lockdown, surely it can create a new regulation that holds the accounting officers of government entities personally liable for not adhering to the law that governs their jobs? Of course, that is never going to happen, but one can wish….
Alternatively, as Mogajane points out, failure to follow the Public Finance Management Act or the Municipal Finance Management Act should have consequences. Those accounting officers are public servants who are expecting pensions. Surely a public servant who does not have a clean record in terms of their employment, especially if they presided over any irregular expenditure (a shorthand for spending without the required paperwork), should be held personally liable?
If it constitutes “financial misconduct or ordinary misconduct” not to pay SMEs on time, then it follows that an appropriate, and ethical, response is to deduct that amount from their pensions. Similarly, in the case of irregular expenditure, the ethical way to redress that is to recoup the loss from their pensions.
After all, accounting officers are handling money on behalf of taxpayers, whose pension funds are directly affected by errant state spending and unnecessary debt. If taxpayers’ pensions are to suffer as a result of a lack of proper financial controls by a person whose title is “accounting officer”, then surely there should be accounting done?
Would it be possible to get any of these recommendations through parliament? In the atmosphere of gobsmacked outrage about the PPE scandals and the countrywide thrill over the state capture arrests, they seem unlikely to be held up by a lack of public sentiment to punish corrupt public servants.
Until there is a way to make the plight of SMEs personal to the accounting officers who fail to do their jobs properly, there will never be any sort of change. Ask public protector Busisiwe Mkhwebane how much a personal cost order can focus the mind.
• Shapshak, an SME owner, is publisher of Stuff (Stuff.co.za) and Scrolla.Africa
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