IFMS: SIU investigations & National Treasury progress; with Deputy Minister of Finance

Meeting report

Deputy Minister’s Remarks
Dr David Masondo, Deputy Minister of Finance, said that the Integrated Financial Management System (IFMS) is a necessary system to streamline and enhance the management of financial resources at both provincial and national levels. Challenges have been experienced in how the system was implemented. However, Members should not lose sight as they criticise the necessity of this system, especially on how the Department went about the project.  

Briefing by National Treasury: IFMS
Mr Duncan Pieterse, Director-General, National Treasury, pointed out that the Department has introspected on the IFMS over the last few months. An update of the work done will be submitted to the Committee, along with any other challenges identified. The SIU (Special Investigating Unit) presentation is being reviewed with the lawyers. Treasury has challenges with certain aspects of the Report, but this will be ventilated further.

Treasury continues to be open to addressing the challenges of the IFMS in different ways, considering what has been found. The way forward will consider the outcome of the investigation by the SIU.

Mr Shabeer Khan, Accountant-General, took Members through the presentation. The presentation provided an update on the legal review with the Auditor-General of South Africa, the negotiation agreement with Oracle on payment, details of whether the matter of IFMS has been taken to Cabinet, and the implementation plan.

[See presentation document for more details]

Briefing by the State Information Technology Agency (SITA)
Mr Luvuyo Keyise, SITA Board Member, outlined SITA’s role in the IFMS system saga; the hosting services when the system is implemented, which is hosted in a secured facility; SITA’s role in the procuring of services for the implementation and functioning of the system, as well as the procuring of services of an implementation partner.

He told Members that the system is currently running on the cloud, not on government’s servers or infrastructure. But how is the data now protected on the cloud? This is the data that involves all employees of the country. SITA will ensure that such critical data is protected and resides within the country. SITA has conducted a technical review on this, providing support and advice on what can be done and modernised.

Storing the data on the cloud – SITA was now reviewing the usage of the licenses to ensure that it equates to the value of the initial investment of R1 billion.

[See presentation document for more details]

Briefing by the Department of Public Service and Administration
Ms Yoliswa Makhasi, Director-General (DG), Department of Public Service and Administration (DPSA), said that their presentation aligned with the National Treasury's one. She informed them that DPSA was initially removed from the Integrated Financial Management System (IFMS) process by Minister Dlodlo. However, when Minister Nxesi took over as Acting Minister for DPSA, he brought them back into the process. Unfortunately, only the State Information Technology Agency (SITA) and the National Treasury signed the Memorandum of Understanding (MoU). The DPSA wrote to the National Treasury about this because they lack the human resources capacity to make a meaningful contribution to the IFMS project once it is implemented, even though the project management aspect of the IFMS falls under the DPSA.

Briefing by the Special Investigation Unit
Advocate Andy Mothibi, SIU Head, took Members through the background of the SIU investigation into the IFMS at the National Treasury, the focus areas of the investigation, the objectives, findings on fruitless and wasteful expenditures and corruption, the outcomes of the investigation and the systemic weaknesses that have been identified.

The SIU submits the reports to the President, and the Departments can obtain these reports directly from the President or the executive authority. SIU was still working on the final report to the President.

Some of the findings included a conflict of interest where the SIU established that prior to the advertising of the RFP for the COTS-ERP software. Oracle was in contact with senior officials at SITA and NT. Oracle received information regarding the IFMS project, tender, financial implications, evaluation process, contract and other competitors’ information from a senior NT official for the benefit of Oracle, to place Oracle at an advantage over other competitors who were to submit the bids.

The SIU also found touted supply chain processes. Thus, the AGSA identified the project as a fruitless and wasteful expenditure (FWE). If NT had approved the appointment of the panel of experts for RFB1859/2018 recommended by SITA on 27 November 2019, the IFMS Programme would not have incurred this FWE. Therefore, the annual support and maintenance payment for the unutilised software licenses is FWE.

On corruption, the SIU found that the whistleblower alleged that a senior NT official had motivated and supported the decision to award phase two of the IFMS project to Oracle.
The SIU established that the NT official was not involved in the procurement of or involved in the negotiations with Oracle. A lifestyle audit was conducted on the NT official, and no adverse finding could be made against the NT official. It was established that the allegation against the official was unfounded.

The outcomes of the investigation were outlined as follows:
- Two disciplinary Referrals have been issued.
- One blacklisting referral has been issued.
- Five criminal matters have been referred to the NPA.
- Civil: The Office of the State Attorney has been requested to brief counsel to consider the review and setting aside the award of contract, relating to the appointment of Oracle, for the provision of IFMS at a contract value of R822 300 505.50 and to recover the just and equitable amount. This process is ongoing.

[See presentation document for more details]

Deputy Minister’s Comments
Deputy Miniser Dr Masondo pointed out that he had no competence or capacity to challenge today's reports, including the SIU’s report. The SIU is doing its job without fear or favour, which must be appreciated.

Regarding the SIU’s report, he said it was still subjected to SIU’s internal protocols, and he wanted to know how the Department responds to incomplete reports without appearing to hide anything. The Department was not aware of the outcomes nor findings of the report and thus struggled to respond to what the SIU presented today.

Advocate Mothibi pointed out that the slides on the outcomes indicate that the procurement process of the contract was irregular, and that the SIU was already instituting civil litigation. This part was complete, and the SIU was now pursuing civil litigation.

As for the outcomes of disciplinary actions, the SIU gathered evidence pointing to the officials' misconduct. This was completed, and action would follow. There were also referrals to the National Prosecuting Agency. All referral reports were final. Recently, the High Court was dealing with one of the referrals, but the question was whether the nature of the referral could be challenged even before submitting the final report to the President.

The outcomes for action do not have to wait for the final report to the President. The final report will include all the mentioned outcomes for the President.

Discussion
Mr A Lees (DA) noted that National Treasury has a prerogative to decide how it wants to respond to these reports today. The Committee cannot provide such guidance to the Department.

The Chairperson noted that the Committee needed a briefing from the SIU on matters relating to the IFMS. He agreed with Mr Lees’s sentiment that it was the Department’s prerogative on how it chooses to approach the matter.

Mr Masondo pointed out that his concern stemmed from the fact that the report was still subjected to internal review. This was perplexing, and he felt the SIU presented an incomplete report. Instead, the SIU could have indicated it was still busy processing the report.

Ms N Makhamba-Botya (EFF) asked if the Department took full responsibility for the fruitless and wasteful expenditure incurred, the turnaround times for the full implementation of the system, and if the SIU has determined whether there is a correlation or a relationship between Oracle and National Treasury.

Mr Pieterse replied that when National Treasury received the SIU report on Monday, National Treasury wrote back immediately to Advocate Mothibi enquiring about the status of the report and initial reservations on certain elements of the report. NT requested an opportunity to engage the SIU on some of these issues. Responding to some of the details mentioned in a report that NT received two days ago would be unwise. However, NT engaged its counsel on this matter and issues relating to the fruitless and wasteful expenditure. The NT wants to engage the SIU in areas that it disagrees with.

Ms Dikeledi replied to the turnaround times for full implementation. The NT will commence with a pilot, and the system will be developed within nine months. After that, it will be subjected to another six months to test if it is ready for national rollout. After six months, the system will be ready for implementation in other departments once the data has been migrated and configured. This is scheduled to take place in the next six months. This will amount to a period of 22 months if everything goes accordingly – it will be ready within nine, and it will be piloted for a further six months while the implementation runs concurrently in other departments.

Mr Keyise pointed out that SITA has not received the report from the SIU. If the SIU declares blacklisting of Oracle, it is a serious allegation and should not be taken lightly. He pleaded that SIU submitted the report to SITA. If the SIU found Oracle at fault, it simply means that SITA will not contract Oracle, or it will drop Oracle.

The Chairperson lamented that this system does not work, and Members want to be brought into confidence that no more funds will be wasted on this system, although so much money has already been wasted. Taxpayers must be satisfied that this system will be realised. Further costs related to the system will be incurred, but whether this system will be implemented remains doubtful.

Adv Mothibi pointed out that the investigation involved interactions that led to the lack of integrity in the process. The SIU assessed email correspondence, and no other specific nature of the relationship was assessed between NT and Oracle. The SIU found the procurement process irregular. Thus, the contract should be set aside. The SIU was on course to ensure that the court adjudicated and declared the contract irregular and set it aside. The SIU has made findings that will be presented to the court or special tribunal along with the evidence gathered through the investigation. The SIU will determine who should be a party to the litigation process. NT could be a co-applicant or co-respondent in the court process, which will determine the outcome of the SIU engagements.

Mr Lees felt this was a dead matter and needed to be killed. The SIU report was revealing, but his concern is NT and SITA telling the Committee how it would proceed with the IFMS system. However, the SIU said it was on the verge of cancelling this contract. He felt that the Treasury should be part of the applicants. It would be concerning for the SIU and NT to face each other in court.

He asked whether the SIU had the names of implicated officials, especially the former accounting officers and DGs of the past. He had worked with the two previous DGs and that they may be part of the criminal referrals because he had worked closely with them in the past and knew of their work ethic. Where is the IFMS located?

Mr Keyise replied that the recommendations by the SIU simply mean that we cannot continue implementing the system. If the contract is found to be irregular, he cannot continue spending State funds towards an irregular contract. However, SITA has not yet received the report to assess it. SITA is NT’s client on this system. The sensible thing to do is to halt the process. For the personnel already contracted, SITA has assigned them to other government systems for now. Once the resource is required, these personnel will be shifted to the initial work.

There is a prototype in Pietermaritzburg SITA offices. Some of the officials are currently managing it.

Mr Lees pointed out that, in the absence of IFMS, other clients will commence developing other systems – which may be an implication for implementing the IFMS.

Mr Keyise replied that these personnel were utilised in other government systems, even though they were appointed for the purpose of the IFMS system.

The Chairperson welcomed the creativity of Mr Keyise for redistributing those personnel to be ceased with other tasks within the government and utilising the skills and expertise they possessed. He was not pleased with Treasury’s expenditure on legal fees, and it has been advised against it through other processes. But National Treasury continues to choose its own path, leading to more and more funds being spent.

Mr Pieterse said it was unfair that Treasury was asked about a way forward when it has only been two days since the SIU submitted the report to National Treasury. He felt that the timeframes were too tight because the report was submitted on Monday, and National Treasury began to engage its legal counsel yesterday at around 19h30. It must ensure that it is guided by the correct legal advice before deciding its way forward.

Adv Mothibi indicated that the SIU was constrained until the processes were completed. It wanted to ensure the process concludes quicker so the names and other prevalent information can be shared.

Ms A Beaukes (ANC) suggested that National Treasury be given more time to thoroughly study the report and the service providers to ensure fruitful engagements. She also raised a valid point about the futility of engaging in a report that does not rely on the findings of the SIU report submitted to Treasury.

The Chairperson agreed that now that the report was submitted, allowing National Treasury and its service providers to first study it was only fair. However, he noted the seriousness of the SIU's findings.

About R2 billion was spent fruitlessly, reflecting the urgency to address these issues. SITA is saying that they are assessing their direction on the cloud system. During that process, costs were incurred. He welcomed the real-time audits during the implementation of the IFMS, as it would reduce irregularities. The money has been spent, and the project has stalled, and these issues cannot be neglected. National Treasury should study the report and assist in implementing its findings by the SIU to ensure that justice prevails where it must.

He lambasted National Treasury for seeking to spend more on consultations because these are matters already advised by the AGSA. He felt that there was no need for National Treasury to spend any more money on a consultation.

Ms Beaukes was not pleased with National Treasury, considering the findings of the SIU. She asked which external legal firm was contracted by the National Treasury to consult on the SIU’s report, and she felt that there was no progress made on the IFMS. She was extremely disappointed with National Treasury’s disregard for government’s policies. National Treasury ought to be a pioneer of all departments in handling government finances.

She also wanted to know if the DPSA and SITA were part of the steering committee.

Ms Makhasi confirmed that the DPSA is part of the Steering Committee, which meets monthly. This Committee meets monthly to ensure that the implementation of the IFMS is fast-tracked.

The DPSA, SITA and National Treasury must convene urgently as the steering committee, because the DPSA is suffering from a point of view of the services that must be deployed in the public service sector. Government currently does not have an e-recruitment system for the public service because Treasury had instructed that departments must not procure separately because of the IFMS. So, if they advertise an admin assistant position, they get more than 2 000 applications that must be assessed manually. Thus, whilst the investigations by the SIU and other processes were underway, they must ensure how they bring systems in the public service to assist where the public service sector currently is – as it is paper-based in its processes, and there are no efficiencies. For example, there is a need for a performance management system and e-leave management system because the current struggles with leave management were attributed to paper-based processes. This has significant financial implications because leave has cost implications, and the state loses a lot of money.

She appealed to the rest of the stakeholders to ensure that the government rolls out a system to enable the government to fulfil what IFMS was meant to fulfil. Departments have been waiting for so many years, but nothing has moved forward. Now, with the report of the SIU and what SITA is saying, her biggest fear is that this will go on for another three to four years.

The DPSA has not signed the MoU because it did not have the capacity or resources to deliver on its capabilities as outlined in the MoU. She wrote to National Treasury, informing it about the lack of capacity. However, she has asked National Treasury to assess its PMO capability. If there are any further resources – even if it is one project manager to focus on the rollout by DPSA – that can be allocated to the DPSA would be appreciated, and it would assist. Technical expertise is needed to implement the IFMS, and her Department does not have the funds to sign a MoU that it cannot finance.

Ms Beaukes asked when the last steering committee took place. It seemed like the stakeholders were using this platform to talk to each other.

Mr Pieterse replied that there had been progress since the last meeting, but that progress was not sufficient, and Members took issue that the National Treasury is not responding to the findings of the report of the SIU. However, a specific slide in the presentation responds to some of those findings and progress made with Oracle since the last meeting.

The role of National Treasury as an institution meant to be exemplary is noted. Treasury's reflections must relate to specifics on the IFMS and its implications on further delays in other departments like the DPSA.

Regarding procurement challenges highlighted in the SIU report, Treasury has made significant efforts to address some of the shortcomings in its internal procurement processes. The internal supply chain management processes were recently reviewed to ensure they were updated. A lot of what the SIU focuses on in the report are historical challenges in the Department, and he felt that Treasury should come back and report on what it has done to address those challenges.

Mr Khan said that the dispute between the auditor and auditees was not new, as Treasury often gets involved in these with departments and the AGSA to resolve them. This matter was no different, but he hoped the alternative dispute resolution measures with the AGSA would resolve these findings. Unfortunately, Treasury wants an independent arbitration on the process to assist. Correspondence between the two entities has been taking place. Still, Treasury wants an arbitrator or a court to pronounce on how procurement is often generally handled in the public sector.

The last steering committee meeting was last month. The meetings convene quarterly.

The Chairperson felt this needed to be more frequent, as the IFMS implementation was urgent. The government has incurred a lot of money on ICT-related exercises in relation to the IFMS. More than R2 billion was spent on something that does not exist, and Treasury should not be obtaining perpetual legal advice that will result in more irregular expenditure. It should heed the findings of the SIU and take the appropriate steps to avoid spending on costs related to the IFMS.

Deputy Minister Dr Masondo assured the Committee that NT would study the SIU report and seek clarity. If the NT chooses to challenge it, it will be with the intention of ensuring that all stakeholders are strengthened. The report will be approached through bona fide foresight.

The meeting was adjourned.