Departments of Justice & Public Works, National Prosecuting Authority & Legal Aid Board 2006/7 Financial Statements: hearings

STANDING COMMITTEE ON PUBLIC ACCOUNTS
DEPARTMENTS OF JUSTICE & PUBLIC WORKS, NATIONAL PROSECUTING AUTHORITY & LEGAL AID Board 2006/7 FINANCIAL STATEMENTS: HEARINGS

Chairperson: Mr T Godi (APC)

Documents handed out:
Department of Justice & Constitutional Development Annual Report 2006/07 [available at www.doj.gov.za]
Department of Justice & Constitutional Development: Audit Action Plan 2006/07 [Part 1][Part 2]
Third Party Funds Audit Action Plan 2006/07 the Department of Justice
Legal Aid Board Annual Report 2006-2007-11-05
National Prosecuting Authority Annual Report 2006/07 [available at www.npa.gov.za]

Audio recording of meeting

SUMMARY
The Committee met to discuss the auditor general’s reports on the Department of Justice, the National Prosecuting Authority, the Legal Aid Board and the Department of Public Works. The Committee raised in detail the qualifications and comments made on each institution and asked for comment. Ineffective management of assets, an ongoing issue for some years, in the Department of Justice raised concern among the members. However, the Department assured the Committee that it had a strategy in place for dealing with that which included having asset controllers in every region. The Chief Financial Officer would also be more hands-on in solving this problem. Staffing and vacancy levels were of further concern, and it was noted that little seemed to have been done over the last few years.

The National Prosecuting Authority staff compensation in terms of bonuses was said to be too high and not in line with government requirements. The Authority’s response to this highlighted that the NPA was a people-oriented organisation with one of their biggest expense being staff compensation. An explanation was given as to the manner in which the amounts were fixed.

The issue of management remuneration also was raised in respect of the Legal Aid Board. The Board assured the members that it would send through a report detailing the entities they benchmarked against when compiling their remuneration figures. It was noted that the attendance of meetings by the Board of directors was very poor and the Legal Aid Board gave an explanation for the absence on one member and said that that was an area that was being closely monitored by the Chairperson. 

The Department of Public Works still had not have rectified the problem of recording fixed assets. The register in the Deeds Office was still not yet complete and accurate. The Committee requested that the Department did some serious strategising in this respect and provided timelines as to when the whole matter would be resolved. Staffing was also addressed for this Department, and it was noted that very few chartered accountants were prepared to work for government departments. An explanation was also given for the delay in appointing a Director General.

MINUTES
Department of Justice (DOJ): Interrogation of Audit Report 2006/07
Mr E Trent (DA) commented that in the last two years, the Department of Justice had received qualified audit reports. The vacancy rate of 23% showed an increase from last year. In respect of human resources, the restructuring process was still not finalised and it kept changing. Interim approval had not been granted for the 2002 financial year. This Department had reported the highest number of cases of misconduct. Performance rewards made up a significant amount. Finally the Auditor General (AG) had commented that the delegation of authority was not finalised and it also changed regularly.

Adv Menzi Simelane, Director General, Department of Justice, responded that he would not necessarily conclude that the Department was going backwards in terms of its performance rather than improving. In respect of personnel, he said that the vacancy rate would be decreased significantly in the following year. It was so high because the Department created posts continuously and there was also the problem of staff leaving regularly, and the process of replacing them would take time. In respect of the job evaluations, he said that the DOJ had been dealing with Department of Public Service and Administration (DPSA) on how to do evaluations on 12 000 posts. This number decreased significantly to just 100. These evaluations helped because the Department had now started advertising. Although the vacancy rate was 23% at the time of the audit but it was now at 12%. In respect of the restructuring, he could not offer the Committee comfort about the restructuring process because the Department was working on changes to the organogram. The overall framework of finalising the project would remain . This process enabled the Department to re-align the posts of the officials. For example, in the area of HR, different directorates did different things even though there was work which could  be done by one person.

Mr Trent requested that the Department comment on ineffective asset management, which was an emphasis of matter in 2005 and now it led to a qualified report.

Ms Sandra Gomm, Chief Financial Officer, DOJ, responded that the problem arose from a combination of issues that needed to be addressed. She said that as a means of dealing with that situation, there would be training for controllers, asset managers in every region would be appointed, and high technology scanners were purchased. Also, a quarterly review process would be implemented where the CFO went around assessing implementation of the processes.

Mr Trent said that reporting on performance evaluation was still a problem and the audit found control weaknesses in the computer environment, and non-compliance with the public service regulator. There were a significant number of audit adjustments, which seemed as though the Department was being given a second chance, otherwise the audit report could have been worse. He lastly said that the practice of using suspense accounts had stopped some time ago, and the fact that the Department was still using them gave the impression that its accounting and reporting was deteriorating.

Adv Simelane responded that there were control weaknesses in the IT sector because IT was becoming more advanced and modernised and people were also becoming more knowledgeable,  and hence were able to access information. The Department was revising IT and strategising an IT policy. He then said that disciplinary measures were being taken for those that did not comply with the public service regulator.

Ms Gomm added that adjustments were made as a result of changes in accounting standards and those accruals of R11 million were incorrectly disclosed as commitments. The finance lease assets were not in the policy and guidelines of National Treasury. In explanation of the suspense accounts, Ms Gomm said that money would be received from unknown sources, would be kept in the suspense account and dispensed from there. She said that the problem here was that the DOJ had not disclosed expenditure transactions relating to the suspense account. However there were reconciliations of this account done.

Ms E Hlangwana (ANC) commented that accounting records of third party funds had not been maintained since 1994.

Adv Simelane responded that third party funds related to monies put in by other people. He said the Department had been rolling out the “Justice Deposit System” that involved electronic transfers. There were only 252 courts left to receive the system out all the courts. Adv Simelane said that this did not necessarily improve the behaviour of people but it improved controls. He said that the Committee could expect to see the effects of these improvements in the 2009/10 reporting period.

The Chairperson asked whether the Department had been able to get over policy issues.
Adv Simelane responded that the policy issues had not yet been resolved.

Ms Hlangwana asked for an explanation of how the documents on liabilities and bank balance related to funds not accounted for.

Ms Gomm responded that the Department had not received guidance from National Treasury in terms of how to report third party funds at the time of auditing. DOJ had received a legal opinion that these should be regarded as a separate legal entity.  Only on 15 August did National Treasury provided guidance, but the Department had to finalise their financial statements by the end of May.

Ms Hlangwana asked what was being done about ineffective asset management.

Ms Gomm responded that the Department strategised an audit action plan where they would also be considering disciplinary measures for the people who did not perform. She said that the DOJ was looking to appoint asset managers in every region at the implementation stage.

Ms Hlangwana asked for the Department’s comment on its inability to produce accurate financial statements with respect to third party funds.

Ms Gomm said that the Department was busy rolling out a computerised system to deal with third party funds. The Department was relying on manual information from all the courts to draw up financial statements. The new system should rectify the problem. She said that the Department was expecting a disclaimer on third party funds because it did not have a proper system in place at the time of reporting.

National Prosecuting Authority (NPA)
Mr V Smith (ANC) said that as a means of prevention of organised crime, the state seized assets. He asked whether there was a list of the assets the NPA had captured and how much cash was in the account, and what it represented.

Mr Brian Graham, Chief Financial Officer, NPA, responded that the criminal asset recovery account did not deal in assets but rather in cash. It’s mainly a bank account. The cash represents proceeds received from curators from assets seized. Assets seized were sold and expenses thereof settled. Mr Graham said that the balance was about R80 million but he stood to be corrected.

Mr V Smith (ANC) asked how much money was still in the hands of the curators and when that was expected to be received.

Mr Graham responded that if a forfeiture order was granted, the property would remain the property of the State until the order was finalised. He said that finalised cases did not stay with curators long after they have been finalised.

Mr Smith commented that there was a case dating back to 2001 involving R300 million. Since this was six years ago, he asked what the timeframe for wrapping up an order was, and who was benefiting from the prolonging of the matter.

Mr Graham responded that no one was benefiting. He said that for instance in the Shaik Schabir  case, approximately R30 million was requested and that amount had been appealed against. He said he had no knowledge of the framework but his opinion was that the order would stand for as long as it took to sell the asset.

Mr Smith asked for clarity on the fact that when the Criminal Asset Recovery Account (CARA) account was formed there was an organogram of four people to run the account, yet currently there was only one to effect management over the account.

Mr Graham responded that two posts had been filled for management of that account. He added that the delays were normally from the curators and the Committees.

Mr Smith noted that the people in the Committee were two Ministers and the Director of the NPA. He then asked if it was these people who were holding up the process.

Mr Graham responded that they were holding up the distribution, it was not the fault of the system. .

Mr Smith commented that the Auditor-General said that the Department was unable to disclose money due to the State from its activities and therefore their financial statements were materially misstated. He asked whether the NPA would consider that a fair statement.

Mr Graham said that NPA had an agreement with National Treasury that the NPA would not disclose amounts for assets not yet sold because there were issues of revaluations involved.

Mr Smith said that 70% of the budget was used for compensation. Included in there was R19 million that was used for performance bonuses (which amounted to 2% as opposed to 1.5%). He then asked what the staff complement of the NPA was.

Mr Graham responded that the staff complement was around the 4 000 mark. He said that the budget was mainly for compensation of employees, as the organisation was a people-orientated organisation.

Mrs B Simelane, NPA,  added that the organisation did job evaluations and people were promoted and awarded accordingly.

Mr Smith said that on page 178 of the Annual Report the AG had commented on fruitless and wasteful expenditure, which had increased, from the last year, to R372 million in the current year. According to the Public Finance Management Act (PFMA) certain procedure must be done to recover money. He asked the NPA to indicate what it was doing to recover this money.

Mr Graham responded that the organisation had a loss committee, which was evaluated by their risk management committee. He said that the processes were in place to recover money. Mr Graham added that he was not sure about the breakdown of the R372 million.

Mr Smith referred to staff debtors of R12 million. R3 million of this debt was older than three years. He asked why it was taking so long to recover these amounts, and he asked whether there was any potential of recovery, or of them possibly being written off.

Mr Graham responded that recovery from staff debtors had taken priority in the organisation. He said that a lot of the staff had left. He said that the final recourse was to hand them over to the State Attorney, but regrettably it did seem that a lot would have to be written off.

Legal Aid Board (LAB): Interrogation of AG Report
Mr T Bonhomme (ANC) complimented the Legal Aid Board for complying with the PFMA. He said that this was one of the few departments which had no skills vacancies. He also congratulated the Board for receiving an unqualified audit opinion. However, the AG had reported that one of the deficiencies of the Board was lack of guidelines with respect to security, and asked what steps have been taken to rectify this.

Judge Dunstan Mlambo, Chairperson, Legal Aid Board, responded that upon implementation of the SAP human resources system, the internal audit team had identified weaknesses. As a means of rectifying that, the Board appointed a SAP manager and appointed Gobodo accountants to assess the processes and review deficiencies. A SAP governance structure was also formulated, and the Board tasked the Audit Committee to have oversight responsibilities over what management did. All these were an on-going process. He highlighted that SAP was introduced for the first time in the current financial year and the Board was taking necessary steps to rectify deficiencies.

Mr Bonhomme said that financial statements were received on 9 August but reconciliations had not been done due to delays. He then asked whether there would be delays as well in the next financial period.

Judge Mlambo responded that that matter related to the financial year two years ago.

Mr P Gerber (ANC) noted that the slight increase in miscellaneous expenses was explained by an increase in “other items.” He asked what the “other” items were and what the cause of the increase was.

Ms Rebecca Hlabatau, CFO, Legal Aid Board,  responded the line item named “other” was made up of several line items. For disclosure purposes in terms of Generally Recognised Accounting principles, the Board could not list them individually.

Mr Gerber noticed that the executive management remuneration amounted to R6.1 million and bonuses paid amounted to R2.1 million, which was almost 30%. He asked why the figure was so high.

Judge Mlambo responded that that was what the Board had decided.

The Chairperson asked what the reason behind this decision was.

Judge Mlambo responded that the Executive of the Legal Aid Board all were prepared to go the extra mile, and the Board took a decision to pitch their bonuses at 30%. He said that they had benchmarked this with organisations elsewhere.

Mr Gerber asked what entities the Board used as their benchmark.

Judge Mlambo responded that he did not have the details with him but could send these through the Committee. He said that this process of deciding on the bonuses was also linked to the performance management review system that the Board had.

Mr Simphiwe Cele, Corporate Executive, Auditor General, commented that it was not unusual for such bonuses to be paid. He said that what the AG noticed was that HR executive bonuses were more than the basic salary. He said that this was what caused discomfort.

Mr Gerber referred the Members to page 39 of the Annual Report relating to the Remuneration Committee. Quite a number of people in that committee and other committees missed meetings. He said that of the six members within the Audit Committee two people had attended two meetings. In the Board’s Executive Committee only two members attended all the meetings. Overall there was 66% attendance. He said that this was not sending out a good message.

Judge Mlambo responded that the HR executive bonus was high because it represented the basic salary of the executive who resigned, and the Board was actually paying her in arrears. The bonus was not greater than the basic salary. With respect to Board attendance of meetings, Judge Mlambo said that he personally spoken to members who were not attending regularly. One of the members of the Audit Committee resigned because outside commitments were too demanding. The member who never attended any meetings became a judge and she was excluded from attending other meetings.

The Chairperson asked whether the control over fixed assets was working efficiently and consistently.

Judge Mlambo responded that currently there were no problems in the system and that the controls over fixed assets were a problem that the Board faced historically.

Mr Trent asked how the Board funded the deficit that it had had for the past two years.

Judge Mlambo said that the deficit related to depreciated items in business. It did not relate to the grant received and was a non-cash item.

Department of Public Works (DPW): Auditor General Report’s interrogation
Mr P Gerber (ANC) noted that the problem relating to fixed assets reported upon by the AG was an old problem. According to research done by the AG, state property was registered under different names. Of the 1.48 million properties only 338 000 belonged to the State, according to the records of the Deeds Office. He asked how the Department was going to compile a complete and accurate fixed asset register, and requested a timeframe for this.

Mr Manye Moroka, Director General, Department of Public Works, responded that the improvement of the asset register was currently under way. When the Department reported three years ago, it had pointed out that it  needed R250 million to do the project. It had since then received R30 million from National Treasury for a period of three years, which did not go very far in relation to the amount budgeted for. Mr Moroka then went on to say that the asset register was like a cheque book, in that it needed to be regularly updated. This  process was done three years ago, but was in the process of being done again at the moment.

Mr P Gerber (ANC) asked whether, when a new school or hospital was built, it was done by the Department of Public Works.

Mr Moroka  responded that there were guidelines in the PFMA in terms of budgeting for infrastructure. Infrastructure would be registered as an asset of South Africa and then administered by DPW.

Mr Gerber commented that in the Sunday Times, the Department of Correctional Services was requested for a pre-qualification for the construction of five Triple-P jails. He asked what the role of DPW was in relation to these matters.

Mr Moroka  responded that when that instruction comes to DPW, it became a Triple P. He said that excavation in Kimberley for that jail had already begun, and that they were working with the Department of Correctional Services to finish building the other jails in 3 years.

Mr Gerber asked for the reasons why the Audit Committee had five meetings but only one person attended all five meetings.

Mr Moroka responded that the Department was making recommendations about one specific member whose attendance was particularly poor. This member’s participation in meetings had also been noted as a problem.

Ms Zanele Mxunyelwa, Chief Audit Executive, DPW, added that Ms Mahlati took long to be appointed because the Department had been looking for a chartered accountant and they could not find one.

Mr R Mofokeng (ANC) asked why there were vacancies that were funded but not filled.

Mr Moroka responded that 922 vacancies would be advertised and just over 600 vacancies have been filled.

Mr Mofokeng commented that there was a 24% vacancy rate in 2004 and the response from the Department was that they were dealing with this, but it was still not sorted out. The post of Director General was advertised in January 2006 and it took the Department sixteen months to appoint a Director General. He then asked why it had taken so long to fill an important position.

Mr Moroka responded that the Department lost a Minister for 6 months while there was still an Acting appointment. The appointment of the Director General had to be referred to parliament so the appointment of DPW’s position was delayed by this.

Mr Mofokeng referred to accountability and adherence to the PFMA. He pointed out that in 2003, Mr van Dyk had asked what qualifications were held by the people hired by the Department. He then asked why it took so many years for DPW to appoint a chartered accountant and asked whether the Department was employing people with the appropriate skills.

Mr Zingisile Ntsaluba, CFO, DPW, responded that the Department would like to hire chartered accountants but that there was a challenge attracting them to government. The only Department that appealed to chartered accountants was National Treasury, and even there they would stay for a period of about two years. Mr Ntsaluba said that he did not think this was insurmountable just as long as the Department had people with the necessary expertise and skills. He added that when any Department started seeking Chartered Accountants it must be prepared to pay well.

Mr Mofokeng asked whether it was true that unemployment within DPW had jumped from 25% in the previous year to 37% in the current year.

Mr Moroka responded that the Department had a huge number of resignations. He said that page 124 in the report had stated a figure of 17%, and he was not sure where the member had found 37%.

Mr Mofokeng said that DPW had 661 000 people employed for Expanded Public Works Programmes (EPWP). He added that EPWP could function for one day or one week or one month. Mr Mofokeng then asked whether these people were still employed.

Mr Moroka responded that page 35 of the report stated the ‘network opportunities created.’ The timeline there was dependent on the work to be performed.

Mr Mofokeng commented that salaries and increases in bonuses seemed too high. In 2005/06 bonuses were 40.4% and in 2006/07 they were 30.41%. He said that when performance bonuses were paid, this should indicate that the jobs were being performed excellently, but that was not the case with DPW.

Mr Moroka responded that performance bonuses were reported to be 0.5% of basic salary, which was less than the limit of 1.5%.

Ms L Mashiane (ANC) referred the members to page 116, note 10.2 referring to ‘other payables’,  and page 92 on the ‘statement of contingent liabilities.’ She requested an explanation from the Department on whether these claims were against DPW and what the Department was going to do to minimise the claims.

Mr Ntsaluba responded that the DPW was a procuring department. Government procurement became a serious matter for all players. The Department had seen in the past that it would end up not paying such amounts, but for complete disclosure it had to disclose the amounts.

Mr Bekker asked for an explanation on what was meant by highly skilled supervisory level and highly skilled production level.

Mr Ntsaluba responded that these positions were where the Department competed with the outside world in mobilising skills. In recognition of the scarcity of skills the Department was engaging tertiary institutions. In addition  the Minister went to Cuba to ask the Cubans to assist the DPW.
 
Mr Bekker noted that there were assets found that were not reflected in the register and also assets in the register that could not be found. In the 2004/05 and 2005/06 reports the issue was raised by way of management letters and now the report had been qualified on the same matters.

Mr Moroka responded that the Department had put in place processes to deal with weaknesses an indicated by the Auditor-General and this would hopefully improve the results of the department.

Mr Bekker referred to the 30 day non-payment situation. He said that the DPW held the key for small and/or emerging businesses and that this situation of non-payment could not be tolerated. Mr Bekker then asked what the Department was doing about the situation.

Mr Moroka responded that any invoice submitted and approved by the Department would be paid within 30 days. If it was an EFT, it was paid within 4 or 5 days and there were certain categories of payment.

Mr G Madikiza (ANC) pointed out that there were certain control deficiencies with respect to rental debtors. He asked why debtors were not up to date and why the Department had permitted the incorrect address submission from debtors.

Mr Moroka responded that rental management should be managed using norms. He said that the Department must go and act professionally in this respect.

Mr Madikiza asked what the Department based their collection on, if their policies and procedures on rental debtors had not been in place at the time.

Mr Ntsaluba responded that the Department had gone through a transformation process. State policies and procedures were followed but Department policies were still not in place at the time of reporting. The policies were however being implemented now.       

Mr Madikiza noted a weakness with respect to invoices amounting to R10.4 million still not paid. He asked what the turnaround strategy was outside of the 30 days.

Mr Ntsaluba responded that an invoice could be paid within 10 days because the Department also had South African Reserve Bank and Financial Intelligence Centre Act requirements that must be considered. Quantity Surveyors would go on site to do measurements and at times it was found that the Department had been over-charged and then a process of reviewing the invoice would begin.

Mr Madikiza asked what would assurance the Committee could received that things would be dealt with adequately, given the issues raised at the meeting and promises made by the Department.

Mr Ntsaluba said that the Department had not met SCOPA in 2004/05 and 2005/06. For the two years previous to this one it had had an unqualified report and if the members measured performance according to the audit report, they could  use that history of unqualified reports as proof of better results to come.

Ms Mashiane asked whether the Department did not consider it irresponsible not to collect debts when they were due, and only act in times of crisis.

Ms Mxunyelwa responded that when the financial statements were drawn, the actual balance outstanding would come from long ago. Until the Department approved that such amounts may be written off then they would have to stay on the books.

The meeting was then adjourned.