Disclaimer of Opinion by Auditor General for Department's Financial Statements 2004/5: hearing

Meeting report

HOME AFFAIRS PORTFOLIO COMMITTEE
31 May 2006
DISCLAIMER OF OPINION BY AUDITOR GENERAL FOR DEPARTMENT'S FINANCIAL STATEMENTS 2004/5: HEARING

Chairperson: Mr H P Chauke (ANC)

Documents handed out:
Inventory of vehicles hired by Department (given to Members only)
Home Affairs: Minister's Budget Speech - 30 May 2006

SUMMARY
The matter of the Department's poor financial management had been debated in the National Assembly the previous day when the Minister made her budget speech. She requested intervention by National Treasury in terms of Section 6(2)(d) of the Public Finance Management Act.

The Committee continued to put questions to the Director General and other officials on the disclaimer of opinion by the Auditor General as well as its annual report for 2004/5, and its strategic plan for 2006/7. Questions related to the fleet cars for the Department, and whether a contract did exist with Gauteng Transport, to the Internal Audit controls, Committee, functioning, and reporting. The relationship with the State Information Technology Agency was examined. The Chief Financial Officer was asked to explain his secondment to manage the National Immigration Branch's project to clear the refugee backlog. The general lack of controls was examined, and the Deputy Directors General of Service Delivery, Human Resources, Information Technology and Civic Services were asked to give a summary of how they had addressed the problems. The CEO of Government Printing Works had been delayed from attending the meeting.

The Chairperson ruled as follows on the way forward:
1. The Director General must, within one month, prepare and submit a business plan to the Committee, which would then be debated together with the strategic plan.
2. The Director General would have to give urgent attention to ensuring that all systems at national and provincial level were operating through the Deputy Directors General. The Chief Financial Officer would have to give urgent attention to the financial aspects and Internal Audit.
3. Monthly financial statements must be submitted to the Committee and the Minister, and quarterly statements must be sent to the Committee.
4. Over the next three months, the Committee would engage further with Treasury and the Department to get progress reports on the response to the findings of the Auditor General and what steps had actually been taken.
5.  In regard to the cars, the Director General should investigate a better system on a contractual basis between the Department and the Gauteng Department of Transport.
6. Government Printing Works and the Film and Publications Board would be called in to report at separate meetings.
7. The Minister would be asked to share with the Committee how she and National Treasury intended to deal with the Department's problems.

MINUTES
Discussion on Procedure
The Chairperson reported that the question of the disclaimer audit report on the Department of Home Affairs (DHA) had been debated in Parliament the previous day. The Minister had issued a report, stating that she had not been fully informed by her Department. She had called for assistance from National Treasury. The Committee, when considering the report previously, had been most concerned that there had been no mention of some of DHA’s problems, no report back on the forensic report, and insufficient explanations.

Mr M Sikakane (ANC) wondered if the Committee should debate the issue of the missing documents and disclaimers at this stage. He felt that the Committee should lay down clearly what it wished to hear about, instead of debating the issues. He believed that answers might never be given. The Committee needed to have a clear idea of the outcome of the discussions, rather than to dwell on why the auditors had made the comments they did. It was more important to find a way forward.

Mr W Skhosana (ANC) was concerned that time limits be set and adhered to. He agreed that the Committee should hear what the forensic audit had uncovered, and decide what impediments needed to be addressed.

Prof E Chang (IFP) was concerned about the weaknesses of the internal controls. He believed that the Committee would have to try to address the problems of 2004/5 in particular to ensure that they did not recur. He was also concerned about DHA having overspent. He agreed that the DHA must tell the Committee exactly what steps it had taken to improve the situation.

Mr M Swart (DP) commented that the deployment of the mobile units and the hospital registries were positive steps in the report, but that these did not detract from the major concerns of service delivery and turnaround times. He commented that DHA had had a lackadaisical approach to parliamentary questions, and therefore did not believe their approach to the public was any better. Service would have to improve from the top down. He too was concerned that lack of financial controls was indicative of a department in chaos. The Committee, not having seen the business plan, did not know what DHA wanted to achieve. He believed it was important that the Committee interview the internal auditor to get specific answers as to why certain work was not done. The answers would be a pointer to the best way to move forward.

Mr S Swart (ACDP) agreed that the Committee must hear from the internal auditors. It was incumbent on the Committee to monitor progress. There would in all likelihood be a qualified report in the following year because of the over-expenditure. He believed that DHA should report far more regularly to demonstrate the progress being made. He welcomed the intervention of the Minister and of National Treasury, who would assist in capacity.

The Chairperson commented that when the Committee had previously asked questions about internal controls it was assured that there were no problems. Reports now indicated that there were serious problems indeed. It was possible for this Committee simply to await a report from Treasury, but he believed that the Committee should debate how to find a way forward.

Relationship between DHA and SITA (State Information Technology Agency)
Mr P Sibande (ANC) raised two serious concerns. Questions had already been asked in 2004 about capacity, and it was clear that SITA (State Information Technology Agency) had been prepared to assist in building IT capacity. It appeared that this offer had not been taken up. He agreed that any solutions in future must be linked to specific time frames. In regard to the forensic audit, the Chief Financial Officer (CFO) had mentioned the foreign affairs vouchers and alien deposit account. The Committee had questioned whether the funds were available, and why there was no proper accounting. Once again, he believed that the DHA should be put to time frames to prove that the accounting was correct.

The Chairperson agreed that without a business plan it was very difficult to adopt the report. He suggested that, taking the concerns of members into account, they should be given the opportunity to pose further questions and that at a later stage Treasury should be asked to meet with the Committee.

Mr K Hlahla (Deputy Director General (DDG), Information Services (GITO), DHA) believed that DHA and SITA worked quite well together and that SITA had its own challenges with capacity. SITA sat on the Information Systems Management Board, which met monthly. An account manager would look after the needs of the DHA. SITA was fully aware of the activities of DHA. Mr Hlahla confirmed that GITO could not perform to the levels of expectation, because of capacity problems. It had been anticipated in 2004 that these problems would be resolved by 2006 but it seemed that this was not so. Strategies were shared, at Board level. SITA had not in fact told DHA that it could assist with the problems. SITA dealt with other departments also, and could not always be fully up to date, but where they could assist, they tried to do so. There was a renewed commitment on the part of SITA to assist, at strategy level. Although DHA might be unaware of other issues with SITA, the general impression was that the relationship was workable.

The Chairperson stated categorically that there were problems, especially with the HANIS (Home Affairs National Identification System) Project. The Committee would ask DHA to present on this project. It seemed that the attempts to link SITA and DHA were not working, and a meeting with both parties would be called to discuss the report on the Project.

The Director General stated that he had, two weeks previously, written to the CEO of SITA calling for a meeting to cement relationships and look at areas of cooperation.

Vehicles
Mr Sibanda queried when DHA would make its own plan for cars instead of using Gauteng Transport.

The Chairperson enquired where those cars were mentioned in the Annual Report.

Mr Skhosana referred to the Gauteng Department agreement on the cars. He asked if cars were allocated from this general agreement to the immigration units. He asked if Film and Publications had to use cars, and whether they fell under this arrangement.

Ms M Maunye (ANC) asked why there was apparently no proof of title for the cars.

Mr P Nkambule (CFO, DHA) stated that DHA had found it impossible to build capacity to deal with vehicles. Although there was a transport division allowing for basic administration relating to allocation to offices, DHA simply did not have the capacity to manage a fleet, and therefore this function was outsourced. Quotations were obtained from the private sector, but were very expensive. The only other option was to use Gauteng Transport, who ran fleets for government, as well as for other departments with similar sized fleets to DHA. This did not exonerate DHA from elementary management of data – DHA knew where the vehicles were, how much mileage they had done, when they were repaired and so forth. Gauteng Transport handled maintenance and replacement. An inventory was kept by DHA, although they were not included on the asset register. A copy of the inventory was made available during the meeting.

In regard to title, Mr Nkambule stated that he had a document which was an agreement with the Department of Transport, which, to his mind, formed a relationship and regulated the terms on which the cars were allocated, including the numbers, the purpose for which they were intended, how they would be replaced and the benefit. He could not say whether it amounted to a contract. The title was included in that document, which stated that the cars were “for exclusive use by the Department of Home Affairs”.

NIB cars were included in the deal. Film and Publication Board cars were not, because FPB was a public entity of DHA, which ran an affiliate. IEC similarly did not have cars allocated.
 
A question had been raised earlier about the balance of cars that was reflected but had not been delivered. At the time of the audit 104 cars were still being manufactured, so Gauteng Transport were unable to deliver the entire order of 559 cars. DHA believed it had received good value for money.

Mr Sibanda commented that the Auditor General had commented, in giving his disclaimer, that DHA was unable to produce any written documentation setting out the terms, conditions, and periods of allocation for the leased vehicles. He asked why this document had not been submitted to the Auditor General. He believed that the CFO and DHA should be given time frames in respect of all requirements.

The Chairperson asked the Director General to note these concerns.

CFO secondment to refugee backlog project of National Immigration Branch
Ms Maunye referred to a comment from Treasury that the CFO should be clear about whether his interests lay with DHA or with the National Immigration Branch (NIB)

The Chairperson asked the CFO to comment also upon whether he was really making an effective contribution to DHA if he was seconded to another branch.

Mr Nkambule replied that all his training and working life was based in finance, but he had also studied administration, and held an MBA degree, which had skilled him in project management. He had become involved in this project because of his skills. The NIB had isolated the refugee backlog, and had run a special project, for a specific period. Government, in terms of revised Treasury Regulations, gave the power of supply chain management to the CFO. The CFO should be capacitated to deal with functions separately. Two Chief Directorships had been created, one for finance and budget and one for supply chain processes, asset management and infrastructure. The CFO was currently overburdened, but had to see this in the light of DHA capacity-building attempts. He would shortly withdraw from the NIB project, as the infrastructure had been set up.

The Chairperson commented that despite the CFO’s multi-skilling talents, he was worried that the CFO had been appointed at a time when DHA knew that the finances were problematic and required attention; it seemed counter-productive to remove the CFO at this time. DHA had received qualified reports for the last four years and this was a huge challenge. The Chairperson would have expected the CFO to focus on these issues. If the CFO was appointed by the Minister, then the Chairperson believed that this was a misinformed decision. Finance was the core function, and the CFO’s energies should not have been directed elsewhere.

Mr M Maqetuka (Director-General (DG), DHA) clarified that Mr Nkambule himself had not taken the decision to lead the NIB project. The Minister had taken this decision in consultation with top management. The project required a separate infrastructure outside the main offices, had involvement procurement and obtaining premises, and therefore had to be run by someone within Supply Chain Management. Mr Nkambule had been identified as the most appropriate member of the senior management committee to run the project. The Director General noted the Chairperson’s view that the decision was wrong.

In answer to Mr Swart, Mr Nkambule confirmed that his part in the project was nearly finalised, that it would be launched in June, whereafter he would no longer be involved.

The Chair asked when the previous Deputy Director General of NIB had resigned. The Director General confirmed that this was on 14 December 2005, that Ms L Makola was acting in the post, that a shortlist of candidates had been drawn for interview and the Minister was convening the interview panel, which should meet on 16 June.

In answer to the Chairman’s question on her role in the project, Ms Makola confirmed that she attended the meetings of the Committee, and supported the system.

Internal audit
Mr M Swart enquired whether DHA had a proposal to address the shortcomings in the internal audit report. In particular, he asked when the post was upgraded to chief director level, and hoped that the same incumbent would not simply receive promotion. Mr M Swart enquired how the forensic audit and the internal audit allied to each other. He enquired what liaison existed between the audit committee and internal audit, how the committee functioned, and why errors that had been picked up by the committee kept recurring.

Mr Nkambule confirmed that the position of internal auditor had been upgraded to chief director level. It was not automatic that the current auditor would become the director, as it was a new post, which would be advertised shortly. Forensic skills were lacking in the Internal Audit division (IA) so a separate forensic audit unit had been created and would be capacitated.

IA was a management tool that assisted management and gave early warning systems for controls that should be introduced. It reported to the accounting officer, and also to the Audit Committee. IA determined and assessed risk, put forward a risk plan, and identified problems. The CFO and the Audit Committee (chaired by an external and independent person) would take responsibility for addressing the risks identified, and ensuring progress in terms of the Strategic Plan. Risks were identified in order that they should not interfere with the achievement of goals. The Audit Committee met at least quarterly.

The Chairperson referred to page 78 of the Annual Report, under the heading of “Internal Audit”. This stated that although the Audit Committee had made regular enquiries about the work performed by the Internal Audit team, there were strong indications that this division was not operating effectively, and was under-resourced. Reports were slow, and the quality poor, which was ascribed to capacity problems. The Audit Committee had recommended that DHA must assume a more proactive role in addressing these issues. Subsequently consultants had been engaged to assist in internal controls. The quality of reports had improved by the end of the year.

Mr Nkambule stated that this was quite correct, and that IA had been restructured and capacitated. Other Departments also “co-sourced”. DHA had engaged external auditors to work with IA for a period of one to two years. They would withdraw once DHA staff became experienced. Funds had been set aside for this project. DHA could not say with certainty that it would build capacity within two years, but while the external auditors were there the internal audit function would be capacitated.

Lack of controls
Mr M Swart referred to the HANIS Project and smart cards, and the computerisation of offices, stating that there were serious issues around the way in which matters were handled. He stressed again that it was vital for the Committee to see a business plan, so that it could monitor the implementation of the plan to ensure that DHA started to function effectively. He referred to page 78 of the Annual Report, which stated that the audit committee would like to see greater urgency and commitment at various levels of senior management to managing and controlling the risks faced. Mr Swart commented that there was a lack of active control, evidenced by the fact that some errors occurred over and over again. DHA would have to put this to rights.

On this point the Chairperson suggested that the Committee should hear from management how they viewed the challenges, what steps were being taken to address them, what was being done about the Report, and what remained to be done.

Mr J Chayalala (DDG, Civic Services, DHA) stated that the transformation of Civic Services would include business processes and systems. Each of the directors had looked to their responsibilities and would put in considerable effort to deal with issues raised by the Auditor General.

The Chairperson said that he expected a specific report. Each day money was collected at various offices, but was not banked, and there was no clear banking system. He wanted to know specifically what would be done about this challenge

Mr Chayalala replied that Civic Services was not responsible for the collection of revenue. Offices collecting money were guided by Treasury regulations, which were clear about banking. He believed his responsibilities went only to the passports and ID books. There were challenges and functions would be transferred from Head Office down to provinces.

The Chairperson again reiterated that whatever the regulations said, they were not being complied with. The Strategic Plan did not address this issue. The Committee would note Mr Chayalala’s comment.

Mr Skhosana asked who was actually in charge of banking at the offices. The Chairperson asked how the money was receipted and banked.

Mr Chayalala replied that the collection of revenue was not divided into branches. The collecting and spending of money was the responsibility of the CFO. All moneys collected needed to be deposited to the revenue fund, but all the control lay in the hands of the CFO.

Ms T Cele (DDG, Service Delivery, DHA) commented that money collected in the offices was the responsibility of the provincial managers. All DDGs, the CFO and Internal Audit had a responsibility to ensure that the disclaimers did not recur. The difficulty lay in deciding exactly who should take responsibility for each step. As far as Service Delivery was concerned, she would need to put in systems to eradicate the problems. From her side, monthly reports were received from Provinces, which were circulated to all DDGs so that they could identify areas pertaining to their responsibility. Service Delivery held monthly meetings with provincial managers, on a one to one basis, which would address problems of an operational nature that could not be dealt with by the Senior Management Committee. Ms Cele would share her report on these meetings with other DDGs so that they too could be aware of the problems and assist in following up. The Provinces had a clear system on how to organise and control the offices. Banking had caused problems in security and counter-corruption, so security companies had been asked to tender, and the provincial managers would have to ensure that they were carrying out the work effectively. Quarterly branch meetings were held between all branches because operations actually took place at that level. This was a new system and would not necessarily have pertained during the time of the 2004 audit.

Mr Sibanda stated that he appreciated that. However, page 78 of the Annual Report indicated that the audit committee should still take responsibility for the implementation and monitoring of adequate controls.

Ms O Diseko (DDG, HR, DHA) reported that her division had been looking at recruitment and retention, and the performance management development systems. A workshop had been held to train managers on the population systems. Internship policies had been developed. Governance was to comply with the Public Services Act and Regulations. The provincial managers were being trained so that all understood the HR systems. Ms Diseko had investigated how to secure documents relating to HR, and how to maintain proper records. As a branch, she held monthly meetings to look at challenges, progress, and possible solutions. A major challenge remained recruitment on the allocated funds. Her division had not been able to meet its targets. A recruitment plan had been developed for 2006/07, including co-sourcing to assist the Department. There had to be a sustainable plan, and she had developed a close relationship and integrated approach with Service Delivery to identify challenges, misconduct and effectiveness. Her division would have to ensure that the zero tolerance approach did not negatively impact on service delivery.

Mr M Swart mentioned that Government Printing Works (GPW) had also received a qualified report, and that the Annual Report, page 81, stated that very little progress had been made in respect of significant internal control weaknesses and forensic audit. Mr Swart felt that the Committee should also receive reports from GPW.

Mr G Ncetani (CFO, GPW) responded that as he had only joined GPW two months ago, he was not in a position to comment on the report, and that the CEO’s flight had been delayed that morning. Mr S Quist (Director, Administration, GPW) reported that when he had joined in 1999, there was no effective accounting system in GPW, and, despite a large turnover, nobody was qualified to undertake accounting functions. A person had been appointed, but had resigned in 2003. Now that various key posts had been filled, it was hoped that things would improve. The problem lay in the salary which was not attractive, and therefore had not attracted the right applicants. Mr Quist stated that he did not really know what to add, but would be happy to try to answer questions.

The Chairperson asked the Director General what he intended to put in place to assist GPW, and to ensure that it had effective financial controls. He pointed out that the forensic audit enquiry would no doubt throw some further light on this. The Chairperson then stated that it would be necessary for the Committee to arrange a special meeting to hear GPW on the full background. The Committee was aware that GPW had many outstanding debtors, and would ask the Director Generals of those debtors to account for their failure to pay. GPW should be prepared to answer specific questions on the report of the Auditor General

Conclusion
The Chairperson commented that the hearings had been interesting and relevant and had helped the Committee to understand DHA better. There remained a number of challenges which the Committee could not deal with today. The Committee was most concerned that this situation should not recur.

When the audit process started, DHA had already overspent on its budget. There were clearly significant problems, but these should be isolated and worked on at the time of the audit plan. The Director General needed to get his hands on all the problems. The Committee had found it unacceptable that not all departments had accounted fully and truthfully. The Committee would be willing to assist the Director General, if he came to it with problems, but would not protect him if he did not deal with them. The Director General must fulfil his role as the accounting officer.

The Chairperson ruled as follows on the way forward:

1.  The Director General must, within one month, prepare and submit a business plan to the Committee, which would then be debated together with the strategic plan. It was impossible for the Committee to adopt the Strategic Plan without comparing it to the Business Plan. The DHA’s presentation was not complete and there were still some outstanding issues.

2.  The Chairperson commented that both the disclaimer Auditor General’s report, and late submission of the Annual Report were unnecessary. He believed that if the documents had been submitted, this would not have occurred. It was clear that the problems lay then – and still did – in failure of systems. General controls were lacking at national and at provincial level, as evidenced by the poor financial controls in the offices.
The DG would have to give urgent attention to ensuring that all systems at national and provincial level were operating through the DDGs. The CFO would have to give urgent attention to the financial aspects and Internal Audit.

3.  Monthly financial statements must be submitted to the Committee and the Minister, and quarterly statements must be sent to the Committee.

4.  Over the next three months, the Committee would engage further with Treasury and DHA to get reports on how DHA had responded to the findings of the Auditor General and to obtain progress reports on capacity management, Internal Audit, management of funding, and all proactive steps taken.
 
5.  In regard to the cars, the Director General should investigate a better system on a contractual basis between DHA and the Gauteng Department of Transport. The systems and controls were currently inadequate.

6.  GPW and the Film and Publications Board (who had also been the subject of the forensic investigation)  would be called in to report at separate meetings.

7.  The Minister would be asked to share with the Committee how she and National Treasury intended to deal with the problems at DHA.

The meeting adjourned.