Sector Education and Training Authorities: briefings on Audit Findings

Meeting report

LABOUR PORTFOLIO COMMITTEE
21 June 2007
SECTOR EDUCATION AND TRAINING AUTHORITIES: BRIEFINGS ON AUDIT FINDINGS

Chairperson: Ms O Kasienyane (ANC)

Relevant documents:
Construction Education and Training Authority presentation
Construction Education and Training Authority Annual Report (available at www.ceta.org.za)
Manufacturing Engineering and Related Services SETA’s presentation
Skills Development Booklet
The MERSETA Career Guide Booklet
 
SUMMARY
Members of the Committee met with the Sector Education and Training Authorities for Construction Education and Training (CETA) and Manufacturing Engineering and Related Services (MERSETA), in order to discuss issues raised by the Auditor General.

The CETA presentation outlined the various actions that had been taken in order to address a number of issues. There had been an indication that this CETA was on a downward path, as it had received a disclaimer that the learnership data did not reconcile with the amounts paid out. Forensic Auditors had been appointed and payments had been reconciled to the invoices. Although the Annual Report claimed that the CETA was technically insolvent, with current liabilities exceeding the current assets by approximately R10 million, but this had allegedly been turned around by correction of the overpayments and amount of reserves. Questions asked by Members expressed doubts that the situation had truly improved, raised a number of issues relating to the agreement that the former CEO must leave, and examined the payments made to him as part of his leaving package. Members did not believe the human error elements had been identified fully, nor why the internal auditors had left, and these matters must be investigated by an independent outside auditor or by the Auditor General. The view was expressed that the performance of the Board was questionable, and further questions must be answered in writing

The MERSETA outlined the Auditor General’s findings in the 2005/06 report, and Interim management letter. The Audit Investigation was to review and identify the potential fraud risk and there was a detailed investigation into the awarding of various tender processes followed. The Auditor General identified non-compliance with Treasury Regulations, and the internal controls were fundamentally weak. Corrective measures were taken to address these concerns, including the revision and implementation of the procurement policy. Members were generally impressed with the briefing, including the response to the Auditor General, but enquired how many learners had taken up the courses, why the NSD targets were not met, the location of service providers, and progress in rectifying irregular expenditure. Further questions related to the scope of the training offered and the concern that artisans were not obtaining jobs.

MINUTES
Construction Education and Training Authority (CETA) Briefing
Mr Narius Moloto (Chairperson: CETA Council), Mr Teboho Thejane (Chief Executive Officer), and Mr Saul Nkosi (Chief Financial Officer) gave a presentation outlining the various actions that had been taken in order to address the issues raised by the Auditor General (AG) in the last audit report. One of the issues was whether the CETA was on a downward spiral, given the disclaimers in their previous report. That disclaimer was due to the learnership data, which did not reconcile with the amounts paid out. CETA had now appointed Forensic Auditors who had been tasked with cleaning up learnership information in order to ensure that all payments tied up to invoices paid. It should also be noted that all payments that were made had now been reconciled to the invoices.

According to the Annual Report the CETA was technically insolvent. The presenters stressed that this technical insolvency situation had been turned around, and this report had related to the fact that the current liabilities exceeded the current assets by approximately R10 million. Since the Standing Committee on Public Accounts (SCOPA) hearing on 07 February 2007, the CETA has put an effort in ensuring all necessary measures were put in place for a healthy operating organisation.

Discussion
The Chairperson congratulated Mr Moloto on his appointment as the new Chairperson and stated that it was good to see the construction CETA doing well. She asked for clarity on issues regarding the Small Medium and Micro Enterprises (SMME), Adult Basic Education Training (ABET), and also on the equity principle and governance matters.

Mr Thejane replied that there was an SMME strategy that had been approved by Council. With regard to the ABET, this training was one of the targets that the SETA was focusing on, together with the Department of Education. In terms of equity the SETA was still following the Growth Development Summit targets, and the SETA was planning on promoting the industry to ensure that women and youth came into it by choice.  

Mr M Mzondeki (ANC) stated that he had a suspicion that there must have been some human elements leading to some of the challenges that were faced by the CETA. Clarity should be provided on the issues regarding stipends and how these were affecting people who are on learnerships. The CETA should also provide reasons into why the past CEO and the SETA parted ways.

Mr Moloto replied that it was correct that there were human elements involved in many of the challenges that were faced, and the CETA had to step in and address the situation. It should be noted that these challenges had resulted in a change of management at the SETA. An agreement was entered between the past CEO and the CETA to part ways, as the Board felt this was in the best interest of CETA. The board felt that new leadership was necessary to correct the situation.

With regard to the stipends, the incentive system was implemented at a time where there was a lot of money, yet insufficient training was taking place. The incentives were therefore implemented to encourage employees to work.

Mr C Lowe (DA) stated that he understood that the construction industry was a very difficult industry to manage, however it should be noted that CETA’s audit report was diabolical. There were matters within the audit report that needed to be explained, such as what exactly happened to the previous CEO. The Committee needed to know whether the Minister should intervene as what has been reported to the Committee was in contradiction to what was reported at the SCOPA hearing. It should also be noted that Page 42 of the Annual Report provided a list of board members and some of their allowances. Clarity should therefore be provided on why some board members were not registered for tax. Page 61 of the Annual Report dealt with salaries, and clarity was requested on how many full time and temporary employees were within the SETA. Clarity was still needed on why an international firm walked away from the forensic audit. There needed to be a serious discussion on the role of the SETAs in general.

Mr Moloto responded that CETA had just received the forensic audit results and report shortly before it had to appear before SCOPA. It was stated at the SCOPA hearings that the issues were being addressed and all the issues that had been identified at the time had been addressed. CETA would like to assure members that it was never the intention of the board to do nothing to address issues but it would obviously have to identify issues first in order to act.  

Mr Thejane responded that some of the board members had tax numbers; however they were not yet available at the time the Annual Report went to print. The Committee could be assured that omissions would be printed in the new Annual Reports.

Mr Nkosi replied that CETA had discovered that the salaries were too high.  The salaries that were presented in the Annual Report were presented in terms of the staff complement, and it should be noted that the CETA had concentrated on the removal of staff and a change to the structure. With regard to the service, it should be noted that when the new management took over, there were two different databases but no cross-communication between them. The CETA could now report that the situation had been changed.

Mr O Mogale (ANC) stated that he was not happy with the response relating to the departure of the previous CEO, in that he had done serious damage to the CETA. Clarity should be provided on why exactly the Board decided to dispense with his services, as the issue was still unclear.

Mr Moloto responded that in the light of the situation that the CETA found itself, the CEO’s performance as an employee was not satisfactory. The board was of the view that there was a problem of leadership and there were issues that were arising from the miscommunication of systems and the forensic audits which seriously needed to be addressed. Legal action would have been very lengthy and costly to the SETA; therefore a decision to part ways was made mutually.

Mr S Siboza (ANC) asked CETA to comment on what remuneration issues were included in the agreement to part ways.

Ms A Dreyer (DA) added that the purpose of a parliamentary Portfolio Committee was to hold the government to account. Clarity should be provided on whether there was a disciplinary inquiry when the board became aware of the irregular actions that were taking place. Clarity should also be provided on whether the CEO was asked to leave or whether he left voluntarily.

Mr L Maduma (ANC) also asked whether there was still a possibility of instituting legal action against the former CEO.

Mr Moloto replied that no disciplinary action had been taken, because the action would have been a complicated and lengthy process. A financial agreement was made when the CEO left, in terms of which he was paid R1.5 million over a period of 18 months. The payment was stopped after a period of two months after new information of mismanagement surfaced. He therefore instituted a legal claim against the CETA and the CETA decided to counter-claim, after having then sought legal advice.

Mr Mogale asked the CETA to provide clarity on how much was paid to the former CEO before the payments were stopped  

Mr Moloto reiterated that the decision to stop payment was based on new information that was provided. The CEO had been paid R80 000 out of 1.5 million.

Mr Mzondeki asked the CETA to state whether it had a key performance area system that existed in the organisation.

Mr Moloto stated that the performance contracts were poorly structured in the past, and that the CETA was closing down the loopholes that existed.

Mr Lowe said that there were two issues that caused concern to members of the Committee. One was the departure of CEO, and the other was the departure of internal auditors. Both issues were related to the previous audit and it was not acceptable to state that things were now better at the CETA. The Committee would need to make sure that the allegations were investigated by an independent outside auditor or by the Auditor General.

Ms Dreyer asked the SETA to comment on the lessons that they had learnt and also to comment on how it planned to deal with similar situations in the future.

Ms L Moss (ANC) was of the opinion that the Committee needed to call the CETA back so that it could present a clear cut report.

Mr Mogale stated that some pages in the Annual Report contained recurring issues. The board’s performance had been questionable and the CEO should state whether he had trust in the board. The CETA should also provide clarity on whether it was aware of the criteria that were used by the Department to evaluate the CETA. If so, then it must comment on whether the board saw the CETA as going forward.

Mr Siboza added that there needed to be an emphasis on the human factor contributions, and that he was not satisfied with the explanations given by the Chairman on this matter nor the answers provided on role of the previous CEO.

The Chairperson stated that she did not think the CEO could provide members here with the answers needed, and the answers to the unanswered questions should be tabled in writing.

Mr Moloto summarized that the CETA was definitely improving, and that many lessons hade been learned.  All issues that had been raised had been noted.

Manufacturing Engineering and Related Services SETA (MERSETA) Briefing
Dr Raymond Patel (CEO) and Mr Anton Hanekom (Chairperson) of the MERSETA gave a presentation outlining the Auditor General’s finding in the 2005/06 report, and Interim management letter for the 2005/06 financial year. It was stated that the purpose of the Audit Investigation was to review and identify the potential fraud risk that the MERSETA was exposed to, and there was a detailed investigation into the awarding of various tender processes followed. According to the Auditor General’s findings, there had been non-compliance with Treasury Regulations, and the internal controls were fundamentally weak. It should be noted however that the MERSETA had taken corrective measures to address these concerns. Actions included the revision and the implementation of the procurement policy.

Discussion
Ms Dreyer stated that she was very impressed with the fact that the presentation included a response to the letter by the Auditor General. The report, however, should have touched on the core functions of the SETA, such as how many learners had taken up the courses and how many had been employed.

Dr Patel responded that the information regarding the core functions of the SETA in terms of how many people were trained would be provided with accurate statistics at a later stage.

Mr Mogale said that according to the National Skills Development (NSD) targets for 2005/06, it had been noted that 18% of the budget was spent. He sought clarity on why the NSD targets were not met. With regard to the service providers, clarity should be provided on where the five service providers that were established were located. The MERSETA should also comment on the progress that had been made in terms of rectifying the situation of the irregular expenditure.

Dr Patel stated that the 18% expenditure was correct, and that the financial performance of the SETA was average only, and should be improved. It should also be noted that the low expenditure was as a result of the funds that were allocated being spent over a number of years, owing to the nature of the learnerships. The SETA had also implemented a new programme which had been designed to develop artisans, and was also looking on how to get grants faster. With regard to the service providers, there were originally training programmes that were being implemented by large organisations, which worked closely with smaller organisations in federations. That situation had been changed. Currently the SETA was looking into working with smaller service providers through a voucher system. It should also be noted that the SETA was not happy with some service providers and their projects had to be stopped. With regard to the irregular expenditure the SETA tried to ensure that there was value for money, and the SETA had been managing the expenditure quite well.

Mr Hanekom added that the MERSETA had undergone a process in which a Chief Financial Officer was appointed. It was requested that the person appointed be a chartered accountant so that the finances would be efficiently managed.

Mr Siboza commended the MERSETA for its good report and stated that the Committee would wait for the next report in order to determine the progress that had been made.

Ms Moss stated that she was concerned about people in the West Coast who were trained as artisans yet ended up being unemployed.

Dr Patel responded that the issue raised was a situation where vocational training was required. There was a large project in the West Coast where the facilities were upgraded, and the Education Department was planning on rolling out the out some of the programmes in other colleges. The SETA did not want to see the learners ending up on the street, and most of the learners who had qualified from the training institutions were being placed.

Mr E Mtshali (ANC) asked for clarity on the length of the courses.

Dr Patel replied that the short skills programmes ranged from 9 months to a year, and the apprentice programme ran over 204 weeks, with an accelerated programme over an 80 week training period.  

The Chairperson commended Dr Patel for the good work that had been done and stated that the Committee hoped he could keep it up.

The meeting was adjourned.