Auditor-General's Report on Welfare: hearing

Meeting report

PUBLIC ACCOUNTS COMMITTEE WITH PORTFOLIO COMMITTEE ON WELFARE
5 April 2000
AUDITOR-GENERAL’S REPORT ON WELFARE: HEARING

Relevant Documents:
Auditor-General Report on Vote 37 - Welfare, Year ended 31 March 1999
Department of Welfare’s response to written questions

Departmental officials: Ms A Bester, Director-General: Department of Welfare; Mrs D Snyman , Director: Financial Management and Administration; Mr G A Gulston , Deputy Director-General: Department of State Expenditure; and Mr N J Marais , Deputy Director: Parliamentary Services: Department of State Expenditure; Mrs R Henning, Deputy Director: Financial Management; Ms E Swanepoel, Assistant Director: Social Welfare Services; Mr P L van Schalkwyk, Director: National Province Health and Welfare; Mr Ashley Theron, Chief Director: Developmental Welfare Services

In his introductory remarks, Mr A Feinstein, the Acting Chairperson, said that the narrow focus of the Standing Committee on Public Accounts is the management of public finances. The less-than-optimal use of that money through ill intent, inefficiency or inadequate financial management is a betrayal of all South Africans. This Committee, on behalf of Parliament, is the guardian of this money.

The Public Finance Management Act (PFMA), in place for all of five days, will significantly increase the Committee’s ability to hold to account those who spend public money. However, the current hearing on the Auditor-General's Report on financial management in the Department of Welfare will be in terms of the existing, quite limited Exchequer Act.

There is a massive disjuncture between the noble objectives of the Department’s 1998/1999 Annual Report and the Auditor-General's Report on the Department for that year. The Department is characterised by regular turnover of senior staff, preventing any continuity in administration; an inability for almost two years to date to attract an appropriately skilled person to assume the Chief Director: Financial Management post, the lack of which has contributed to poor financial management; and also a lack of capacity to plan coherently, to budget accurately, to exercise adequate internal control and to monitor agents who disperse or utilise public moneys on behalf of the Department.

These problems have been ongoing for four years. Mr Feinstein quoted from the Public Accounts Committee Report on Welfare for the 1996/1997 financial year:
"The Committee noted with deep concern the serious shortcomings in financial management and budgeting …at the Department of Welfare …The Committee is concerned at the extent of unspent funds surrendered by the Department of Welfare. In the 1996/1997 financial year the Department surrendered R52 331 000 million, representing almost 44% of its budget … the high rate of staff turnover in the Department and a basic lack of experience in many key financial management positions … financial management appears to be of secondary importance to the Department. The Committee recommends that the Department as a matter of urgency appoint appropriately qualified and experienced financial personnel, establish an internal audit section and appoint an audit committee."

The Department stated thereafter that it had implemented a project management approach for large projects to ensure efficient management of the allocated fund.

The Standing Committee on Public Accounts, the Portfolio Committee on Welfare and Department of State Expenditure must take some of the blame for the current situation .

The problems identified by the Auditor-General in his present Report are due to the Department’s lack of capacity, inadequate systems and poor monitoring. The purpose of this Hearing is to clarify the current situation, establish why it has been allowed to happen and then to gain concrete commitment from Welfare and State Expenditure that systems of management and monitoring have been or will be put in place.

Ms A Bester, the Director-General of Welfare, in her introductory comments said it is important for the Committee to understand the context within which the Department has operated. The Department of Welfare was established in 1994 by separating the Welfare function from a combined Health and Welfare Department New systems and procedures had to be established. The Department also had to rationalise about 11 different Welfare departments that existed prior to 1994. Since the introduction of the White Paper, there has been a shift from the traditional Welfare approach to a developmental approach that requires extensive consultation with communities to determine their needs. There has to be a lot of piloting and testing of new approaches, developing new programmes and enhancing systems and procedures. This work is project-based rather than routine and recurring kind of work. The Department has multi-year developmental and experimental projects such as the Poverty Relief Programme, the appointment of Financial Managers for National and Provincial Departments of Welfare, improvements to the social security system and the transformation of the Child and Youth Care System.

Although the budget process has been greatly enhanced with the introduction of the Medium Term Expenditure Framework, the budget process is still geared towards the routine and recurring work, rather than the multi-year special projects that are undertaken by the Department of Welfare. There can be a disjuncture between the project cycle and the annual budget cycle.

Further the provincial departments are the main implementers of the programmes. The success of these programmes is dependent on the capacity of the provincial departments. Several programmes are inter-departmental programmes. For example, Victim Empowerment Programme involves the Departments of Justice, of Safety and Security and the South African Police Service. With these consultation processes the lead times between acquiring funds and actually spending has expanded somewhat.

The Department has taken some actions raised in the previous Auditor-General's Report. For example, internal control has improved since the Finance and Procurement sections have been restructured. Two additional officials have been allocated to the Finance section to alleviate the staff shortage. They check on the status of the authorisation of payments. We have a Budget Committee that meets monthly to monitor expenditure and to make decisions on the re-allocation of the budget. The Audit Committee has been established and has met in September 1999, January and April 2000. The Financial Control Committee has been restructured. Procedures have been introduced to improve contract management. There are now specimen signature sheets. There have been difficulties in appointing an internal auditor so it is proposed to contract out the Internal Audit function, given the Department’s large budget. Managers have had briefings on the Public Finance Management Act. If officials fail to comply with Treasury regulations or Tender procedures, there is disciplinary action. The capacity of the Department has been noted as a problem over a number of Reports. The Department commissioned an organisational review and skills audit in December, and the report was delivered on 1 April. It is hoped that the audit will identify ways in which the Department can improve its service delivery and develop a comprehensive human resource development plan.

The Chairperson said they would first deal with internal control (para 3.1) and financial management (para 3.2.1) in the Auditor-General's Report and Questions and Replies (pp 12 to 14 and 53 to 55 in the Preparation document .

Mr I Davidson requested a copy of the review/audit. He asked for comment on the general capacity of the Department as there seems to be a pattern of no planning, inadequate systems, no proper budgeting, no strategy for the distribution of funds, vacancies in key positions (Financial Manager and Chief Director: Finance). How does the lack of confidence among the staff in the external mechanisms for the distribution of those funds, the spending agencies, affect the Department?

Ms Bester said that lack of capacity means not just numbers, but skills as well. The Department was restructured with effect from 1 April 1999. A number of those posts could not be filled because there was no funding for the posts. The change in the nature of the work means many officials require learning additional skills such as project management and financial management skills. Some people are new to Government, and that is quite a learning curve. The skills audit will identify what skills are in short supply and what can be done through training or by contracting in skills. The consultants identified the need for project management and financial management skills, the need for a strong internal audit function and skills in monitoring and evaluation.They plan to act on these recommendations very soon.

External capacity varies from province to province. The capacity in the NGO sector and in the various federal councils is also very varied. It is not just the capacity of the officials or the NGO sector, but also the communities. The lessons from the Poverty Relief Programme is that it is critical to build capacity at local level so that communities can make effective use of the funds. The national Department sees its role not only as building the capacity at national level, but also of the provinces, as they are the key implementers of welfare programmes.

Mr Davidson and Mr B Kannemeyer identified the inconsistency between there being various posts that need to be filled but are not funded and yet there is underspending of about R30 million on personnel expenditure alone. Their concern is that although there is the recognition of what has to be done, there does not seem to be the capacity or capability of the Department to actually do it. The lack of the appointment of a Chief Director of Finance was a classic example of the inability of the Department to get going.

Mr Feinstein echoed their concern about the seeming lack of attempts to build capacity internally and externally. Mr B Nair could not find any justification to request funds of R203 million when both the Department and the community at large lacked the capacity to spend these. Mr Davidson mentioned the incapacity of the Department to move forward on the Child Support Grant. He said he too failed to understand why the Department requested public money year after year with no capacity to spend it, thus taking money away from departments that could utilise it effectively.

Mr E Salojee said that the Director-General says there is insufficient capacity with the NGOs, yet poverty relief funds were passed on to the Independent Development Trust (IDT), and the IDT then did the distribution to literally thousands of these organisations. How did the Department establish that there was no capacity? If so, why did the funds go to the IDT for distribution?

Ms Bester replied that she had spoken of variable capacity - some are strong and some not so strong. It is the extreme poverty pockets in the rural areas where there might be limited access to very strong NGOs. This is where capacity needs to be built.

On the question of we say we cannot fill posts and yet we have this under-expenditure on personnel. The Committee will recall there has been a regular turnover of accounting officers and the Department has gone through a series of restructuring. There was a cut in the personnel budget of R10 million for the year 1999-2000. The Department received as part of a conditional grant to improve the social security system, approval to appoint highly-skilled financial managers for a period of two years in each province and at national level. The appointment process had to go through a tender process. There has been a long process of tendering, redrafting specifications and re-tendering since December 1998 with final tender approval only received on 16 March 2000. We can go into details around those delays. The point I am trying to make is that it is not that the Department sat back and did not think about the need for these financial managers.

The implementation of the recommendations of skills audit report is critical. Everything must pull together by June, at the latest. The implementation will have to move quite quickly and if necessary, we would seek assistance in implementation from other government institutions such as the Departments of Finance, State Expenditure and Public Service and Administration as well as the Public Service Commission.

Mr Davidson said that the severe lack of capacity in the Department should have been identified by the Department of State Expenditure who cannot escape culpability. They are required to monitor expenditure patterns in the departments on a monthly basis. This Department had to provide an explanation as to their lack of activity in this regard.

Mr G Gulston , Deputy Director-General: Department of State Expenditure (DSE) replied that it was not true to say they had done nothing and he wanted to clear the blame from the DSE. He also wanted to dispel the notion that the Department had been coming to the DSE year after year for money. The poverty relief money was given in 1998. It became quite clear that they were unable to spend the money, and as a consequence only R50 million was given the next year, and not the R203 million which had been intended. The DSE had organised for the Department to have spent the poverty relief money by the end of 99/2000 accounting year. Cognisance was taken that the money had been made available quite late in the year. It was unfair to expect this large amount of money to be spent in time as preparatory work and infrastructure needed to be put in place.

He continued that the press reports that there was a total of R640 million unspent, were untrue. At the end of March 2000, the total unspent funds were only R103 million. Where the error arises is that the press added up the unspent money for every year, ignoring the fact that the monies are rolled over into the next year for commitment. At the end of the year 98/99 the accumulative unspent funds were R353 million, which the Audit General has confirmed. Subsequent to that R250 million was spent, resulting in the present R100 million unspent.

Mr Davidson said that he was not satisfied with Mr Gulston’s response as it focussed on the poverty relief program only (and he believed his facts were slightly wrong on that issue). Mr Davidson was concerned about the department as a whole and the facts on page 4 of the DG's report speak for itself. The underspending of the department is rising Clearly no monitoring was taking place because then DSE should have intervened. What intervention mechanisms does DSE have when there is vast underspending?

Mr Feinstein added that for three of the past four financial years the savings significantly exceeded the adjustment estimate which reflects poor budgeting.

Mr Gulston spoke about what DSE is currently doing in moving forward. DSE had recognised that financial management is one of their core activities. They now have a function which would interrogate budgets more meaningfully, as well as the management accounts on a monthly basis, so that they can take timeous intervention. He said that the approach had been successful in pilot projects. He was confident that in future they will be able to pick up under or over-expenditure on a monthly basis and take the appropriate intervention. Their past intervention was quite significant in that the 99/200 allocation to the department was significantly reduced. He did not think it correct to say that there wasn't the appropriate intervention. Compared to the 95/96 trend, there was a significant improvement in 1999/2000. He was confident that the hiccups were over.

Ms Bester responded to the concerns raised on why the department asked for money when it had not spent previous money. From 1996/97 there was a steep increase in under-expenditure. That is where all the special multi-year projects started. The conditional grant for improving the social security system is to run over more than one year. The welfare payments and information system project is a three to five-year development to improve and bring technology into welfare payments. There is also the development of a financial interface system that will automate reconciliations of the pension payouts and provide accurate information on beneficiaries and payments. It has to roll over a period. That is not to say that we should not improve our planning.

On the poverty relief program itself, she said that the department had been allocated R203 million on the basis of a broad proposal. The department did later go through a detailed planning process and approached the DSE to approve a business plan that would roll over a period of three years instead. In that way the DSE would also be sensible and not give the Welfare Department another R203 million immediately the next year. In this way, they did submit early warning reports to the Department of State Expenditure.

Mr Davidson said that the point Ms Bester was making was that the intervention was as a result of the Welfare Department themselves and not the DSE intervening.

Ms B Marshoff asked for the programs under which the money had been spent as she could not comprehend that for three years the department had not been able to spend money and then all of a sudden between January and March 2000 they had the capacity to spend R250 million. She wanted clarity on what had happened to the money.

Mr Kannemeyer said that Parliament does not vote money in a particular year to a department to spend over three, four or five years. Multi-year programs are accommodated in the MTEF. Also, there is a problem with the budgeting processes, either between the Department of State Expenditure and Welfare or the overall processes in Parliament. Twice a year, September and January, the DSE should get detailed reports on the budget spending from the departments. It is a question of how the spending patterns are going to be monitored. The department is supposed to provide the DSE with monthly expenditure patterns which your department can monitor. The motivation for the poverty relief money was based on a very broad submission. On that very broad submission the Department of State Expenditure gave R200 million. There are other departments which might have been able to spend this money and effect delivery at other levels. I think that is the concern of the committee. Financial management procedures and mechanisms do have an impact on service delivery. The Directors-General must prevent under-spending.

Ms M Coetzee-Kasper asked is it not the Department’s task to make sure that there are financial managers already in place instead of first voting for the money and then getting people to tender for these kinds of posts?

Mr Gulston said that in the present cash basis of accounting, work in progress or commitment is not accounted for. This is something which has to be recognised. It will go over to an accrual basis of accounting, we will obviously accrue for commitment. That has to be taken into consideration which will impact on expense patterns.

Mr Davidson asked if the Chief Financial Director has now been appointed as the process began in June 1998. There was now an attempt to hire financial consultants. What is the inter-relationship between the two? What is the purpose of the financial consultants? Is it not costly? What assurance is there that there will be a skills transfer from the consultants to the department? He questioned the capability of the Budget Committee and Audit Committee which had been in place for at least one year and still there is a mess. Now another Financial Control Committee is in place. Will they actually achieve anything?

Mr Kannemeyer asked if Internal Audit Section had now been established. In its three meetings, has the Internal Audit Committee given any attention to the effectiveness of the internal audit function? In the DG’s written response, she stated that no internal audit function currently exists. She also mentioned contracting out the internal audit function. How long is that going to take? When will someone be able to report on the effectiveness, efficiency and/or lack thereof of the internal audit function? He continued by asking how financial management consultants are going to be appointed if there is a lack of qualified people. There are about 108 vacant Department posts. If the staff are not in place, and management consultants are appointed, how does this affect skills transfer?

Ms E Gandhi believed that outsourcing and appointment of consultants was more expensive than appointing somebody in the department. There is more chance of a transfer of skills happening within the department.

Ms J Chalmers wondered what steps are being by the department to attract the skills and capacity that is sorely needed. She believed that the problem with consultants is that there is a lack of continuity. She felt that an ongoing, competent financial manager would have a better chance of solving the problems than a consultant.

Mr Davidson asked the Departments of State Expenditure and Public Service and Administration for comment on the precedence that this creates in bringing in financial consultants to fulfill a function of this nature. It must have some significance for the rest of the public service, that you can outsource in this regard.

Mr M Masutha said that the skills audit focuses on skills but what about the motivational level of the staff. To what extent is the Director-General satisfied that she has a department that is endowed with highly motivated staff? Secondly, to what extent is she satisfied that the management that she has in the department has the ability to manage effectively so as to achieve the set targets of the department?

Ms Bester said that it is not just a skills audit but an organisational review. From my experience as a manager the best way to motivate people is for them to have goals, priorities and lines of accountability that are very clear and be rewarded for good work and sanctioned for non-performance. When we talk about the skills audit we are looking at the issues of culture and transformation. The transformation efforts of the department need to be placed high on the agenda. It has been somewhat dissipated and mainstreamed into the systems and the procedures, and there has been insufficient account of the people in the organisation. So changing the way in which we are managing the transformation of the department is critical.
Internal communication is also an important part of the management and motivation of the department. On the management capacity of the department. You have to be multi-skilled as a public sector manager and it takes time. We have started implementing a management development program for the managers in the department.

On concerns about the outsourcing of the financial management: It is only for a two-year period to allow the national and provincial departments to build their capacity. Skills transfer is built into the process. 241 posts are filled at present, 60 posts are vacant. There are 5 posts vacant in the finance section, which is of concern. The new public service regulations require that all vacant posts after 1 January 2000 are subject to a proper job evaluation. Thus the committee should expect some delay in filling these posts.

On the functionality of the various committees: Since her appointment in November as DG, Ms Bester had found the interaction with the Audit Committee extremely useful and she had been given sound advice. On the Budget Committee: Ms Bester said that she had changed the way it functioned since January 2000 to include not only discussion of budgets but also the programs, the key activities and the priorities as budget and programs cannot be discussed separately. So, it is still in the experimental phase. One needs time to interrogate the Program Managers about their state of expenditure and link it to a system of reporting against the business plan. It is of little benefit to the DG as the Accounting Officer if a Program Manager says that he has spent a certain amonut of money. Rather what was it spent on and what has been the impact in terms of the program? Ms Bester said she has integrated those two committees. She wants to introduce a system whereby the meetings become a two or three-day quarterly review of expenditure, to see what money should be shifted, and if State Expenditure needs to be alerted that the Department is going to need more money. It is very important to review progress against the strategic plan on a quarterly basis. That in turn links to the performance management system of senior managers. Their performance in terms of financial management and delivery of programs is also reviewed on a quarterly basis. Ms bester said she believes in connecting these two: developing an overall system of managing the performance of the department as an organisation and the performance of individuals, and being able to hold people accountable for what is there in their performance contracts and to be able to deliver.

On the Financial Control Committee: the equivalent in other departments is the Departmental Control Committee which deals with all those expenditures where Program Managers do not have delegations (a delegation is limited to 30 000). It also deals with contract approvals and writing off of losses. It is the channel for communicating to the DSE for special approvals. It includes the two Deputy Directors-General who can also keep an eye on what is happening in terms of finances.

The Chairperson said that they assumed that the DG would inform the DSE if you were unable to spend allocated money. He requested an organogram of how Financial Management is now being undertaken in the department.

Mr I Davidson asked Ms Snyman if she was the Chairperson of the Audit Committee or is she just on the Audit Committee?

Ms Snyman said she was part of the management side of the department on the committee. The appointment of financial managers through a consultancy firm for a two-year interim period was considered after we acknowledged the major problems in financial management both nationally and provincially. About 90% of the welfare budget is spent on social security, which is in excess of R17 billion. It places a very large demand on financial management. Through this tender we will obtain not only financial management skills, but also forensic audit skills, internal audit skills, computer auditing skills and procurement specialist skills. By the second year the provinces as well as the national department should have made some progress with regard to the appointment of a skill person to take over the financial management functions. With regard to the Audit Committee finding it difficult to comment: it needs to be highlighted that the Audit Committee has met only three times, the first was only for logistical arrangements; the second was to start understanding the business of the department with presentations from Program Managers; the third was to discuss urgent issues around the audit report and so forth.

Mr S Leeuw noted that Ms Snyman had said that after two years, the department should have been able to appoint skilled persons both nationally and provincially. How are you going to do that, because the national department has failed to find a suitable person in three years? What are you doing to develop the internal skills so that if there are none from the market you will be able to fill those positions competently within the department?

Mr Kannemeyer asked the Director-General to ensure that this committee gets the report from the Chairperson of the Audit Committee on the effectiveness and efficiency of the internal audit function, as well as the Audit Committee's reflection on the effectiveness of the internal control systems within the department? There have been three meetings. At some stage you must get down to the work so that even when the financial management consultants are appointed, they start from what is the current situation. I would want us to get a timeframe as to when we can expect that.

Mr Saloojee asked how many posts at very senior levels are vacant and for how long have they been vacant? The Chairperson asked for these to be submitted in writing. Mr Davidson asked for the organisational review and skills audit document.

Ms Bester said that they would certainly submit both the review and the report on vacancies. She would ask the Chairperson of the Audit Committee to do a report to this committee. She agreed that to fill the financial management posts after two years is a huge challenge but she was cautiously optimistic. One of the first things that needs to be done is to stabilise the organisation. It is very difficult to attract and retain people, when the organisation itself does not seem stable. A more positive image needs to be projected and with optimism on the part of the Director-General, things can change.

The Chairperson asked if the Financial Manager in place at the Chief Director level?

Ms Snyman acknowledged that the Chief Director is not yet in place. We hope to fill that post within the next two years. With regard to capacitating the internal staff, there are a lot of opportunities given to the internal staff to attend meetings provided by the Institute for Public Finance and Auditing. Currently there are also courses from the DSE on budgeting. We not only capacitate the people in the finance section, but also the Program Managers and the line functionaries. This year focus will be on the implementation of the Public Financial Management Act and the new Treasury regulations.

Ms A Bester said that there was an attempt to recruit the Chief Financial Officer, but there were no suitable candidates. She believed it relates to the level of the post. This issue has been taken up in the organisational review. Filling the Chief Financial Officer position should be number one priority.

The Chairperson said that this committee believes the Chief Financial Officer is absolutely critical. None of these problems are going to be sorted out, regardless of how many consultants you employ, without a Chief Financial Officer. The notion that at some point over the next two years such a person will be appointed is totally unacceptable. A reasonable timeframe needs to be discussed and put into the committee’s resolution.

Ms Marshoff concurred that the Financial Manager has to be in place for proper accounting procedures to take place. She wanted clarity as to the Department’s response that the unspent amounts on specific projects would have been spent by the end of March 2000. This also links to the R250 million which the DSE said would have been spent by the end of March. On the transfer of money to spending agencies, we have been told that some of the money has been transferred to the Independent Development Trust (IDT). What is the total amount of money given to the IDT to spend on these projects. Has there been an assessment of whether the IDT has the capacity to spend this money? Have the funds been transferred with full accountability and responsibility, or are they still required to report back to the department on how this money has been spent? Is the transfer from the Welfare vote to the IDT a true reflection of moneys that have been spent, or is it just an accounting procedure to say that the money on our books have been transferred to the spending agency and on the face of it, this money has been spent. The repeated responses is that there is no capacity or skills for this money to be absorbed effectively.

Ms Bester said that the role of the IDT (at no cost to the department) in the Poverty Relief Program is essentially the disbursement of funds authorised by the Department of Welfare. The IDT does not make decisions on which projects should be funded. That decision is made by the national and provincial Departments of Welfare. They can only disburse funds to projects when the national and provincial departments indicate that those projects are ready to receive funds. The money is not just parked in the account of the IDT but disbursement has been taking place to projects. In March 1999 an amount of R81,2 million was transferred to the IDT as a first tranche payments of projects. That is around about 40% of the R203 million. The second tranche of R110 million was disbursed to the IDT on 14 October. That is from the original 1998/99 allocation. From the 1999/2000 allocation we transferred R14 million to the IDT for the payment of cluster coordinators. The money is not sitting there, it has been spent. At the end of February 2000, 67% of all the money that has been transferred to the IDT had been disbursed to projects.

Ms Marshoff said the IDT has the administrative and financial capacity to do the project management. Will the provinces eventually be able to perform the duty that the IDT is now performing on their behalf. Does the DSE have plans in place to manage the projected under-spending for the coming year? We do not want to see the same pattern repeat itself . The Poverty Relief Programs within the department have been identified as areas that really need to concentrated upon. The Child Care Grants, the Secure Care Programs, the Youth and Children at Risk Programs are all programs where money is not really being spent, be it from a lack of financial management or a lack of commitment by the officials overseeing these programs.

Mr Davidson noted in the DG’s written response on page 33: "Approval from the Department of State Expenditure was only obtained on the 3 March 1999." So although the money is voted, approval for the expenditure is only given 28 days before the end of the financial year. That highlights a systemic problem. It is impossible to spend that type of money in such a short space of time. He asked the DSE to comment where the problem lies if the money is voted in October in respect of the adjustments estimate, yet there is all this time before final approval is given. Not that this excuses the department because obviously plans should have been in place for the expenditure of that money anyway.

Ms Mampie asked the department what monitoring mechanisms are there to ensure that eventually the funds get to the end user after being disbursed by the IDT.

Mr P Gerber said that they often hear provinces blame central and central blaming the provinces. Provinces go to the national department to have projects approved. The Western Cape Department applied for more than 300 projects of which only 135 were approved. Over 60% of their projects were rejected. There must be a big problem if 60% are rejected. It has a demoralising effect on provinces. He asked how many projects in total from all nine provinces are rejected by the department?

Mr Leeuw said that the province is not really part of the fund application process. The applications for funding are sent to the national department. After the application has been sent to the national department, the province does not hear anything from the national department to confirm whether the project has been approved. Even the people who have applied for the funds, they won't know except through their bank statement. Those are the problems with Poverty Relief. Ms Bester said that the IDT does this job at no cost. But what about the interest earned by the money deposited in IDT’s bank account?

Ms Marshoff asked the DG for the amount that has been transferred to the IDT account and what percentage of the 1998/1999 unspent funds has gone to the IDT? What percentage of the money transferred to the IDT was actually disbursed up until the end of March or up until January, or whatever timeframes you have available.

Ms Bester said that she had already answered the last question. R81,2 million was transferred to the IDT on 31 March 1999. In October 1999 an amount of R110 million, which represents a second tranche, was transferred to the IDT. The department obtained approval to roll this over to the 1999/2000 financial year - but let us refer to that part simply as the R203 million. Of the R40 million that was the original allocation for the 1999/2000, R14 million was transferred to the IDT in September 1999. The figure given for disbursements that the IDT has made from that total amount was based on 28 February figures, because they are the most accurate figures.

Ms Marshoff said that the DG refers to the R203 million which was disputed earlier on by State Expenditure, and they said it is no longer R203 million, because you were given the R50 million. This is where the confusion comes in. You refer to R203 million. State Expenditure says it is not R203 million. There is a R50 million and then there is a R153 million and then it becomes a R100 million. Can you clarify that please?

Ms Bester said the 1998/1999 allocation was R203 million. As reported in the Auditor-General's Report, by 31 March 1999 the department had spent about R50 000 so for the Poverty Relief the amount not spent as reflected in the Auditor-General's Report, was R202 950 000. Now comes the allocation for the 1999/2000 Poverty Relief of R50 million. DSE took away R10 million of that so that the department did not sit with too much money. At the time of the adjustments appropriation in November 1999, that gave the department R242 950 000 for Poverty Relief (1998/1999 added to 1999/2000). From that pool the amounts referred to earlier have been transferred to the IDT. The last 10% tranche to the IDT will not be transferred until the department is comfortable that the projects are stable. From the R40 million the department has earmarked R9 million for the Integrated Rural Development Strategy. There is an amount of R16/17 million earmarked for new national and provincial projects, but the department is still in the process of assessing those projects How much is unspent? You mentioned the figure of R103 million. The Department of State Expenditure was making a statement in reference to the article that appeared in the Business Day and how erroneous it is to look at under-expenditure in that way by simply adding the under-expenditure each year.

Ms Marshoff said that the R103 million is what DSE said was the correct unspent amount of money (rather than the accumulative figure of R604 million reported in the media). I want to know whether you refer to R203 million and they refer to R103 million and they said that there is R50 million that has been spent. That is the type of confusion that I was trying to clarify.

Ms Bester clarified that the figures that DSE mentioned are not only the Poverty Relief funds but includes others and is the projected amount to end of March 2000.

For further clarity, the Chairperson requested the figures for the 1999/2000 unspent amount for Poverty Relief as well as the unspent amount of the department's total budget.

Mr Gulston replied that at the end of March 2000 the projected unspent money is R103 million of which R37 million is Poverty Relief. The R50 million that Ms Marshoff is referring to was the Poverty Relief allocation in the year 1999/2000.

Ms Bester replied to the question about the interest realised from funds sitting in the IDT's account., saying only the Department of Welfare can use the interest, the IDT does not use the interest to cover their own costs.

The Chairperson asked what is the interest that they are earning on that money?

Ms Bester said that the interest balance for the IDT's account as at the end of January 2000 was R5 932 944. The interest is used with the approval of the Department of State Expenditure to cover certain projects and initiatives, such as a communication strategy on the Poverty Relief Program, some training for the use of consultants to do various assessments. The conditions under which we may use the interest are very clear.

The Chairperson requested in writing the average rate of interest earned on unspent funds over this period as there is an opportunity cost in the money not being used.

On the question of whether there is commitment amongst officials to really deliver on the Poverty Relief Program: Ms Bester replied that when the funds were made available in October, the department called for projects and in excess of 2000 project proposals were received by the department. A handful of officials in the department worked feverishly over Christmas and New Year to assess those project proposals by means of a screening process to ensure that the projects were consistent with the objectives of the Poverty Relief Program. She believed this bore testimony to the commitment on the part of these officials. After project proposals pass that screening, they are allocated 40% of the funds as the first tranche. Before the remaining payments are made there is a thorough assessment as to how those funds have been spent.

A large part of project proposals do come through the provincial Departments of Welfare. A number of these projects were not approved for reasons such as there were often difficulties with details around the projects and concern that they are not consistent with the objectives of the Poverty Relief Program. The Department realises that although it does have criteria, it does need to sharpen up on the targeting of poverty pockets to ensure that the money goes to the areas where it is really required.

Ms Bester said that she would want to check the figure that 60% of the Western Cape projects were rejected as indicated by a committee member and respond in writing to that. Provinces are certainly part of the process and he had noted the complaint by a committee member that information on project approval or non-approval does not seem to be flowing smoothly back to the provinces. She would look closely at that. How the process works is that once the project is approved, the IDT is notified and the province is involved in that process as it has to be the authorising department for the payments.

Ms C Ramotsamai asked what mechanisms are there to monitor that the money reaches the end-user? Do you have a record of the projects that have collapsed, since they received money and what has been done about that. Are they all still operating?

Ms Bester said that before the payments were made, the project proposals themselves were assessed. She believed that there were site-visits. With the second tranche, there is another assessment, looking at the work already done in the project, as well as financial reports. In that way, there is a rudimentary mechanism. Of course a more detailed evaluation of the programme is needed. The audit of the R50 million Poverty Relief programme has just started because enough time has elapsed to check if those projects are still in place, did they fulfil their objectives, have they gone from strength to strength and exactly how the money was used in much more detail. The audit report is expected on 2 May. It will give us a lot of insight into the medium-term impact of the Poverty Relief programme. The IDT has a database of all project funding, and they keep track of the exact dates that payments were made to the various projects.

Both Mr Davidson and the Chairperson asked Mr Gulston to explain the systemic problem that the DSE approval to the department to spend their money only came through 28 days before the financial year ended.

Mr Gulston said that he did not have the information available with him because he had only became aware of this when the question was asked. He asked to respond in writing.

Mr Davidson had to accept this but said the Director-General is saying categorically that DSE approval was only obtained on 1 March 1999 for the R203 million to be spent, and that is 28 days before the financial year-end. Is it because the department is failing to motivate that expenditure properly with the DSE, but why does the DSE have final authority over it, especially when that money has already been approved for expenditure, or is it a problem of the DSE not exercising its functions properly in this regard?

Mr Gulston said that he did not think it was precisely to what the member was alluding. He was not aware of this until now so he needed time to work with the DG on this aspect.

Ms Bester explained that 'the approval' was referring to the Business Plan. That business plan has a very important element - no money could be spent until the disbursement mechanism was finalised and also the managing structures. It was not as if the DSE was saying you cannot spend the money, but it would have been irresponsible not to have had the detailed business plan and the disbursement mechanisms sorted out. She said that the DSE will follow-up on this.

Mr Davidson followed up, saying that then the responsibility comes back to the department - it is a ball that is being thrown backwards and forwards here. If a specific disbursement mechanism needed to be put in place, surely these disbursement mechanisms should have been put into place right at the outset when motivating for these programmes, and not when the money was voted.

Ms Bester said that the previous disbursement mechanisms was the department's own system, but given the large amount, she did not think it would be a responsible approach not to look at alternative disbursement mechanisms.

The Chairperson commented that he thought they were going around in circles and they were not hearing satisfactory answers. He was not confident that there was not going to a repeat of the situation. The nub of the issue, the question we need to ask both the DG and the DSE: is this going to recur, why is it going to recur, if not, what has been put in place to ensure that it is not going to recur?

Mr Gulston said that the spending aspect is the departments' responsibility and the DG will have to respond to that. On the funding side, the DSE is quite clear that it will only fund sound planning from the department. He had joined the DSE in September 1999 and had realised that it lacked the type of capacity to do thorough interrogation of budgets and management of accounting. They have developed a type of expertise which in the pilot projects worked exceptionally well. He was confident that they will manage to ensure that they fund only department programmes where delivery will take place.

Ms Bester said she was aiming to ensure that the problems do not recur. The first priority is to appoint the Chief Financial Officer as this is a key problem. With regard to the management of the Poverty Relief programme, a number of actions have been taken already. The Minister and the MECs have been in extensive consultation, looking at some of the problems. The intention is to have a plan finalised by early May as to how the Poverty Relief programme should be managed and what disbursement mechanisms should be used, since the IDT has been contracted for a limited period. Also it is critical that everything must comply with the new Public Finance Management Act. There is also a tight time-frame around the implementation of the organisation review and skills audit.

The Chairperson said that they were sympathetic to the fact that both the DG and Mr Gulston had been in their jobs only since the last quarter of 1999. However there needed to be a system in place that will adhered to, regardless of changes in personnel. In the Committee’s resolution, there should be a request to the two departments that they put in place a document that identifies fully the systems that will be in operation from both the DSE and Department of Welfare's side, with respect to the disbursement of project-related funds. That document would be the basis for Parliament to monitor the financial management of the disbursement of funds

He continued that the other issue that remained related to the capacity of agents, be they provinces, NGOs, organisations etc. What are the plans for building that capacity and in what sort of time-frame. He suggested this might be in the form of a document that sets out such a programme that this committee could then look at.

Ms Bester agreed that they would like to come back with a document on that as it involved consultation with the provincial departments. They were in the process of drawing a holistic Human Resource Development Strategy, for both national and provincial.

The Chairperson noted that with that understanding reached, members be succinct
If there were any specific issues they needed further clarity on.

Ms E Ghandi asked for clarity because initially the DG had said that the IDT would be the disbursement agency and R40 million had been allocated for training the cluster co-ordinators. Subsequently, the DG had said that the use of the IDT is only temporary.

Ms Bester replied that the R40 million was for the fees of the cluster co-ordinators who worked on the projects and it was not for any capacity building.

The Chairperson said the answer was unclear and asked that her document include who is used as the disbursement agent, and over what time period it was planned to use them.

There were a number of questions relating to the R5 million interest which the Committee agreed to allow the DG and Mr Gulston to answer in writing. These were: How does the IDT pay back the interest? Knowing that there was a history of underspending, what criteria did the DSE use in giving permission for the use of the interest? Mr Chiba believed the interest should have gone to the revenue fund.

Mr Kannemeyer proposed that as a way forward, any remaining questions relating to specific detail be forwarded to the Public Accounts Committee. The sub-committee that had prepared on this report had two remaining issues that still need to be addressed.

The Chairperson ascertained that this was acceptable to the Committee. The basic concerns around financial management had been identified. The only way forward on the underspending was to obtain a clear outline of systems, from the DSE and Department of Welfare jointly, that would be put in place to prevent a repetition. There might be a need at that point for an additional hearing. The next issue is unauthorised expenditure and asset management .

Mr R Ndou referred to the unauthorised expenditure of R135 859 and R37 692 respectively, where State Tender Board directives not adhered to and the latter amount was paid to a consultant after his contract had expired. He asked the DG to elaborate on the areas you have addressed since you have been appointed. On asset management, the following questions were put to you: why the records in respect of assets were not regularly updated, what progress had been made with the updating of the assets register. During your deliberation in updating your records, what state losses were incurred. Also elaborate on what you said in one of these documents, 'time consuming tender board responses'.

Ms Bester said she had outlined earlier how she had improved the internal control in the department. She had ensured that additional officials had been allocated to the financial section. She had restructured the budget committee. She had ensured that officials are informed of the tender procedures that they have to follow. All programme managers and responsibility managers had the manual on procedures that they are expected to follow. She had instituted disciplinary procedures where required. While the audit committee was established prior to her joining the department, she had been present at the substantial meetings and had made use of the audit committee to assist in the financial controls.

Ms Snyman expanded on this response: With regard to unauthorised expenditure, Tender Board procedures were followed up to a certain extent, whereafter the State Tender Board was requested for a deviation from normal tender procedures. They indicated that certain procedures needed to be complied with. So it is only a matter of technicality, it is not a serious case and the outputs were delivered as requested. The second one was in connection with an unauthorised expenditure to a consultant, where the contract had already expired. That was due to an extreme priority with regard to the re-registration and clean-up process and there was only a month's extension of the contract. Yet again it was more of a technicality. However it is acknowledged that the State Tender Board was not asked for ex post facto approval, and the department will ensure that that is obtained.
With regard to the assets: during the time that the department was audited, the department was simultaneously being restructured around the new organogram. There was much movement of furniture and assets and some were identified for disposal. This occurred during the Y2K process was being executed with the replacement of computer equipment. All items identified for disposal were done in terms of prescribed disposal procedures. To strengthen the asset management in the department, we were privileged to be one of the few departments that started implementation of the Logis system, a computerised logistical information system that enhances asset management. What is important is that during the Y2K process, we drew up an interim register on all computers, and we do have a proper record of that.

Mr R Ndou pointed out that his question on asset losses had not been answered.

Ms Snyman said that they will answer in writing to the Committee on that specific issue.

The Chairperson stated that the final matter from the AG’s report was fruitless expenditure and control of donor funds.

With regard to the fruitless expenditure: Mr Kannemeyer stated that the State Attorney had advised the department that the dismissal of a certain consultant had been unfair and that the consultant should be reinstated. The department ignored that advice and continued to appoint another consultant. The department, however, still had to pay the first consultant as it was an unfair dismissal. Was any action taken against the particular official responsible? The State Attorney themselves stated that no official could be held liable for the loss but certainly there should be one particular line function official responsible for ignoring the advice of the State Attorney. Is there an answer for this, otherwise we need to follow-up this up with the State Attorney’s office - on their apparent inconsistency in dealing with this matter.

Ms Snyman said that the first State Attorney’s letter had stated that it would be an unfair dismissal if they did not reinstate the person. However the last paragraph had stated, "that I am further of the view that no person or official can be held liable for the loss in terms of Treasury Instruction W9.1".

Mr Kannemeyer asked if any investigation was done within the department to establish whether someone could be held liable?

Ms Bester said that to her knowledge there was no investigation but she would do a thorough check of their records.

Mr Kannemeyer agreed to this. He said that the Committee was fairly satisfied with the replies and the assessment around the control of donor funds because apparently there have been new regulations on the receipt of donor funds. That is one area where there are no questions. The next issue is about a firm of auditors who were to investigate funds allocated to a specific project. Would it be correct to say that this type of process is similar to the IDT process?

Ms Bester said that the process was not similar to sending money to an organisation like IDT and then disbursing it from there. The process is managed by the department.

Mr Kannemeyer outlined the chain of funds transfer for distribution from the department: The department receives the money through the allocation. For special projects, it is then transferred to IDT, which in turn on the basis of getting applications from the different provinces, disburses the money to the provinces, which in turn disburses the money to NGOs or community-based organisations or the IDT directly to the NGOs, then only does it reach the intended beneficiaries. He asked where the cluster coordinators fitted in or are they irrelevant to this chain?

Mr Kannemeyer went on to identify a particular area of concern: the monitoring and evaluation of the proper use of funds that are given out to NGOs. He said there is a gap in the current mechanism for the evaluation of monies paid out. The department is busy with the evaluation of the 1997/1998 allocation of R50 million to projects. This will establish whether those funds reached the intended beneficiaries. However the evaluation is only taking place after another R136 million has been paid out by the IDT to NGOs and beneficiaries. Some of these might well include people who received money under the R50 million disbursement. So there may be organisations that have received money as part of the R50 million allocation that did not use the money properly or defrauded it and thus the money will not have reached the intended beneficiaries. These very same organisations may have received money again through the R136 million allocation. The Committee believes that you will manage to turn around the situation of unspent funds but the department ultimately remains responsible for the proper use and application of those funds. Thus the next challenge comes in the monitoring and control of funds that go out to NGOs. What would you consider doing in terms of breaching the gap of evaluating money that is being issued?

Ms Bester clarified that when payments to projects are authorised, the IDT disburses the funds directly to the project or NGO - it does not go via the provincial department's budget. On the question of the auditing of the R50 million and the other money that has been disbursed, the State Tender Board approved a restricted tender to do an audit of R203 million, the tender specifications are drafted, bearing in mind that the disbursement mechanisms are different for the two amounts. The Audit Committee advised that the preliminary findings on the R50 million audit be first reviewed to see whether the specifications need to be tailored. So there will be an audit done this year on the money that was disbursed subsequent to the R50 million allocation.

She reminded the Committee that there is a system of tranches. Before a second tranche can be paid, the projects have to go through a thorough assessment which would establish if the project does not have the capacity to spend. Where problems are identified, corrective measures are requested. There could be recommendations to the project to alter certain things or in one or two cases for a detailed financial audit to be done before any further payments are made. Where required, forensic audits have been done. It is only the Poverty Relief funds that flow through IDT.

Mr Kannemeyer requested answers in writing to the following queries: The current evaluation measures before the first tranche is allocated? Only after that payment, is there an assessment as to the sustainability or ability of NGOs so what are the financial control requirements that the department places on these NGOs? Are their financial statements audited or are the statements drawn up by someone within that NGO? This information would be useful to the Committee in considering whether there are loopholes in the financial accountability.

With regard to the Inter Ministerial Committee on Young People at Risk, it is important to know if the department has rules and a regulatory framework on how this money should be spent. It is very alarming on page 8 of the AG’s Report where a person who is not a government official has countersigned numerous payments. It would be in the interest of this Committee to get more detail on that. The written reply was that the matter is noted and is being corrected. But, in terms of following up, it is important to know the steps that were taken, who the individual concerned was, the amount involved, and how it happened. Relating to all the other matters under IMC, it is a question of what steps were taken to deal with the identified shortcomings and malpractices. It is important when maladministration is detected, that appropriate corrective measures are put in place. Also, if money paid out irregularly, what steps were taken to recover the money?

Mr Leeuw asked whether the DSE had finally prepared the guidelines on donor funds. [Mr Gulston later handed over a document on the guidelines on donor funds].

In her answer, Ms Bester provided the context to these findings. She said that the findings in the AGs report are from the audit that was initiated by the department. She was not sure to what extent the Auditor General’s Office interrogated the findings themselves. At the time of handing over the report to the AG, the department’s audit committee was in the process of analysing the report and drafting specific actions to be taken. A number of actions have been taken, and these will be provided in writing.

The Chairperson made reference to the Mafora case: What are the timeframes for the resolution of this issue and how widespread are such alleged activities in the department?

Ms Bester said the investigation is in progress and it is being given high priority. From the time that she had been in the department, she did not believe such untoward activities were widespread. She agreed that there needed to be good mechanisms in place to monitor the conduct of officials as well. The auditing of the R50 million might also pick up some incidents but they would inform the Committee on the outcome of investigations and if any disciplinary action has to be taken.

Before concluding, the Chairperson asked the Chairperson of the Portfolio Committee on Welfare, Mr Saloojee, if he would like to make a comment.

Mr Saloojee said that it had been very useful for their committee to have been present at the hearing. The DG is in agreement that while probing some of these problems more deeply that there be more briefings of this kind. The Portfolio Committee on Welfare would continue with the process that has begun.

The Chairperson said that Auditor General’s Report provided massive challenges to the Departments of State Expenditure and Welfare. They are challenges that must be met in order to ensure that the most vulnerable in society see tangible improvements in their lives. The additional information needs to be provided within two weeks with the exception of some documents which require a longer timeframe.

This information includes:
an organogram of the financial management structure in the department,
a list of vacancies,
the length of time that the posts have been vacant,
the report from the Chair of the Audit Committee on the functioning of the internal audit within the department,
the organisational audit review and skills audit,
the average annual interest of the unspent funds,
the Western Cape figures,
any asset losses that might have occurred,
records on the fruitless expenditure issue around the consultant,
the current measures or criteria before the first tranche of monies are allocated,
the IMC and the range of requests that Mr Kannemeyer made project evaluation,
- the donor fund guidelines (which has now been handed to the Committee by Mr Gulston).

There are certain things that are going to be the minimum that this Committee will expect:
- The issue of the Chief Financial Officer, which underpins so much of what we have discussed today. That person needs to be appointed at a senior level within three months. You can call on the DSE in that regard. There must be somebody out there with the requisite skills and commitment to perform this vitally important function in the department. - The joint detailed document from the DSE and Welfare, on the sorts of systems that are now in place, to ensure that there is not a repeat situation. This document should be submitted by the end of May 2000.
- The document on a coherent strategy for building the financial management capacity of your agents. Included in that, an assessment of current capacity. This document should be submitted by the end of May 2000.
- The audit report, as soon as it is available, on the initial R50 million of the Poverty Relief funds.
- For at least the next three months, the DSE must make available to this Committee, monthly monitoring reports of the department's spending.

The meeting was concluded