Construction Sector Education &Training Authority: Annual Report: Late submission

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Employment and Labour

06 July 2009
Chairperson: Ms L Yengeni (ANC)
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Meeting Summary

The Committee had asked the Board of the Construction Sector Education and Training Authority (CETA) to appear before the Committee to explain the reasons for the late submission of the Annual Report for the 2008 financial year, the reasons why financial statements, having been submitted to the Auditor-General, were later withdrawn, and the circumstances surrounding the 2007/8 reports. It was also noted that the CETA had appeared before the Standing Committee on Public Accounts (SCOPA) to explain the discrepancies in their past financial statements.

Members asked the members of the Board who were present to explain the status of the acting Financial Manager, and questioned why this person had been appointed, yet was about to be retrenched as a result of the use of consultants from Deloitte. They asked why no advertisements had been placed for more than a year to make a new appointment. They also commented adversely on the use of consultants, and the fees charged, and said that the CETA should try to revise the contract with Deloitte since the Committee would not be prepared to endorse the continuation of that contract until 2010. Several questions were posed as to who had authority over the Chief Financial Officer, when it was discovered that this person did not have the capacity to perform his tasks, why the Chief Executive Officer and the Board had apparently approved the financial statements that he had drawn, which later needed to be withdrawn and re-drafted, why the Board did not attempt to retrain or upgrade his skills, and who was to take the ultimate responsibility for his actions.  It was pointed out that the Board had taken decisions about lack of capacity, yet there was no performance agreement in the contracts. The Chief Executive Officer had taken responsibility for late submission of the Annual Report, due to a number of factors, but nobody seemed to accept ultimate responsibility for what Committee Members described as “a mess”.

Members also questioned why the Board was accepting that it had to deal with issues neglected by the previous Board, as also when and how the current Chairperson and Deputy Chairperson of the Board were elected, and, upon hearing that they had been members of the previous board, questioned whether the situation was likely to improve, and what procedures had been followed for the handover. Members also wanted copies of the first and revised financial statements, to check what had been changed. They also requested more detail on the use of the firm Altimax, who had drawn some financial information. They expressed their concern that some of the answers given seemed to be contradictory.

The Department of Labour set out briefly the steps that the Department, the Minister and the Skills Authority had followed to try to resolve the issues, and pointed out that there was now close monitoring to check that CETA was following the recommendations made. A final decision would be taken on its status in due course. The last quarterly reports had shown improvement.

The Committee would be considering the answers given, and would also take into account the written submissions to the Chairperson. It would hold another meeting with CETA shortly.

Meeting report

Construction Sector Education and Training Authority (CETA): Late submission of Annual Report for 2008 financial year
The Chairperson commented that only some of the Board Members of the Construction Sector Education and Training Authority (CETA) Board were present at the meeting, whereas the Committee had wanted to interview all members of the Board. She noted that the Board members present were Mr Petrus Mawoko, Chief Executive Officer (CEO), Mr Gavin Strydom Chairperson of the Board, Mr Frank Fredericks, Deputy Chairperson of the Board, and Mr Jonathan Mance, Acting Chief Financial Officer. Ms Yengeni asked the Committee to accept these members as representing the collective of the Board, so that the meeting could continue. She believed that they would be able to answer the questions.

The Chairperson
sought clarity whether Mr Mance, the Acting Chief Financial Officer, was an employee of Deloitte Touche, or whether he was the financial manager referred to in the documents presented to the Committee.

Mr Gavin Strydom, Chairperson of the Board, CETA, explained that Mr Mance was an Acting Financial Manager, from the accounting section of CETA.  Deloitte’s incumbents, who were not present, were the CFO and Financial Manager. 

The Chairperson asked why the Annual Report for 2007-2008 was submitted late, what the problems were around the submission, what the present status was, and what would be done about it.

Mr Petrus Mawoko, Chief Executive Officer, CETA, acknowledged that he had been at fault for submitting the Annual Report late, and said the organisation had many challenges during that time. CETA had weak financial capacity, there were changes in the National Treasury Regulations and all sector education and training authorities (SETAs) were required to report on a cash basis rather than the accrual basis used in the past, and had to submit by the end of May. CETA had realised that issues raised in the past could not be corrected. It had then called in consultants who promised that the document would be submitted on time. However, during the audit process, the Auditor-General (AG) highlighted more challenges, including the fact that another audit disclaimer was possible, and advised CETA to correct the situation. The Board was informed and took the decision to withdraw the financial statements because they were, in his words, “in a total mess”. A letter was submitted to the AG withdrawing the financial statements first submitted, and the Department of Labour was also informed. The consultants were called for a meeting and informed about the seriousness of the audit process, which resulted in the relationship being terminated. The management was replaced but the capacity in the finance department was still a problem.

Deloitte, an independent accounting and auditing firm, was called in to correct the disclaimers of 2005/6 and 2006/7, and to align the organisation with the new submission criteria. This was a complex issue that could not be dealt with by the Chief Financial Officer (CFO). Deloitte was to ensure that the financial statement was submitted on time. The financial report was re-submitted during October for the audit process. All the audit processes were then completed up to January 2009, and the Department of Labour was kept continuously informed of the process. In March 2009 the financial statements were submitted to the relevant departments. He stated that the CETA had complied with the Public Finance Management Act (PFMA) and had an agreement with Deloitte until 2010, after which CETA would review the decision, and employ a capable CFO and Financial Manager. The organisation was financially viable, able to fund various skills development programmes, had improved communication with stakeholders, and a new Board was in place.

Mr E Nyekemba (ANC) asked for clarity on how and when the Chairperson and his Deputy were elected, and whether their election came about after the dissolution of the previous Board.

Mr Frank Fredericks, Deputy Chairperson of the Board, CETA, responded that the Chairperson and Deputy Chairperson were elected in March 2009, and that they took full responsibility for the mess in the CETA.

Mr Nyekemba commented that the term for the CETA Board would run until 2010. He asked whether the Board’s election was influenced by the submission and withdrawal of the 2007/8 Annual Financial Statements.

Mr Fredericks said that the previous Board’s term expired in March 2009, and the Constitution stipulated a three-year term. For this reason a new Board was elected.

Mr V Ndlovu (IFP) asked whether the new Board was taking responsibility for the events reported upon in the AG’s report of 2007/8.

Ms R Tsotetsi (ANC) asked what the procedure was for handing over.

Mr Strydom responded that the procedure for takeover was induction, capacity building of new Board members, as well as strategic planning sessions.

Mr A Louw (DA) asked if it would have been appropriate to ask the previous Board members to come and explain themselves, based on what was being discussed.

Mr I Ollis(DA) asked whether there were two sets of financial statements with the AG.

Mr Strydom replied that the financial statements with the AG were for the period up to March 2009 only.

Mr W Madisha (COPE) was concerned about the new Board’s acceptance of the negligence that had occurred under the previous Board. He stressed that there was a line of responsibility for full-time management. If one section of management moved out, another section of management would be put in place. He stated that the present Board represented the second line of management, and was not new. He asked who was actually responsible if the CFO did not do the work properly, and what had been done over the period of two or three financial years when the CFO had not performed. He asked if the management had the capacity to handle the situation, whether anyone had questioned the inability of the CFO to deliver, and whether the management could admit that it had failed. He asked what specific action management took. It was important that this Committee should be given an explanation, because people should be employed on the basis of their capacity to perform.  He also questioned the role of the Department, because the CETA was working with the Department all along.

Mr G Strydom responded that the new Board was sensitised to the failures of the past. These had all been identified in a recent strategic planning session. A detailed SWOT analysis was done to identify, as far as was possible, every failure of the previous Board. Solutions were identified in respect of each of these failures, to deliver the organisation’s mandate.

Ms W Newhoudt-Druchen (ANC) said she did not have the revised report and it was not submitted to the previous Portfolio Committee. She insisted that it should be submitted to the current Committee, so that the Members could check what was revised in the report. She asked if those present could recall the problems in the financial statements, and what amendments had been made to them. The Committee would have to ensure that CETA avoided those problems in future.

Mr Mawoko responded that 550 copies of the revised report were submitted to Parliament, and he did not know why the new Committee Members did not receive it.

Mr Ollis said he was not happy that a CFO and Financial Manager had been provided by Deloitte. He questioned why the organisation had not appointed its own CFO and Financial Manager. He asked the role of Deloitte. He also said that the CEO had been in office for more than a year, and he wondered why, for all of that time, the posts of CFO and Financial Manager had not been advertised and people appointed on a permanent basis. These were key staff members, and he did not think it appropriate that Deloitte should fill the positions temporarily, as this firm should, in his opinion, merely be assisting with paper work and not fulfilling line functions. He also asked if there were other staffing positions vacant, how many people were being trained or deployed, and whether other problems existed.

Mr Strydom acknowledged that the Board had problems since inception of the CETA, that there was no cohesion in the two main stakeholder bodies, and that it was plagued by mistrust, which resulted in the two bodies being at constant loggerheads with each other. At one stage the CETA authority suspended the employer organisation as a result of certain allegations. The employer body also suspended itself at another stage. The main function of the Board was facilitating education and training, but the CETA was doing everything else besides that. With the assistance of the Department, a mediator was appointed to draw up an action plan, so that both sides could come together to deliver capacity and skilling. This had now been achieved by the new Board.

Mr Mawoko said that there was no time to advertise for a CFO, because of the amount of work to be done, including challenges dating back to 2005 and the possible disclaimer for 2007/8. The CETA had to adhere to the submission date and get assistance to submit the financial statements. It planned to advertise after 2010. It did not want to use consultants to run the organization. When he had joined the organization, senior managers were resigning, and this had an effect on line functions, as the managers were resigning for higher salaries. Salaries were now benchmarked with those of other organisations and all positions in the organisation were occupied by capable managers. Individual capacity building and training of staff members was encouraged through access to a bursary, that would only need to be repaid if the staff member failed in his or her studies.

Ms Tsotetsi commented that when applying for a job there was a salary scale that was negotiable, but once the salary was known people would be hired on the basis that they had agreed to the salary.

Mr Ndlovu stressed that the CETA had not fulfilled its duties as mandated by the Skills Development Act. The CETA had to make sure that school leavers were put in programmes that would give them access to employment. He said CETA was not focusing on its core business, and he enquired why this was not being done.

Ms L Makhubela (ANC) asked for clarity on whether the CFO and the company contracted by the CETA submitted reports to the AG without the knowledge of the Board and CEO. She asked who the accounting officers were, how accounting powers were delegated, and who delegated them. She pointed out that the Board together with the CEO were the accounting authorities in the CETA.

Mr Strydom responded that the financial statements received by the AG were produced by the CFO and Altimax, and had been approved by the Board, who took full responsibility.

The Chairperson replied that even though the Board took full responsibility they still had to explain why the CFO, and not the CEO, had to leave. She asked why, on discovering that the CFO lacked capacity, the Board had not capacitated him.

Mr Fredericks responded that in the delegation of authority the CFO reported to the CEO. The Board admitted that it had failed South Africans.

The Chairperson asked whether all the members of the Board were new, or if some of the old members were still on this Board. She said that the impression had been given that the current Board knew nothing, yet were part of the old Board. She asked specifically if the CEO and Board had looked at, and were satisfied with, the first financial statements drawn up by the consultants Altimax, or whether they realised that there were problems only when the AG alerted them. She asked at what stage the Board realised there was a problem in the financial department. She also asked whether the Board had delegated authority and had simply allowed the CFO to do everything. She asked for an explanation on the process followed when the report went to the AG.

Mr Mawoko responded that a new Board was put in place after three years, in line with the process. The Chairperson and Deputy Chairperson had been members of the previous Board for some time. However, they were new to the positions they currently occupied. He said that the current Board had inherited the problems, and thus had to deal with them. In the first year he held this position he had dealt with the challenges of the financial years ending 2006 and 2007, the inherited two disclaimers and certain other issues dating back to 2004. The CETA at one stage was technically insolvent but was now financially sound. The financial statements were presented to the CFO, the finance committee and the executive before being presented to the AG.

The Chairperson responded that since everything was presented to the management, the question remained as to who was responsible and where the members of the Board were. No one was acknowledging why there was a problem, and it all seemed to be reduced to one person. She believed management knew about everything, and were still enjoying their privileges, yet one person had to take the responsibility for the problems in the organisation. She asked for more information about Altimax and why the CEO and Board had appointed them.

Mr Strydom responded that it did become apparent over time that the CFO was not capable of fulfilling his functions. Since the Board members had little financial experience, and since the deadlines were looming for submission of the financial statements and Annual Report, the Board felt it necessary to employ a consultant. After looking at various CVs and a presentation to the Board, Altimax was employed to facilitate and deliver the March 2008 financial statements, since some of this firm’s members had worked for the AG.

Ms L Makubela (ANC) said that both the Chairperson and Deputy Chairperson of the Board had been part of the challenges of the CETA since 2006, but were now in higher positions. She thought that there was a risk of further problems. Although the previous mandate and responsibilities were not carried out, these persons were now being held out as new appointees who would do better.

Mr Ndlovu asked who were the members of the executive committee. He asked whether Altimax formed part of the executive. He pointed out that the Committee did not have the CETA’s Constitution, nor the report of 2007/8.

Mr Madisha said that the responsibilities of the Department were not being addressed. He asked what the Department of Labour had done after realising there was a problem, and what feedback it had given.

Ms Tsotetsi asked what the procedure was for handing over when a new team came to office. She also asked whether there was any form of evaluation after identifying flaws with the CFO’s work, and what the CEO had done. She asked why the old team did not present the new team to the Committee, what the procedure was to terminate the services of the CFO, and whether there was any procedure to rectify matters. She asked whether the applicable legislation had been consulted or used.

Mr Fredericks responded that performance was not evaluated in the past, and performance evaluation was not previously included in the contracts of managers. However, current policies were being reviewed to ensure its implementation.

Mr Nyekemba stressed that the Committee had still not received a response about procedure and handover.

Ms Tsotetsi said that she was unhappy about the manner in which the CEO evaded her questions. She asked again what happened after the election of a new team. She said that cooperation with each other was essential

Mr Ndlovu said that he was confused about the reporting structure. The Deputy Chairperson had said that the CFO did not report to the Board. However, the Board was now taking responsibility for everything that happened. He did not know to whom the previous CFO, who had then been fired, reported. He wondered if there was a report from the previous Board, on which the Chairperson and Deputy Chairperson were also members. The information given had been contradictory. He asked how far the Committee could go with this issue in this session, since there was shortage of time.

The Chairperson responded that the Committee would have to decide what it wanted to do about these matters, including the issue of the employment of consultants. She believed that CETA itself could do things in a different, and perhaps better way, than consultants. Members would be taking a decision about the Annual Report, but the CETA must come back to this Committee and discuss whether the proposed direction for the CETA was achievable. She again expressed concern that nobody seemed to want to take responsibility. She had yet to get an answer on the whereabouts of the financial manager.

Mr Mawoko responded that a process would be put in place since Deloitte would be providing the Finance Manager. CETA would enter into a retrenchment process with Mr Mance, because CETA could not have two financial managers.

Mr Sam Morotoba, Acting Director General, Department of Labour, pointed out that CETA was the only one out of the 31 public entities that had submitted its report late. CETA had also appeared before Standing Committee on Public Accounts (SCOPA) to discuss the qualifications. A Service Level Agreement had been signed, in exchange for money transferred, and this was linked to performance agreements and quarterly monitoring reports. The Department and CETA held forums every second month to discuss implementation issues. The National Skills Authority (NSA) met with this SETA on a quarterly basis. Issues of implementation were discussed with the CFO’s Forum on public entities and the AG. The Department of Labour was well aware of the problems plaguing the CETA, and had held several meetings with it, as had the Minister and other bodies. There had also been engagement with the Commission for Conciliation, Mediation and Arbitration (CCMA) to mediate some of the differences. At one stage consideration was given to taking over the administration of the CETA, which would effectively have involved closure, but the CETA had agreed to development of corrective measures, and implementation of further steps requested by SCOPA, all of which were being monitored. The last quarterly reports had shown improvement. A final recommendation would be made to the Minister on the future of the CETA.

The Chairperson asked, in view of the fact that the financial manager had not had the capacity, whether there had been any training and skilling to get him to standard.

Mr Mawoko responded that it was not a capacity issue, but rather a question of getting the CETA back on track. Using Deloitte was the best option.

Mr Nyekemba said that according to the Board minutes of 25 July 2008, the issue of Deloitte was split into phase 1 and phase 2. In phase one, the CETA was spending R206 000 per month, and Deloitte said that this fee would not increase even if staff in the finance department resigned. This was in contradiction to what the CEO had said. The second phase started in November last year, and was to run until 2010. That would cost between R150 000 and R180 000 per month. Effectively, the financial manager was to be retrenched, at the expense of the money from the Skills Development Levy Act and other legislation. He did not believe that Members could accept this as the lack of compliance with the legislation had resulted in retrenchment.

Ms Tsotsetsi reiterated what Mr Nyekemba had said on sustainable job creation. Whilst the circumstances around the appointment of Deloitte may be understood, there should also be substantial evidence that the CETA had tried all other avenues to improve the situation. She thought that the Board might reconsider the terminations of contract. She noted that Members believed in capacity building and training, not fruitless expenditure. 

Ms Makhubela asked the Board to clarify why it had appointed an Acting Financial Manager, whom it was now in the process of retrenching.

Mr Ndlovu pointed out that the core function of the CETA was to preserve work and educate. He said that it could have called upon the Department of Labour for assistance in seconding a person.

The Chairperson pointed out that, without any performance appraisal, a decision had been made that this person had no capacity. She noted that the Board, as the accounting authority for the CETA, was responsible for “the mess”, and that Members would not endorse it. She said that this Committee did not approve the use of consultants, and she said that this would not be condoned until 2010. The CETA would have to cut that period short. She asked Mr Morotoba from the Department of Labour to assist wherever possible.

The Chairperson noted that the Committee would be considering the answers given, and would also take into account the written submissions to the Chairperson.

The meeting was adjourned.

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