Financial Disclosures & Status of Signing Off Performance Agreements by Heads of Departments & Directors General: input by Public Service Commission; Department of Trade & Industry Unauthorised Expenditure Query

Standing Committee on Appropriations

19 October 2009
Chairperson: Mr E Sogoni (ANC)
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Meeting Summary

The Public Service Commission (PSC) briefed the Committee on Financial Misconduct, Managing Conflicts of Interest in the Public Service and the Evaluation of Heads of Department and Directors General, specifically the status of signing off Performance Agreements.

The Committee noted the generally poor results and asked what the PSC had done in response to their findings. The PSC said that the recurring irregularities continued because the public service was not committed to the observance of the regulations on this matter. This would recur until Parliament and the Executive ensured that the regulations were adhered to. The PSC said that they appreciated the vigour of Parliament in this term to rout complacency.

The interface between the PSC, government and Parliament was discussed at length, to establish how their different mandates could achieve maximum impact in oversight of the public sector. Members were interested in how the PSC reported to Parliament and the point at which Parliament was notified of their findings. The persistent problem of officials in acting positions for long periods of time was highlighted. The Committee asked if acting Directors General had to sign performance agreements. Broadly the Committee questioned the high number of HODs that had not submitted performance agreements.

The Committee declined to hear the a full oral presentation on their First Quarter Expenditure Report of the Department of Trade and Industry 2009/10, saying that they were more interested in allocations and projections. The DTI had been called to appear before the Committee to explain the seemingly unauthorised transfer of R39 million from Khula Enterprise Finance to Current Payments. This undermined government’s objective to support small business. The DTI was not able to respond to this question comprehensively and was asked to submit a detailed written response.

Meeting report

The Chairperson stated that the meeting with the Public Service Commission (PSC) had been called because Members of Parliament had sensed frustration amongst members due to the reports of financial misconduct. He remarked that this had to be addressed whether this misconduct was intentional or the unintentional trend reflected as wasteful and fruitless expenditure. The latter bordered on financial misconduct. The Standing Committee on Public Accounts had held a conference a month before where general opinion had been that the Public Finance Management (PFMA) had no teeth and that it was not sufficient to deal with financial misconduct. There had been reports of these transgressions regarding housing subsidies. The issue of conflicts of interest also had to be addressed.

Dr Ralph Mgijima, Chairperson: Public Service Commission, stated that he hoped that the engagement would strengthen the oversight ability of Parliament and was encouraged by the vigour of the Committee. The PFMA alone would not succeed in curbing financial misconduct without the assistance of Parliament and government. It was lamentable that only 24% of financial misconduct cases had resulted in criminal proceedings.

The Chairperson asked if the last comment meant that only 24% of cases reached court.

Dr Mgijima responded that where financial misconduct was found, the intention was to prosecute. However, in practice there was a tendency in the public service to use internal procedures, rather than prosecute.

Financial Misconduct 2007/8
Mr Admill Simpson, Deputy Director-General: Public Service Commission, briefed the Committee on financial misconduct in 2007/8 explained how the reporting process worked nationally and provincially. The numbers of cases were reported per province and department. The highest number of cases were fraud and theft cases. Classifying the results by salary level revealed that the highest incidence was found among employees on salary levels 6,and 7 – senior management. The outcomes of the cases, the sanctions imposed on employees, the cost of financial misconduct and the levels of criminal proceedings instituted were also presented.

He noted that the PSC had been responsible for the management of the Financial Disclosure Framework (FDF) since 1999/2000. Since the inception of the FDF, the PSC had focused on ensuring compliance with financial disclosures.

Managing Conflicts of Interest in the Public Service         
This was briefly explained according to submissions of financial disclosures up to financial year 2007/8. Certain departments had consistently not complied, such as the Department of Correctional Services – which had not submitted for the last two years. Despite constant reminders to the Executive Authorities (EAs) 100% compliance had not received. The PSC had shifted focus to the scrutiny of financial disclosure forms to identify potential conflicts of interest. They found that 21% of the sample group of senior managers may have potential conflicts of interest between their private interests and official responsibilities. The PSC also presented recommendations and initiatives to address this problem.

Evaluation of Heads of Department & Directors General, specifically signing off Performance Agreements

Performance agreements were a natural extension of the work plan and were meant to operationalise the strategic plan. The statistics on the filing of performance agreements revealed that there was general non-compliance with the submission of signed performance agreement. With the exception of the Eastern Cape (100% compliance), the levels of compliance were unacceptably low. The trends over the last three years were presented at national and provincial level.

Mr J Gelderblom (ANC) asked what was being done to address the incidences of theft and fraud and what action the PSC took. What was done about the 58% of finalised cases where no criminal proceedings were instituted against the employees?

Mr Gelderblom noted that senior management on salary levels 6 and 7, seemed to be a crisis area. He pointed out that the Departments of Health and Correctional Services seemed to be the main culprits. He felt that this was the result of no political leadership and no respect for the laws of the country. If the failure of the HODs to report to the PSC continued, the Committee and the PSC had to act urgently.

Ms R Mashigo (ANC) asked how the PSC determined financial misconduct and how they monitored the movement of people and whether they could influence the movement of people in the public service, specifically between departments. She asked what was done, once they determined that the Executive had the responsibility to act in cases of financial misconduct.

Ms M Tlake (ANC) referred to slide 27, showing the statistics for the filing of performance agreements for 2009/10. She asked what the consequences were for non-compliance with the obligation to file signed performance agreements with the PSC. She also wondered what happened in cases of poor compliance.

Ms Tlake commented that part of the explanation for inefficiency in departments could be ascribed to acting HODs and Directors-General. She pointed out that the Director-General of the PSC also held an acting position. She asked why these positions were not filled permanently.

Ms Mashigo referred to prevalence of acting HODs and asked if those in acting positions were required to sign performance agreements. She specifically wanted to know if a performance agreement was signed when a person had been in acting position for a long time.

Dr Mgijima responded that the law clearly stated that public servants could only be in an acting position for six months to avert problems that arise in departments when positions are vacated. If they held an acting position for longer than six months, this was classified as irregular. This was the reason that the PSC relied on the performance agreement being concluded with permanent appointees, rather that those in acting positions. It was certainly irregular for people to be in an acting position for more than six months. He added that Mr Diphofa, the Acting Director-General, had not been in that position for more than two months. They had advertised the post of Director-General and it would be filled before the six months was up.

The Chairperson noted that the PSC was dependent on departments to submit. He asked if the PSC investigated whether written warnings had been issued to employees, when departments reported that this had been done.

The Chairperson referred to the 505 cases (58% of cases) where no action was taken by the departments. He also wondered what happened when they did not report and whether reporting was compulsory.

The Chairperson referred to the poor statistics of the Departments of Health and Correctional Services. He pointed out that some of the HODs did not disclose directorships of companies. He asked what happened in these cases and how this related to their investigations on conflict of interest.

The Chairperson wondered to which parliamentary committee the PSC reported.

Mr D Mavundla (ANC) noted that the PSC relied on departments to submit based on departments' internal investigations. He asked if there was any mechanism available to them to investigate in cases of reporting non-compliance. He also wondered if there was a legal limitation on the PSC to pursue such action.

Mr Mavundla asked for clarity on the Financial Disclosure Framework (FDF). He asked whether there was a set format for the performance agreement and who developed the performance agreements.

Dr Mgijima responded to what he thought to be the most common thread in the questions: what action did the PSC take, in light of the findings. He stated that the Committee had to appreciate what the PSC was. It was not part of the departments. It was an independent body mandated with powers under Section 195 and 196 of the Constitution. The three bodies (PSC, Parliament and government) could not do this job alone. He suggested a re-examination of the mandates to see how they could increase the impact on the oversight function. It had been suggested that the PSC did not have teeth. Part of this exercise was aimed at finding the teeth. Parliament should be empowered because Parliament was where the teeth were. The role of Parliament was to call the Executive to account. Apart form getting the departments to submit the necessary information, the PSC had additional powers to issue summons and investigate of their own accord and it exercised these powers. They also received complaints through the National Anti-Corruption Hotline or people's direct complaints to the PSC and investigated those complaints.

They had already tabled five reports before Parliament in 2009. These reports contained all the other work they were engaged in. The presentations on financial misconduct and performance agreements were restricted to information received by departments but the other reports were based on their independent investigations and research. The PSC also issued recommendations based on the work they had done. The substance of the recommendations would remain that Parliament must hold the Executive accountable. The crux was aimed at empowering Parliament do their oversight perfectly. The PSC was pleased with the renewed enthusiasm for interaction from Parliament. The PSC appreciated the opportunity to showcase their work and point out non-compliance work before Parliament.

Regarding performance agreements, there were provinces which had not submitted performance agreements, like Gauteng. He suggested that although reasons had been given for this, there were no valid reasons for this as it was stipulated that, by law, every HOD should have a performance agreement. The recurring irregularities continued because the public service was not committed to the work they had to do and observance of the regulations. This would recur until Parliament and the Executive ensured that the regulations were adhered to.

The PSC reported to Parliament and advised the Executive on whatever irregularities they found. The PSC continued to point out these irregularities. It was only in this term that the Minister of Public Service and Administration had undertaken to increase compliance and the PSC looked forward to that.

The format of the performance agreement of all senior management was issued by the PSC and every performance agreement had to comply with this. The onus was on the Head of Department to actually write the agreement and to ensure that the strategic intentions (according to the strategic plan) of the department were depicted in the performance agreement. Although there was a broad format, the final agreement was still the result of a negotiated process between the Minister/ MEC and Head of Department.

Although all the questions were important, he felt that all issues were subservient to the definition of roles of the PSC, government and Parliament. It was important to understand the different roles. The PSC existed solely to present information to Parliament in order to enhance Parliament's ability to do oversight. The PSC had other powers to compel information from departments when they did not submit voluntarily. The PSC capacity was limited and they had the power to summon the outstanding information from departments. He asked if it the PSC should do this at the expense of all the other investigations and research they did on the other areas of neglect in the public service. This was a crucially important question.

Mr Mashwahle Diphofa, Acting Director-General: Public Service Commission, added that in previous engagements they had distinguished between technical oversight and political oversight. The PSC generated information (technical oversight) that could be used by Parliament for political oversight. One of the more interesting instruments at Parliament's disposal was the ability to issue questions for written reply. In this case where the Department of Correctional Services had not complied for two year in a row was an opportunity to pose the question to the Minister of Correctional Services if all performance agreement forms were completed and if they had, why were they not submitted to the PSC.

The Chairperson interjected and clarified that the essence of the questions was focused on what the PSC did in response to their findings, such as communicating their findings to Parliament. Portfolio Committees had continual interaction with these departments and the key question was how the Portfolio Committee Correctional Services would become aware that the HODs who came before them had not submitted performance agreements to the PSC. The PSC presented this information upon invitation of the state in the past. The Chairperson wanted a more proactive effort from the PSC - to bring this information to the attention of the relevant Parliamentary committee.

Ms Tlake referred to slide 14 dealing with senior managers who did not disclose. This matter was raised before the Standing Committee on Public Accounts (SCOPA). She queried the point at which the PSC informed SCOPA of this. Similarly, she asked how the PSC decided when to inform SCOPA about the lack of compliance with the regulations on performance agreements.

Dr Mgijima replied that this had a similar thread to the question about how the PSC reported to Parliament. This was the crucial question. The PSC reported to Parliament (Portfolio Committee on Public Service and Administration) and the provincial legislatures on a regular basis. Additionally, all reports generated by the PSC were given to the Executive Authorities (Ministers and MECs). The PSC Fact Sheet was also a public communication. This Fact Sheet was public, tabled before Parliament and distributed by the Speaker to the relevant committees. The PSC assumed that every Member of Parliament had a copy of the Fact Sheet. These reports were the core function of the PSC. The question then became: what were the means for more communication. What more should the PSC do?

The Chairperson agreed with Dr Mgijima and wondered how Parliament could strengthen the work of the PSC.

Mr Diphofa responded that after the PSC tabled the reports to Parliament and made 400 to 500 copies available for distribution; they were in the hands of Parliament as to what happened next. The PSC was then invited by whichever Parliamentary committee chose to extend an invitation, such as the Portfolio Committee on Administration to discuss the reports. The PSC was invited by SCOPA to discuss the financial misconduct and performance agreement matters. Perhaps the answer lay in determining the next appropriate step that the PSC could take, after the tabling of their reports to ensure that the issues are brought to the attention of the relevant committee to follow-up.

Regarding the officials found guilty of fraud and theft and whether the PSC had influence over the future career prospects of these public servants: according to their mandate, they did not have any influence over the future movements of these officials. The PSC functioned on an exclusive oversight basis. HODs made decisions on employment. The PSC could then monitor the employment process.

Mr Gelderblom asked if the PSC wanted those powers.

The Chairperson commented that there was register for teachers convicted of abusing students (giving parents and schools a resource to check the backgrounds of prospective employees). He pointed to the practice among public servants dismissed for misconduct, such as fraud, to get jobs in other provinces. Often, no one was aware of this until a year later. If no such register existed for the public service, how would the PSC know when there were red flags around a person.

Mr Diphofa responded that because the PSC did not handle the employment and promotion of employees, the answer might not necessarily lie in the PSC knowing. Where someone was charged with a criminal offence, they would be required to declare that on application forms. The PSC found that department did not always know how to respond when an applicant declared a criminal offence. In response the PSC conducted research on what departments did when they found that applicant declared a criminal offence.

Mr Gelderblom asked if it was correct to say that the PSC must be informed when there were problems in departments. Therefore, the only institution that had this information was the PSC.

The Chairperson interjected and stated that the PSC had described their function as conducting investigations, reporting to Parliament and giving Parliament the tools to follow-up. This had happened with the SCOPA process. The question then centred on what SCOPA did with the information provided by the PSC and what action was taken by SCOPA. This was a question that Parliamentary committees had to answer, as to what happened once the PSC reported to Parliament, the provincial legislatures and the Executive and how the PSC could be strengthened. How could these role players assist each other in achieving the oversight goals?

Mr Gelderblom suggested that it would then be important to distribute the documents presented to the Committee to the chairpersons of all the portfolio committees and for these documents to become a standing point on the agenda.

Mr Mavundla responded that the Parliamentary committees needed to find the mechanisms to effect their political oversight based on the findings of the PSC.

Dr Mgijima replied that the PSC appreciated the opportunity to interact to the Committee. Interactions of this nature wodul deliver the desired products over the long run. This product would be to determine how to strengthen the oversight function of Parliament. They would also have to evaluate whether the reporting to Parliament made any sense at all. They had to determine the point at which committees would interact with the PSC and whether it was efficient for the PSC to deliver the reports to the Speaker. Broadly they had to look at better ways to empower Parliament and upon whose call the PSC would report to Parliament - whether upon invitation or on a set regular basis. Parliament was the PSC's supervisor and the PSC was on board with whatever Parliament needed to make their work more efficient. This was why these interactions were valuable to the PSC.

The Chairperson responded that the questions could not be resolve immediately. Parliament had to determine what should be done with PSC reports. He agreed that people who had been in acting positions for more than six months was a problem. Section 37 of the PFMA addressed the issue of Acting Accounting Officers. He was uncertain as to how this was dealt with in the Labour Relations Act and the Public Service Act, however, it was clear that this was not meant to be permanent.

The Chairperson proposed inviting the PSC, SCOPA, Portfolio Committee on Public Service and Administration and ask SCOPA what they had done with the reports they had received from the PSC and see how this could be applied to the work of the Committee on ensuring compliance with the law. This was important, as the PSC should not produce reports that were useless in the end. The challenges go beyond handling the reports. He felt that the law should clearly state what had to be done when a department did not comply.
Performance agreement were important as the document used in disputes between the Directors General and Ministers. Without a performance agreement there was no basis to act against a Director-General. Government could not work on friendly agreement. They needed something that was binding to provide means for mediation and arbitration.

The Committee would be dealing with the Medium Term Budget Policy Statement (MTBPS) and the issue of vacancies. The question would be posed, as to whether the current public service had the capacity to deal with the MTBPS and the State of the Nation Address challenges would come up. Vacancies in strategic positions were of particular concern. The issue of limited capacity continued to confuse Parliament, as to whether it meant that there were no people with the necessary skills available for employment or whether departments had not employed the right people or whether department had not employed. The Committee requested the PSC's assistance on this issue.

Dr Mgijima responded that the PSC noted all the suggestions made by the Committee and would comply with any request the Committee made of them.

The Chairperson noted that not all the questions were responded to and asked for responses in writing.

First Quarter Expenditure Report of the Department of Trade and Industry (DTI) 2009/10

The Chairperson reported that the Director-General, Mr Tsediso Matona, had apologised for not being able to attend the meeting, due to an obligation to accompany the President to Khayelitsha.

The Chairperson stated that the Committee monitored the expenditure patterns of each department to evaluate spending throughout the year. The Committee had noted that DTI had not spent on areas government considered critical to service delivery, such as support to government institutions like Khula Enterprise Finance. The Committee's report stated that money budgeted for institutions created to support small business had been transferred to another purpose. This undermined government’s objective to support small business. R39 million was shifted to current payments. Section 43 of the PFMA allowed departments to shift funds around. Section 43(4) provided for instances in which the utilisation of a saving was not authorised. He asked the DTI to get to the issue of the transfer.

Mr Kumuran Naidu, Chief Financial Officer: DTI, replied that he was not aware of this issue, as there was no movement of R39 million in the first quarter of the 2009/10 financial year. The invitation they had received asked DTI to present on their financial performance to date. The Chairperson was right in stating that monies earmarked for a specific purpose could not be moved. This could only be done using the Adjustments Appropriation Bill.

The Chairperson replied that the Committee's invitation had been very general and had asked them to account for their expenditure on capital payments, current payments, transfers and subsidies. The Committee was under the impression that, as CFO, he would be the best person to respond to this issue. The Committee was not interested in the additional information at the moment and wanted the DTI to address the question of the transfer.

Mr Naidu presented the historical trend from 2004/5 to 2008/9 which showed the DTI's record of spending its budget. The minor underspending was due largely to the processing of invoices. He highlighted the spending on incentive schemes in Analysis of the 2009/10 budget. In addition he presented the comparative spending figures between 2008/9 and 2009/10 and the overview of spending in the financial year to date.

The Chairperson interrupted and stated that the Committee wanted him to address the issue of the transfer. The challenge was posed by the detail. The Committee had discovered that the DTI had transferred the money allocated from Enterprise Development to current payments. According to the PFMA, this was not supposed to happen. The expenditure report had been signed off as an accurate report by the Director-General and National Treasury. Part of the DTI's work was to develop small businesses. R39 million had been taken from Enterprise Development to Current Payments and this was important. DTI was meant to empower small business through Enterprise Development institutions. In terms of the PFMA the transfer of funds was a transgression. This was the question the Committee wanted him to respond to. If the DTI could not respond immediately, they could provide the response at another time. He asked if Mr Naidu was able to respond.

Mr Naidu responded that the DTI would not have done a transfer from a ring-fenced amount and they would not have done this without permission from the National Treasury. For ring-fenced amounts, they understood that the money had to be appropriated through Parliament. Furthermore, if a transfer had taken place between divisions, the DTI would have to have gone through National Treasury.

The Chairperson replied that, with respect, the Committee did not want speculation. They would afford the DTI the opportunity to explain the transfer fully in writing.

Mr Naidu responded that he would come back to the Committee with the response - no later than end of day 21 October 2009.

The Chairperson replied that the Committee would like to engage with the DTI and other departments on what the allocations and projections were. He apologised if the message was not conveyed clearly. The Committee did not want to take departments by surprise and would be clearer in future.

Mr Naidu stated that the DTI looked forward to future engagements.

Mr M Swart (DA) asked the DTI to clarify what was meant by ‘Transfers including agencies and incentive payments’ and what the difference was between the two.

Mr Naidu responded that the Department had 19 agencies, some of which were self-funded and others were fully funded by the DTI. They also had incentive schemes in the DTI and the businesses (supported by the agencies) that met the criteria could access that funding.

The meeting was adjourned.


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