Financial and Fiscal Commission Annual Reports 2006/07 and 2007/08

NCOP Finance

23 February 2010
Chairperson: Mr C De Beer (ANC, Northern Cape)
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Meeting Summary

The Annual Reports of the Financial and Fiscal Commission for the 2006/07 and 2007/08 financial years were presented to the previous Select Committee on Finance.  The previous Committee had requested that the reports were presented in a different format and the item had remained as outstanding at the end of the Committee’s term of office.  The Chairperson and Chief Financial Officer of the Financial and Fiscal Commission briefed the new Select Committee on the 2006/07 and 2007/08 Annual Reports.  The Commission had received unqualified audit reports from the Auditor-General for both financial years.

The Commission reported a net deficit of R3,039,998 for the 2006/07 financial year.  The major contributions to the deficit were rental on premises amounting to R1 million (previously paid by the Department of Public Works), increased remuneration of Executive Commissioners, additional commissioned research, an upgraded security system and an increase in the audit fees charged by the Auditor-General.  Additional funds were requested from National Treasury to reduce the deficit carried over to the following financial year.  The report on the 2007/08 financial year did not include details on the expenditure and deficit but the information was available in the FFC’s published Annual Report.

The Commission had experienced a high staff turnover rate and had adjusted the salary scales of personnel to be in line with the Public Service remuneration scales.  The Commission was unable to achieve the targets set for employment equity as suitably qualified female personnel were scarce.

Members were concerned about the effectiveness of the FFC as measured by the recommendations that were accepted and implemented by Government, the high staff turnover rate of Executive Commissioners in particular, the appointment of an independent person as Chairperson of the Audit Committee who was not a Commissioner and the need for a corresponding amendment to the Financial and Fiscal Commission Act, the lack of interaction between the provincial authorities and the Commission, the need to monitor the implementation of recommendations by ensuring that adequate provision was made in provincial budgets and the accounting of donations in kind from donors and other entities.

Meeting report

Briefing by Financial and Fiscal Commission (FFC) on the 2006/07 Annual Report
Dr Bethuel Setai (Chairperson, FFC) explained that the Commission’s Annual Reports were presented to the previous Committee on an earlier occasion but the Committee had requested that the reports were re-presented in a different, written format before the reports could be accepted by the Committee.

Dr Setai briefed the Committee on the constitutional and legislative mandate of the Commission, the performance against objectives, the recommendations concerning the 2007 Division of Revenue that were submitted to National Treasury, the outcomes of the strategy and business planning review and the background to the net deficit of R3,039,998 reported for the 2006/07 financial year (see attached document)

Mr Mavuso Vokwana (Chief Financial Officer, FFC) briefed the Committee on the expenditure schedule, the pie charts illustrating the personnel cost analysis, personnel recruitment, reorganisation and salaries by job status and the Comprehensive Risk Management Framework developed by the FFC.  The FFC received an unqualified audit report from the Auditor-General for the 2006/07 financial year.

Dr Setai concluded the briefing with an outline of the pillars of organisational capacity that were identified for the FFC.

The Chairperson reported that the written responses to the questions asked by the Members of the previous Committee had been received from the Commission.  He had observed an overall improvement in the financial management of the FFC.

Mr T Harris (DA, Western Cape) referred to the report on the Commission’s recommendations to National Treasury (see page 11 of the attached document).  He suggested that the report included an indication of the extent by which the Commission’s recommendations had been implemented in order to allow the Members of the Committee to assess the effectiveness of the FFC.  He requested further clarification of the reasons for the deficit reported (see page 22).  He asked for the meaning of the acronyms used in the presentation document.  He referred to the information provided on resignations and new recruits (see pages 26 and 28) and noted that 47% of the total number of resignations had been from executive personnel.  He wanted to know what the current situation was concerning the staffing of the Commission.

Mr M Makhubela (COPE, Limpopo) noted that the FFC had not achieved the objective set for employment equity and that the reason given was that it was difficult to source suitably qualified female candidates (see page 6).  The target set for female senior management employees was 40%. In the actual column, the Commission reported that 86% of senior management employees were males.  He asked why the Commission found it difficult to recruit the required percentage of female employees. 

Mr B Mashile (ANC, Mpumalanga) pointed out that there appeared to be an error in the percentages of male and female employees reported on page 6.  The actual percentage of female employees in senior management positions should be 14% and not 40% as reported.  The FFC had reported a lack of capacity for quality assurance and he wanted to know if the challenge had been addressed.  Referring to the expenditure schedule (see page 23), he asked for an explanation of the amount of R7,520 paid in respect of Regional Services Council (RSC) levies, which had been scrapped.  He requested an explanation for the 51% increase in staff costs incurred in 2007. He asked what the previous Committee’s reasons were for objecting to the appointment of an FFC Commissioner to the post of Chairperson of the Audit Committee.

Mr M Mzaidume (Commission Secretary, FFC) explained that the Financial and Fiscal Commission Act required that the Chairperson of the Audit Committee had to be a Commissioner.  However, the previous Committee felt that the part-time Commissioner appointed to the position of Chairperson of the Audit Committee at that point in time lacked the necessary independence.  Since then, the part-time Commissioner had stepped down and a person who was independent of the Commission was appointed to the position of Chairperson of the Audit Committee.  In addition, a second independent person was appointed as a member of the Committee.  Commissioners were invited to attend Audit Committee meetings.

Responding to Mr Harris’ question, Mr Mzaidume explained that Government’s response to the FFC’s recommendations was usually that resources would be required to implement the recommendations.  In practice, the process of implementation took two to three years.  He conceded that the FFC needed to actively monitor the implementation of recommendations and to report to Parliament on the status of implementation.  Details of Government’s response to the recommendations were provided in the Commission’s published Annual Report.

Dr Setai agreed to include details of the acceptance or non-acceptance of recommendations in future reports to the Committee.  He pointed out that the Commission currently had no mandate to determine whether or not provision had been made for implementation of the recommendations in the provincial budgets.  The Commission did not have an oversight responsibility and it would be necessary to examine the protocol of conducting such oversight activities over provincial budgets.

Replying to Mr Mashile’s question, Mr Mzaidume explained that the strategic review undertaken by the FFC had indicated that the organisation conducted research but had no system in place to ensure that external contributions and documents referenced were properly acknowledged and correctly attributed.  The FFC had purchased a computer program called “Authenticate” to address this issue.  The Commission was satisfied that the concerns regarding quality assurance had been satisfactorily addressed.

Mr Mzaidume advised that the work done by the Commission was in a specialised field and there were no applicable formal qualifications offered by tertiary institutions.  The FFC had trained employees in-house for the previous 15 years and the skills developed were much in demand by other Government institutions.  The FFC had experienced high staff turnover rates because other Government entities offered better salaries.  In 2008/09, the Commission’s salary scales were aligned with the Public Service remuneration scales, which had stemmed the departure of personnel to a certain extent.  The FFC was very concerned over the difficulty in recruiting sufficient numbers of female personnel in management positions.  The number of suitably qualified females in this particular field was relatively low but the FFC had developed a strategy to target female candidates in an attempt to address the gender balance issue.

Dr Setai gave the assurance that the Commission was doing everything in its power to achieve gender equality.

Mr Vokwana confirmed that the RSC levies were discontinued in June 2006 and therefore the amount of R7,520 reflected in the expenditure schedule was far less than the amount paid in the previous years.  The major causes for the deficit were listed on page 22 of the presentation document.  He pointed out that the cost of audit fees showed a significant increase over the prior year.  Audit fees were obligatory and the Commission had no control over the amount charged by the Auditor-General.  The Commission felt that the fees charged were inordinately high (i.e. 5% of the total budget) and a meeting had been arranged with the Office of the Auditor-General in March 2010 to discuss the matter.  The accounts of the FFC were not complicated and the Commission felt that the high fees charged for auditing the accounts were not justified.

Dr Setai confirmed that the audit fees were determined by National Treasury and the issue needed to be addressed.

Mr Vokwana explained that the cost of accommodation for the FFC was previously paid by the Department of Public Works.  In 2006/07, the Commission was required to pay the rental on the offices occupied although no budgetary provision had been made.  National Treasury had approved additional funding towards the resultant deficit in the following financial year.  Another unexpected expense was for additional research requested by Parliament.  The salaries of Commissioners were adjusted from the Chief Director level to the Deputy Director-General level, which accounted for the increase in staff costs of 51% over the prior year.  The acronyms used in the pie charts referred to the Research and Recommendation Programme (RRP), the Executive Management Department (EMD), Human Resources (HR), Information Technology (IT) and the Knowledge Management and Library Centre (KMLC).

The Chairperson noted that an appendix explaining the meaning of the acronyms was included in the published Annual Report.

Mr Mashile asked if the Financial and Fiscal Commission Act was amended to allow a person who was not a Commissioner to be appointed as Chairperson of the Audit Committee.  He asked if the FFC was able to appoint a private company to conduct the audits at a lower fee than that charged by the Auditor-General.  He asked for an explanation of the amount of R705,936 that was spent on general repairs and office maintenance.  He wanted to know if the FFC was satisfied that there were no fraudulent activities in the procurement system used by the Commission.

Mr Harris confirmed that the information provided on page 23 referred to total expenditure and the information on page 22 referred only to the expenses that contributed to the deficit.  He confirmed that the item for Commission research was shown separately from staff costs because the research was conducted by a third party.  He requested further clarity on the unbudgeted excess of R1 million paid for rental of premises.  He asked for further details of the under-budgeted item related to the remuneration of Executive Commissioners reported on page 21.

Mr Vokwana explained that the FFC did not determine the salaries of Commissioners and was merely informed by National Treasury of the remuneration that had to be paid to the Commissioners who were appointed.  The implementation of the Framework for the Devolution of Budgets and the introduction of accommodation charges resulted in the requirement that the FFC paid for the rental on office accommodation without a corresponding transfer of budget.  The amount spent on general repairs and office maintenance resulted from the need to repair and maintain ageing office equipment.  In addition, the security systems had to be improved for the servers and for access control of personnel.  The FFC had tight internal control systems over the procurement processes and had no history of fraudulent activity related to procurement.  The only problem was the lack of capacity to satisfy the National Treasury and Auditor-General requirements for the devolution of functions related to procurement.  The FFC took care to ensure that the procurement policies and procedures were followed at all times.  The FFC was a Schedule 1 entity in terms of the Public Finance and Management Act (PFMA) that prohibited auditing by a private sector company.  The audits had to be conducted by the Office of the Auditor-General but the Commission felt that the fees charged by the Auditor-General were much higher than the fees charged by the private sector.

Mr Mzaidume advised that the FFC had advised the previous Committee that the appointment of a person who was not a Commissioner to the position of Chairperson of the Audit Committee was in contravention of the Financial and Fiscal Commission Act.  He conceded that the FFC was technically in contravention of the Act as it had not yet been amended.

Mr Mashile agreed that the Chairperson of the Audit Committee had to be an independent person.  He suggested that the Act was amended as soon as possible.

The Chairperson referred to a letter received from Dr Setai dated 2 November 2009 concerning the lack of interaction between six Provincial authorities and the FFC since 2005.  He had written to the Chairperson of the National Council of Provinces (NCOP), who had communicated the need for interaction between the provinces and the FFC to the provincial Speakers.  He reported that the Northern Cape Province had scheduled a meeting with the FFC.  He asked if the FFC received the quarterly reports on provincial and municipal spending issued by the National Treasury.

Dr Setai confirmed that the FFC had the necessary information available but had not yet extended its functions to ensuring that the necessary funding to implement the recommendations was provided for in provincial budgets.  The Commission was currently engaged in developing the necessary budget analysis capacity to carry out the additional function.

The Chairperson reiterated the Committee’s undertaking to inform the FFC of information resulting from interaction with the provinces and municipalities.  The FFC was welcome to attend the meetings held by the Committee.

Mr Harris asked why the Committee needed to be briefed on the 2006/07 annual report if the FFC had provided written responses to the Members’ questions.

The Chairperson explained that the process concerning the FFC’s annual reports was not completed by the previous Committee and the items had remained on the list of outstanding matters at the end of the term of office.

Briefing by the Financial and Fiscal Commission on the 2007/08 Annual Report
Dr Setai briefed the Committee on the Commission’s Annual Report for the 2007/08 financial year (see attached document).  The report included an overview of the mandate, legislative framework, highlights and achievements during the year, the challenges faced by the Commission, the activities of the Commission, the performance of the FFC and an overview of the management of the Commission.

Mr Vokwana reported on the financial statements for the 2007/08 year.  The FFC had again received an unqualified audit report from the Auditor-General.  The briefing included a breakdown of the revenue received and the percentage of variance for the revenue, staff costs, depreciation, professional fees, operating expenses, assets, liabilities and cash flow.  A chart illustrated the split of personnel costs between the communications services (CS), support services (SS) and research and recommendation programme (RRP) departments.  The discrepancy between the Medium Term Expenditure Framework (MTEF) allocations and the required funding for the period 2008/09 to 2011/12 was illustrated by a chart.  The presentation was concluded with a summary of the factors driving the changes in the budgetary baseline of the Commission.

Mr T Chaane (ANC, North West) asked if the situation concerning the payment of rental on premises had changed and who was responsible for the payment of the rental.  He found the report that was submitted to be lacking in detail and wanted to know what the total expenditure had amounted to for the 2007/08 financial year.  He asked why a pie chart of the revenue for 2006/07 had been included on page 14 of the briefing document.

The Chairperson asked if the FFC had published an Annual Report as the Members of the Committee had not received copies.

Mr Mzaidume advised that 750 copies were sent to Parliament for distribution to the Members.

Mr Mashile asked for an explanation of funding provided by other sources for certain activities of the Commission, for example the funding provided for Commissioners to visit Rwanda mentioned in the briefing.  He was concerned over a possible conflict of interest of the Commission accepted donor funding that could be construed to be bribes. He asked how the FFC accounted for expenditure covered by other entities.  He asked for further information on the work being done on a Code of Ethics mentioned on page 8 of the briefing document and if the FFC was available for participating in the Parliamentary Ethics Committee.  He suggested that a target date was set for the necessary amendment to the FFC Act to allow for the appointment of non-Commissioners to the position of Chairperson of the Audit Committee.  He noted that the Commission reported making “reasonable progress” to address the problems experienced with achieving employment equity targets but wanted to see more detail on what was actually being done about the matter.  Mr Jimmy Manyi (Director-General of the Department of Labour) had made some comments on the issue of gender equality at the FFC.  He wanted to know if the FFC had implemented an approved procurement system.

Mr Harris agreed with Mr Chaane that the report submitted lacked sufficient detail.  He asked if the FFC could submit an effectiveness analysis to the Committee, listing the recommendations that were submitted to National Treasury, which recommendations had been accepted and if the implementation of the recommendations was reflected in the provincial budgets.

Mr Mashile asked what happened to a recommendation that was not accepted by National Treasury.

The Chairperson advised that a document had been submitted to the Committee that dealt with the response of National Treasury to the recommendations made by the FFC.  He advised that the matter would be discussed during the Committee’s meeting scheduled for Friday, 26 February 2010.

Mr Mzaidume confirmed that the Commission had compiled a report to the Standing Committee on Appropriations on all the recommendations made by the FFC since its inception, Government’s response and the status of implementation.  Recommendations not accepted by Government were not discarded by the FFC.  The policies and procedures concerning the procurement systems used by the FFC were based on the applicable legislation and regulations and the Commission was confident that the systems were fully compliant.  The FFC had reported to the Director-General of the Department of Labour that progress was being made concerning the achievement of gender equality by the Commission.  The next report was due in October 2010.

Mr Mzaidume agreed that the FFC Act had to be amended and advised that the FFC will attend to the matter.  The Commission had finalised its Code of Ethics, which had been adopted.  The FFC was willing to participate in Parliament’s Ethics Committee.  He advised that funds were not transferred to the FFC for certain sponsored activities, for example National Treasury had paid the expenses incurred for the Commissioners’ visit to Rwanda.

Mr Vokwana advised that the details of the funding received from donors and the application of donor funds were included in the published Annual Report.  National Treasury insisted that all donor revenue and expenditure were accounted for separately.  He confirmed that the FFC was required to include an item for rental of premises in the Commission’s budget.  Any deficit was carried over to the following financial year and the Commission had applied to National Treasury for additional funds to cover the deficits resulting from budgetary omissions and shortfalls.  The Commission’s deficit amounted to less than 5% of the total budget.

Mr Vokwana advised that the pie chart on page 14 of the briefing document should read 2007/08 and not 2006/07.  He pointed out that a detailed analysis of revenue and expenditure was included in the published Annual Report.

Mr Mashile pointed out that the pie chart on page 14 only reflected donor funding received from foreign entities and did not indicate what donations were received from local entities.  He asked if the expenditure incurred by the Commissioners on the visit to Rwanda should not be included in the financial reports even though the funding was provided by another entity.

Mr Vokwana agreed that the expenditure incurred should be reflected.  The funding provided by National Treasury was considered to be a donation in kind.  The pie chart reflected actual cash revenue received from donors and not donations in kind.

The Chairperson agreed that was the normal accounting practice and that the amount concerned would be reflected in the financial statements of the National Treasury.

Dr Setai advised that the visit to Rwanda was undertaken at the request of the National Treasury.

The Chairperson thanked the representatives from the FFC for the briefing.  He advised that the Committee would report on the submission of the Commission’s Annual Reports.  He advised that the next engagement of the Committee with the FFC was a workshop scheduled for the 15th March 2010.

The meeting was adjourned.


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