Justice Department Annual Report 2008/09: SCOPA hearing

Meeting report

The Department of Justice and Constitutional Development (DOJ or the Department) was asked to appear before the Committee to discuss the qualifications reported by the Auditor-General in respect of the 2008/09 Annual Financial Statements.

Ms T Chiloane (ANC) asked why the lease agreements were not made available to the Auditor-General.

Ms Sandra Gomm, Chief Financial Officer, Department of Justice and Constitutional Development, replied the lease disclosure notes for financial statements were prepared on the basis of the database populated at the national office for all the leases across the country. The signed lease agreements were available at all offices, because those offices would need the agreements to refer to, when making payments on a monthly basis. The documents were held at the regional offices, whereas the database used for the calculation of leases would be held at the national office. It was only when the Auditor-General queried a specific contract that the Department had realised that it did not have the document itself at the national office.

Ms Nonkululeko Msomi, Director-General, Department of Justice and Constitutional Development, added that the Department had chosen a strategy to decentralise. In the process it lost direct management or oversight over those contracts. She agreed that this meant that the original documents were not available at the head office when they were needed. Decentralisation, it was felt, had good intentions but it was not balanced adequately with governance. The Department was working hard to improve systems.

Ms Gomm further explained that when the Department tried to identify the root cause of the problem it had found that there were some staff who lacked the necessary skills in terms of supply chain management and preparation of financial statements. 60% of documents signed were collected. However, it was unfortunate that proper governance and controls were not in place. Next year this would not happen because a directive had been issued for better control measures.

Mr N Singh (IFP) asked if the head office was aware of all these signed leases being held in the regional offices, and mandates given to the people at regional offices.

Ms Gomm replied that the head office was aware of all of them. The leases had been verified and signed by the relevant committees, both at regional and national office.

Ms Chiloane asked why DOJ did not comply with Treasury requirements.

Ms Gomm stated that the financial statements dealt with irregular expenditure condoned during the year under review. The irregular expenditure condoned in terms of the RT3 blanket approval given by the National Treasury related to R34.6 million , not R63 million. The RT3 that was issued by the former State Tender Board looked at financial leases that did not follow regulations. It did not just condone, but looked at the details and losses suffered by the Department and investigated the circumstances that led to the irregular expenditure, before taking the final decision whether to condone, so it was not automatic. The R34.6 million met the requirements of finance leases, hence it was condoned.

Ms Chiloane commented on irregular expenditure. A sum of R69 million was accrued because proper tender procedures were not followed. She wanted to know why the official implicated had resigned and if he was paying back the monies that disappeared during his tenure in office.

Ms Gomm explained that investigations were carried out by the office of the Chief Financial Officer, and a request for condonation was made to the National Treasury, who condoned this expenditure. Therefore, there was no recovery in this matter. Services rendered by the security company were taken into consideration. The official resigned before the Department asked for condonation from the Treasury. The contract value received from the security company amounted to R2.5 million. Lastly, she emphasised that most condonations the Department received from Treasury were in relation to the security services, and others were from the Office of the Director-General.

The Chairperson enquired if there were no risks involved when rules had not been followed, because there had been value for money.

Ms Msomi explained there would be associated risks, because the problem manifested itself in the whole organisation. In terms of the normal disciplinary processes, where no direct financial loss was incurred, no recovery was made. Here, there was irregular expenditure, which did not result in direct financial loss. However, in areas where the Department had suffered direct financial losses, actions were taken against officials.

Ms Chiloane asked the Department to comment on the findings of the Auditor-General that a substantial amount of money went to Cyberia Technology.

Ms Gomm replied that was a transcription services tender. The matter was referred to the Competition Commission. According the Competition Act, the Auditor-General found the service provider not to have acted irregularly. The contract between Cyberia Technology and the Department was available and would be sent to the Committee.

Ms Chiloane stated there had been fruitless expenditure of R18 million, and the Auditor-General found that the Department did not use help offered by the Department of Public Works (DPW) for work that was to be done.

Ms Gomm explained that the Department had asked an independent valuator to look at the scope of the work. The Department had pursued a better option, because what the Department of Public Works offered was based on desktop research. This was not thought to be worth considering, because it would not have given the Department the best of what it wanted. The findings of the evaluator indicated the Department had to do site visits, but those of the DPW did not.

Mr Singh wanted to find out what the policy of the Department was on overtime payments, and on what basis the transfers that amounted to R43 million were made to entities.

Ms Gomm replied the Department did not have an overtime policy, it was using the Public Service and Administration (PSA) rules. Hence that expenditure was regarded as irregular. No conditions were set down with entities for payment.

Ms L Mashiane (COPE) commented that in terms of condonation, it seemed that the Department had used a tendency of “internal condonation”. This, she remarked, was a cover-up, since the Department tended to go the National Treasury when it had facts. She asked that the Department should try to keep its explanations simple and to the point.

Mr M Steele (DA) wanted to know why the Department did not comply with certain issues as required by the Public Finance Management Act (PFMA).

Ms Gomm replied that the new decentralisation strategy the Department had adopted contributed to the problem. There were shortfalls in the system. The Department would look at the root causes and establish a Task Team to transfer skills to people, and work on improving systems. A plan was developed, and would be sent to the Committee for comments. The majority of non-compliance issues came from supply chain management problems, and now processes and guidelines had been developed to deal with that matter.

Mr Steele asked why the Department was not complying with PFMA when it came to performance reporting.

Dr Khotso De Wee, Chief Operations Officer, Department of Justice and Constitutional Development, said that strategic plans were prepared to measure performance reporting. However, these were still at an infancy stage. The Department intended to give quarterly reports but the main problem was capacity. It was battling to get information to help the personnel compile the necessary reports.

Ms Msomi added it was true that the Department may have neglected certain areas in terms of monitoring and implementation.

Mr Steele commented that new and old staff should have signed contracts, to be able to account on performance, and the Department should make an undertaking to the committee that this would be done.

Mr Donald Mpulo, Chief Director: Human Resources, Department of Justice and Constitutional Development, made the undertaking and stated that all staff members had filed employment contracts that stipulated the terms and conditions of employment. He agreed that the Department had blundered in not having the proper filing system.

Mr Steele enquired about issues that had been raised with the Auditor-General, because draft policy to control problems was not adequate and non-compliant.

Dr De Wee stated that the Strategic Unit had drawn up plans. Currently, it was reviewing all the performance reviews.

Mr Steele requested the Department to present progress details on cases involving financial irregularities.

Dr De Wee said data on all these investigations was available. A report would be forwarded to the Committee. 132 cases were finalised, and others were submitted to the South African Police Services (SAPS).

Mr Steele wanted to know what measures were in place to curb material losses including fraudulent cheques, noting that these were on the increase.

Dr De Wee said the Department’s Risk Assessment Unit was working on the problem.

The Chairperson objected to this, saying that the people in the department were not doing their work and complying with legislation. Already the Department had 400 cases of non-compliance.

Mr Steele asked what the Department was doing to curb the alarming number of resignations, including officials who resigned when found to be implicated in corruption.

Mr Mpulo promised that a detailed report about all the cases would be submitted to the Committee. Where an official resigned before the matter was discussed, that was referred to as admission of guilt.

Mr R Ainslie (ANC) requested the Department to give Members of the Committee a full report on all these cases. The root cause of all these troubles lay with the human resources unit of the Department.

Mr S Thobejane (ANC) commented that the manner in which the CFO handled the Auditor-General showed contempt. There was a concession from the Department that it had not been doing its work properly, but the Accounting Officer said nothing of that. A sum of R63 million was not disclosed, and the Auditor-General could not express an opinion on that. He asked what happened to the person responsible for the undisclosed R63m.

Ms Msomi answered that nothing had happened at this stage regarding those responsible. Measures and recommendations that emanated from the report of the Auditor-General were being implemented.

Ms A Muthambi (ANC) asked what were the financial implications of the unauthorised sitting of the Audit Committee, and why it sat more than the required meetings.

Ms Gomm replied that the Audit Committee decided to have more meetings so as to monitor the development of issues and problems. A detailed report would be sent to the Committee.

Mr M Mbili (ANC) said the Department paid performance bonuses to the tune of R28.5 million to the staff. He asked how the bonuses were determined and who decided on the bonuses of the Director-General and Chief Operations Officer because it did not appear that they deserved to have bonuses paid.

Ms Msomi replied that it was the Minister who decided on the performance bonuses of the Director-General and Chief Operations Officer. According to the performance management policy, all officials had performance management contracts and the supervisors were overseeing those things.

Ms M Matladi (UCDP) commented that the decision was made to establish Third Party Funds (TPF) as a separate entity with its own financial statements. The structure was supposed to be in place to run the entity, so that it was not run by the departmental staff. However, the Department made the TPF an entity without following proper requirements.

Ms Gomm explained that in fact the establishment of TPF as a separate entity had not been done yet. There were laws that should be looked and changed. The Department was looking at a suitable legislative mechanism for this establishment and was hoping that the legislation would be finalised next year.

Ms Matladi wanted to know if it was possible to take back financial statements of the TPF to the Department, instead of having them stated separately.

Ms Gomm explained that the Department had explored avenues such as having regulations that would look into the matter of complying with PFMA. It was possible to bring them back. It was the right thing to do if the TPF was based on accounting standards.

Chairperson suggested the Department should do what the Auditor-General recommended in his report. That would bring improvements in the Department.

Ms Matladi stated the TPF was in existence, but the Auditor-General did not audit its financial statements because these were not available. She asked the Department to give information on whether financial statements were submitted.

Ms Gomm replied that it was anticipated that the Department would submit the TPF 2008/09 financial statements later this year. It was currently in the process of doing bank reconciliations in order to have the right information. However that exercise was proving to take too long to finalise. Money was available in the bank, but the Department needed first to resolve to whom the money belonged, in order to make the right payments.

Ms Matladi asserted that the Department was failing to manage TPF. She wanted to know details of the unit that dealt with records, its staff component, if it existed in fact, and what its mandate was.

Ms Gomm responded that the Department had realised that this was a huge problem. The previous Chief Financial Officer initiated the system, and it was the only solution available to address the problem.

The Chairperson asked that the Department prepare a detailed document on issues raised but not answered in full during this meeting, and forward it to the Committee within seven working days.

The meeting was adjourned.