With the Deputy Minister in attendance, a hearing was held into the qualified audit report of the Department of Cooperative Governance and Traditional Affairs Annual Report 2008/09. He said that when it was discovered that the Department had received a qualified audit report, the Ministry was very disappointed since it blemished their credibility while they were urging municipalities and provincial departments to strive for clean audits.
The Committee questioned COGTA in four categories: Irregular expenditure, the Division of Revenue Act, performance information and asset management. [It had received a qualification due to lack of supporting documentation to verify accuracy and valuation of adjustments to assets, balances, and to determine the completeness of assets and the existence and value of assets. It received Emphasis of Matters for: uncertainty about outcome of legal cases; irregular expenditure due to non-compliance with supply chain management procedures. Under Other matters, the following were mentioned: non-compliance with Treasury Regulations: payments not made within 30 days; material adjustments to financial statements; significant deficiencies in design and implementation of internal controls for financial and risk management and compliance with laws; prior year audit findings had not been addressed substantially; controls to ensure accuracy and completeness of performance information not adequate. The Department was investigating irregularities about awarding a contract and officials who did not disclose their interests in companies.]
Members discussed the irregular expenditure as shown in the Auditor-General’s Audit Report. Their questions focused on a prior year’s irregular expenditure that was included in the 2008/09 Report. The Committee asked why the matter had not been cleared up, whether disciplinary action was taken, and whether anyone monitored the Department’s tender allocations. The Committee needed a more detailed explanation of what happened concerning disciplinary action. Another amount of R10 065 000 considered irregular expenditure accumulated in the 2008/09 financial year. This related to lease of office equipment, non-compliance with procurement policy and a transfer to Commonwealth Local Government forum. The Committee noted that the Department was getting very lax when it came to disciplinary action. The Department had to involve the Committee in its problems. Members also thought the Department was relying too much on National Treasury to condone irregular expenditure and asked for the basis on which National Treasury condoned irregular expenditure. There was an amount of R20 559 000 for contracts entered into by the Command Centre and various parties that had been re-carried for almost nine financial years without being cleared by the Department. The Department wanted to know the reasons for this.
On the Division of Revenue Act (DORA), Members asked what process the Department followed when it transferred money, how municipalities were expected to utilise large amounts of funds given just a month before financial year-end, what the payment schedule was for municipalities, and why the explanation for municipalities’ under-expenditure was not recorded in the Annual Report. The Committee noted that there were municipalities that had not spent any of the funds allocated to them and asked for an explanation. The Department and Treasury should know municipalities were not able to spend vast sums of money efficiently and it was feared that fiscal dumping was taking place. Also asked were: the strategies in place to address the laxities, the challenges that stopped municipalities from spending their funds. The Committee was glad that Department was withholding funds from some municipalities; however, those communities were being badly affected.
On performance information, the Committee noted that a large portion of the Annual Report dealt with service delivery and performance against a set of targets; however, the performance information was inconsistent. The Committee asked why new targets and objectives were being set without approval from the required authority. It seemed as though the Department “dumped” the original targets and established new ones. Was the Minister aware of this? Would the Department be setting more conservative targets in the future? The Committee noted the target for Free Basic Water (FBW) in 2008/09 was 80% of indigent households. The Department said it achieved 75% of the target; however, they could not provide the Auditor-General with any evidence. Was the evidence available or was the Department doing a “thumb suck”?
The Committee discussed asset management. They noted that full and proper records were not kept for capital assets. There was an absence of supporting documents for the existence of major capital assets to the estimated value of R4 482 040. Members asked what the Department was doing to correct the matter, why the Auditor-General could not determine the existence of some tangible assets, why the Auditor-General could not find records of asset disposals and adjustments, and why the Department was having trouble keeping proper documentation. Members asked if there were any bonuses paid during the 2008/09 financial year and what basis the Department had for paying bonuses to employees that failed to perform their duties.
The Deputy Minister stated that the Department was committed to attending to the problems. He apologised for the Department and the sector as a whole, saying they had failed in many respects. He assured the Committee that the Department was having its own internal operation on clean audits. He was particularly concerned about the subject of disciplinary action.
Mr S Thobejane (ANC) referred to page 163 on Irregular Expenditure in the Annual Report. There was irregular expenditure that amounted to R37 635 000 million. Of this irregular expenditure, an amount of R27 570 000 from the previous year was included in it. He asked why this amount had not been cleared prior to the 2008/09 financial year.
Mr Elroy Africa, Acting Director-General, replied that the matter dated back to the 2003/04 financial year. It was for a tender issued to a particular service provider who undertook work on municipal viability. After the work had already been undertaken, a whistle-blower within the Department showed that the tender was awarded irregularly. According to the allegations, the service provider had submitted its application approximately 5-10 minutes after the closing time. The Department of Cooperative Governance and Traditional Affairs (COGTA) instituted a formal investigation and disciplinary action was taken. This matter was handled by the former Director-General of the Department. The Department wrote to the National Treasury and sought condonation for the R27 570 000. The process has not been fully completed yet; however, there was ongoing interaction between the Department and Treasury. There was some information that the COGTA had to submit Treasury a final determination on the matter.
Mr Thobejane asked the Department to explain whom they were disciplining and who the service provider was.
Mr Africa stated that the service provider was AloeCap. According to the investigation, the person that advised that AloeCap be accommodated was a former senior manager responsible for supply chain management in the Department. The matter was only brought to the Department’s attention after the person had already left.
The Chairperson assumed that no disciplinary action had been taken.
Mr Africa answered that the Chairperson was not entirely correct. There were two parts to the issue. The first was the irregular awarding of the tender. This was where the Chairperson was correct; the Department was unable to follow up on matter and no disciplinary action could be taken against the senior manager that had already left the COGTA. The second part of the problem was that there were a number of secondary matters that had arisen from the irregular award of the tender. One matter was that money had been paid to the service provider. Subsequent questions arose concerning the management of the tender and whether the Department had complied with all matters that arose from the management of the tender. There were one or two issues that forced the D-G to issue disciplinary warning letters to certain individuals.
Mr M Steele (DA) asked if the whistle-blower experienced any consequences after exposing the matter.
Mr Africa replied that no action was taken against the whistle-blower. The official still worked at the Department and had not had any prejudicial treatment.
Mr N Singh (IFP) asked for the names of the directors involved in AloeCap at the time. He wanted to know if investigations showed that the person responsible for the irregular expenditure had some personal interest in AloeCap. Was there value for money in using AloeCap?
Mr Africa stated that he did not have the names of the AloeCap directors with him; however, he would forward them to the Committee as soon as possible. When the tender committee met, they saw that the service providers that had sent in their applications were not fit for the task. It was in this context that they decided to take on AloeCap even though their application was late.
Mr Africa stated that the Department derived value for money from AloeCap. The service provider’s primary purpose was to install IT related systems to allow the COGTA to collate financial management information received from the municipalities in the country. One of the tender’s weaknesses was the transfer and migration of those systems and capabilities into the Department. When the tender came to a completion, the Department expected that all of the systems put in place had to be transferred and migrated to the Department; however, this process was quite a challenge as it did not happen speedily.
Ms M Matladi (UCDP) asked if there were people who monitored COGTA’s tender allocations.
Mr Africa replied that there were systems in place; however, the Department had to admit that there were weaknesses in this monitoring system. They also admitted that the advice to take on a tender that was submitted late was completely inappropriate and incorrect.
The Chairperson asked what had happened after the senior manager left.
Mr Mbulelo Sigaba, Deputy Chief Financial Officer, answered that the Department went on to appoint a new senior manager for supply chain management. The Department then embarked on training all the senior and middle management officials who were involved in supply chain management.
The Chairperson wanted to know what had happened to the other officials involved in the matter.
Mr Sigaba replied that most of the officials that were involved in the employment of the tender were no longer in the employment of the COGTA.
The Chairperson stated that many people left the employment of departments. This seemed like a very convenient way out for management.
Mr Thobejane added that the Committee needed to find out how many of the officials involved in the matter were still employed by the Department. It seemed as though they were “passing the buck” to those that were no longer in the Department.
Mr Africa reminded the Committee that the tender was awarded in 2003/04. Most of the individuals involved had already left the Department.
Mr Steele stated that he was getting more and more uncomfortable as he was learning about the contract. The Committee needed a more detailed explanation of what happened concerning disciplinary action.
Ms Matladi stated that an investigation was needed to see if this was a criminal case or not.
Mr Thobejane asked what the information was that the Department still had to submit to Treasury.
Mr Masilo Makhura, Acting Chief Financial Officer, stated that Treasury wanted more details about how the tender was awarded and the officials involved. Treasury also wanted to know what controls the Department was going to put in place to ensure that there were no more irregularities about tenders.
Mr Thobejane noted that there was another amount of R10 065 000 in irregular expenditure that accumulated in 2008/09. The irregular expenditure was also shown on page 225, paragraph 26.2 of the Annual Report. From what was the irregular expenditure?
Mr Sigaba stated that the R10 065 000 related to lease of office equipment, non-compliance with procurement policy and a transfer to Commonwealth Local Government forum. In terms of lease of office equipment, an application was tendered with Treasury for condonement of the expenditure. For procurement of goods and services, it was found that quotations were not taken from service providers. Procedure had not been followed. These cases were recorded in a register and taken to the internal audit unit to be investigated. Valid reasons were given as to why procurement policy was not followed and the amount would be condoned by Treasury. The matter was also taken to Human Resources (HR) and disciplinary action would be taken against officials that were involved in the matter.
Mr Thobejane commented that the Department was getting very lax when it came to disciplinary action. The Committee kept hearing the same excuses from the Department month after month.
Ms M Mangena (ANC) complained that nothing was being done to resolve matters in the Department. The Department had to involve the Committee in its problems. She noted that there was no section in the Annual Report that covered valid reasons for the irregularities.
Mr Singh added that the Committee had not been given details about disciplinary action taken against people within the Department's control. It seemed as if the Department was turning into the Department of Cooperative Governance and Condonation. Page 224 of the Annual Report showed that the total amount of irregular expenditure awaiting condonation was R61 296 000. He thought the buck was being passed to Treasury to condone the irregular expenditure. He wanted to know from Treasury the basis on which they condoned irregular expenditure.
Mr Jan Hattingh, Chief Director: Local Government Budget Analysis in Treasury, replied that Treasury took the matter very seriously. Treasury would not deal with this as a routine case; they would look at the facts and the Department would have to submit all the information to Treasury. Treasury looked at Section 79 of the Public Finance Management Act (PFMA) as the enabling clause in the law that allowed Treasury to look at the merits of each case individually. He assured the Committee that condonation of irregular expenditure was a last resort because Treasury's credibility was on the line.
Mr R Ainslie (ANC) commented that the Committee frequently found itself dealing with condonations. It would be useful if Treasury briefed the Committee on the rules, regulations and principles on which it based its decisions. This could be submitted to the Committee in writing.
Mr Hattingh answered that Treasury would be happy to do so.
The Deputy Minister, Mr Yunus Carrim, stated that the Department was clear that it had made mistakes and was committed to attending to the problems. He knew that the Minister and Deputy Minister also had to be held accountable and had to monitor the D-G. He stated that they were in an awkward situation as they had just launched a major operation called Operation Clean Audit, which would ensure that all municipalities would receive clean audits in the next period. However, the National Department had received a qualified audit.
The Chairperson commented that one had to be circumspect. This was where political leadership was needed to show movement and haste in taking measures to resolve matters. The Committee was looking at non-compliance with procurement policy. The Annual Report said that steps would be taken to correct the problem. However, so far the report was only sent to Human Resources and nothing had been done about it. No one in the Department was able to tell the Committee what happened and what was still to happen.
Mr Africa asked the Committee to give the Department a deadline in which they had to report back to the Committee.
The Chairperson replied that Mr Africa's suggestion was very helpful.
Mr Thobejane noted that there was an amount of R20 559 000 for contracts that were entered into between the Command Centre and various parties (page 225) that had been re-carried for almost nine financial years without being cleared by the Department. What was the reason for this?
Mr Africa replied that the Department could agree that they had not done everything they could to resolve the matter, which had come about since approximately 2001. It was to do with disaster management related matters. The Department had already requested condonation from Treasury who had responded that they were not sympathetic to condoning the expenditure. The Department was not sure how to proceed on this particular matter.
Ms Matladi asked Treasury to discuss the matter with the Department.
Mr Hattingh replied that the Department had to get into contact with the Accountant-General at Treasury and he would advise on treatment of the matter going forward. Treasury would have to look at whether Section 16 of the PFMA had been adhered to. If the procedures were not followed, Treasury could not condone the expenditure. However, the Committee had the power to pass a resolution to deal with the matter. The Office of the Accountant-General was the correct vehicle to deal with the technicalities of this matter.
The Chairperson asked the Department what had actually happened.
Mr Sigaba explained that there was a lot of flooding that took place in provinces during the summer of the year 2000. A Command Centre was established within the Department to look at reconstruction of damaged infrastructure. There was a lot of procurement for refurbishing and reconstruction of damaged houses that was done through the Centre. These were emergency services and the Department did not request or advertise for these. During the audit, it was found that the Department had not received tender approval and the expenditure was classified as irregular. The Department would appreciate the help of the Committee in getting the expenditure approved by Treasury.
Mr Singh commented that if an area was declared a disaster area by the President, then one could obviate tender requirements and procedures. He wondered why this was not applied in the case under discussion.
Mr Hattingh replied that Section 16 of the PFMA made a provision for funds used in emergency situations. The question was whether this procedure was followed. Once the President declared it a disaster area, then the Minister of Finance was able to make emergency funds available. Unfortunately, he recalled that no procedure had been followed. This was why Treasury could not condone something that should have been a routine matter.
Mr Singh added that Section 16 of the PFMA was very clear on the matter. One could agree with Treasury that they could not condone the expenditure if procedure was not followed.
Mr Thobejane wanted to remind Members that even though the PFMA had been passed in1999, it had not yet come into effect at the time of the floods. Members should not confuse the PFMA and the issue at hand. He did not hear Treasury contesting the applicability of the PFMA during the time of the floods in 2000.
Mr Hattingh answered that the PFMA was effective from 1 April 2000. The Exchequer Act also regulated behaviour of the Department.
Division of Revenue Act (DORA)
Mr M Mbili (ANC) asked the Department what was the process that the Department followed when it transferred funds?
Mr Africa replied that the Department was regulated by the actual legislation for DORA, as well as by a schedule and framework. When it came to conditional grants, the Department tried to work according to a schedule and they focused on expenditure performance. This was a very important criterion. At times when money was not transferred timeously, it was because the Department had problems with the rate at which municipalities were spending money and reporting to the Department.
Mr Mbili noted that the Department transferred the Municipal Infrastructure Grant (MIG) to Umdoni in Kwazulu-Natal (Page 268 of the Annual Report) to the amount of R 195 795 000. According to the information, only 3.3% of this money was utilised. He asked when the Department transferred the money.
Mr Sigaba answered that the Department did not have the records at hand. The funds were transferred to the municipalities as scheduled payments. The municipality had to supply the Department with its reasons if it wanted to make any changes to the schedule. An amount was transferred in February 2009 for projects that the Umdoni municipality was involved in.
Mr Mbili asked how the Department expected Umdoni to account for the money that was or was not spent if they only received the funds in February 2009 and the Annual Report financial year ended on 31 March 2009. How was Umdoni expected to utilise these funds in this period of one month?
Mr Sigaba replied that the Department and municipalities had different financial year-ends. Umdoni requested the money for February; however, spending the funds was determined by the implementation of projects by the municipality. A municipality’s financial year ends in June. The Department transferred the money as a scheduled payment that was agreed on by the municipality and Treasury.
Mr Mbili stated that this should have been shown in the Annual Report.
The Chairperson asked what the payment schedule was.
Mr Sigaba replied that for the local equitable share grant, the Department paid on a quarterly basis. The MIG was paid on a monthly basis. The amount given to Umdoni was the MIG for the rehabilitation of damaged infrastructure after floods.
Mr Africa added that when it came to MIG, there was an arrangement that the Department had that the money could be utilised beyond a financial year. Infrastructure plans sometimes went beyond one financial year.
Mr Mbili wondered why the explanation for the under-expenditure was not recorded in the Annual Report.
Mr Africa replied that the Department agreed that it should have included a footnote in the Annual Report to explain the under-expenditure.
Mr Mbili referred the Committee to page 113 in the Annual Report which looked the performance of municipalities for 2008/09. He noted that there were municipalities that had not spent any of the funds allocated to them. He asked the Department to explain this. How did it happen that municipalities were not spending any of the money that was transferred to them?
Mr Africa admitted that the Department had to rethink the way in which they prepared some of the tables and templates in the Annual Report. Treasury had to assist the Department in doing so because the Department received many of the templates and formats from Treasury. One of the specific challenges that the Department had was that many of the tables worked on the basis of the national government's financial year. This was why some of the figures in the table came across in a very problematic way. The Department needed to find a way of reflecting information against the financial year of municipalities. This might show a slightly different picture than the current Annual Report. The more complex issue was being aware that all of the money transferred in one year was not necessary going to be spent in that year. This was the way in which infrastructure rollouts worked. The government had to find a way of capturing money spent against the entire lifespan of certain projects. He explained that the transfer of money was based on a schedule and project plans of municipalities. Once an infrastructure plan had been registered, the Department received a plan as to how the project would be rolled out. The Department then transferred the money. The problem was that municipalities did not always have the necessary project management capacity or engineering capacity, and there could be supply chain management issues that caused municipalities not to spend their money. The Department did not have direct control over this; however, they have worked with institutions such as the Development Bank of South Africa (DBSA) which would make project managers available to assist in fast tracking and facilitating municipalities.
Mr Mbili asked why the Department transferred all the money in one year when it could be transferred in parts over the number of years that the project would take to complete.
Mr Africa replied that the policy was very clear that the Department should transfer money in tranches. There could be exceptions around disaster management. When it came to equitable share, MIG and Municipal Systems Improvement Grant (MSIG), the Department transferred as per schedule. Unfortunately, he did not have any more information on the matter.
Ms Matlada wondered how it was that some municipalities did not spend any of the funds transferred. This was what led to lack of service delivery and the uprisings that were seen around the country.
Mr Mbili stated that the Department and Treasury should know that municipalities were not able to spend large quantities of money in the year under review. He noted that the Department said that it had no control over how municipalities spent their money once the funds were transferred. He asked whose responsibility it was to ensure that the money was spent. He was also worried that fiscal dumping was taking place. All these issues were related. It seemed that the Department wanted to rush the process of transferring the money to municipalities, so they “dumped” the funds quickly to look good without putting in place a mechanism to see whether the municipalities had the capacity to spend the money.
Mr Hattingh said there were two provisions in the DORA that facilitated the transfer or release of funds in the case of emergencies. Section 28 of the DORA allowed for the return of unspent money to the National Revenue Fund. Historically, this provision was not really used in these cases. If there were legitimate commitments going forward then Treasury could approve the money being spent over a few years. From a legal perspective, it was possible to stagger fund transfers. He stated that Treasury should not have recommended that such a large amount be transferred to one municipality that did not have the capacity to spend the funds. In future, Treasury would rather stagger the payments.
The Chairperson noted that Deputy Minister Carrim had to leave. The Committee had asked him to be there to account for the Department. He asked Deputy Minister Carrim to say a few words.
Deputy Minister Carrim praised the Committee and thanked Members for inviting him to the meeting. The Committee was doing Parliament proud. He apologised for the Department and the sector as a whole, saying they had failed in many respects. He thought that they had performed better than what was reflected in the Annual Report. The Department's poor performance at the meeting was also due to poor preparation; however, they had fallen far short of what was required. When it was discovered that the Department had received a qualified report, Minister and himself were very disappointed especially since it blemished their credibility while they were urging municipalities and provincial departments to strive for clean audits. He assured SCOPA that the Department was having its own internal operation about clean audits. He was particularly concerned about the subject of disciplinary action. He thought that the government should not hesitate to take action against those that needed to be disciplined. He would speak to the Minister and tell him that more action had to be taken. The government also had to look at the legal routes that could be taken when officials who were involved in wrong-doings, left their posts. He added that Municipal Standing Committees on Public Accounts were going to be implemented.
The Chairperson thanked Deputy Minister Carrim. He stated that all the Committee wanted was for the Ministers to take political responsibility for their Departments.
Mr Mbili asked what strategies were in place to address the laxities and problems within the Department.
Mr Sigaba replied that the Department was obliged to make money available to municipalities. However, they would be monitoring whether or not the money was being spent.
Mr Africa added that the Department tried to improve its oversight responsibilities when it came to transferring funds to municipalities. The Department monitored very closely the expenditure of municipalities. When the Department identified under-expenditure, they met with the municipalities and the provincial departments responsible for local government and tried to understand what the problems were. The Department focused on the municipalities that needed additional project management support for infrastructure rollouts.
Mr Mbili asked the Department what actions they took when they looked at spending patterns in municipalities.
Mr Africa replied that when the Department assessed spending patterns, they looked at the municipality's current capacity to manage projects. The Department also helped to rework project plans so that municipalities would be able to spend money efficiently. The Department assisted by bringing in people for a few months when the municipalities did not have enough human resources.
Mr Mbili asked the Committee to turn to page 131 of the Annual Report, which focused on transfers withheld per municipalities according to Section 13(1)(b) of DORA. He noted that the amount of municipalities that the MSIG was withheld from increased from 25 in 2007/08 to 37 in 2008/09. He asked how the Department could call this an improvement.
Mr Africa agreed that this could not be seen as an improvement. The MSIG was about assisting municipalities to build capabilities in different areas such as development planning and performance management.
The Chairperson clarified that Mr Mbili was saying that even though the Department was choosing to act by withholding funds from municipalities, the resulting decrease in municipalities' capacity was worrying. Instead of improving, some municipalities were actually declining in performance.
Mr Africa stated that the increase in withheld funds meant that the Department's control measures were improving; however, the Department understood that the Committee was saying that municipalities' capacity had declined because of withheld funds.
Mr Thobejane asked what the difficulties were that stopped municipalities from spending their funds.
Mr Africa replied that municipalities struggled to draw up proper infrastructure plans. These plans were very poorly done. They also lacked the skills needed for supply chain management and project management. This meant that money was not spent appropriately. The actual project management of the infrastructure plan was a problem. Most municipalities lacked human resource capacity. This was especially evident in rural municipalities. There were also problems of overall accountability and reporting to the Department.
Mr Singh commented that he was glad that the Department was withholding funds from some municipalities; however, he was worried that those communities were being badly affected. There needed to be more monitoring mechanisms for when municipalities received and spent funds. The lack of “warm bodies” within the municipalities was worrying; however, the lack of “warm bodies” within the Department was also of great concern.
Mr R Ainslie (ANC) referred to pages 168, 169 and 170 of the Annual Report. He stated large portions of the report dealt with service delivery and performance against a particular set of targets. The A-G audited this performance to establish whether the country was receiving value for money. The A-G had concerns that the country was not receiving value for money. The A-G had three concerns about the performance information of the Department for 2008/09. The first concern was that the performance information was inconsistent. The A-G found that additional indicators and targets were reported on, which were not approved - subsequent to the Department's strategic plan. He asked why new targets and objectives were set without approval. He asked the Department to use the example of the National Disaster Management Centre Programme where new targets and objectives were set without the required authority.
Mr Africa replied that approval for changes to plans resided with the accounting officer and the Executive Authority. There were instances where the Department received appropriate approval from the Executive Authority. In terms of consistency, the Department held meetings quarterly meetings each financial year where they looked at performance and checked every single output in different indicators. This was when the Department received proposals from line managers saying where they thought output had become redundant.
Mr Ainslie stated that it seemed to be a common practice across the Department that targets and objectives were being changed. The programme for National Disaster Management Centres had a firm target that a resource needs analysis would be developed by 31 March 2009. However, the Annual Report showed that the research had only “almost been completed”. There was a big difference between the actual target and what had actually been achieved.
Mr Africa stated that it was not the Department's view that there had been widespread changes to their plans. He felt the Department had been fairly consistent in the majority of outputs in their deliverables. His recollection was that in the course of the financial year, his disaster management colleagues came to him and said that additional work had to be done around the education, training and resource needs within the sector. It was in this context that the Department agreed that it needed to undertake the proposed process. This was the reason that the programme was not completed by 31 March 2009. The decision was taken in the course of the 2008/09 financial year.
Mr Ainslie stated that there were very vital targets about service delivery that were being changed. The second concern that the A-G highlighted was that, in a number of programmes, targets disclosed in annual performance plan had been changed without approval of the Executive Authority. For example, the A-G identified a target about free basic service infrastructure that said that infrastructure plans would be in place by 31 August 2008. A “revised” target was drawn up without the authority of the Executive. He asked why no authority was sought for the change in target and why there was a change in the target.
Mr Africa answered that the Department could agree that there was a fundamental failure within the organisation in terms of management picking up on this issue. He did not know what the reasons could be. However, he thought that the problems were with management of the Department. He acknowledged that the target had been changed. However, he explained that when the target had been set for 31 August 2008, the Department had been too ambitious. The reality was that the national government could not go and enforce and develop a comprehensive national infrastructure plan on behalf of a municipality. The Department could only support the development of the infrastructure plan.
Mr Ainslie asked if the Executive Authority was aware that the change had been made.
Mr Africa stated that the Department prepared reports on the performance of the organisation after each quarterly meeting. These were sent to the Executive Authority. In these particular instances, the Department did not do this timeously. This was a problem that management was sorting through.
Mr Ainslie noted that another item that was identified by the A-G was that guidelines for Community-Based Organisations (CBOs) should have been completed by 31 August 2008. The revised target stated that the Department was to conduct an assessment of the involvement of CBOs in municipal service delivery. It seemed at though the Department just “dumped” the original target and established a new one. Was the Minister aware of this? He wondered why the Department was setting such ambitious targets and whether they would be more conservative in the future.
Mr Africa replied that it was only after the financial year that the Department had brought these issues to the attention of the Minister. There was a failure within the financial year to have the Minister sign off on certain matters. One of the weaknesses that the Department sought to correct was not to be too ambitious in its planning. The Department wanted to do many things. However, in the course of the financial year legitimate challenges always arose. The Department promised to be more pragmatic in the future.
Mr Ainslie stated that the problem was very serious when service delivery was poor. This was why there were protests all over the country. He noted that the target for 2008/09 was that 80% of indigent households would have received Free Basic Water (FBW). The Department maintained that it achieved 75% of this target. However, they could not provide the A-G with any evidence to prove this. He asked on what evidence this achievement was based.
Mr Africa replied that one of the difficulties that the Department had was that it needed to work very closely with sectors within the country, especially when it came to service delivery. The actual delivery of most basic services happened within the domain of municipalities. The Department would need to get information about FBW and other services from sector departments. At the end of the financial year, the Department had been unable to get the information needed as evidence that it achieved 75% of the FBW target.
Mr Ainslie asked if the evidence was available and if the Department could vouch that the targets were met.
Mr Africa answered that the evidence was available.
The Chairperson noted that when the A-G had asked for the evidence, it could not be given.
Mr Ainslie added that he thought the Department was starting to “thumb suck” some of the information and figures. For the Department to claim that it had achieved 75% of the target for FBW, they must have had some information and documents on which to base their findings. He suspected that the evidence might not exist.
Mr Africa replied that the Department worked with the sector departments involved on this matter. The Department also tried to get this information from the municipalities. At the time the audit was completed, the Department was not able to confirm certain figures that they had already received as preliminary information from sector departments and municipalities. They were not confident enough at that stage to submit the information to the A-G.
Mr Ainslie noted that they were not confident enough to submit the information to the A-G, but they were confident enough to include it in the Annual Report.
Mr Africa replied that the Department thought it had sufficient basis on which to include the information. He stated that the Department might have made an error in making that judgment call. The Department thought it had sufficient information at that point.
Mr Ainslie felt that the Department was misleading the Committee and the people of South Africa. The free basic services probably did not exist and this was why there were service delivery problems all over the country.
Mr Africa asked the Chairperson to give the Department the opportunity to provide the Committee with the relevant information.
Mr Thobejane stated that the Department did not have reliable systems in place on which to base their information. The figures in the Annual Report could not be right when 80% of municipalities seemed to be failing.
Mr Ainslie appealed to the Department to start getting its information and documents ready for the next audit. The field of performance auditing was very important.
The Chairperson suggested that the Department address its capacity problem instead of suddenly revising targets and objectives. Lack of capacity was the real issue that needed to be addressed.
Ms T Chiloane (ANC) referred to pages 162 and 163 of the Annual Report. She noted that full and proper records were not kept for capital assets. There was an absence of supporting documents for the existence of major capital assets to the estimated value of R4 482 040. Why were these supporting documents not available?
Mr Makhura replied that the Department did not have supporting documents for these assets, which were bought 5-6 years ago. The documents were misplaced when the Department moved from one building to another. The assets were still there. However, the documents relating to the value of the assets were lost.
Ms Chiloane noted that the Department's assets management was not in a good condition. It was the Accounting Officer's responsibility to draw up an inventory of assets and liabilities. An asset register should be maintained regularly. If there was any movement of the asset, it should have been recorded.
Mr Makhura agreed that there was not a proper management of assets during that time.
The Chairperson wondered what was done over the years to correct this problem.
Mr Africa acknowledged that the problem should have been dealt with beforehand. At the time, systems were not in place and management was not doing what it was supposed to have been doing. The Department had taken a number of steps to remedy this problem.
Ms Chiloane noted that the A-G could not determine the existence of major tangible assets to the value of R1 814 527. She asked the Department to explain this.
Mr Makhura stated that there was a problem of duplication of assets in the asset register. This happened when there was movement from one system to another. This was not taken into consideration at the time.
Ms Chiloane stated that the accuracy and valuation of the current year adjustments to prior year balances to the value of R 1 416 516 and disposals to the value of R1 251 000 for computer equipment, furniture and other equipment could not be determined. She asked why there were no records of the disposal and why could the A-G not determine the accuracy of the adjustments.
Mr Africa answered that the Department had a disposal policy. However, it was only put in place afterwards. Even in the Department's current policy there were weaknesses identified around asset losses and disposals. One of the actions that the Department had decided to take was on disposals. There was a particular challenge around IT equipment within the Department due to movement from building to building. The Department was physically located within three different buildings.
Ms Chiloane asked why the Department was having trouble with keeping proper documentation. Was anybody taking responsibility for the problem?
The Chairperson noted that the COGTA had fired their previous CFO as a consequence of this matter.
Dr Batandwa Siswana, Head: Operation Clean Audit, stated that one of the key issues that the Department had was the constant verification of assets and updating the asset register. He stated that another problem was that records were not kept in a safe place and this affected record keeping. There were people within the Department who were working very hard to update the asset register. COGTA was located in three buildings and this caused oversight problems as assets were moved and documentation was lost. The Department was looking at including the issue of asset management in the performance contracts of all the programme managers. The Department would also be looking at risk management and audit management.
Mr Africa stated that it was a question of the quality and the active management of the asset register. The Department had brought in a service provider to help them with the problem. However, this was not of much assistance. He thought that the Department had to strengthen its existing policies. The Department was in discussions with the A-G and Treasury and felt that it had adopted an approach or methodology to ensure that they would be able to value their assets.
Ms Matladi noted that the Department agreed that a lot of what they had done was wrong and that they were going to improve. This was an indication that the Department had failed in the past. She asked if any bonuses were paid during 2008/09. What basis did the Department have for paying bonuses to employees that failed to perform their duties? She was questioning their performance management system.
Mr Africa replied that about 51% of all staff had received some kind of performance award. The Department would make the information available on performance bonuses. There was consensus within the Department and with the Minister that they needed to raise the bar when it came to performance management and the awarding of performance bonuses.
Mr P Pretorius (DA) referred Members to Table 7.7 on page 354 of the Annual Report, which dealt with performance management awards for senior management. Almost 50% of senior management was rewarded cash rewards based on merit. This was too liberal compared with the A-G's findings. He noted that there was one beneficiary that was awarded R151 000 as a bonus. However, the average cost per beneficiary showed that the person received R15 100. This was obviously a mistake. All the other figures in this column were also wrong. This created a perception that something was wrong and it was being concealed. He suspected it was a systems problem. However, it was unfortunate that it happened at the level of senior management. He asked whom the recipient of the R151 000 bonus was.
Mr Sigaba answered that the R151 000 bonus was awarded to the previous Director-General.
The Chairperson stated that a mentality was being created that people could receive bonuses for not doing any work. This needed to be looked at.
The meeting was adjourned.
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