With the Minister and Deputy Minister of Home Affairs in attendance, a hearing was held into the qualified audit reports of the Department of Home Affairs and Government Printing Works for 2008/09. Representatives from State Information Technology Agency, the Auditor-General and National Treasury were also in attendance.
The hearing on the annual report of the Department of Home Affairs (the Department) was divided into four focus areas: payables, leases, capital assets and departmental revenue. In relation to the failure to clear the payables account, the Department claimed that the necessary documentation could not be found, and ascribed some blame in this regard also to the Department of Foreign Affairs (as it was then named) and National Treasury. The Department was waiting for a response from the National Treasury on whether it was going to write off an amount of R900, 000 because it could not find the documentation to support the transactions. National Treasury said that it had only received a letter from the Department in February and that it would give a response by the end of the month. The Committee questioned the specifics of the R333 million lease, and discussion ensued as to the nature of this lease. The Committee noted that full and proper records had not been kept of capital assets, and questioned whether the Department was aware of the existence of some of its capital assets. They also noted that the lease, which had related to the “Who am I Online” project, had been cancelled and was likely to proceed to litigation, which meant that full details could not be provided. The Committee was assured that it would be provided with a copy of the forensic audit into the matter. Members also questioned the design of manual and automatic controls, and what systems had been introduced to improve the situation.
The hearing on the annual report of the Government Printing Works (GPW) was divided into two focus areas of accounts payable and inventory. The Committee commented that there had been an improvement on previous years, but the fact that it was still qualified was unfortunate. There were concerns around the suspense account, which should have been cleared. Debtor management had been a problem, as had capacity and staffing, and the Committee questioned when permanent appointments would be made. The Minister assured the Committee that she would be following up on issues, and ensure that they were resolved.
Department of Home Affairs: Annual Report 2008/09 interrogation
Ms F Muthambi (ANC) referred the officials from the Department of Home Affairs (the Department or DHA) to page 93 of the Annual Report, which stated that the year end credit amount was R900,000 in respect of payables. Also included was an amount of R12,6 million in deposits and R11,7 million in refunds that was in relation to the prior financial year 2004/05. She referred to Treasury Regulation 17.2 (b) and (c), noting that accounts should be reconciled and declared on a monthly basis. In order for the account to be reconciled there should be a detailed listing to support all amounts in the account and details of all amounts should be maintained in order to facilitate the transfer to the immigration accounts. Ms Muthambi wanted to know why this account was not cleared according to these Treasury Regulations.
Mr Sagaren Naidoo, Acting Chief Financial Officer (CFO), Department of Home Affairs, replied that the account had to do with repatriation deposits. In the process of cleaning up the accounts of DHA, this amount initially started at about R150 million and progressed during the years leading to the clean up. It was linked to the Department of Foreign Affairs (as it was then named). During 2004/05 there had been a R12,6 million deposit and R11,7 million expenditure. There was no documentation for the R900,000. Department of Foreign Affairs (DFA) had approached National Treasury to write off the amount from its side. DHA now needed to do the same. It was a historical amount. In the last Annual Report the figure was stated as a net amount of R5.6 million, made up of a R27 million credit and a R22 million expenditure. There was no substantiating document, either at DHA or DFA, to clear these accounts.
Ms Muthambi wanted to know why there were no supporting documents for deposits received and refunds made, which meant that the amount could not be transferred.
Mr Naidoo replied that the documents emanated in the missions, where deposits were pledged at missions, and the documentation had gone through diplomatic hands to Foreign Affairs and then to Home Affairs, and along the way had been mislaid, although it was impossible to say by whom.
The Chairperson asked if he was saying that the Department had not received documents from DFA.
Mr Naidoo replied that DHA had not received documents from DFA, but that it was not only the latter’s. This was a “coordinating effect: because the missions were under the direction of DFA and the documentation and process that it handed over to DHA was receipted, but never seemed to have reached the DHA.
Ms Muthambi asked if there was any proof that DHA had exhausted all endeavours to make sure that documents were received from DFA.
Mr Naidoo replied that the Department had exhausted all avenues in terms of finding the documentation, either at its own or DFA’s offices. A few years ago DFA had approached National Treasury and had the amount written off because it did not have documentation. DHA now needed to do the same.
Ms Muthambi said that it was also reported that the Department had made an application to National Treasury for permission to transfer the funds without the required supporting documents. She wanted to know how far the Department had got with the application.
Mr Mkhuseli Apleni, Director General, Department of Home Affairs (DHA) replied that the Department had sent a letter to National Treasury requesting the write-off and explained that the R11 million was a debit and the R12 million was a credit, which linked with the same issue, as set out on page 15 of the report.
Ms Muthambi pointed out that this matter had been recurring since the previous financial year. Disclaimers were issued both for 2006/07 and 2007/08, and the current year contained qualifications. She asked the Department if it could give the Committee its assurance that there would be progress in this regard.
Mr Apleni replied that the only way to clear the R11 million and R12 million was by approval from National Treasury for the write off, because transactions could not be processed without the supporting documents. If the Department did not get the approval from National Treasury the figure would still remain on the books. The DHA, in future would not process any payments without documentation.
Ms Muthambi said that even in the current Annual Report there were similar situations, and she reiterated that the problems had been recurring since 2004/05. She wanted to know if the Department of Foreign Affairs was actually involved, because this kept happening within the Department of Home Affairs.
Mr Apleni replied that both DFA and National Treasury (NT) were involved. DHA needed to liaise with National Treasury on a monthly basis. He said DHA had submitted the reconciliation of the account to National Treasury from 2004/05 up to now, and in the reconciliation had claimed what it had earned per year, noting which outstanding documents it had not received from the Department of Foreign Affairs and what the repatriation accounts were. DHA now needed to finalise with the DFA how it was going to deal with the issue of outstanding documents. DHA had also signed a memorandum of understanding with the DFA to resolve the issue. However, it would only resolve expenditure; because it agreed that it would pay the DFA based on the payslip for allowances and rentals based on the lease agreements, but there was nothing it could do about the revenue because it was on a cash basis.
The Chairperson said that the only issue to be noted was what documents the DHA had not received from DFA and which documents it had lost itself.
Mr Apleni told the Chairperson that the documents he was talking about were the documents DHA had not received from DFA and he had a list of those documents. Those documents had not been lost by the Department and it was in agreement with Foreign Affairs on that.
Mr M Steele (DA) turned to the question of leases, as set out on page 94 of the Auditor-General’s (AG) report. Note 21 on page 143 gave a technical introduction to the matter, which related to financial and operating leases. The qualification referred specifically to a lease agreement which was entered into in December 2008. The problem was whether this lease was a financial or an operating lease. He read the definition from the International Accounting Standard (IAS) No 17, which applied to leases. After reading the definition he asked the Department whether it understood finance and operating leases in terms of the IAS.
Mr Apleni assured Mr Steele that the Department did understand what the difference was between finance and operating leases.
Mr Steele moved onto the specifics of the R333 million lease. He wanted to know the details pertaining to that lease and why there was a problem, as far the Department was concerned, in deciding whether it was an operating or a finance lease.
Mr Naidoo replied that in terms of the classification the Department had only felt that there were a few clauses in the contract which related to significant risks and rewards of ownership. The Department believed that the risk and reward of ownership did not lie with it. However the auditors believed that they did lie with the Department.
Mr Steele asked if the Committee could please get some details on the exact nature of the contract.
Mr Naidoo replied that the contract had to do with ‘Who am I Online’ project, where the expenditure would be paid as an operating lease over a period of time. At the end of March no expenditure was incurred. However, commitments were made over a period of 5 years for an amount which was stated on note 21 of the financial statement.
Mr Steele wanted to know what were the risks and rewards involved in this particular lease.
Mr Naidoo replied that the risks and rewards were primarily related to the fact that the assets were sitting on DHA property and so the Department was responsible for their security, and DHA sites were national key points. This meant that the Department still had ownership because it acted in that manner.
Mr Steele wanted to know if there was going to be any type of transfer in regards to the lease ownership.
Mr Naidoo replied that the contract specifically said there was no title of ownership clause in the lease.
Mr Steele asked that the Committee get a comment from the AG or the National Treasury about how they would go about resolving the problem. He said he understood the issue that there was no transfer of ownership, which would indicate that it was moving towards an operating lease, but if the risks and rewards pertained to the Department of Home Affairs, then it was a financial lease. He wanted someone to clarify how the matter could be resolved and the qualification removed.
Mr Kevish Lachman, Business Executive, Office of the Auditor-General, replied that it was considered a finance lease. Firstly, Clause 4.4 said that the Department of Home Affairs had the option to extend the lease agreement and continue with payments. Alternatively all equipment was to be returned in the same condition as delivered. The extension was expected to be taken up by the Department as the equipment under lease would be integral to the operations of the ‘Who am I Online’ system and ultimately to the delivery service of the Department of Home Affairs. Clause 4.5 said that it was the intention of the parties that the rental which was stipulated would always be lessened, due to the duration and economic life of the equipment. Clause 5.2 said that the Department was liable, and indemnified Kajima against loss or damage rising from third party liability claims, claims for breach of intellectual property and any loss of reliability. The risk was carried by the Department. Looking at all the or so clauses, the AG decided that the risk and rewards were transferred to the Department, and so the lease complied with the definition of a finance lease. This had been discussed with the current leadership of DHA. The AG also had discussions with National Treasury on recording the lease as a financial lease and not an operational lease.
Ms Rudzani Rasikhinya, Chief Director: Accounting and Reporting, National Treasury, said that she agreed with what the AG had said about the lease being a finance lease. National Treasury had received a letter from the Department requesting Treasury’s approval.
The Chairman said that the AG and National Treasury made it sound as if the issue surrounding the lease was very clear, but the Department was saying that it was not so clear cut.
Ms Rasikhinya replied that National Treasury could not, for reasons for time, look at the contracts of every department, but when the AG and NT’s Technical Committee discussed the issue they all agreed that the lease was a finance lease.
The Chairperson replied that he was asking about this particular lease, not leases in general
Mr Ike Mabena, Senior Budget Analyst: Public Finance, National Treasury, added that the Department actually requested further approval in August 2008. National Treasury had granted approval in July 2009, on condition that the Department renegotiated a contract where the title ownership of the lease was transferred to the Department. The Department had not yet come back to National Treasury on whether it had renegotiated the contract as requested.
Mr Steele said that this was the crucial point. The DHA had entered into an agreement and had taken on risks and rewards, as the AG had spelt out in terms of the contract, and yet they would not be acquiring title. This was the fundamental problem. It was not just a matter of the regular accounting definition in the matter of a contract where risk was assumed; there were balance sheet implications and yet there was no final title. He wanted assurance from the Department that that would be renegotiated and regularised.
The Chairperson asked the Department why it had not reverted to NT on the issue since July 2009.
Mr Apleni replied that the Department agreed that the lease was a finance lease. However it had complications in the sense that certain processes needed to be followed before entering into a finance lease in terms of the Public Finance Management Act (PFMA), both for the lessee and lessor. Certain issues with the supplier had prohibited the Department from going through those processes. If a lender entered into a finance lease with a government department without complying with the National Treasury regulations the contract might be void. This was one of the issues the Department was dealing with.
Mr Steele said that the Committee needed more candid details from the Department. The Committee was not getting enough substance as to the issues between supplier and DHA. He wanted to know what exactly the problem was.
Dr Nkosazana Dlamini Zuma, Minister of Home Affairs, replied that the Department had terminated the contract with the supplier and that the matter was probably going to proceed to litigation, so the Department could not go into detailed explanations about the case. She hoped that the Committee would accept this.
Mr Steele replied that the Committee would have to accept it. However, he regretted that this was so, because the Committee would have liked to have heard details on the contract, why it was entered into and what were the risks and rewards for the Department.
The Chairperson said that he Minister’s explanation had conveyed to the Committee that the issues identified by the AG were high-level, and there were significant difficulties with the contract and the way that it was entered into. The fact that the contract had been terminated was a pointer that things had not gone as expected. The Committee wanted to know who entered into the contract and what was to be done about the issue, because their actions had prejudiced Government and the Department. He wanted to know if there was a process which looked at that. Mere termination of the contract was not enough. The consequences of the termination must be followed through.
The Minister replied that the before the previous Minister of Home Affairs had ended her term, she had announced that she wanted a forensic audit done. Unfortunately that was not done, and the DHA had continued along the same route. The final report from the professor undertaking the forensic audit was now awaited, and it was for this reason that the DHA could not answer the questions about the contract at the moment.
Mr Steele wanted to know if the Committee would receive the forensic report, or whether it would be referred to the AG or National Director of Public Prosecutions. He wanted assurance that the Committee would be advised of the outcome of the investigations.
The Minister replied that she was going to give the report to the Chairperson of the Portfolio Committee on Home Affairs, but she would make sure that this Committee received a copy as well.
Ms M Mangena (ANC) then addressed the question of capital assets. In terms of Section 41(a) of the PFMA, and in accordance with Treasury Regulation 17.2.3 (a) all Department must maintain full and proper records of their capital assets. There was a qualification on the capital assets. The opening balances of capital assets, as disclosed in note number 28 of the financial statements, was adjusted by management during the current year by a net amount of R378 million. The AG’s audit findings therefore indicated that the capital assets closing balance was misstated. Capital assets were identified that were in existence at year end but were not recorded in the capital assets report released and therefore were not recorded in the capital assets closing balance, as stated in note number 27 and 28 of the financial statement (page 147-151). She wanted to know how the Department did not know of the existence of some of its capital assets.
Mr Naidoo replied that when the turnaround started in 2007, the Department did not have an asset register. It had therefore started the process of creating one, which entailed finding all the assets from all sites in South Africa. In the previous financial year, 2007/08, this was still a work in progress and the Department received a disclaimer because the asset register was still a work in progress. In the current year, the adjustment of the R378 million related to the work that was done previously, and the opening balance was adjusted to get the records correct. The documentation was old, and therefore the Department had needed to do a fair value exercise. This was done, but the methodology was not adapted in terms of how that fair value was done from the assets. That exercise had been concluded.
Ms Mangena wanted to know if the Department was saying that it had never had an asset register before.
Mr Naidoo replied that the Department had not had a asset register prior to 2006. There was a listing of assets, but this was not done properly from an accounting point of view.
Ms Mangena said that according to the AG the root cause of the problem related to the control of activities. Manual or automated controls were not designed to ensure that transactions were authorised openly and accurately. It seemed that nothing had been happening in that regard in the DHA prior to 2006.
Mr Naidoo replied that initially the Department had a plan to build up an asset register. That process took many years, ultimately resulting in the asset register that the Department had now. That system was being rolled out within the Department and it was balancing back to the basic accounting system (BAS) within the Department. The 2007 asset register, as stated previously, was work in progress, while the 2008 register contained adjustments to the opening balances. There was a quantum of assets that were fair-valued but the methodology was not in place. From now, there was an asset register, and a system of asset management and a system to deal with asset take-on.
Ms Mangena said that the AG was unable to physically verify selected capital assets in the year end capital asset register. This potential misstatement could impact on the capital assets. She wanted to know how the Department could not know that assets worth a R31 million were not in its possession and had been removed from the register.
Mr Naidoo replied that in terms of the physical verification, the audit technique that the AG used was a sampling technique. There was a sample of assets which were investigated and a few assets within that sample were not found, which were less than R1 million. The R31 million was the potential estimate of the whole asset population, taken from the sample.
The Chairperson wanted to know why those assets were not present. He said it was the principle of the matter, more than the amount, that was the issue.
Mr Naidoo replied that these were assets that had moved, and at the time the Department was working on the assets. DHA was an IT-intensive department and the assets that were not able to be found were IT assets.
The Chairperson asked whether he was saying that assets could simply disappear.
Mr Naidoo replied that he was not saying that they could just disappear, but this happened during the process of bar coding the assets. There was now a system in place that when an asset left a site it was signed off and then it had to be signed in again when it arrived at the next destination.
The Chairperson wanted to know why this system that allowed the Department to track assets had not been in place.
Mr Naidoo replied that it was a work in progress at the time. Currently, although not at that time, the Department did have asset officers at all points.
Ms Mangena asked if that meant that the Department did not know who the person was who had been responsible, and asked if it was possible that a person had even left with those assets, without the Department being aware of it.
The Chairperson said that when something went wrong, it meant somebody did not do their job properly.
Mr Naidoo replied that the responsibility was centralised. There was not a dedicated person in each office who looked after assets, and that had been the problem. It was impossible to control all assets from a central point. The closest individual would have been the office manager who was responsible for that office, but that responsibility was not then written in their job description. The Department had now undertaken that responsibility, and now had a front office tool kit that spoke to daily duties, weekly duties and even monthly duties that covered assets and revenue.
Ms Mangena said that the next time DHA appeared before SCOPA it should be able to tell the Committee who was working in each office and who was responsible.
The Chairperson asked the Department who was the person centrally who was responsible for the assets.
Mr Naidoo replied that it was a Director in Asset Management, Sabelo Ngwenya.
Ms Mangena turned to note 27.2, on page 148, concerning disposal of machinery and equipment worth R17.1 million. She wanted the Department to tell the Committee how this was done as no cash was received.
Mr Naidoo replied that these were old assets that were kept in store yards, literally a shed on a site, which were literally just left as it had no further economic life, and the Department had simply to dispose of them as no one was willing to pay to take over those assets. There was no scrap value in them, but rather there was a disposal fee to have them scrapped and removed. DHA went through a process at the disposal committee, which had requested service providers to come and inspect if there was any value in the assets. The disposal committee had then gone through the relevant approval chains to have the assets disposed of, as the DHA could not record assets at no value.
Ms Mangena said that other Departments had indicated that this type of equipment could be given to start-up businesses that could use it. She wanted to know why DHA did not do this instead of disposing of the assets in a dumpster.
Mr Naidoo replied that the Department had tried to do so, and had sent out invitations to businesses and to schools to come and see what they wanted, but nobody had been interested in the assets.
The Chairperson wanted to know what the Department had done to those assets that made them of no use to other people. He also found it strange that DHA could have a disposal committee when it did not even have asset control processes.
Ms Mangena moved on to note 28, relating to movement of intangible capital assets for the year 2007/08, on page 51. She wanted to know what were the other intangible assets worth R113 million that were adjusted.
Mr Naidoo replied that in the 2007/08 financial year, when the Department was doing the work in progress on the asset register, it found that annual license fees for software were recorded as an intangible asset, which was incorrect. This was adjusted and taken out to clean up the register.
Ms Mangena said the AG identified the root cause for the qualification of capital assets as a lack of departmental control. Controls were not in place that were designed to ensure that transactions did occur or were accurately authorised, as reflected on page 95, table 1. She wanted to know if the Department could assure the Committee that it would continue to improve on this area, so that it did not revert back to the situation of getting disclaimers.
Mr Apleni replied that one of the major problems that was causing this to happen was the numbering system for assets. These had been bought centrally, then distributed to the provinces and there was no link to the asset. Last year 2732 of those assets had dummy numbers but that had all been cleared now. In future, no invoice would be paid in the Department without a bar code number, which would control the process. In addition, all processes during the month would be reconciled. This year the asset register would be controlled on a monthly basis.
Ms Mangena asked if this would ensure that the provinces would have no problems.
Mr Apleni assured Ms Mangena that the district offices, regional office, provincial offices and the national office would be covered.
Ms Mangena and other Members also complained that the Annual Report was of poor quality, with pages coming loose.
Mr Apleni apologised and told the Committee that Government Printing Works (GPW) had printed the Annual Report. They had complained to the supplier and were going to make sure that it did not happen again.
Mr M Mbili (ANC) turned to the issues of departmental revenue, as referred to on page 92, at paragraph 7. In the two previous financial years the AG had given disclaimers about departmental revenue, and a qualification in the current year. This related to an amount of R356 million, being money paid to the Department for items such as passports and IDs. The issue with cash sales for civic services was that process application documents were requested by but not made available to the AG. Missing documents were from regional offices. The problem seemed to be that the manual and automated controls were not designed to ensure that the transaction had occurred. He wanted to know what implications this would have on the Department and what was it doing to improve on this issue.
Mr Apleni replied that DHA documents had not been able to be traced, in the absence of a reference number, and only one copy of the document existed. DHA had now found a solution to the problem, by making three copies of the document. One would go to the client, one to the Pretoria office and one at the DHA local office. The reference number would be reflected on the receipt, and was traceable in the receipt book. These new formats had been printed by Government Printing Works (GPW). This would be seen in the 2010/11 financial year, although it had been rolled out through the 100 offices who were responsible for collecting 80% of the DHA’s data.
Mr Mbili asked if what Mr Apleni was saying was that the Department had a data capturing problem which it had managed to solve.
Mr Apleni replied that this would all be sorted out by 2010/11, although in the 2009/10 year the Department was still using the same old process.
Mr Mbili asked about the effects of fraud, crime and people getting illegal documents. He wanted to know what the Department was doing to prevent this from happening.
Mr Apleni replied that the new process would have an effect on this. When issuing birth certificates or any other type of identification documents, there would be a reference number for each document and so DHA would be able to record how many documents each Home Affairs office received and what the reference numbers of those documents were. There was also a new system implemented that was based on a digital thumb print, which meant that there was a record of which employee had been at a counter at a certain time. This way, the Department would be able to trace and identify employees who were involved in criminal acts. DHA was now working on a system in which all its data was in the national population register and that way it would be able to avoid any printing of duplicate IDs. There were now only 6 000 of these matters which had not been resolved.
Mr Mbili said that the danger DHA was facing was the fact that people had violated the laws and had not been stopped. He was glad to hear that there were systems in place now that could trace those people and ensure control. In a meeting with this Committee on 21 November 2008 DHA told the Committee that the solution would be introduced in 65 offices, which accounted for 80% of the revenue, by March 2009. In October 2009, DHA told the Portfolio Committee that the roll out had moved up from 65 offices to 100 offices, but it would still account for 80%. He wanted to know how this was possible.
Mr Naidoo replied that the dynamics of DHA had changed, in terms of where clients went to get services. In 2008 this was still based on 2006/7 data. Front office changes then took place, and by 2010 the 100 sites made up 80% of local revenue, which excluded the foreign mission.
Mr Mbili wanted to know what the status of the Department of Home Affairs was currently.
Mr Apleni replied that the 2009/2010 audit report should reflect that most of the qualifications had been reduced. This was based on the two assessments. The effect of all the improved processes would be evident only in 2011. The Department had said that it was targeting having an unqualified audit by 2010/11 and completely clean audit reports in 2011/12 and 2012/13.
Mr Mbili understood the magnitude of the programme, but he did not understand why it would take so long.
Mr Apleni replied that if reference numbers were not shown then the AG would not be able to link the revenue to the documentation. The reference numbers, which were the key, were not in place yet. In regard to revenue, as mentioned under items 50.1 and 50.3, Mr Apleni knew where the funding was, and it would be rectified. The capital assets register should now be complete. If National Treasury awarded the write-off on the payables, then DHA would be in the clear on that score. The leases were not an issue.
Mr Mbili said that the explanation sounded very simple and honest. He said Mr Apleni had explained all of this to the AG but he could not understand why it was not agreeing.
Mr Apleni replied that it was not the AG, but National Treasury, whose response about the write off was still awaited.
Mr Mbili asked National Treasury why it had not reverted back to DHA with an answer.
Ms Rasikhinya replied that NT had only received the letter from the Department in February. Before that it had been engaging with DHA to make sure that processes were put in place to prevent a recurrence of the situation. In 2009 National Treasury had seconded a staff member to help DHA trace documents. She said that National Treasury would respond to the letter by the end of April.
Mr Mbili said that he wanted the issue resolved, as it had been outstanding for many years. He pointed out that the letter was sent in February, and surely only a yes or no answer was required.
The Chairperson said that he would like to know why the DHA only sent the letter in February.
Mr A Ainsley (ANC) said that he felt that the Committee should recognise that the Department had moved from a disclaimer to a qualified audit, as a result of its turnaround strategy. It was important that the Committee understood more about the strategy so that it could advise other departments to use the same approach. He wanted to know if the Department had received outside assistance with the turnaround strategy or whether this was purely done in-house.
Mr Mavuso Msimang, former Director General, Department of Home Affairs, reported that the turnaround strategy was run by the DHA, with help from outside. In the past three years a group of consultants was invited to take a broad view of the issues which had been indicated as problems, including issues of productivity, efficiency in the turnaround of documents, revenue, and corruption. The Support Intervention Task Team was invited by the Minister to intervene in the DHA in 2006. Successes had come about in processes remapping around document production. The previous long turnaround times had been reduced by mapping out shorter and more efficient processes. Although there had been leadership of the consultancy team, this was actually achieved by DHA officials within a very short period of time. Good practices, such as holding meetings before an action was undertaken, and meeting afterwards to assess the actions were important steps. There were limitations on what the consultants could do, so that the ultimate responsibility and accountability rested with management. Management needed to be strengthened. The experience in regard to IT had been invaluable, and a strong internal capacity was needed to manage these processes. A combination of a number of processes and honest human beings had contributed to finding and dealing with those who had been corrupt. However, IT systems were also very important in preventing corruption. The turnaround had had its strong points and the Department was better than it had been a few years ago, but there was a lot that still needed to be done.
Mr Steele wanted a specific follow up on the section on capital assets. He had just noted that capital assets were reported on in the SCOPA resolution in 2007 and 2008, with very specific instructions to the Department on what it should be doing. He sought clarification whether the DHA now had a central asset management unit, and, if not, why not, in line with the recommendations to institute adequate centralised administration of assets and a proper asset management unit.
Mr Apleni replied that the Department now had both the system and the people in place. A board system was implemented within the Department as a central system. The staff would also be centralised and decentralised, since the latter was also necessary.
Mr Steele wanted to clarify what he meant. He explained that he regarded a central asset management unit as being, for instance, someone in charge in Pretoria, to whom another person, in charge of assets at a branch, reported.
Mr Apleni replied that DHA was implemented the decentralising for the Provinces from 1 April 2010, and it was now cascading the system to other areas.
Mr Steele went on to the issue of performance management. He noted that the AG reported, on page 100, that there were problems with performance information which was not relevant, was not reliable, and there was a lack of appropriate information systems. Mr Steele noted that the report referred, on page 26, to the fact that the Department was still engaged in manual sorting and indexing during the 2007/08 financial year, and had also been forced to continue with this in 2008/09. The upgrading of the existing functional Electronic Document Management System (EDMS) was a strategic objective for 2009/10. He was appalled that a department of this size was still doing manual sorting and indexing. He wanted to know if DHA had a target against which the AG could measure the implementation of a proper EDMS.
Mr Steele referred to the citizen service section on page 52-54, which contained some very detailed and specific areas of performance where the Department wanted to improve, particularly in relation to turnaround times. However, one issue was not covered, and it was that of great importance to every citizen, namely why a person visiting the DHA offices would have to stand in queues. The DHA did not include any indicator around reducing queue times, nor holding staff accountable for that. He asked when such a performance measurement would be introduced.
Mr Apleni replied that the Minister, during her speech on the previous day, had explained that the Department had brought in a time management system, which had been implemented in Khayelitsha, and which was included in the Strategic Plan for 2009/10. EDMS was included in the budget to implement that system.
Mr P Pretorius (DA) said that the Committee should congratulate the Department on the improvements it had made already, although there were still some shortcomings. He noted that the turnaround times for the issue of IDs had improved quite dramatically. He sought some further clarity on the contract which, he was aware, could proceed to litigation, but he needed clarity on the reference to the contract being terminated because the company could not comply with the requirements of the PFMA, which, he had thought, would not apply to a private company.
Mr Apleni replied that this Act must be complied with whenever work was done with the public service.
Mr Pretorius said that he wanted to examine Human Resource (HR) issues. He noted that page 224 covered performance related rewards. At first glance, he had thought that bands C and D had decided not to reward themselves, but then had noted that the total number of employees in band A was given as nil, but that 14 were later indicated as beneficiaries, which suggested that something was wrong with the figures.
The Chairperson said he wanted to pass on the question, because the figures were wrong. DHA was not alone in having these figures wrong.
Mr Pretorius referred to page 141, seeking clarity on certain contingent liabilities. He noted that a motor vehicle guarantee to employees was listed as more than R1 million. He understood that DHA employees would be given a package, and would themselves decide what car they wanted and how much they should pay. He asked for clarification on the motor vehicle guarantee.
Mr Apleni replied under that scheme, senior management had negotiated with Standard Bank and FNB, who would provide the guarantee for senior management.
Mr Pretorius wanted to know if this meant if a manager defaulted from paying then the responsibility would fall on the Department to pay.
Mr Apleni replied that this was indeed what the guarantee meant.
The Chairperson wanted to know how the Department could make that guarantee.
Mr Apleni replied that if the bank had declined a loan for a vehicle, in circumstances where Government required the employee to have a car to perform his or her work, then the Department could give such a guarantee, that in the event that the employee failed to pay, DHA would do so. It was actually a guarantee from NT.
The Chairperson said he understood that, but he could not understand why the Department needed to do so.
Mr Apleni replied that it was a Government policy, not a Departmental policy.
Mr Pretorius noted, in regard to goods and services, on page 129, that some items had increased dramatically in 2008/09, compared to the previous year. He noted that catering, which was R5.5 million in 2007/08, had escalated more than 100% in one year. He wanted to know why.
Mr Naidoo replied that he did not have specifics on that, other than that there was more activity within the Department, but said that there had also been changes in the classification of accounts, and this might have been a realignment of expenditure.
The Chairperson said his worry was irregular expenditure. The figures on page 145 showed irregular expenditure in the current year of R98 million. Item 23.2 indicated non compliance with tender procedures, amounting to R130 million, and there was non compliance with Treasury Regulations, amounting to R166 million, and non compliance with procurement procedures of R723, 000. There were no steps taken to rectify these. He called for an explanation.
Mr Naidoo replied that the explanations were recorded on page 146. The R130 million related to expenditure that was irregular, not because of delegation but because of the process which was followed within State Information Technology Agency (SITA) in 2006.
The Chairperson asked if Mr Naidoo could remember what the contract was about.
Mr Naidoo replied that it had to do with the ‘Who am I online’ contract. The R166 million had to do with transfer of a contract without the necessary approval from National Treasury, so the problem was one of compliance since the DHA had not sought the necessary permission for the contract.
The Chairperson said that the AG had reported that it was due to payment made on deportation transport contracts that had expired. He wanted to know what permission DHA would have required from NT.
Mr Naidoo replied that the contract which had expired was a departmental contract, and on expiry DHA had, without seeking permission from NT, decided to use a transversal contract from NT.
Ms Rasikhinya confirmed the position.
The Chairperson wanted to know why this had happened, what the implications were of such non compliance, who the officials were who had to manage the contract, and what action was taken against them.
Mr Naidoo replied that the contract had to do with transportation within the NIB environment. When pressed by the Chairperson for a name, he said that the individual responsible was Mr Ricardo Abrahams in the NIB directorate.
The Chairperson wanted to know what happened to him.
Mr Naidoo replied that nothing had happened to the individual.
The Chairperson wanted to know about the other irregular expenditure, and what action was taken in respect of those who had not followed procedures relating to the R723 000.
Mr Naidoo replied that the expenditure related to incidents which happened within the Department. There were processes that were followed. The non compliance here was not of the magnitude to be disciplined or dismissed.
The Chairperson wanted to know why the Department did not comply with the public service regulations, as numerous employees received, over time, in excess of 30% of their basic salary in overtime. He also wanted to know what happened to the individuals who authorised those payments.
Mr Naidoo replied that nothing had happened. Overpayment related to security personnel who worked more than the standard hours. The 30% limit applied to all, but this incident was picked up when it became apparent that some individuals would have to work extra time.
The Chairperson wanted to know if that was not recognised by the public service regulation.
Mr Naidoo replied that it was not.
Government Printing Works (GPW): Interrogation of 2008/09 Annual Report
The Chairperson pointed out that when last SCOPA had engaged with Government Printing Works (GPW) its report was of very poor quality, and that although improvements were apparent, the Committee would like to see a clean audit.
Mr Ainsley reiterated this. He noted that there were two qualifications. The first related to the inventory, which would be addressed later. The second related to accounts payable, which was set out on page 178. The major question was around the suspense account, which contained items that were “unknown”. It should be a temporary account, used when something was being clarified, but should then be cleared when the amounts under query were moved to the correct accounts. National Treasury regulations required this account to be cleared each month, with all transactions then being properly recorded. The AG reported that this had not been done. Mr Ainsley did not understand why the regulation was not being adhered to.
Mr Rassie Barnard, Acting Chief Financial Officer, Government Printing Works, said that the suspense account was linked to the whole question of debtor management in the Government Printing Works (GPW) over a number of years. Debt collection had always been a problem. In the 2007/08 year, GPW collected R410 million from debtors, and in the 2008/09 financial year it had collected R560 million. When GPW received money it went to this suspense account, then had to be allocated to various debtor accounts and to specific invoices. GPW did not always get the necessary documents from departments or Government entities paying GPW, to enable it to allocate those amounts. This was a problematic issue for GPW because it did receive a lot of funds.
Mr Ainsley said it was not a matter of collection, but rather of what was done with the amounts once they had been put to this account. He asked who GPW was blaming for the issues, and why did it not have the proper documentation. He also wanted to know what steps GPW were taking to rectify the problem, because the situation was getting worse. He enquired if GPW was implying that this situation was out of its own hands.
Mr Barnard replied that he was not saying that it was completely out of GPW’s hands but at the same time GPW did not have the systems in place as yet to deal with the matters. In terms of debtor management GPW had tried to deal with the matters on a normal credit control basis.
Mr Ainsley said it was clear that the necessary systems were not in place. The obstacles included lack of capacity, lack of systems and lack of “warm bodies” performing the necessary tasks.
Mr Ainslie said that he wanted to deal with financial liability. The AG found that the goods received included long standing amounts dating back to 2005 and 2006, which meant that there was a distorted financial position, because it affected payables, expenses and the accumulated reserves. Here again there was a long standing problem. He wanted to know why this was not being addressed and whether this was likely to recur.
Mr Barnard replied that unfortunately this issue did go back to 2005/06. Because GPW needed to comply with the international accounting standards, these liabilities were recorded in previous years. It was not a matter of not finding the documentation and being able to clear the account. This was the control account. There was improvement within this account during the year under review.
Mr Ainsley replied that the Committee would acknowledge that the situation had improved, and he asked how this had been done.
Mr Barnard replied that GPW had put certain control activities in place, and today that account was cleared. The problem should not recur in the future.
Mr Ainsley said that there were still insufficient internal controls in GPW; on pages 181 and 182, the AG listed 22 indicators of internal financial control, of which GPW was judged compliant with only nine.
Mr Tom Moyane, Chief Executive Officer, GPW, replied that there was a lack of personnel at that time, which had now been addressed. Secondly, GPW did not have sufficient systems in place. There had been discussions with the AG on how to address the issues. GPW assured the Committee that these matters were being attended to so that GPW was compliant with the National Treasury Regulations.
Mr Ainsley pointed out that one of the problems was personnel. In the Strategic Plan document for 2010/11 and 2011/12, GPW emphasised the importance of the internal audit function, yet indicated that there was no Director of Internal Audit. He wanted to know if this position had now been filled.
Mr Moyane agreed with Mr Ainsley that this had been a huge problem for the GPW. It still did not have a Director of Internal Audit and that it had been trying to recruit someone for the position for a year, without success. He said GPW was in the process of interviewing people and that it should appoint someone this month.
Mr Ainsley said that another problem was the lack of information on the Audit Committee in the report as set out on page 69. There were also some committee members who had attended six meetings, while others had only attended three. He wanted to know if someone from that Committee was present.
Mr A Keyser, GPW Audit Committee member, replied that he was the member who had attended six meetings.
Mr Ainsley said that this was a poor report but that he would reserve his comments for when the Committee met again.
The Chairperson wanted to know what the purpose was of the audit committee meetings and why GPW did not allocate resources to this.
Mr N Singh (IFP) said that it was unacceptable for GPW still not to have an internal audit director.
Mr Barnard replied that this came back to the issue of not having sufficient systems in place.
Mr Singh wanted to know why the former Chief Executive Officer had been discharged and when a permanent CFO appointment would be made.
Mr Moyane said that the GPW had just employed a permanent Chief Financial Officer. The previous one was discharged because he was not qualified for the job and he was becoming a liability.
The Chairperson asked how the GPW could employ someone who was not qualified, and whether no reference checks had been done before hiring this person.
Mr Moyane said that this person was only in place for one month before GPW let him go.
The Chairperson still wanted to know why the GPW had even appointed him in the first place.
Mr Moyane replied that the former CFO had submitted fake qualification documents.
Mr Singh wanted to know why no background checks were done to verify that he could do the work.
The Chairperson questioned if the GPW even was aware of a system for background checks.
Mr Singh moved on to questions around staffing and capacity, as reflected on page 183. He wanted to know why performance bonuses were paid, and who decided on these bonuses. He wanted a detailed breakdown of the packages.
Mr Pretorius pointed out that there was a breakdown on page 242 and 245 of the report.
The Chairperson pointed out that the current staff apparently did not want GPW to appoint new staff because, by doing overtime, they were effectively being paid double salaries, a perk that they did not wish to lose.
The Chairperson asked the Minister to address the meeting.
The Minister said that this was the first time she had attended SCOPA’s meeting but would continue to do so because she had learnt a lot. She said some of the aspects clearly needed to be followed through. She would do her best, as she had done in her previous positions, to ensure that the Department accepted and worked through the issues raised by the AG, to final resolution. Issues of time and pay were relevant, and she would look into having more personnel at DHA. She said that perhaps government should realise that one dispensation would not suit all departments. For example, some DHA staff at the airport worked through the night in an operational centre, but were apparently not able to be classified as shift workers as they were not working in immigration. Any work outside office hours, despite the need for a 24-hour shift, was counted as overtime, but this then fell foul of the 30% overtime rule. These were issues that government clearly needed to resolve.
The meeting was adjourned.
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