Smart ID Card: Forensic Audit Report & Appropriations 3rd quarter 2009/10 year

Home Affairs

19 April 2010
Chairperson: Mr B Martins (ANC)
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Meeting Summary

The State Information Technology Agency (SITA) and the Department of Home Affairs (DHA) briefed the Portfolio Committee on Home Affairs and Standing Committee on Appropriations on the Forensic Audit of the Smart ID Card (SIDC) Project. The sequence of events was set out. DHA officially requested SITA to publish a tender on behalf of the DHA on 12 May 2008. The DHA participated in the Bid Evaluation Committee process, and the Auditor-General performed the standard procedures agreed upon in terms of the process. An anonymous letter was received by SITA on 9 September 2008, making allegations about “serious flaws” in the tender evaluation process. SITA halted the tender process on 10 September 2008. The Auditor-General advised the DHA to commence with a forensic investigation in February 2009. In December 2009, a draft forensic report was submitted to the DHA, for a response by 16 April, and the final forensic report would be made available after the Minister had finalised it in June 2010.

Members asked if the SIDC issue had been resolved, what the details of the anonymous letter were, what the ‘serious flaws’ were, where the problem originated, who was responsible and what would be done in future to avoid these problems. Members also asked how much of the initial allocation amount of around R1.4 billion to smart cards had been used, whether the allegation suggested that the potential tenderer was also advising on the tender specifications itself, if lack of adequate infrastructure had caused delays in applying for and using funds, how many reports would be produced and why there was delay in finalising the matter. SITA and DHA said that until the report was finalised, many of the questions could not be answered, but assured Members that a full report would be forthcoming.

The DHA then gave a presentation on the appropriations of the Department for the third and fourth quarters of the 2009/10 financial year. DHA had spent 71.1% of the budget by the end of the 3rd quarter, and explained where the underspending had occurred. However, it had then approached National Treasury for shifting of funds to other priorities, and managed to reach 98.7% spending. It was explained that the supplier for the ‘Who am I Online’ project had failed to perform and deliver in accordance with the contract of 9 July 2008, and the DHA had engaged the services of SARS, and referred the matter for a legal opinion and resolution. Members asked what amount of funds was moved in the 4th quarter, whether they were budgeted for, and asked for an assurance that there would not be irregular expenditure. They questioned whether the actions taken complied with the Public Finance Management Act.
Members asked whether the ‘Who am I Online’ consultants had been given permission to return to work, what the problems were in implementation of the ‘Who am I Online’ project and if the project was still in progress, what financial implications were involved with the contract being declared invalid and if the DHA expected a difficult legal battle. The Co-chairperson felt that the Standing Committee should follow up on the progress of the financial adjustment during the 4th Quarter. Once the legal report had been completed, a further presentation on the matter would be given to the Committee.

Meeting report

Smart ID Card (SICD) Forensic Audit: State Information Technology Agency (SITA) and Department of Home Affairs briefing
Ms Ramabele Magoma-Nthite, Acting Chief Executive Officer, State Information Technology Agency, said that implementation of the contact-integrated circuit chip Smart ID Card (SIDC) was a Department of Home Affairs (DHA) project aimed at replacing the current green ID Book, which was manually produced and which caused delays in processing of ID documents. The DHA officially requested the State Information Technology Agency (SITA) to publish a tender on behalf of the DHA on 12 May 2008.

The procurement process which SITA adopted was premised upon preparation and soliciting of bids on behalf of the DHA, the facilitation of the evaluation of the bids, where some SITA members made up the Bid Evaluation Committee (BEC), the adjudication of the bids by the SITA Recommendation Committee, and the final recommendation of the award to the Accounting Officer of the DHA

The DHA participated in the Bid Evaluation Committee process, where the major members of this Committee had to come from the DHA. The bid closed on 27 June 2008, after which technical, price and BEE evaluation commenced. These were concluded in August 2008.

At the onset of procurement, the office of the Auditor-General (AG) was brought into play to perform the standard procedures agreed upon in terms of the process. Therefore the role of the AG was to perform ‘agreed upon’ audit procedures relating to the project.

An anonymous letter received by SITA on 9 September 2008 made allegations about “serious flaws with regards to the evaluation of the SITA tender RFB 643”. In pursuance of the anonymous letter, SITA, on 10 September 2008, halted the tender process with a view to finalising the AG’s report on compliance with agreed upon procedures. This was the first step to investigate whether there were issues which needed attention.

The AG finalised the draft report on 25 September 2008. In December 2008 SITA advised the DHA on the decision to commence with a forensic investigation. A forensic audit commenced in February 2009. In April 2009, the audit report raised concerns on the process that had been followed. In the same month, SITA recommended to the Director General of the DHA that the tender should be cancelled. The DHA cancelled the tender on 19 August 2009.

In December 2009, a draft forensic report was submitted to the DHA for comments. The DHA committed itself to respond to the comments by the 16 April 2010, the previous Friday. The forensic report would not be made available until its official finalisation by the Minister in June 2010.

The Chairperson asked if Mr Mavuso Msimang, former Director General, Department of Home Affairs, would like to add any comments at that stage.

Mr Msimang said that he would respond to questions, but had no comments at that stage.

The Chairperson said that Parliament had expressed concern over the lengthy period taken for the SIDC forensic report, and that the relevant Departments would be held responsible for finalizing the report by June 2010.

Mr M Swart (DA) said that in June 2004, the smart card had already cost R1 billion. Each year, money had been budgeted for the smart card, but nothing had transpired. He believed that the Appropriations Committee should consider taking the budgeted money away, as DHA was clearly not producing the smart card. The first smart card was issued during President Mbeki’s tenure, but since then no smart cards had been issued. He asked if there was certainty that the smart card issue had been resolved, and if these would be available at the end of the year.

The Chairperson clarified that the report was required by the end of June, and that soon thereafter, Parliament would need to see the smart card.

Ms Zodwa Manase, Chairperson, SITA, said that SITA had been diligent in ensuring that the process was not compromised. In April 2009, the audit report raised concerns on the evaluation process and SITA informed the DHA that the integrity of the process had been compromised. She assured the Committees that the investigation would be finalised, according to the due process, by June 2010.

Mr M Mnqasela (DA) asked what the details of the letter were, what the flaws were, where the problem originated and who was responsible. SITA had been given the responsibility to manage the tender but the problem was obscured. He asked for SITA’s view on the future arrangements for the tender, to avoid similar problems recurring. He added that in Botswana during the previous year, he had seen citizens with their own smart cards and looked forward to South Africa moving from manual to electronic processes in this regard.

Ms Manase said that the allegations made in the anonymous letter were being investigated. They could be regarded as allegations only, until proven to be true. The bid evaluation process was made up of members from National Intelligence Agency (NIA), DHA, SITA and various other organisations, not only SITA, and the letter contained allegations about irregularities within the process. The AG was assigned the role of ensuring that all regulations were met. The full report would highlight where processes had not been followed correctly. At the onset of the process, the BEC constituted ten members and in the end, the evaluation was performed by four members. The investigation would resolve, amongst other issues, whether members had resigned or not. 

Ms Magoma-Nthite added that it was important to clarify that the tender was never awarded. Implementation of the Enterprise Resource Planning (ERP) was intended to manage the tender process from publication to the point of recommendation, and once in place this system would alleviate problems.

Ms M Maunye (ANC) asked how much of the initial allocation amount of around R1.4 billion allocated for smart cards had been used.

Mr Mkuseli Apleni, Director-General, Department of Home Affairs, said that with regard to the budget, the request for funds to Treasury was based on a calculation based on the business case. R1.4 billion was requested, but was not allocated. In the 2008/09 budget, National Treasury allocated R104 million for piloting of the smart card. The presentation on the budget would outline the unspent money. The DHA would be making a request to National Treasury for utilisation of money allocated for 2009/10. In the 2010/11 financial year, no money had been allocated for the smart card. The Minister had indicated that the 2010/11 budget would allow for linking of other systems to the smart card, so that all systems were ready for implementation. A new budget request for the smart card would be submitted for 2010/11.

Ms Maunye asked if the “forensic audit concerns” regarding the tender could be clarified in the meeting.

Ms R Mashigo (ANC) asked if the four supply and maintenance requirements for the smart cards, raw materials, card personalisation, card production facility and all infrastructure were expected from one tender.

Ms Manase confirmed that all four requirements were indeed for one tender.

Ms T Gasebonwe (ANC) asked if there had been follow up as to where the anonymous letter had emanated, and if it was possible to hear what were the “serious flaws” indicated in that letter.

Mr Msimang said that the smart card project had been suspended until the Support Intervention Task Team had completed its work around March 2007, and until a new DG had been appointed, in May 2007. In the budget for that year there was around R110 million allocated to initiate the procurement process and to fund piloting, once a service provider had been appointed. As explained, the process became contaminated. At the time that the DHA was advised to cancel the tender, the forensic audit had not been completed. Thus the DHA adopted a cautious approach to dealing with cancellation of the tender. By the end of that financial year, it was clear that the funds available would not be able to be used. Had the tender been completed, there would have been a pilot by December 2008, and in 2009, by agreement with National Treasury, the DHA would have been able to request funds to roll out the rest of the programme in stages. It was always anticipated that the smart card project would be a five year programme, given the size of the population and complexity of the issues.

Mr L Ramatlakane (COPE) believed that the heart of the debate was to uncover the central allegation in the anonymous letter which sparked the investigation. He asked for clarity as to whether the allegation suggested that a potential tenderer was also advising the BEC on the tender specification itself. He further referred to the letter which made allegations about “serious flaws with regards to the evaluation of the SITA tender RFB 643” and cancellation of the tender on 19 August 2009. He asked if there were two reports: an initial report in April 2009, on the problems which initiated the investigation, and a draft forensic report in December 2009, and if there had been any material changes in the past four months since that draft forensic report. He also asked what the difficulties were that were delaying comment on this report.

The Chairperson reminded members that the chronological list of events had been presented, but that Parliament was not privy to the draft forensic report. Only once SITA and the DHA had received the finalised report could Parliament engage intelligently and meaningfully on the report.

Ms R Mashigo (ANC) asked if social infrastructure, which lay outside the chronological events listed, and which formed the basis of the DHA problem, had been taken into account, and if lack of adequate infrastructure had caused delays when applying for and using funds for such a big tender.

The Chairperson appealed to members to wait until the report had been finalised before pre-judging a process and entering a realm of speculation.

Co-Chairperson Sogoni agreed with his comments.

Mr Mnqasela said that the Committee had a role to play in oversight and felt that all members’ concerns should be raised and noted. His question to SITA on what was contained in the anonymous letter had not yet been answered. He believed that since the contents of the letter were known, they should be shared with the Committee. He believed that it was not enough merely to list the chronological events.

The Chairperson assured Members that a report would be tabled before the House, and that this would not be an indefinite process. The Committee had to respect internal processes.

Mr Ramatlakane said that he believed that his request for comment on the two reports, the cancellation of the tender and the draft report awaiting comment, were non controversial and deserved comment from the DHA.

Ms Manase said that the first draft report of the forensic audit was drawn in April 2009. Such first-draft reports were not usually circulated.

Mr Apleni said that he did not want to discuss, before the report was finalised, issues such as who might be involved and whether they were still in government. When the report was finalised, there would be a structure providing for a proper response.

Ms Manase said that there were irregularities, as mentioned, with the number of members in the BEC. SITA was awaiting responses from various individuals. The report would reveal the nature of the allegations which were being investigated.

Mr J Rabie (DA) suggested that the matter was important enough that once the report was published, even if it was during the Soccer World Cup, the Committee should meet to discuss it.

The Chairperson said that the Committee would continue to engage with the relevant departments to ensure that, as soon as the report was available, they would engage with the Committee.

DHA Appropriations for the 3rd Quarter of the Financial Year 2009/2010
Mr Apleni said that the report from National Treasury noted that by the 3rd quarter, the DHA had spent 71.1 % of the budget. This spending was made up of the four programmes: Administration at 75.3%; Services to Citizens at 65.1%, Immigration Services at 58.9%, and Transfers to Agencies at 87.8%.

In terms of the Economic Classification, under-spending on Compensation of Employees (72%) was due to a delay in the filling of a vacant funded post due to the migration process. Under-spending on goods and services (61.4%) was attributed to money allocated but not used for the smart card, the Department of Foreign Affairs paying expenses on behalf of the DHA for claims for foreign missions, and the customer service centre being over-budgeted for by DHA.  Under-spending on Capital assets (53.2 %) was due to under-spending on 2010 projects, the smart card and security system.

The DHA approached National Treasury for shifting of funds to be used for other priorities such as the movement control system which DHA was building with South African Revenue Services (SARS), Government Printing Works, for passports, legal fees, and the electoral commission. The request was approved. As a result, DHA’s spending was now at 98.7% of the 2009/10 budget.

With regard to the ‘Who am I Online’ project, the DHA had informed the supplier that given the failure to perform and deliver in accordance with the contract of 9 July 2008, the DHA had engaged the services of SARS. The matter was with the DHA legal team for further consideration.

Mr Swart asked for clarity on whether the ‘Who am I Online’ consultants had been given permission to return to work after the DHA had closed their doors for a period of time.

Mr Mnqasela asked what the actual findings were with regard to problems picked up in implementation of the ‘Who am I Online’ project and if the project was still in progress at Oliver Tambo International Airport (ORT), despite the challenges, or if it had been abandoned. He asked if there were components of the project in particular that had been implemented, to what extent they were implemented and how much had been spent on this up to the present time.

Mr Apleni said that the Minister had not said that she had implemented ‘Who am I Online’ at ORT, but that the system developed for the SARS project would be implemented at ORT and would be ready for the 2010 Soccer World Cup event.

Mr Ramatlakane asked what financial implications were involved in the contract being declared invalid and unenforceable, and if the DHA expected a difficult legal battle.

Mr Apleni said that once the legal report was complete, the DHA would present to the Committee on’Who am I Online’ and how much had been spent on it to date.

Ms B Ngcobo (ANC) asked for an explanation on the increase of capital expenditure from 53.2 % during the 3rd  Quarter to 100% in the 4th Quarter.

Ms Mashigo asked for clarification on the compensation of employees from 72.3 % in the 3rd Quarter to 100% in the 4th Quarter.

The Chairperson asked if the invalidation of the contract was taken into account, and how 98.7% spending in the 4th Quarter translated into real service delivery.

Mr Apleni said the money could not be transferred from one programme to another but that reshuffling within the capital assets expenditure was allowed, for reprioritising of capital assets. In total, the last quarter expenditure had included an additional total of 4 % more than what was spent in the 3rd Quarter.

The R104 million for the smart card had not been spent, leaving 10% of the budget unspent. R109 million was required to pay Government Printing Works and this request for a shift of funds had been granted by National Treasury.

Co-Chairperson Sogoni said that in terms of Section 43 of the Public Finance Management Act (PFMA), the Accounting Officer was allowed to shift funds, up to an amount of 8%, without going to Parliament, but the adjustment process must be approved in Parliament. He asked if DHA’s actions were in line with the PFMA.

Mr Apleni assured the Chairpersons that DHA had acted in accordance with the PFMA and that National Treasury had the power to shift funds between capital and other items. The DHA’s adjustment requests were well within what it was allowed to do.

Co-Chairperson Sogoni felt that the Standing Committee should follow up on the progress of the adjustment during the 4th Quarter.

Ms Mashigo asked how much was moved, and where it was held, and where it was transferred. It appeared that money was held back, and then spent on unplanned activity. She believed that the National Treasury moving funds was unacceptable.

Co-Chairperson Sogoni said that some questions raised would be answered in the annual report.

Ms P Maduna (ANC) asked if the DHA could assure the Committee that with the improved transaction facilities, there would be no disclaimers or qualified audits in the future.

Co-Chairperson Sogoni asked if the Director General could note all the questions, so that he would be able to respond to them at the appropriate time in the future.

Mr Mnqasela said that the questions showed that there was uncertainty amongst members. They were to understand that the service provider had been suspended and the matter had been referred to the legal advisers. He asked for more clarity on the status quo, and why a legal team was involved, with the ‘Who am I Online’ project.  He asked for assurance from the DHA that the rush to spend money in the 4th Quarter would not culminate in any irregular expenditure. He added that his previous question on how much was spent and how much still needed to be spent on the ‘Who am I Online’ project was unanswered.

Mr Apleni said that the percentage of expenditure was correct, it was in line with the objectives of the DHA, it was not wasteful, and it was not unauthorised. The AG would confirm this.

Mr Ramatlakane said that he would like to read the information on the shifting of finances at the 4th Quarter. He asked for clarity on whether the projects which required the shifting of funds at the end of the year had not been budgeted for.  He said that the 4% difference translated into a substantial amount, when dealing with millions of rands.

Co-Chairperson Sogoni said that Section 43.4 of the PFMA did not allow for utilisation of funds which were specifically appropriated, and this issue would be followed up.

Mr Apleni said that that projects were all budgeted for, but the problem was that in the past there had been fraud issues that had led the British government to regard South African passports as not being credible from a security point of view. This had occurred in the middle of the financial year, and resolution of the issue could not be postponed. The budget set by National Treasury for passports had been for R100 per passport. However, the cost then increased to R270 per passport in the middle of the financial year. Approval of tariffs occurred in August. For this reason, the DHA had to approach National Treasury to shift money from wherever it was available, to cater for the change of passports. National Treasury then also submitted the correct tariff for 2010/11.

With regards to ‘Who am I Online’, the Minister had stated in the budget speech that the system that was being implemented at ORT in 2010 and the other 34 ports of entry would be rolled out together with SARS.

The meeting was adjourned.

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