Commission for Gender Equality 2008/09 Annual Report and Financial Statements: hearing

Meeting report

Hearing on the Annual Reports and Financial Statements of the Commission for Gender Equality (CGE)
The delegates from the CGE, the Department for Women, Children and Persons of Disabilities (DWCPD), the Department of Justice and Constitutional Development (DOJCD), the Office of the Auditor-General (A-G), the National Treasury and the Members of the Committee introduced themselves.

Mr M Steele (DA) suggested that the Committee was briefed on the handover of the responsibility for the CGE to the DWCPD by the DOJCD.

The Chairperson agreed to Mr Steele’s suggestion but said that the briefing on the handover would be more appropriate at the end of the hearing on the annual reports.

Ms Nomboniso Gasa, former Chairperson, CGE requested permission to address the Committee.  After some discussion, the Chairperson of the Committee agreed to her request.

Statement by Ms Nomboniso Gasa, former Chairperson of the CGE
Ms Gasa said that the 2008/09 annual report of the CGE was not discussed during the last meeting with the Committee or she would have raised her concerns on that occasion.  She was informed of this meeting to discuss the annual report late on 5^th May 2010 but had cancelled previous engagements to ensure that she attended.

Ms Gasa stated her opinion that the 2008/09 annual report was deeply flawed and did not reflect the true state of affairs at the CGE.  The report concealed and withheld important information.  Information was manipulated to mislead Parliament and the South African public inasmuch as it protected wrongdoing, irregular expenditure and corruption by certain officials and Commissioners of the CGE.  The extent of her participation in the forensic investigation was not reported.

Two weeks earlier, Ms Gasa had written to the Auditor-General to request details of the process she needed to follow in order to raise her concerns and was advised on the technical process that had to be followed.  She suggested that a mechanism was put in place to allow the Committee access to all documents and the data captured on the CGE’s system.  She assured the Committee of her full cooperation and participation once that process had been put in place.  All the evidence to back up her allegations was available and was known to the CGE.

Ms Gasa stated that she had requested a thorough investigation into the allegations of corruption and the other statements made against her.  Since she left the CGE nine months ago, she had relentlessly pursued a forensic audit so that she could answer the allegations made against her.  She proclaimed her innocence and said that the truth was in the interest of all the parties concerned.

Ms Gasa requested leave to withdraw from the proceedings for reasons that affected the integrity of the process rather than unwillingness on her part to participate in the discussion.  She noted than not all the officials and Commissioners of the CGE were implicated in the alleged wrongdoing.

Discussion
The Chairperson said that the Committee needed to take a decision on the matter as Ms Gasa had made serious allegations concerning the annual report of the CGE.

Mr R Ainslie (ANC) expressed appreciation for Ms Gasa’s attendance at the meeting and urged her to remain.  The Committee was not aware of certain of the issues she had raised concerning fraud, corruption and the concealment of information and her insight into these matters would be valuable during the discussion.

Mr Steele said that Ms Gasa’s comments made serious allegations concerning the information contained in the annual report, rather than on the report of the Auditor-General.  The veracity and reliability of the information had to be established by the Committee.  Ms Gasa had suggested that the electronic data of the CGE needed to be made available to the Committee.  He referred to the Auditor-General’s comment that the CGE’s system had crashed and that no backups of the system had been made.  Therefore there was no electronic data available.

Ms M Mangena (ANC) recalled that the Committee had requested the CGE to “go back and make sure that their house was clean” during the previous meeting.  She asked if Ms Gasa had the information available at that time and why the Committee was not informed at that meeting.

Mr M Malale (ANC) noted that Ms Gasa had voluntarily attended the meeting and had not been summoned by the Committee to attend.  She was the responsible authority at the time and had a legal duty to account to Parliament on the state of affairs at the CGE.  He urged Ms Gasa to remain and participate in the proceedings in order to back up her allegations that the report contained inaccurate information.

The Chairperson requested comment by the Auditor-General on the matter.

Mr Lourens van Vuuren, Office of the Auditor-General referred to the report of the Auditor-General contained in the annual report.  The basis for the disclaimer of opinion was that the Auditor-General was not provided with adequate information and documentary evidence to substantiate the organisation’s claims.  The Auditor-General had followed due process, which was explained to Ms Gasa.  The audit requirements were communicated verbally and in writing to the officials of the CGE.  The documented evidence requested was not submitted to the Auditor-General.  He was aware of Ms Gasa’s communication to the Auditor-General and that she had been informed of the process that had to be followed.  The first step in the process was to meet with the audit team to clarify the issues.  He believed that the Auditor-General had followed due process and that the report from the Auditor-General contained no factual inaccuracies.  The basis for the disclaimer of the opinion was simply that the required documentary evidence and information was not received.

The Chairperson explained that the hearing was a process of information exchange.  The Committee needed to continue with the proceedings in Ms Gasa’s presence and with her assistance.  The Committee does not know where the information contained in the annual report was inaccurate or incomplete.

Dr A Keet, Commissioner, CGE said that the comments made by Ms Gasa tarnished the integrity of the CGE.  He agreed that the organisation was “in a mess” but much progress had been made during the preceding nine months to correct matters.  The issues raised were historical and he requested that Ms Gasa’s statement was withdrawn.

The Chairperson said that Ms Gasa’s comments were generalised.  The Committee needed to identify particular issues and allow both Ms Gasa and the CGE to respond.

Dr Yvette Abrahams, Commissioner, CGE asked if a person was allowed to make statements to the Committee without providing the evidence to back it up.

The Chairperson said that any allegations made would be proved or disproved and put in context as the discussion proceeded.  Ms Gasa’s statement could not be withdrawn and the Committee needed to hear comment from both parties on particular issues.  The key factor was that Ms Gasa needed to be present at the hearing as she was the responsible person at the time.

Ms Gasa said that she had made a formal request to withdraw.  The Committee was in possession of the annual report, disciplinary action was taken against her and she stood by her statement.  She felt strongly that the Committee needed to have access to the information on the CGE system.  She was aware of her responsibilities and would give her full cooperation when the Committee had access to the data.  She had not been subpoenaed to appear before the Committee and again asked to be excused from the hearing.

The Chairperson conceded that Ms Gasa had not been subpoenaed and understood that there could be other issues in addition to the annual report affecting her position on the matter.  The hearing provided an opportunity for Ms Gasa to assist the Committee by pointing out where the information provided was inaccurate or incomplete.  Her refusal to participate in the proceedings left the Committee in a quandary.  The Committee had no option but to consider her interpretation of what was appropriate and what was not to be subjective.  Ms Gasa’s insistence on not participating in the hearing created the impression that she attended for the purpose of using the meeting as a platform to state her case and then leave.  The Committee only had the information contained in the annual report and was unaware of any other issues that may impact on the matter.  The Auditor-General had an unblemished reputation and Ms Gasa’s allegations cast doubt on the audit findings.

Ms Gasa made it clear that she was not casting any aspersion on the reputation of the Auditor-General.

Mr Malale pointed out that Ms Gasa cannot be forced to remain and should be allowed to leave if she wished.

The Chairperson agreed to her request and Ms Gasa left the meeting.

Hearing on the 2008/09 Annual Report
The Chairperson advised that the Members of the Committee would pose questions to the Acting Chairperson of the CGE.  The discussion would be limited to the information contained in the published annual report.  The CGE was the first Chapter 9 institution to be in this situation and the Constitution does not make allowance for the organisation to be put under curatorship.  Alternative solutions to the problems at the CGE would have to be found.

Mr Mfanozelwe Shozi, Acting Chairperson, CGE advised that the Acting Chief Executive Officer as the responsible officer would respond to Member’s questions.

The Chairperson responded that the Commissioners of the CGE reported to Parliament but the management of the organisation reported to the Acting Chairperson.  The Committee’s questions would therefore be directed to the Acting Chairperson.  He could request other representatives to respond to specific questions.

Mr Malale referred to Note 13 on page 78 of the annual report.  He requested a detailed explanation for the suspension of the Chief Executive Officer of the CGE on 21 April 2008.

Dr Abrahams advised that a settlement agreement was signed with Ms Chana Majake in October 2009.  The agreement included a confidentiality clause and the CGE was obliged to keep the details of the settlement that was reached confidential and only disclose information that was required in terms of the law.

Mr Malale pointed out that a contingent amount of R10 million was provided for as reported in a public document.  The CGE was legally obliged to disclose to the Committee the exact amount of the settlement as it was public funds.

Mr Shozi advised that the Commissioners had decided to suspend Ms Majake following certain allegations made by the staff of the Commission against her.  After some reluctance to disclose the exact amount, he informed the Committee that the settlement was equal to nine and a half months’ salary and amounted to R1.2 million.

Dr Abrahams referred to item 25 of the Auditor-General’s report on page 54 of the annual report, where it was stated that the contingency of R10 million was overstated by R9 million.

Ms Chana Majake, former Chief Executive Officer, CGE, said that the settlement did not amount to R1.2 million as stated by Mr Shozi and she asked him to state the correct amount.

Mr M Putu, Acting Chief Financial Officer, CGE was unable to confirm the exact amount and requested time to ascertain how much was paid to Ms Majake.

Mr Malale asked for an explanation why a contingency of R10 million was provided for instead of stating the amount of the settlement.

Ms Keketso Maema, Acting Chief Executive Officer, CGE explained that the amount of the settlement was determined in November 2009, after the annual financial statements had been compiled.  The contingency of R10 million was based on the settlement amounts paid out in similar cases.

Mr Malale noted that an amount of R1.2 million was payable to the South African Revenue Services (SARS) for PAYE deductions.  He wanted to know who was responsible for the timeous payment of tax deducted to SARS.

Ms Maema advised that the CGE’s finance department was responsible for the function.  She requested that the Committee took cognisance of the fact that the CGE did not have a Chief Financial Officer during the period under review.

Mr Malale stated that the financial obligations of the CGE continued regardless of whether or not the organisation had a CFO.  He insisted on a response to his question of who the responsible person was.

Ms Janine Hicks, Commissioner, CGE advised that she and Ms Loyilane were appointed to be the Acting Chief Executives at the time.  The CGE’s financial department did not have the necessary capacity and the Four Rivers Consortium was appointed as external contractors to perform the financial functions of the Commission.

Mr Malale asked for the names of the persons who were required to perform the functions.  The contractor was paid a fee but had not carried out their duties as the payments to SARS were not made in time.

Ms Ndileka Loyilane, Commissioner, CGE said that most of the dealings were with a certain Ms Mangogo.  She was unable to provide the names of the other persons from Four Rivers.

Mr Malale asked for the reasons for the late payment of the PAYE deductions to SARS.

Ms Hicks said that a lack of capacity and a failure to adhere to systems and practices were to blame.  The Acting CEO’s accepted the responsibility for not appointing a CFO and for ensuring that due processes were followed.

Mr Malale noted the comment in the annual report that the amount of penalties and interest charged by SARS had not been determined.  He asked if any attempt had been made by the CGE to ascertain the amounts concerned.

Mr Putu referred to the Auditor-General’s comment no. 37 on page 56 of the report concerning fruitless and wasteful expenditure.  The amount payable to SARS in respect of penalties and interest was R300,937.  He gave the assurance that the necessary procedures and controls have been put in place to avoid a recurrence.

Ms Hicks advised that the CGE was awaiting the results of a forensic audit and was taking steps to recover the amount paid in penalties to SARS.

The Chairperson asked how the external consultants were appointed.

Ms Hicks advised that the Four Rivers Consortium was approached to conduct an audit of the organisation and subsequently the former Chairperson of the CGE had signed an agreement with them to carry out other functions.

The Chairperson asked if the Commissioners of the CGE or the former Chairperson had entered into the agreement.  He asked if the agreement was approved by the Commission.

Ms Hicks confirmed that the former Chairperson had taken the decision and concluded the agreement.  She explained that the former Chairperson had taken over some of the responsibilities of the CEO when the former CEO was suspended, such as authorising expenditure and signing contracts.

The Chair person remarked that such an action was poor governance and queried the legality of the steps taken. He asked how much was paid to the external contractors.

Ms Maema advised that the agreement made provision for a rate of R700 per hour.

Mr Steele referred to the Chief Executive Officer’s remarks on page 11 of the annual report.  He wanted to know why the former CEO qualified for a settlement payment if she was the subject of disciplinary action and an investigation.  He noted that the Harris Commission was tasked with conducting the investigation and asked what the basis was for the settlement.

The Chairperson remarked that Ms Majake was suspended in June 2008 and the settlement was concluded in November 2009.

Dr Abrahams replied that the CGE was advised by their legal representatives to settle the matter out of court rather than incurring further legal costs.  The matter was discussed at a plenary session and it was decided to reach a settlement agreement with Ms Majake rather than taking the matter to court.  She offered to provide further information in a closed meeting with the Committee.  The CGE was bound by the confidentially clause in the agreement and could be litigated against if the terms of the agreement was breached.  She felt that an open hearing was not the appropriate venue for discussing the matter.

Mr Steele pointed out that public hearings were meant to be open and transparent.  The Committee needed to know the nature of and the reasons for reaching a settlement with the former CEO.

Dr Keet said that the processes followed by the CGE in suspending the former CEO and in taking disciplinary action against her were the reason why the commission found itself in “hot water”.  If a settlement had not been reached, the CGE would have been forced to back-tract on the decisions that were made in an open court.

Mr Putu was unable to determine the exact amount of the settlement.  He estimated that the amount was R740,000, which was the equivalent of a Chief Director’s salary for nine and a half months.  The after-tax amount would have been approximately R440,000.

Ms Majake advised that she was in fact paid at the level of a Deputy Director-General.  She was still awaiting payment for certain benefits that were excluded from the settlement paid.  She said that the total gross settlement amounted to approximately R800,000 and she had received a payment of R490,000 net of deductions.

Mr Van Vuuren did not have the information concerning the amounts at hand but offered to check his records and advise the Committee in due course.

At a later stage during the proceedings, Ms Maema confirmed that the gross amount of the settlement paid to Ms Majake was R740,104.63 and the net amount was R499,421.78.  She was entitled to nine and a half months’ salary, her laptop, twelve days’ paid leave and R10,000 towards the legal costs incurred by her in defending her unfair dismissal.

Ms Majake said that the CGE still owed her R200,000 in unpaid benefits that she was entitled to.

The Chairperson advised that the matter should be discussed by the parties concerned outside this meeting.

Mr Malale referred to the matter concerning the Memorandum of Understanding (MOU) signed with the European Union (EU).  He understood that three parties were involved in the MOU, i.e. the CGE, the Human Rights Commission and the Office of the Public Protector.  A third party was contracted to provide services in terms of the MOU.  He asked what the nature was of the services provided, who the contractor was and how much was paid to the service provider.

Dr Keet explained that the EU had made an amount of R70 million available for a civil society advocacy project, to be administered by the three Chapter 9 institutions.  The three organisations had entered into an agreement, which stated that the three parties were equally liable for any financial liabilities incurred.  The project “went sour” and as a result the CGE was liable for one third of the financial liability.

Mr Shozi advised that an external service provider was appointed to do the work involved and when the funds from the EU did not materialise, the three institutions were taken to court.

Ms Majake was not in a position to comment as the problem arose after she had left the CGE.

Mr Malale asked if the CGE could produce the MOU and the agreements signed with the other two Chapter 9 institutions and with the service provider.

Mr Shozi replied in the affirmative.  The service provider had assisted the CGE with running awareness campaigns in the community.

Ms Maema advised that the service provider concerned was the Independent Project Trust.

Ms Hicks said that the Commissioners had sight of the documentation.  The service provider had in fact done the work required.  The contract with the service provider was signed after the deadline set by the EU for the appointment of an entity to implement the advocacy project had expired.  The funding from the EU did not materialise and the service provider took legal action against the three Chapter 9 institutions concerned.

Mr Malale referred to page 77 of the annual report.  Provision was made for leave pay and bonuses and an amount exceeding R1 million had been spent during the year.  He wanted to know how much was paid in bonuses.

Mr Putu explained that the amount of R1.19 million was the reversal of an erroneous entry made during the prior financial year.  The underlying transactions were accrued leave entitlements and year-end bonuses payable in terms of the employment contracts of staff at salary level 11.  No performance bonuses were paid.

Mr Ainslie said that the disclaimer of opinion by the Auditor-General on pages 52 and 53 of the annual report included several adverse comments on the management of assets.  He referred to item 15 on page 53 of the annual report where the Auditor-General questioned the existence of assets amounting to more than R6 million in 2008/09. The numerous deficiencies identified by the Auditor-General indicated a complete collapse of the financial control systems of the CGE.  He asked who the responsible person was and what action had been taken against the person concerned.

Mr Putu conceded that the administration of assets had been a challenge at the CGE for a number of years.  A new asset management system was implemented in 2006/07 and the service provider had trained the CGE staff in the use of the system.  However, the staff did not use the system correctly and the data captured became unreliable.  A manual asset management system was reverted to during 2009 and discrepancies arose between the two systems.

Mr Ainslie noted that the Auditor-General’s comments in items 7 to 15 on pages 52 – 53 of the annual report indicated a collapse of the entire financial management process.  The same issues were raised in the previous financial year but the situation appeared to have worsened.  He wanted to know the reasons, the person(s) responsible and what action had been taken to remedy the situation.  He asked if the CGE accepted the Auditor-General’s findings concerning the lack of asset management.

Dr Keet replied that the Commission agreed with the Auditor-General’s assessment.  The responsible persons during the period under review were the former CFO and CEO.

Mr Ainslie pointed out that non-adherence to Treasury regulations and the failure to execute their duties was a criminal offence in terms of the Public Finance Management Act (PFMA).  He asked if any criminal action was taken against the persons concerned.

Dr Keet confirmed that no criminal proceedings were instituted.

Dr Abrahams informed the Committee that certain Commissioners of the CGE had written a letter to Parliament on 24 February 2010, expressing their concerns over the financial irregularities uncovered.  The plenary of Commissioners had taken the decision that an independent investigation would be conducted by an external firm of auditors in addition to the forensic audit conducted by the Auditor-General.  Both the reports on the investigations were awaited.

The CGE was currently involved in litigation with the former Chairperson and the Four Rivers Consortium and the matter must be considered to be sub judicé.

Mr Steele said that according to his information, the CGE was in possession of the Auditor-General’s report on the forensic audit and was awaiting the management response to the report.

Mr Shozi confirmed that the report had been received and would be discussed in the near future.

Mr Ainslie asked if the correct value and the nature of the assets of the CGE had been established.

Mr Putu advised that the value of the assets queried by the Auditor-General was R198,000.  The amount of R3.8 million reported was based on an extrapolation.

Mr Ainslie pointed out that the value of the assets referred to in paragraph 15 of the Auditor-General’s report totaled R12 million (i.e. R6.1 million plus R391,878 in 2008/09 and R6.2 million plus R787,784 in 2007/08).

Mr Putu advised that the amounts concerned referred to the reconciled property, plant and equipment items reported on page 76 of the annual report.  The unreconciled items amounted to R198,000.

Mr Ainslie asked if the CGE was satisfied that the assets reported in the financial statements actually existed.

Mr Putu confirmed that the Management had embarked on a process to verify the information concerning all assets.

Mr Ainslie referred to the Auditor-General’s comments concerning the lack of supporting documents.  He asked if the documents had been found.

Mr Putu had brought a file containing the documents requested by the Auditor-General to the meeting.

Mr Ainslie asked if the documents in the file provided evidence that the assets of the CGE were valued at R12 million.

Mr Putu replied that the documents in the file related to the sample selected by the Auditor-General during the forensic audit.  The remainder of the supporting documents was in the process of being gathered.

Mr Ainslie said that the CGE could have avoided many of the adverse comments made by the Auditor-General if the internal audit processes and a functional audit committee were in place.  There appear to have been no internal audit function and no audit committee in place during 2007/08 and the functions were only implemented during the latter part of 2008/09. Section 38 of the PFMA defined the responsibilities of the accounting officer regarding the internal audit function.  It was a criminal offence if the accounting officer failed to comply with Section 38.  He wanted to know the reasons why there had been no internal audit function, why there was no audit committee, who the accounting officer was and if any criminal charges were brought against the person responsible for the failure to comply with the PFMA.

Ms Loyilane confirmed that she was the Acting Chief Financial Officer for the period May to December 2008.  She advised that there was an audit committee in place during 2007/08 but the members of the committee had resigned in April 2008.  The internal audit function was subsequently performed by the external contractor appointed. The Auditor-General considered there to have been no audit committee in place unless the function was performed without interruption.

Mr Ainslie asked if the CGE was disputing the findings of the Auditor-General in this respect.

Mr Shozi said that the findings were not disputed.

Mr Ainslie noted that no action was taken against the responsible person for the failure to comply with the PFMA.  He asked if the Commissioners appointed in the Acting CFO and CEO positions were aware of their responsibilities in terms of the PFMA.

Ms Loyilane explained that the Commissioners appointed had limited authority.

Dr Abrahams advised that the former Chairperson had taken over certain responsibilities of the CFO.  As three Commissioners were appointed in the Acting positions, it was not clear who would be considered to be the accounting officer and it would be necessary to obtain legal advice on the matter.  In terms of the CGE Act, the Chairperson of the CGE (i.e. Ms Gasa) was appointed by Parliament.  Legal advice obtained indicated that the Chairperson could not be held accountable as she was not employed by the CGE.  The extent to which Ms Gasa could be legally held accountable must still be determined.

Mr Ainslie asked for the assurance that the internal audit function and the audit committee was currently in place and functional.

Ms Loyilane advised that the position of Chairperson of the audit committee was vacant, otherwise it was in place and operational.

Ms Majake was in possession of all the previous unqualified audit reports from the Auditor-General during her tenure.  There was an audit committee in place when she left the CGE in April 2008.

Mr Steele asked if anyone had challenged the former Chairperson on assuming the responsibilities of the CFO.  The acting CEO’s were unable to implement the provisions of the PFMA. He asked how the situation was allowed to occur.

Dr Abrahams advised that the matter had been documented extensively in correspondence since May 2009.  She was in a position to provide the content of the correspondence if required.

Ms Hicks said that the former Chairperson had undertaken to communicate the appointment of Commissioners in the Acting CFO and CEO positions to the DOJ&CD and to Parliament.  The Commissioners recently became aware that the DOJ&CD did not regard the appointments to be in order.

Ms T Chiloane (ANC) asked who was responsible for the incorrect disciplinary action taken against the former CEO and what had been done about it.  She wanted to know what was being done to address the governance issues, the separation of duties and the accountability of officials.  She asked what was being done to ensure that the CGE was in a position to carry out its mandate.

The Chairperson said that the Committee would require the assurance by the end of the proceedings that the CGE had taken the necessary action to remedy the situation.

Mr P Pretorius (DA) referred to eleven examples of fruitless and irregular expenditure listed on pages 48 and 56 of the annual report.  Item 34 of the Auditor-General’s report stated that irregular expenditure amounting to R14.8 million was not disclosed in the annual financial statements.

The Chairperson noted that Ms Gasa had said in her statement that there was documentary evidence available to substantiate the expenditure items.

Mr Pretorius pointed out that the Committee was unable to verify Ms Gasa’s claim as there were no documents other than the annual report before the Committee.

Ms Maema conceded that there were insufficient controls over unauthorised expenditure in place at the time.  She was not present when the expenditure was approved in the closed plenary sessions.  She was advised by Ms Gasa that her visit to New York had been approved by the plenary.  She confirmed that the irregular and unauthorised expenditure items were included in the forensic investigations undertaken and that the CEO currently attended all plenary sessions.

Mr Pretorius requested and explanation of the amount of R1.5 million paid in legal fees concerning the matter of the dismissal of three whistleblowers, the former CEO and Mr David Setshedi.

Mr Shozi advised that the CGE was over-charged by the lawyers concerned.  The matter concerning the dismissal of the CEO took longer than a year to resolve and a settlement was agreed to avoid incurring further legal costs.

The Chairperson asked if the amount of R1.5 million was the total legal costs incurred or if there had been further legal expenses.

Mr Shozi said that the amount of R1.5 million was approximately 90% of the total legal costs incurred.  The balance was incurred in the following fiscal year.

Ms Loyilane advised that three members of staff were suspended after blowing the whistle on certain irregularities.  They took their claim of unfair dismissal to the Commission for Conciliation, Mediation and Arbitration (CCMA), won their case and were awarded compensation.

Dr Keet confirmed that the suspension of the three staff members was illegal.

Ms Chiloane commented that there were serious concerns concerning the handling of disciplinary matters by the CGE and the resultant legal quagmire.

Ms Maema agreed that the suspension of the three staff members had been irregular.

Ms Hicks explained that Mr David Setshedi was the Acting CEO at the time and took the decision to suspend the three staff members concerned.  Subsequently, Mr Johan Johnson of the DOJ&CD advised that the matter would be best left as is and the three staff members were allowed to return to work.

Mr Pretorius requested an explanation of the amount of R47,928 paid to Commissioners for performing additional acting duties.

Ms Hicks confirmed that the three Commissioners performing acting duties had received extra payments.  Ms Gasa did not receive any additional payments.

Mr Pretorius understood that Ms Gasa was generally absent from the office yet received payment for her services.

Dr Abrahams said that Ms Gasa was rarely seen at the office and claimed to be working from home.

Mr Steele asked what was being done by the CGE to recover the wasteful expenditure.

Mr Johan Johnson, Chief Director: Budgets, DOJ&CD explained that he was seconded to the CGE as there was no senior management in place at the beginning of the 2009/10 fiscal year.  The CGE had to deal with the matters concerning the whistleblowers, the audit by the Auditor-General and an investigation by the Office of the Public Protector and he was made available by the DOJ&CD to provide assistance.

The Chairperson felt that there should have been implications for the persons responsible for the state of affairs at the CGE.

Ms Hicks confirmed that no action was taken against anybody.  The Commissioners ad the report of the Auditor-General and were awaiting the report on the findings of the external forensic audit and the recommendations.  The reports and the action to be taken would be discussed by the plenary of the CGE.

Mr Pretorius requested an explanation of the costs totaling R2 million incurred for conducting an investigation of the former CEO.

Mr Shozi explained that the CGE had made payments to three different companies.  The CGE had initially expected the matter to take two to three weeks but instead it had taken from 21 April 2008 to December 2009 before the matter was resolved.

Mr Pretorius queried the amount of R4.4 million paid to the Four Rivers Consortium in terms of a contract that was in contravention of the supply-chain management guidelines.

Ms Maema explained that the CGE had initially followed standard tender procedures to appoint the Four River Consortium to perform certain financial functions.  Subsequently, Ms Gasa had signed another contract for R3.2 million with Four Rivers.  This latter contract was in contravention of the supply-chain rules.  Four Rivers had charged the CGE an amount of R700 per hour for their services and worked for approximately 261 days.  The services rendered were not acceptable and the CGE was currently engaged in litigation with Four Rivers.

Ms Abrahams advised that the Commissioners were only informed of the terms of the contract signed by Ms Gasa with Four Rivers on the previous day.

Mr Pretorius ascertained that Four Rivers were no longer at the premises of the CGE.

The Chairperson asked if Four Rivers had produced a report on their activities.

Ms Maema replied that no report had been received since June 2009.

The Chairperson commented that the CGE had paid an amount of R4.4 million to Four Rivers but had not received anything in return.

Mr Pretorius requested an explanation of the irregular expenditure amounting to R214,332.63 that was paid to the Acting CEO.

Ms Maema explained that Mr David Setshedi was contracted to be the acting CEO consultant for a period of two and a half months.

Mr Pretorius asked if Mr Setshedi was paid at a higher rate than the rate paid to the former CEO.

Dr Abrahams responded that the letter from the Commissioners dated 24 February 2010 had mentioned that this appointment was considered to have been illegal.  The CEO must be appointed in terms of the CGE Act, not by the Chairperson of the CGE.  The matter was under investigation.

Mr Pretorius asked if the officials of the CGE were in possession of a copy of the PFMA.

Dr Abrahams confirmed that a copy of the Act was available.

Mr Pretorius noted than an amount of R2.2 million was paid to an organisation called Cut 2 Black to re-brand the CGE.  In her remarks on page 11 of the annual report, the Acting CEO had queried the value of this exercise.

Ms Maema said that her remarks were made after the audit was done by the Auditor-General.  She had expressed her own views on the situation at the CGE and the lack of financial controls and procedures.

Mr Pretorius asked if a contract had been signed with Cut 2 Black.

Ms Loyilane advised that she had signed the contract after being reassured by Ms Gasa that all was in order.

Mr Pretorius asked who had made the decision to appoint Cut 2 Black rather than any other contender.

Ms Loyilane said that the decision was made by Ms Gasa.

Mr Pretorius queried the amount of R346,000 payable to SARS for penalties and interest on late returns.  He askedwho was responsible for the payment of PAYE deductions to SARS and what measures had been put in place to ensure that the problem would not occur again.

Mr Putu advised that the finance department was responsible.  The late payment had resulted from the incapacity of the staff in the finance department.  The services of an external contractor were utilised because the employees of the CGE lacked the necessary expertise. The action taken had included the training of staff and the implementation of financial controls.

Mr Pretorius pointed out that the CFO was the responsible person in this instance.  He requested an explanation of the Auditor-General’s comments that the entire R51 million budget of the CGE could not be verified and that the Auditor-General was prevented from carrying out its duties because of restrictions placed upon its officials by the CGE.

Mr Putu explained that the comments referred to the non-availability of information and supporting documents that could not be produced within the five-day period allowed by the Auditor-General.  He advised that all the information and documents required have since been obtained.

Ms Chiloane noted that the Auditor-General was unable to verify the correctness of the amount of R304,520 that was re-classified as programme expenditure.  She asked which of the nine programmes of the CGE required a re-classification of the amount concerned.

Mr Putu was not able to provide an answer.

Ms Chiloane insisted in receiving a proper response to her question.  The Chairperson agreed and remarked that there were obvious deficiencies in the record-keeping of the CGE.

Ms Majake understood that the required information was not made available to the Auditor-General to justify the re-classification.

Ms Chiloane referred to the reasons for the disclaimer of opinion in 2007/08 by the Auditor-General, including the ineffective internal control systems.  She wanted to know who the responsible person was and what action had been taken by the CGE.

Ms Hicks said that the former CEO had left the organisation before the audit on the 2008/09 financial year had commenced.

Ms Majake said that the comments of the Auditor-General referred to the lack of supporting documents and the basis for the disclaimer was not the absence of financial controls.

Ms Chiloane queried the reasons for the Auditor-General’s inability to verify the amount of R7.6 million paid in salaries by the CGE.

Mr Putu advised that the CGE was unable to provide the Auditor-General with copies of the employee contracts that had been signed.  The required documentation had since been obtained.

Mr Shozi pointed out that the remuneration of Commissioners were determined by the Department of Finance and not by the CGE.

The Chairperson remarked that the issue was the lack of documentation in support of the financial statements.

Ms Chiloane requested an explanation of the deficit of R4.7 million from the prior financial year that was re-classified in 2008/09.

Mr Putu explained that the re-classification arose as a result of an incorrect entry made in the 2006/07 fiscal year.  When the asset register was compiled, it was found that certain assets had been omitted from the asset register.  The transaction was incorrectly processed as a reserve item and the re-classification of the item was done as a correction.  The documents in support of the item had since been obtained from the service provider.

Ms Chiloane asked why the documentary evidence had not been obtained during the audit and if the service provider was still at the premises of the CGE.

Mr Putu explained that the CGE’s copies of the documents had been misplaced.  The service provider was able to provide copies of the documents and had left after the system had been installed at the CGE.

Ms Chiloane asked for an explanation for the Auditor-General’s comment concerning the absence of credible management reports.

Mr Putu replied that much effort was being made to correct the problems and he hoped that better results would be delivered in future.

Ms Chiloane queried whether the staff employed in the finance department of the CGE was able to carry out their responsibilities.

Mr Shozi conceded that the staff performance in that department had been a concern.

Ms Hicks pointed out that there was no CFO in place during the period under review.  Unfortunately, the external consultants engaged to carry out the required functions did not deliver.  The CGE had taken a number of steps over the previous nine months to ensure that the necessary systems, procedures and controls were put in place.

Ms Chiloane asked if the external consultants were paid even though they did not perform the functions required of them.

Ms Hicks advised that the CGE was being sued for non-payment by the consultants.

Ms Chiloane asked why the Auditor-General had remarked that the CGE did not have a strategic plan in place.

Mr Shozi replied that a five-year strategic plan had been developed and was reviewed on an annual basis.  A copy of the updated plan was not provided to the Auditor-General. Copies of the strategic plan had since been provided to the Speaker and to the Auditor-General.

Ms Chiloane wanted to know who the responsible person was and if any action had been taken against the person concerned for non-performance.

Ms Maema conceded that no action had been taken and acknowledged that the failure to provide copies of the strategic plan on time was a gross oversight on the part of the CGE.

Ms Hicks added that the audit committee was extremely concerned over the oversight and had requested the management of the CGE to investigate the matter and to take the necessary action.

Ms Chiloane asked why no quarterly reports were issued as required in terms of the National Treasury Regulations.

Ms Maema explained that the reports were compiled but copies were not submitted in time.  The issue had since been addressed.

Mr Steele queried the CGE’s policies on the leasing of equipment.  He referred to the Auditor-General’s remarks concerning finance leases, trade and receivables on page 55 of the annual report (items 28 to 33).

Mr Putu explained that the decision on whether or not to lease plant and equipment was dependent on the financial risk to the organisation.  The items leased included office equipment (e.g. photocopiers) and parking spaces.  A list of the items leased was included in the financial statements.

Ms Maema added that the CGE was concerned over the efficacy of leasing laptops.  The decision was taken to cancel the lease agreement and to purchase the laptops used by staff and Commissioners instead.

Mr Steele referred to the Auditor-General’s remarks concerning the understatements and inaccuracies reflected in the financial reports.  The CGE was funded by public money and an explanation of the comments was required.

Mr Putu reiterated that the major problem with the audit was the lack of adequate documentation to support the financial statements.  The matter had since been addressed.

Mr Steele remarked that the processing of debtors was a basic bookkeeping function.  He asked if the CFO and the staff in the CGE’s finance department were properly qualified.  He requested clarity on the Auditor-General’s comment concerning the recovery of bad debts.

Mr Putu explained that the amount under accounts receivable included the expenditure incurred for Ms Gasa’s unauthorised trip to Geneva.  The debtors account should have included unauthorised expenditure amounts.  He was not convinced that the CGE would be unable to recover the bad debts and disagreed with the Auditor-General’s remark in this regard.  He said that the CGE was engaged in documenting and implementing the necessary procedures.  The plenary of the CGE had approved the appointment of the new personnel in the finance department.

Mr Steele looked forward to receiving the management response to the forensic audit reports in the near future.

The Chairperson invited comment by the DOJ&CD.

Ms M Msomi, Director-General, DOJ&CD, advised that the Department was alerted by the National Treasury of some of the issues concerning the CGE.  In response, the DOJ&CD had seconded Mr Johnson to assist in the implementation of financial controls and to review and validate the supply-chain management policies, the asset management, the efficiency gains and the staff training programme at the CGE.  Mr Johnson remained at the CGE for two months before the current Acting CEO was appointed.  Responsibility for the CGE was handed over to the DOWCPD when the President proclaimed the new Department.  Meetings between the two Ministers concerned were being held concerning the handover of responsibility for the CGE.

Mr Ainslie could not understand why the CGE had failed to provide copies of the quarterly reports when the reports were compiled.  He wondered why the Acting Chairperson did not query the absence of the reports.

Mr Shozi explained that at least four plenary sessions had to take pace per annum.  The quarterly reports were discussed at the plenary sessions.  The plenary had received the reports and it was assumed that the copies had been submitted to the other parties concerned.  The CGE was currently preparing for the net audit by the Auditor-General and every effort was being made to obtain a clean audit.

Mr Ainslie suggested that Mr Shozi exercised a more hands-on control over the running of the CGE.

Mr Pretorius felt that the Committee had not yet finalised the process and that the former Chairperson needed to be present at further discussions.

Ms A Muthambi (ANC) said that the Auditor-General’s comments on page 56 of the annual report indicated a clear case of misconduct by the responsible officials.  She was perturbed that no disciplinary action had been taken against the responsible persons.  She asked if Ms Loyilane understood that she was in effect signing a “blank cheque” when she approved the contract with Cut 2 Black.  By approving a contract that did not specify a fixed amount payable, she could be considered to have been negligent.  She asked if Ms Loyilane had signed the contract under duress.

Ms Loyilane admitted that she was under duress to sign the contract.  She was informed by Ms Gasa that the service provider refused to carry out its functions unless the contract was signed.  The contract was put before her for signature on the same day as the launch of the re-branding of the organisation.

Mr Malale summarised the issues that the Committee required a response on.  These matters included the supply-chain management policy, the legal opinion concerning the recent dismissals, the forensic report, the disciplinary action taken and the procedures in place, the amounts paid to Cut 2 Black and any other agreements and memoranda of understanding in place.

Dr Abrahams remarked that the CGE Act was out of date and amendments were necessary to clarify reporting lines and responsibilities.

Ms Maema advised an investigation into the disciplinary action taken had been conducted and a draft report had been compiled.  One of the problems was the transgressions by Commissioners and she was unsure if the CEO had the power to discipline Commissioners appointed by and accountable to Parliament.

Ms Majake thanked the Committee for the invitation to attend the hearing.  She suggested that the CGE required urgent intervention as it was essential that the Commission was in a position to carry out its mandate.  The CGE would soon report to a new Department and had to build new relationships and gain the support of the DOWCDP.  She suggested that a dedicated standing committee was established to oversee the three Chapter 9 institutions.  She had been placed in an impossible position when unfair disciplinary action was taken against her and had felt abandoned by the DOJ&CD.

The Chairperson said that the Committee had been briefed by the National Treasury on the situation at the CGE.  He was not happy with the decision of the former Chairperson to refuse participation in the hearing and felt that the platform of the hearing had been abused.  He noted that the former Chairperson had made serious allegations concerning the completeness and accuracy of the information in the annual report of the CGE.  The irregular expenditure items were pointed out to her but she claimed to have the required documentary evidence that the expenditure items had been approved.  He conceded that Ms Gasa should have been subpoenaed to appear before the Committee.  He was concerned over the legal costs incurred by the CGE in defending the disciplinary action that had been taken against employees and officials.  He considered the action taken to have been unconsidered and ill-conceived.  He felt that it was necessary for collective action to be taken to address the challenges facing the CGE as the current state of the organisation was not yet conducive to recovery.  The major issue was the general weakness of the management of the organisation.

He thanked the Members and delegates for their participation in the hearing.

The meeting was adjourned.