National Prosecuting Authority 2008/09 Audit Report: interrogation about qualified results

Public Accounts (SCOPA)

13 May 2010
Chairperson: Mr T Godi (APC)
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Meeting Summary

The National Prosecuting Authority had received a qualified audit report from the Auditor-General for the third consecutive year.  The hearing was attended by the Director-General of the Department of Justice and Constitutional Development, the National Director of Public Prosecutions, the Acting Chief Executive Officer of the NPA, other Executive and Senior Managers of the NPA and representatives of the National Treasury and the Office of the Auditor-General.

Members of the Committee were concerned that the causes for the audit qualifications were adequately addressed and asked questions concerning the structure of the NPA; the implementation of previous SCOPA resolutions; the supply-chain management policies; the asset register, the asset management procedures and the non-disclosure of certain fixed and intangible assets from the financial statements; the acquisition of information technology services from service providers other than the State Information Technology Agency; the vacancy rate of 25%, the low morale of staff; the surrender of funds to the National Treasury; the lease agreements for office equipment and premises; the reconciliation of the third party transport account; the capturing of leave entitlement data and the awarding of performance awards despite the adverse audit report received for the prior financial year.

Members requested detailed explanations for the 11 items of irregular expenditure to the value of R98 million reported by the Auditor-General.  The need for an additional Irregular Committee to investigate the irregular expenditure items was queried.  The efficiency of the internal audit function and the audit committee was questioned. Members observed that the internal financial control systems of the NPA were ineffective.

Members of the Committee expressed frustration with the reluctance of the delegates from the NPA to provide detailed responses to the questions asked during the hearing.  The NPA was unwilling to identify the persons responsible for the financial irregularities and had failed to take appropriate disciplinary action against the officials concerned.

The former Directorate of Special Operations was conducting a joint investigation into the fraudulent and money-laundering activities of the BAE with the Serious Fraud Office of the United Kingdom prior to the transfer of the DSO function to the South African Police Services.  The activities of BAE included the South African arms deal.  The last engagement with the NPA on the matter had taken place in January 2009 and the need for further discussion was identified at the time.  Members wanted to know how far the investigation had progressed before the case was transferred to the new Hawks unit of SAPS.

Meeting report

Hearing on the 2008/09 Annual Report of the National Prosecuting Authority (NPA)
The Chairperson expressed dismay that the NPA had received a qualified audit opinion from the Auditor-General for the third consecutive year.  Although the NPA had met with the Committee on previous occasions, the standard of the financial management of the entity appeared to have deteriorated.  The continued failure to address the causes for the qualified audit opinion was cause for concern.

Mr M Malale (ANC) asked why the Director of Public Prosecutions had served for longer than four years.

Dr Khotso De Wee, Chief Operations Officer and Acting Chief Executive Officer, NPA, explained that the previous incumbent had been suspended and an Acting Director of Public Prosecutions was appointed.  The matter had been concluded during 2009 and the position was in the process of being filled.

Mr Malale referred to the previous resolutions of the Committee listed on page 62 of the annual report.  He asked if the recommendation that the structural linking of the NPA with the Department of Justice and Constitutional Development (DOJ&CD) had been finalised.

Ms Nonkululeko Msomi, Director-General, DOJ&CD acknowledged that the structure of the NPA had been the subject of debate over the previous four years.  The prosecutions function would remain with the National Directorate of Public Prosecutions (NDPP) and was unlikely to change.  The support services were the responsibility of the DOJ&CD.  She had approved the plan for the migration of infrastructure and personnel to the DOJ&CD in 2009 and expected the process to be completed by July 2010.  A critical component was the need for labour consultation and the need to avoid creating unnecessary anxiety during the migration process.

Mr Malale referred to the mention made of three disciplinary actions taken against employees on page 63 of the annual report.  He wanted to know who the employees concerned were and what action had been taken.

Ms Msomi reported that the internal disciplinary process concerning irregularities in the witness protection program had been completed.  The Minister had to submit a recommendation to the President on the action that should be taken against the officials concerned. The necessary documentation to the Minister was delayed but she gave the assurance that the DOJ&CD would provide any assistance required by the Minister in finalising the matter.

Dr De Wee reported that the investigations concerning the calculation of scores in the supply-chain management process had been concluded.  Three officials were implicated in the incorrect calculation of scores.  He took the decision to issue final written warnings to the three officials concerned as no element of corruption or significant loss to the State were detected.  A possible outcome of the incorrect calculation of scores was that certain service providers could have been prejudiced.  He undertook to submit a written report on the matter to the Committee.

Mr Malale requested an update on the compilation of the asset register and the implementation of asset management procedures in accordance with the Auditor-General’s findings in 2006/07.

Ms Msomi replied that a physical check on all the assets had been carried out and the details captured on an asset management system.  The system was used to compile an asset register.  The value of the assets in the asset register did not correspond to the value of R138 million reflected in the financial statements because depreciation had not been taken into account.  The actual value of the assets must still be agreed.  Regular reconciliations were carried out and staff members were trained in using the system.  She expected that the Auditor-General would acknowledge that progress had been made.

Mr Gordon Hollamby, Executive Manager: Finance and Procurement, NPA acknowledged that the management of assets and the determination of asset values were a historical problem that occurred prior to 2008.  The fair value of the assets concerned was currently being determined.  Currently, quarterly reconciliations were performed.

The Chairperson asked why the NPA had not engaged with the Auditor-General prior to the audit.

Mr Hollamby confirmed that engagement with the Auditor-General was taking place.  The problems with the value of the assets were disclosed prior to the audit.

Mr Malale asked who was responsible for the problems with the assets.  He did not understand why it had been so difficult to determine the assets concerned.

Dr De Wee confirmed that the Chief Executive Officer and the Executive Manager for Finance were the responsible officials.

Ms Msomi explained that the problem arose because of the way the NPA was structured.  In certain areas, assets were shared with the DOJ&CD but in other areas the assets were owned by autonomous business units within the NPA.  There was no clear policy concerning the sharing of assets in place.  The integration process underway included the consolidation of the asset management process.

The Chairperson pointed out that Section 45 of the Public Finance Management Act (PFMA) clearly defined responsibility for asset management and the official responsible had to be held accountable for any failure to carry out his duties.

Mr Malale requested an explanation for the Auditor-General’s finding that intangible assets to the value of R40 million had not been included in the asset register.  (See page 69 of the annual report).

Dr De Wee said that the intangible assets referred to software acquired and had been included in the asset register.  The problem was that the value of the assets concerned could not be verified.

Mr Malale understood that the NPA was required to acquire information technology (IT) services through the State Information Technology Agency (SITA).  He asked for the reasons why IT services were acquired from other service providers.

Dr De Wee advised that certain IT services were obtained in terms of the contracts with SITA.  Other services were provided by other service providers after following the normal supply-chain management processes.

Mr Hollamby advised that Datacentrix had provided equipment and software services and certain licenses were purchased from Microsoft.

Mr Malale asked if the immovable tangible assets to the value of R30.3 million had been reconciled.

Mr Hollamby explained that the transaction referred to premises at Innis Chambers.  The transaction was incorrectly reflected in the financial statements of the prior year as the Department of Public Works was the custodian of the property.  The incorrect transaction was reversed during 2008/09.

Mr Malale requested that the asset register was submitted to the Committee for review.

Mr N Singh (IFP) referred to the comments in the annual report concerning low staff morale and the unacceptably high vacancy rate of 25% reported on page 145 of the annual report.  He asked what had been done to fill the vacant posts, what the current status was and if the vacancies were the cause of the number of court cases that had been delayed.

Advocate Menzi Simelane, National Director of Public Prosecutions replied that the main cause for the low morale was the adverse media reports on the disbanding of the Directorate of Special Operations (DSO, also known as “the Scorpions”).  Currently the morale of the staff was high.  Appointments to the vacant positions were in progress.

Dr De Wee confirmed that the vacancy rate had been reduced to 10%.

Mr M Mbili (ANC) referred to the disciplinary action taken concerning the incorrect calculation of scores during the supply-chain management process.  He felt that the action taken was not appropriate as the transgression would have resulted in other contenders for the contract being disadvantaged.  He said that the NPA was not being transparent enough concerning the matter.

Dr De Wee replied that the matter was being taken seriously and repeated his undertaking to provide a detailed report to the Committee.

Mr Mbili asked if the other bidders for the contract had been informed of the miscalculation of the scores.

Dr De Wee replied that the issue was historical by the time the problem was discovered.

The Chairperson said that the Committee awaited the report.  He remarked that the “tweaking” of tenders was generally a deliberate attempt to benefit someone.

Mr R Ainslie (ANC) remarked that the lack of an effective internal audit function led to the problems with the financial management of the organisation.

Mr P Pretorius (DA) noted that only employees in the senior management salary bands A and B had received performance rewards.  (See page 158 of the annual report).  He asked which officials were in salary bands A and B.

Mr M Gungubele (ANC, Member of the Portfolio Committee on Justice and Constitutional Development) asked how the NPA had determined which employees had low morale.

The Chairperson remarked that the impact of unhappy employees on the organisation’s ability to function properly must not be underestimated.

Mr Ainslie remarked that the NPA could not blame media reports for the low morale of employees.  He wanted to know what was being done internally by the NPA to improve the morale of employees.

Adv Simelane advised that the impact of the proposed restructuring of the NPA was documented in internal memoranda from the previous Acting National Director of Public Prosecutions (NDPP).  Employees had communicated their feelings on the matter during meetings and in e-mails.  The management of the NPA was aware of the feelings of the staff members.  A variety of comments were made and not all members of staff were adversely affected.  No-one was fundamentally opposed to the proposed restructuring.  The reports in the media were discussed at all levels within the organisation.  Workshops were held to discuss what the new structure of the NPA should be.  This was an old issue and it was important that the structure of the NPA was finalised.  Meetings were held with the provincial Directors of Public Prosecutions and it was agreed that the changes and performance contracts would be implemented with effect from the new financial year.  Caution was expressed over some issues concerning the implementation but the majority of the proposed changes were approved.  All the members of staff were aware of the proposed changes, which had been formally submitted to the Minister.

Mr Singh referred to the appropriation statement on page 76 of the annual report.  He noted that an amount of R40 million was surrendered to the Revenue fund due to delays in the tender process.  He asked who was responsible for the delays, if the funds had been returned to the NPA and if the matter had been finalised.

Mr Hollamby explained that the matter referred to the acquisition of furniture and equipment for the Johannesburg and Cape Town offices of the DPP.  The delays were caused by the cumbersome nature of the tender process, which generally took longer than three months to complete.  The funds had been returned and the matter had been finalised.

Ms T Chiloane (ANC) referred to the report of the Auditor-General on page 69 and the details of the lease commitments on page 106 of the annual report.  She asked for an explanation of the Auditor-General’s comment that the finance lease expenditure was not properly disclosed in the annual financial statements.

Mr Hollamby explained that the calculations of capital and interest expenditure in respect of lease agreements were complicated.  Clarification on the guidelines issued by the National Treasury was required but was only received after the end of the financial year.  The correct methodology to calculate the expenditure items was currently being applied.

Ms Chiloane requested an explanation of the Auditor-General’s finding that leases of property to the value of R94.3 million were not disclosed.

Mr Hollamby explained that the management of fixed property assets was the responsibility of the Department of Public Works.  The NPA did not have all the property lease agreements at the time of the audit.  The matter had been attended to and the required transactions were currently being processed.

Ms Chiloane referred to the Auditor-General’s comment concerning the internal control deficiencies reported on page 71 of the annual report.  She asked if the necessary controls were now in place.

Dr De Wee conceded that management practices at the time of the audit were not ideal.

The Chairperson expressed grave concern over the failure of the responsible officials to carry out their duties as required by the PFMA and the failure of the NPA to take action against the persons concerned.

Dr De Wee acknowledged that the persons concerned had to be held accountable.

Mr Mbili requested definite timeframes for correcting the problems identified during the audit.

Dr De Wee gave the assurance that all the matters would be attended to within six months.

Ms Chiloane requested an explanation of the failure to reconcile the third party transport account to the value of R35.2 million.  (See page 69 of the annual report).

Mr Hollamby explained that there had been problems with the automatic systems interfaces to identify which business unit had to be debited with the expenditure incurred.  The procedure was changed and payments were currently made when a receipt was submitted.

Ms Chiloane said that the Auditor-General had cast doubt on the accuracy of the expenditure amounts.  She asked if the necessary control systems were in place and functional.

Mr Hollamby replied in the affirmative.

Ms Chiloane referred to the Auditor-General’s comments on page 70 of the annual report concerning irregular expenditure.  On page 107 it was stated that condonation of irregular expenditure totaling R412 million was awaited.  She asked if the condonation had been applied for and received.

Ms Msomi advised that the matter had to be investigated to determine if any wrongdoing had taken place.  External auditors were appointed and their findings were used to support the applications for condonation.

Mr Hollamby explained that condonation was received for the current year in respect of the long term lease agreement with the landlord of the Pretoria premises.

Ms Chiloane asked for an explanation of the Auditor-General’s comment concerning the understatement of irregular expenditure to the value of R29.5 million.  (See page 70 of the annual report).

Mr Hollamby explained that the amount was calculated on the basis of a sample selected for audit and was an estimate.  The comment referred to expenditure on IT infrastructure.  The actual amount concerned was R3.07 million and the estimated amount was extrapolated by the Auditor-General.

Mr Lourens van Vuuren, Office of the Auditor-General, explained the process followed in selecting representative samples of transactions for more thorough investigation.

Ms Chiloane referred to the findings concerning the contravention of supply-chain management procedures amounting to R90 million.  She asked if the NPA had proper supply-chain management policies in place.

Ms Msomi confirmed that the necessary policies had been implemented.

Ms Matshidiso Modise, Executive Manager: HRMD, NPA, provided further information.  The NPA had not correctly interpreted the postscripts to the guidelines.  The Auditor-General insisted that the policy document needed to be specific to the NPA and after some initial disagreement, the NPA had conceded to the Auditor-General’s interpretation.  Agreement was reached that any expenditure incurred prior to the implementation of the policy document would be considered to have been irregular.

Ms M Mangena (ANC) asked how an amount of R8.4 million was paid to SITA without an order.

Ms Chiloane referred to the items of irregular expenditure reflected on page 107 of the annual report.  She asked what the difference was between the two amounts concerning photocopiers.

Mr Hollamby and Mr Tebogo Sethabela (Senior Manager: SCM, NPA) explained that the interest and capital components of finance leases were indicated separately in the financial statements.  The interest component on the photocopier leases amounted to R2.8 million and the capital component amounted to R3.4 million.

Mr Ainslie asked why the copiers were not purchased outright rather than incurring the substantial amounts of interest charges on leasing the machines.  The Chairperson wanted to know if the leasing of the machines was economical.

Mr Hollamby replied that a due diligence study was conducted, which indicated that leasing equipment such as photocopiers was more cost-effective.  Such items tended to become obsolete within a few years and maintaining aging equipment was uneconomical.  The NPA took the decision to lease copiers instead of purchasing the machines.

Mr Singh requested a copy of the due diligence report on the matter.

Ms Chiloane asked how much each copier cost per month.

Mr Sethabele replied that the NPA had 85 photocopiers in use.  The high-usage machines cost on average R1,400 per month and the low-usage machines cost R640 per month.

Ms Chiloane referred to the details of irregular expenditure during the current year amounting to R98.7 million (see page 107 of the annual report).  She asked for an explanation of the Irregular Committee established to review the items and to make recommendations.  She wanted to know what progress had been made by the Irregular Committee.  Mr Singh queried the need for the establishment of an Irregular Committee.

Mr Malale remarked that the need to apply for condonation indicated that there was a serious problem that needed to be resolved.

The Chairperson suggested that each of the eleven items of irregular expenditure was dealt with individually and that the Committee was informed of the current status of each item.

The first item of irregular expenditure listed on page 107 of the annual report concerned payments to Rentworks totaling R42.9 million.  Mr M Steele (DA), Mr Singh, Mr Malale, Mr Mbili, Ms Mangena, Mr Ainslie, Ms Chiloane, Mr Pretorius and the Chairperson asked questions to obtain clarity on the item.  The Members of the Committee expressed frustration on the apparent reluctance of the delegates from the NPA to provide an immediate and detailed response to their questions.  The action taken by the NPA was listed under the heading “Disciplinary steps taken/criminal proceedings”.  The heading was confusing and created the false impression that disciplinary action had in fact been taken.

Dr De Wee and Mr Hollamby explained that the payments to Rentworks were in respect of the leasing of IT equipment and vehicles.  The Auditor-General was of the opinion that the NPA had benefited from the transaction to the value of R19.2 million.  The total payments to Rentworks were R42.9 million and included the leasing of vehicles.  The correct procurement processes were not followed when the lease of the vehicles was added to the original contract with Rentworks, which the Auditor-General deemed to have been irregular.  The auditing firm KPMG was appointed to conduct a forensic audit of the transactions involved.  A report was expected within the following two weeks, where after the matter would be referred to the Director-General for review and recommendation of any disciplinary action that would be taken.

Ms Chiloane asked if any of the members of the Irregular Committee tasked with investigating the irregular expenditure items were present at the hearing.  She wanted to know if the Irregular Committee had the necessary authority to make recommendations.

Ms Msomi advised that the Irregular Committee was established during the audit conducted in 2009.  She planned to strengthen the Irregular Committee by appointing senior management personnel to serve on it.  No members of the Irregular Committee were present at the hearing.

The Chairperson requested an explanation of the Noted Cases to the value of R20.6 million.

Mr Hollamby explained that Noted Cases were a supply-chain management control measure that had been implemented by the finance department.  If an invoice was received for payment that was considered to be irregular, the case was noted and referred to the Irregular Committee for review and recommendation.  A detailed list of all such Noted Cases was available.  New cases were added to the list on a daily basis.  AS at September 2009, there were approximately 60 Noted Cases still under investigation.

The Chairperson requested a status report on all the Noted Cases mentioned in the annual report.

Ms Chiloane remarked that unless appropriate action was taken to identify and address the cause of irregular expenditure, the problems would continue to occur.

Mr Steele asked what action was taken by the internal audit function to identify the causes and to ensure that irregular transactions did not recur.

The Chairperson advised that the issues concerning the internal audit function would be addressed at a later stage.  He requested an explanation of the item concerning tender irregularities.

Mr Hollamby and Mr Sethabela advised that the matter referred to a tender awarded to a security services service provider in KwaZulu Natal.  Allegations of corruption were made against an employee of the service provider. The contract was terminated and a criminal charge had been laid against the service provider.

The Chairperson requested that a detailed report on all the items listed as irregular was submitted to the Committee.  He asked for an explanation on the item concerning CFM additional services.

Mr Hollamby explained that CFM was the owner of the premises occupied by the NPA’s head office in Pretoria.  The contract with CFM was abused when additional services were rendered in addition to the original agreement, for example lease agreements for branch offices as well as renovations to State-owned residential units in a complex adjacent to the NPA offices in Pretoria.  The units were occupied by the former National Director of Public Prosecutions and other NPA officials.  No action was taken against the officials concerned as they had left the employ of the NPA and it would be difficult to prove intent or negligence if the officials concerned were criminally prosecuted.

The Chairperson felt that more effort should have been made by the NPA to act against the persons concerned.  He requested details of the irregular item concerning the X-Pert Group.

Mr Hollamby explained that the NPA’s Project Management Office business unit did not follow the correct procedures in signing the contract.  He understood that the manager of the unit had resigned before any disciplinary action could be taken against her.

Dr De Wee was unable to recall any details concerning the matter.

The Chairperson requested clarification of the irregular payments to PASCO.

Mr Hollamby advised that PASCO was contracted by the Witness Protection Unit (WPU) to carry out security screening of staff and to provide IT, surveillance and monitoring equipment.  Because of the sensitive nature of its work, the WPU believed that normal procurement procedures need not be followed.  The transactions were found to have been irregular and no disciplinary action was taken against the person responsible.

Dr De Wee was unable to recall any details concerning the matter.

Mr Malale expressed concern over the assumption that the procurement of certain “sensitive” items was allowed to be excluded from formal public tender processes.

The Chairperson said that the assumption made by the WPU was not correct.

Mr Pretorius referred to the report on disciplinary action on pages 155 and 163 of the annual report.  The report did not contain any information on the reasons for the 74 cases where action was taken or provided details of the 14 dismissals.  Only 39 of the 74 cases had been finalised. He requested a detailed report on disciplinary action taken by the NPA.

The Chairperson requested further details on the irregular items concerning photocopy charges, the purchase of colposcopes, Harvey World and the SITA payments made without orders.

Mr Hollamby explained that the NPA had used the National Treasury transversal contract but the Auditor-General had considered the transactions to have been irregular.

Mr Van Vuuren advised that the National Treasury had issued guidance that the use of transversal contracts must be disclosed as irregular expenditure.  Such items were automatically condoned.

Mr Hollamby explained that colposcopes were expensive medical equipment used in the examination of victims of sexual abuse.  The irregular item arose when the purchase of the colposcopes was approved in the prior financial year but only acquired in the following year.

Dr De Wee recalled that the Irregular Committee had recommended that an additional forensic investigation was conducted into the matter.

Mr Hollamby explained that the WPU insisted on using the services of Harvey World for the traveling arrangements of persons in the witness protection program.  The NPA had appointed an internal travel consultant to handle all travel arrangements.

The Chairperson asked who the person responsible for the WPU was.

Dr De Wee advised that Advocate Adams was suspended and Advocate John Welsh was subsequently appointed as the Acting Head of the WPU.

Mr Hollamby explained that the item concerning the SITA payments resulted from contracts that were not renewed before the expiry date or contracts that were continually renewed with the same service provider.  New requests for quotations had been issued and new contracts with service providers were entered into.

Dr De Wee was under the impression that the matter had been referred to the human resources department for disciplinary action against the officials concerned.

The Chairperson had expected the delegates from the NPA to have been better prepared to respond to the questions asked by the Committee on the annual report.  The item concerning the payment of overtime without a policy being in place would be dealt with at a later stage.

Ms Chiloane felt that some effort should be made to recover the amount of R100 million of irregular expenditure incurred from the persons responsible.

Mr Ainslie requested that misleading headings were omitted from future annual reports.

Mr Malale remarked that the focus of the NPA was the prosecution of crime yet its own officials were not held accountable when they were criminally negligent.  The Committee had to refer cases to the NPA for prosecution but the adverse audit reports in the previous years did not inspire the Members with confidence in the organisation.

Mr Mbili said that the Committee expected the delegates from the NPA to be familiar with the annual report of the organisation.  It was unacceptable that the Accounting Officer of the NPA was unable to answer many of the questions asked by the Members.  Compliance with Section 38 of the PFMA was essential and the management of the NPA had to ensure that the necessary control systems were put in place and were fully functional.  He referred to previous SCOPA resolutions and the Auditor-General’s comment on page 69 of the annual report concerning the capturing of leave forms and the failure to verify the amounts payable for leave entitlements and commitments.  He requested an explanation why the system to capture leave form details was not in place.

Ms Msomi replied that a policy concerning leave forms was recently implemented.  She conceded that leave form data was not previously properly captured and that the amounts payable could not be verified.

Ms Modise explained that the incorrect leave data was historical and had been addressed by the manual auditing of the personnel records.  The information on file did not correspond with the data on the PERSAL system and a process to correct the data was undertaken.  The process would be completed within three months and she expected that the Auditor-General would acknowledge that progress had been made to ensure that the leave data was accurate and complete.  An adverse comment was expected for the 2009/10 financial year as the process had not been completed before the end of the fiscal year.

Ms Msomi advised that the matter had been discussed with the Auditor-General and with the Minister.  Approximately 2% of employee records still required correction and she was confident that the process would be completed within three months.  Procedures were in place to ensure that the problem did not recur.

Mr Mbili requested an explanation for the amount of R20.1 million paid in performance awards in view of the disclaimers and qualified audit reports issued by the Auditor-General. (see page 158 of the annual report).

Ms Msomi explained that performance awards were based on performance agreements with individual members of staff.  She conceded that the key performance indicators in the agreements might have excluded financial management.

Mr Mbili asked if any of the officials present at the hearing had received a performance award.

Mr Pretorius noted that no-one in salary bands C or D received an award and he wondered if there had been a deliberate decision to exclude persons in those bands from qualifying for cash awards.  Alternatively, the absence of any awards indicated that there was a problem with the performance of personnel at the C and D levels.  He pointed out that the amounts reported were incorrect - the average awards were R30,000 and R38,000 respectively (not R3,000 and R3,800).

Ms Modise explained that salary band A was equivalent to the standard salary level 13 in terms of the Public Service Act, band B was equivalent to level 14, band C was equal to level 15 (e.g. deputy directors) and band D was equal to level 16 (e.g. directors).

Mr Mbili asked which level applied to the person responsible for the leave form fiasco.

Ms Modise advised that the manager of the department concerned was at level 12 and did not qualify for a performance award.  The actual capturing of the data was performed at clerical levels 5 or 6.

Mr Ainslie asked if the CFO had been awarded a cash bonus.

Mr Hollamby confirmed that he was at level 14 and that he had not received a performance bonus.  None of the senior finance department staff at levels 13 had received any bonuses.

Dr De Wee advised that the performance awards were based on the appraisal of individual performance and that there had not been any deliberate decision to exclude bands C or D.

Mr Pretorius responded that the absence of a deliberate decision indicated a problem with performance with the top management of the NPA.

Mr Steele asked if the achievement of an unqualified audit opinion was included in the performance agreements with staff.

Dr De Wee confirmed that the requirement was included in the agreements of the CEO and the CFO.

Mr Mbili requested an explanation of the irregular item concerning the payment of overtime amounting to R6.7 million.

Ms Modise explained that the item arose as a result of the misinterpretation of the postscripts mentioned earlier.  A policy had been implemented but prior overtime payments were considered to have been irregular.

Mr Mbili referred to the Auditor-General’s comments concerning prepayments and advances on page 69 of the annual reports.  He asked if the R19.2 million overstatement of financial performance had been surrendered to the National Treasury.

Mr Hollamby advised that the amount concerned referred to the irregular expenditure item with Rentworks.  The NPA disagreed with the Auditor-General’s finding that the organisation had benefited from the transaction.  An external forensic audit was requested to settle the dispute.

Mr Mbili asked why the funds were not paid over to National Treasury and reclaimed once the external forensic audit report confirmed that no benefit had been derived.

Mr Hollamby replied that the advice obtained on the matter indicated that the NPA would not be able to reclaim funds surrendered to the National Treasury.

Mr Ainslie pointed out that all the problems at the NPA were caused by a lack of internal controls, as conceded by the representatives present at the hearing and as pointed out by the Auditor-General. The report of the audit committee on page 66 of the annual report made mention of the fact that the system of internal control was not found to have been effective.  He asked why it was necessary to have an Irregular Committee if the organisation had a functional internal audit process and audit committee.  He wanted to know if the Irregular Committee would serve for a fixed period.

Ms Msomi conceded that there might be a danger of duplication of effort.  The Irregular Committee was established as an intervention to specifically deal with the irregular expenditure items reported by the Auditor-General.  The Irregular Committee was still in the process of dealing with the items but was not intended to continue operating for a lengthy period of time. She was unable to confirm that the internal audit function in place had been very effective but the responsibility for implementing management controls was the responsibility of the senior management of the organisation.  In general, the capacity of the committees was being strengthened to improve performance.  She agreed that the Irregular Committee would not be necessary if the internal audit function of the NPA operated at an optimum level.

Mr Ainslie noted that the audit committee had report an excessive number of meetings.  He queried the value derived from the audit committee in view of the adverse audit comments received from the Auditor-General.  He noted that the audit committee had been advised that internal audit reports had been submitted to the management of the NPA.  He asked if the management had received the reports and had taken the necessary action.

Ms Msomi said that the audit committee provided management with guidance.  During the year, the NPA had experienced a number of problems and it had been necessary for the audit committee to meet on a more frequent basis.  She felt that the responsibility for the adverse audit report rested with the management of the NPA rather than with the audit committee.  She confirmed that the management of the NPA had received the internal audit reports and had to accept responsibility for the failure to take the action required.  The Chairperson of the audit committee had given the assurance of his support in addressing the adverse audit comments.  The audit committee was not satisfied with the audit report.

Mr Ainslie commented that the NPA needed to strengthen the internal audit function if further adverse audit comments were to be avoided.

The Chairperson agreed with Mr Ainslie’s comment and noted that the Chairperson of the audit committee was invited to attend the hearing.

At a later stage during the proceedings, Ms Msomi extended the apologies of the Chairperson of the audit committee.  He was unable to attend due to a prior legal commitment.

Mr Malale referred to the SCOPA recommendation concerning the joint investigation report on the Strategic Defence Procurement Packages.  Further discussions had not been held and he wanted to know what progress had been made.

Ms Msomi replied that the DSO had been disbanded during 2009.  The NPA was no longer involved in the investigations as the responsibility had been transferred to the South African Police Service (SAPS).

The Chairperson recalled that the Committee had discussed the matter of continued reports to Parliament on the BAE investigation.  He asked if any reports from the NPA were outstanding at the point of handover to SAPS.

Ms Msomi was unable to reply to the questions.

Adv Simelane advised that he was appointed in October 2009, i.e. after the handover of the responsibilities of the former DSO to SAPS.  He was not aware of any outstanding matters.

Mr Steele advised that the last report from the NPA was written in November 2008 and was received by the Committee in January 2009.  The report dealt with the investigations launched in 2006 by the Serious Fraud Office (SFO) of the United Kingdom (UK) into the activities of BAE, which included the South African arms deal.  The SFO had discovered that BAE had paid substantial amounts in commission to its agents for the procurement of the contracts.  The SFO’s request for a joint investigation with the DSO was referred to the DOJ&CD in March 2008.  Since that date, the NPA had reported that the DSO was cooperating in the investigations into money laundering by the BAE and had conducted a search of the premises of suspects on 26 November 2008.  He wanted to know what the consequences of the activities had been, where the subsequent reports were and if the matter was being pursued.

The Chairperson said that the Committee had submitted written questions to the NPA but there was no point in requesting answers from the NPA as the responsibility for the investigation had been handed over to SAPS.  He wanted to know what progress had been made on the cases under investigation before the transfer to SAPS.

Mr Steele requested confirmation that all the information and documents had been transferred to the responsible person at SAPS.

Adv Simelane replied that, to the best of his knowledge, everything concerning the cases had been transferred to SAPS.  There were certain exhibits related to other cases that were still in the process of being transferred to SAPS.  The person responsible at SAPS was the Head of the Hawks.

Mr Malale questioned whether the Committee would exceed its mandate if it was concerned with matters under investigation by SAPS.

The Chairperson responded that the Committee had to ascertain whether or not there were any outstanding matters after the previous engagement with the NPA.  The thanked the delegates from the NPA for their participation at the hearing.  The matters resulting in audit qualifications and disclaimers had remained unresolved for a number of years and it was imperative that all the issues were addressed.  He hoped to see that the management of the NPA had taken effective action and had the appetite to take appropriate disciplinary and criminal action against the responsible officials.

The meeting was adjourned.


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