The Chairperson opened the meeting explaining that they were forced to hold this meeting because there was a need to present a report on the department’s budget to Parliament. She informed those present that she had met with the Auditor-General during the week and that she was well aware that this Department was not doing well. The Chief Financial Officer presented to the Committee an overview of the financial performance of the Department of Water Affairs (DWA), he explained the difference between the two accounts within the Department, focusing particularly on the Water Trading Entity and its role and function.
Members were clearly agitated with the Department and its current state of affairs. There were suggestions that it should be abolished and a new Department established in its place. There were questions over its capacity, functionality and purpose. Members also took issue with the seemingly positive report presented by the Chief Financial Officer in light of the negative report received from the Office of the Auditor General. They accused the Department of deliberately trying to confuse them, of lying about facts and figures and of being unable to deal with any of the issues raised. Shock was expressed when it was discovered that the DWA was still paying performance bonuses. They suggested that the Acting Director General of coming before them and raising more issues rather than providing solutions.
Serious concern was raised over the internal management of the Department, particularly the undermining of top management by junior managers. Members argued that it was obvious that the DWA was a Department divided against itself and that this would leave it open to attack. Members showed particular interest in the number of assets the Department claimed to have on its asset register. They suggested that the Department had no idea what was happening on the ground, such as the number of dams in existence in the country. The Committee expressed its anger and embarrassment at the current state of affairs and made it clear that they would be meeting with the Minister who would have to account for the situation.
Mr Onesmus Ayaya, Chief Financial Officer, Department of Water Affairs, presented an overview of the financial performance of the Department for the year-end 31st March 2010. He explained to the Committee that the presentation was split into two sections. Part A dealing with the main account and Part B dealing with the Water Trading Entity (WTE) or the trading account.
The main account was allocated had a budget of R7,7 billion compared to R7 billion in the previous year. For the administration programme, the amount allocated was R47 million and close to this amount was spent. For water resource management R4 billion was allocated and the Department under spent by 1%. For Water Services the Department was given a budget allocation of R2,8 billion and they spent R2,6 billion. The Department spent 98% of its budget. After under spending, about R190 million had been rolled over or surrendered to National Treasury. He stressed that the main account was cash in/cash out based. Money spent did not represent services that may have been received but had not been paid for were not reflected.
He noted that a number of the Deputy Director Generals (DDGs) were responsible for the various programmes highlighted. He explained that under expenditure could be understood as under disbursement which was due to three major causes. Firstly the Accelerated Community Infrastructure Project had under spent its budget. This was as a result of the projects that were linked to the municipal financial year, which ended in June 2010. The funding of this project has been committed and work has started in Mpumalanga, Limpopo, Eastern Cape, KwaZulu Natal and Northern Cape. Secondly the Water Service Grant to Mopani District Municipality was withheld as they had failed to finalise their business plan and failed to submit a 2008/09 close out report on how the 2008/09 funds were spent. Lastly referring to the De-Hoop dam there were unspent funds on the Social Component of Downstream Project. This was as a result of delays by commercial users (mining) to commit to the commercial components of the project during the recessionary conditions prevailing throughout the global market.
He clarified that although he was suggesting there was a certain amount of money, which had not been disbursed, there were still invoices incoming at the time of the closing of the financial year. As an example he highlighted the invoice of R20 million for the DWA’s car hire. He stressed though that wherever there was under expenditure, the Department approached the National Treasury and requested the money as part of the following year’s budget in order to ensure continued functionality. In total the Department had requested an additional R123 million to be made available to them for 2010/11. The request was partly accepted. They expected their appropriation 2010/2011 to be increased by at least 7.9 billion due to rollover requests.
He noted that there was a shift from other the other programmes to Programme 1: Administration to cover needs, particularly services that had not been paid for. Programme 1 had overspent its allocated budget by R33 million on IT services, write offs and office accommodation. Funds were shifted to the programme in order to cater for these. He reiterated that this was particularly due to IT services that had not been paid for in previous years.
Out of the R7,7 billion some of it was earmarked for a specific purposes by Treasury. The total earmarked funds for 2009/10 amounted to R2,7 billion. This was for items such as the rent of buildings, the transfer of bulk infrastructure to municipalities, Working For Fire and Working For Water and the operating subsidy for Water Services. He acknowledged that the Department did receive money from various donors. He touched on the fact that Forestry appeared on the budget for 2009/10 but with blank spaces accompanying it. This was due to the decision to place Forestry with Agriculture and Fisheries. The Committee had voted to move the budget to Agriculture and this is what happened. A total budget of R 579 million was shifted to Department of Agriculture, Forestry and Fisheries (DAFF).
Addressing Part B, he explained that this was not cash in/cash out based but rather it had its own revenue stream. The income collected from water users was registered here. He agreed that there was a need to have a separation even though the Accounting Officer was the same. He explained that in terms of reporting there were different means of accounting methodology for each account. He noted that it was not a legal entity but rather existed for management and accounting purposes. He stressed that it had no legal existence hence it was referred to as an entity. The trading account derived its revenue from water users which were registered to particular skips. It was established in 1983 under the old Exchequer Act. When the Public Management Finance Act (PMFA) came into effect whatever was considered to be a trading account became a trading entity, the Water Trading Account was considered as a Water Trading Entity (WTE). The assets for this entity did not exist in the National Head Office but in the particular skips. He explained that irrespective of if they had been paid or not, if a customer used water, it was recorded and this was simultaneously recorded as revenue, not necessarily when the cash was collected. He stressed the need to have the assets of the Department well documented as these allowed the Department to deliver water to the necessary users.
Compared to the previous financial year vendor reconciliations had been performed and were all up-to-date, interest had been charged to long-outstanding debtors, deferred income had been split into current and non-current portions and the entity did not incur a bank overdraft. Regardless of this there was a decrease in revenue of 16%. Although there had been an increase in revenue due to the rise in charges, there had also been an increase in expenses. The increase was mainly due to an increase in Other income as compared to prior year, which related to Sundry income received from the water users. There was an increase in expenses of 9 % (R312 million) mainly due to an increase of approximately 30% (R196 million) in employee costs. He stressed that there was a marked improvement in the ratio of the deficit for the year as a percentage of revenue earned, which had improved from 94% in the prior year to 59% in the current year. He suggested that one of the main contributors to this improvement could be attributed to the efficiencies in the revenue and costs management systems that were beginning to bear fruit within the WTE. He argued that the WTE had generated enough income to cover its operating expenses.
Addressing assets, he noted that in 2005/6 the Auditor-General had raised the issue that the Department did not have an asset register and this was given as a disclaimer. The Department embarked on a fully-fledged verification of its entire infrastructure. This lead to an asset register being established for 2007/8. The auditors were pleased but pointed to technical refinements that needed to be dealt with, especially use for life and testing of condition for assets. This was concluded in 2009/10 and the assets were adjusted accordingly. Trade and other receivables had decreased by 11% year on year. He argued that this further gave testament to the improvements being made by the WTE in its revenue management efforts. This was one of the factors that had contributed to an increase in cash and cash equivalents. He explained that other current liabilities had increased by 70% as a result of an increase of 71% increase in deferred income. The cash position of the WTE has improved by 4% year on year due to a decrease in the deficit for the period. This was a result of efficiencies achieved by the WTE through its operational improvement projects, a decrease in trade receivables balance and an increase in trade and other payables.
The Auditor-General suggested several recommendations for the main account these included holding monthly trial balance meetings, a focus on filling all vacancies, the creation of an audit action plan which would address reported matters, the compiling of a report on problems experienced during compilation of Annual Financial Statements (AFS), the implementation of workshops to address governance and policy matters and regional visits to address specific needs. He also highlighted the need for regional heads to sign off inputs, the training of staff on how to respond to audit findings, the Auditor General’s Engagement Letter had to be fine-combed about budget vs outcome, all managers needed to be more involved and top management would need to be briefed frequently.
Addressing the recommendations for the WTE, the Auditor-General suggested the need for a radical turn-around that would comprise of getting external technical expertise, a reassessment of the risks and the development of a medium-term to long-term strategy to sustain sound financial management. He suggested that this would allow the entity to fulfill the management it was expected to fulfill on behalf of government.
Ms Nobubele Ngele, Acting Director General, Department of Water Affairs, highlighted that it had become clear to them that they had a weak control environment and a weak financial system. She stressed that they did not have reliable information on water users across the country. She suggested that her explanation might be read as defensive but the magnitude of the WTE required far greater expertise than they currently had. She admitted that there was a weak control environment, weak financial oversight. They were failing on revenue collection and they did not have reliable information on water users across the country. After engaging with the auditors she had embarked on a number of meetings, especially the very serious problems related to the WTE. There was a need to optimise business revenue and minimise the problems. She suggested that it would be a struggle for DWA to turn the failing account around. She suggested that the environment to run this type of account did not exist within government and so it would prove a challenge to turn it around. She expressed exasperation at the size and scope of the account, adding that they were aware that there were people extracting water, which they were unable to trace. These people were either being billed incorrectly or not being billed at all. She stressed that they did not have a clear water user database.
She had had meetings with the Minister, the Director General (who was on special leave) and the Development Bank of South Africa, seeking support and help. She suggested it would not help to bring consultants in to look at a problem that the Department could not even grasp. Even in terms of the Audit, they struggled to produce the necessary financial statements on time. She argued that they would be able to deal with the main account internally but the WTE would be a massive task. Things would need to be done differently and they would need support from outside the Department. A different approach was desperately needed. She also argued that they needed certain competencies which were not currently in the Department, regardless of this they had made improvements but these would be difficult to maintain given the gravity of the issues with the WTE.
The Chairperson suggested that the problems mentioned had been visible since 2004 and based on the financial statements of the Department nothing had improved. She expressed frustration at the situation within the Department. It was evident that people were being paid to perform the financial duties of the Department and yet the finances were still a mess. She argued that the Minister would need to come before them and account for the DWA’s financial state. She commented that this was the worst portfolio she had ever chaired in her life.
Ms M Mabuza (ANC) agreed with the Chairperson whole-heartedly. Addressing the Auditor General’s reports she asked who was responsible for this irregular expenditure and what had happened to the R12,9 million spent. She also highlighted R6,9 million that had been used for services rendered without quotations and the following of proper processes.
Mr G Morgan (DA), suggested there was some context that needed to be applied particularly since the DG had been put on special leave and the Chief Financial Officer was under investigation. He agreed that the presence of the Minister was necessary, as those officials recently appointed could not be blamed for past indiscretions on the part of other employees. He noted the issues but argued that the onus was on the Department to present the Committee with a plan that would turn this situation around. He asked if communities were taking the Department to task due to its unreliable figures. He also requested clarity on whether municipalities were getting reliable bills or if they were still struggling, even though the Department was well aware of the issues. He suggested that it was only a matter of time before someone took them to court and that the situation with the WTE was putting the entire Department at risk
Mr J Skosana (ANC) expressed concern over a recent meeting that had been postponed at the last minute by the Department. He argued that systems and structures were in place and yet the Auditor-General’s suggested otherwise. If the Department was unable to deal with its finances in order to deliver what was expected of it they would need to see the Minister. He highlighted the CFO’s positive report and questioned how they could offer a positive report when there were so many issues in the Department financially. The true reflection of the Department was coming from the Auditor-General and not the Department. He asked the CFO and DG to answer simply yes or no if they had irregular, fruitless expenditure in the Department.
Ms J Manganye (ANC) explained that these were the same issues being raised since she had joined this Committee. She agreed with the need to see the Minister as the political head.
Mr S Huang (ANC) highlighted differences in figures in the Auditor-General report and the CFO’s report. He requested an explanation.
Ms S Kalyan (DA) informed the DG that acknowledging issues was not a solution. She highlighted the fact that the DG was referring to a turn around strategy but had not explained what this was. She had not picked up from the CFO what the numbers were for non-compliance in the procurement process. The vacancy rate was also very high and she asked what was being done to fix this.
Ms H Ndude (COPE) stated that these issues have been raised previously and it was evident that these had not been taken seriously in the first place. She reiterated that she had previously asked how many dams the DWA had, this was met with laughter and yet she still had not received an answer. She explained that she had visited a huge dam in the North West and she was well aware that the DWA had no idea about the existence of this dam. Infuriated, she stated that if the asset register was correctly complete, they would know about this dam and have answers for how many dams they had.
Mr P Mathebe (ANC) asked why there had been no changes and whether this came down to lack of capacity or simple laziness. Addressing the shifting of funds between programs, he asked if there was simply no forward planning in the Department.
Ms P Bhengu (ANC) thanked the DG for her honesty. She expressed worry over the recommendations in the report and why it had taken so long for these to be established. She highlighted that country was in a worsening water crisis and that they had no answers for people, without clean drinking water
The Chairperson stated she was embarrassed to be the Chair of Water, particularly when reading the papers. The Department had no idea what it was doing. She asked the Department whether it knew the laws and regulations that were meant to guide it and if it did not, what was it using to guide itself. She highlighted that they were meant to submit in April, yet they submitted in July and once they had done so they argued with the Auditor-General. She addressed the DG, stating that after her statement they were of the belief that the Auditor-General was 100% correct. She wanted to know what they were going to do about the situation. She suggested the problem in the Department was a corrupt mind, people were unwilling to change, and she was unsure that the DG was going to clean this up.
Ms Mabuza suggested that those in the Department were taking too much time for leave to deal with family issues. She argued that there was a need to take the unpopular decision and call the Minister before them to explain all these issues.
Mr Skosana asked for an explanation for the R12 million that was over expenditure condoned by the acting DG specifically.
The Chairperson argued that the DWA’s inability to fill vacancies was a serious issue. She asked if there was a component of the Department that monitored the spending threads of the Department and the staff of the Department. She asked if there was not monthly or quarterly internal reporting in place, as it seemed that the DG was only made aware of these issues by the Auditor-General’s report? She was no longer going to request extra funds for the Department because they could not even deal with the funds initially given.
Ms Ngele agreed that she may have been highlighting problems but she was working on solutions and meetings around these were taking place. She gone to the Minister with a proposal to take the matter forward. They were willing to come back to the Committee with a detailed plan to explain what measures were going to be undertaken by whom and at what time. She stressed the need for a skills gap analysis and a competence assessment. There was a need to reappraise where the risk for the DWA was focused. She had also requested the Auditor-General assess the internal audit because there was an obvious fault somewhere. One of the things they had discovered was the internal auditors were spending far too much time dealing with investigations and not looking internally. She had taken some action but there was a very real need to assess the internal risk management unit. There was also a need for innovative ways to deal with issues. A solution that had been recently implemented was the requirement that the CFO provide monthly and quarterly performance reports. She promised the Committee that they would be returning with a detailed plan but they would require help with this.
She had had a meeting about the spending which she was expected to condone. It was explained that the Department was responsible for the dams and so should something happen or something be discovered they were required to pay for it. In line with this, the problem came down to contract management. She was in this case forced to condone irregular expenditure. If she did not, she would be questioned in the audit report. She suggested that in these situations the possible solution would be to cut performance bonuses accordingly.
The Chairperson, clearly worried, questioned if they were still receiving performance bonuses and for what? She suggested they were being rewarded for failing. In this case it was unsurprising that the DWA staff were doing nothing. She addressed the expenditure directly and asked what happened in the DWA when irregular expenditure was raised.
Ms Ngele clarified that when money was spent which exceeded the contract, such as in this case, managers were given two days to disclose their spending. All the records for the year were checked and spending was disclosed. She noted the need for them to be proactive about expenses but that this was not just an issue in her Department but a government-wide problem.
Ms Kalyan asked for clarity from the DG over her suggestion that she condoned the expenditure. The report showed a large sum of money spent on a singular toilet. She asked if condoning the spending meant that it was the end of the matter.
Mr Skosana suggested that there were loopholes in the DG’s responses and that these necessitated the presence of the Minister. Not all areas of the Department were having problems; it was only focused in certain sectors. He reiterated the major differences between the report of the Auditor-General and the CFO. He also asked who was responsible or was charged for irregularity.
Dr Z Luyenge (ANC) raised the issue of condoning irregular expenditure. He agreed with the explanation that it was something that could not be avoided but suggested that in condoning it, the DG was taking responsibility on the part of the wrongdoer. He argued that that if the acting DG had condoned it, this was not on her behalf but on the behalf of the management of the Department including the Minister. He defined condoning as a failure to take action on the part of the Department. He explained that the opinion by the Auditor-General was issued on the basis of the information received. If they received no information then an opinion would still be given. If there was an irregularity, an opinion would still be given. Addressing the ability of the Department to deliver, he argued that there was a need for activity, not a framework. They needed to see work. He asked about the monitoring and evaluation framework and whether it was in place and being carried through.
Turning to the Asset Register and the suggestion that it had been reconciled up to 95%, Dr Luyenge argued that if they did not have a Department that was operational, the Department should simply say so, but they could not say that 95% of the asset register had been reconciled when on the ground there was nothing happening. The last issue he raised was the issuing of water licences. He noted that Working for Water had collapsed in Umtata and that the DWA was not even able to pay those that had come to the training. Service providers were putting on taps that were dry. He suggested that licences were being issued elsewhere.
Ms Manganye questioned the terms of contracts, if those awarded contracts had over run the initial contract and it was through that the DWA had come to pay for those things.
Ms Ndude addressed performance bonuses. She asked how assessments were done so that they arrived at a point that the bonuses were actually paid. She suggested that perhaps they should simply wipe out the entire Department and start again. There was a need for people in the Department that could deal with people on the ground and understand their needs. Addressing the DG, she asked for time frames for the turn around plan so that the Committee would be able to hold her directly responsible.
Mr Huang asked for the Committee to give the Department a chance to be professional and to deal with the issues raised.
The Chairperson noted the complaints and informed those present that they would not be hearing the rest of the presentations. Rather they would wait for the DWA to get back to them on the issues raised.
Ms Ngele took full responsibility for the report and issues raised. She told the Committee that thus far she has only given written warnings and no other actions had been taken. She reiterated that she was committed to turning the Department around.
Ms Mabuza explained that they were aware that the acting DG would not be able to take action as she had been undermined seriously by a number of officials.
The Chairperson noted this particularly since at the last meeting, it was evident that the DG had only been shown the documents for the first time. She argued that junior managers had not respected her. They were not simply dealing with the Acting DG but also with the Minister. Agitated, she questioned whether the Minister could put her foot down and deal with the situation. The Committee would not be fooled by presenters from the DWA and that the issue of undermining would be dealt with at a later stage.
Mr Bubele Vakalisa, IT Chief Information Officer, Department of Water Affairs, interrupted.
Mr Skosana asked where his documents were.
Mr Vakalisa explained that he had left his documents in the car. He addressed the IT issue, reiterating that planning in the Department was not of a good standard. Addressing the IT over expenditure, they had spent over and above what was budgeted for but they were part of an outsourcing environment. A service provider did the IT services, which the Department consumed yearly. Due to poor planning, money was often not set-aside for IT services or not enough money was set aside, for the number of employees being hired by the Department who would require IT services. These services were integral to the functioning of staff and the Department; this service was something the Department could not decide not to have.
The Chairperson cut the speaker short and told him not to even attempt to confuse the Committee. She explained that if she needed a certain number of people, she requested such and this was implemented.
Mr Vakalisa explained that this came down to a lack of planning, as managers did not take into account certain needs. He suggested that it was not really over expenditure in terms of IT but rather the item was under budgeted.
The Chairperson irritated, suggested that the speaker was not getting to the point and answering the question as to who was responsible for the planning.
Mr Vakalisa returned to the point that when an entity employs more people, it necessarily consumes more IT.
Mr Mathebe argued that if the Department was planning to fill a certain number of vacancies then surely they budgeted for it.
Mr Vakalisa returned to the fact that the planning issues were long standing in the Department and IT over expenditure resulted from this.
Mr Mathebe, angered, stated that they should then simply say the Department was dysfunctional.
The Chairperson addressed the CFO and asked him if the Department was given a certain budget and this was over spent. What were the processes with regards to this?
Mr Ayaya explained that these processes were laid out in the PFMA which allowed Departments to move funds from one program to another - up to 8%. This had been done for Program 1 in order to cover costs.
Mr Haung asked the CFO for exact spending figures.
The Chairperson asked what the IT budget was.
Mr Man answered R1.3 million.
Mr Luyenge informed the Committee that if the Department could not deal with the issues collectively then how were they going to deal with them in front of the Committee. The presenter was a perfect example of the issues in the Department. He should have worked collectively with the Department. Instead he had come before them and had been undermining the process.
Mr Ayaya noted the jump in licensed expenditure. This was a result of a backlog of invoices which were never paid in the previous financial year.
The Chairperson asked why they had not paid people.
Mr Ayaya replied that they had not received valid invoices.
The Chairperson argued that the DWA did not give valid invoices to the Auditor-General so how could they expect to receive them from anyone.
Mr Ayaya highlighted the amount of R49,8 million. He explained these came from Amajuba and Impala. The Impala amount was paid on behalf of the farmers in the area that had defaulted. As guarantors on the deal the DWA were required to pay. The farmers have thus far not paid, and the DWA had decided to write off the amount. He explained that the farmers were emerging farmers in the Pongola area and they had decided to write off R27,2 million of this loan. Turning to the remaining money he explained that it was a loan given in the 1980s and the asset was now being utilised by the Amajuba district, although the Amajuba district had not taken ownership of the loan. They had had a series of meetings over the last three years with Amajuba, who had claimed that they do not even have the amount on their books and so could not pay it. The DWA had decided to write it off.
Mr Huang asked why the loan was not visible on the books in 2008/9.
Mr Ayaya stated that this was because the loan was only written off in 2009/10 and that is why it only appeared on the books now.
Mr Huang clearly irritated argued that if the amount did not appear on the books in 2008/9 how could they expect Amajuba to pay.
Mr Ayaya clarified that it was only written off in the current period and hence appeared. He explained that they had also written off staff debts. State attorneys had pursued some of these. If the loans had existed for longer than three years, then these amounts were written off.
Mr Ayaya explained that for the audit to start, the financial statements needed to be with the Auditor-General by 30 June.
The representative of the Office of the Auditor General clarified that they had received financial reports on the 31 May and the asset report in June. She highlighted that there were extensive issues with the quality of the financials and the supporting documentation accompanying the statements was not received.
Mr Mathebe addressed the CFO and asked him why he was telling the Committee lies. He had claimed to have submitted all documents by 30 June yet the representative from the Auditor-General stated that they had not received the supporting documents.
Mr Skosana asked about the writing off of debts and asked how they could write off the over payment of salary. He suggested they were just given money away for free.
Mr Moshito Maphamga, Chief Director Internal Audit, Department of Water Affairs, explained that their work was guided by Treasury regulations and did what Treasury told them as far as the internal audit was concerned.
The Chairperson reiterated that the speaker agreed with the report of the Auditor-General and asked him to assist the DG in sorting out the issues raised. She noted the need for the DWA to work as a team and that the Auditor-General had offered monthly assistance in order to rectify the situation in the DWA. She stressed that by next year they would need to see change. She explained that they were not fighting with the Department but rather they wanted things to be done correctly, because outside the people were fighting with the Committee.
Ms Deborah Mochotlhi, Chief Director, Department of Water Affairs, addressed the backlog of licences. She explained that Letsema had been created to address the backlog but that they were dealing with a moving target. As they were dealing with the backlog it was growing. They were closely monitored by the Acting DG and top management, and would be willing to provide a report to the Committee. They hoped to be done with the backlog by March 2011.
Mr Huang reiterated the question of how many dams there were in the country.
Mr Lehasa Moloi, Chief Director: National Water Resource Infrastructure (NWRI) Operations, answered that the Department had done a comprehensive asset register. This had show more than 350 dams owned by the Department. More dams were in existence but these were owned by other entities.
Mr Huang said he was asking for total dams in the country. He also questioned whether the Department did not consider all the dams in the country.
Mr Moloi explained that they did consider all the dams in the country, especially as a number of dams were owned by municipalities. Those in the asset register were owned directly by the Department.
The Chairperson stated that the water in the dams was a national asset and so they would need a presentation on these dams in the near future.
Mr Luyenge questioned the difference between applications received currently and the backlog. He explained that there was belief that certain municipalities were being prioritised over others. He mentioned the Transkei as a particular problem in terms of licences. He also raised the issue that Minister was visiting areas without informing the Committee.
The Chairperson asked the issue to be dropped as the Minister has visited her province and her constituency and she was not even informed of the visit. She suggested they were present to do oversight and nothing else. She thanked the Department and adjourned the meeting.
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