Departments of Communications & Public Works Audits 2009/10: Auditor-General's & Departments' reports
Meeting Summary
The Auditor-General (AG) briefed the Committee on the audit outcomes for the 2009/10 financial year, in respect of the Department of Public Works, the Property Management Trading Entity and the Department of Communications. The presentation gave an overview, then focused on irregular, unauthorised, fruitless and wasteful expenditure, and instances of non-compliance with National Treasury Regulations or the Public Finance Management Act. A report was also given on the predetermined objectives. All audit qualifications had occurred as a result of a lack of oversight responsibility by leadership, and there appeared to be a lack of effective, efficient, and transparent systems and internal controls.
The Department of Communications tabled its report on the audit outcomes. The R24.2 million irregular expenditure reported on by the AG included R15,7 million from previous years. A comprehensive breakdown was provided from 2006 to date, listing the service providers involved. Fruitless and wasteful expenditure amounted to R54 000. The Department said that corrective measures and key controls had been adopted and implemented, procurement was now being done in line with the Supply Chain Management requirements and all responsibility managers had been for training. An Audit Committee was functioning and disciplinary processes had been instituted against officials who had transgressed. Members enquired how long the Acting Director General had been in place, and when the final appointment was to be made. They were concerned that the Department appeared to have regressed. They enquired when the disciplinary processes were likely to be finalised, what steps had been taken, and noted that the problems were recurrent. They enquired whether proceedings would be instituted against the former Chief Financial Officer, pointing out that it all too often happened that an official who was responsible for errors in one department would resign and then be appointed to another department. Members asked to be kept informed of the status of pending matters.
The Department of Public Works (DPW) outlined the measures taken to address irregular and fruitless expenditure. An amount of R30.8 million irregular expenditure included an amount of R5 million from prior years, and had arisen because proper procurement processes were not followed, tax clearance certificates were not attached, lack of proper authorisation and lack of supporting documents. The DPW had decided to set up a compliance unit, to be headed by a Director, was also developing new policies and improving internal controls, and was investigating an IT scanning solution to safeguard documents. It would also verify potential contractors with National Treasury, before concluding contracts. Disciplinary matters were being investigated and would be pursued where appropriate. The R389 000 wasteful expenditure occurred through clients vacating buildings, or court rulings on liability. DPW was setting systems up to direct resources to property management. Members were concerned about the tender processes, pointing out that senior managers in all departments were supposed to declare their interests on an annual basis, but that DPW had failed, during the last financial year, to submit one of these forms on due date, and urged that this must be investigated. Members also asked whether the DPW could have found these problems on its own, and enquired about the structure of the new compliance unit.
Meeting report
Department of Public Works and Department of Communications: 2009/10 audit outcomes
Apologies were noted from the Minister of Communications and the Minister of Public Works
Briefing by the Auditor-General (AG)on the Department of Public Works and the Property Management Trading Entity, and the Department of Communications
Mr Lawrence Van Vuuren, Business Executive, Auditor-General South Africa, briefed the Portfolio Committee on the audit outcomes for 2009/10, for both the Department of Public Works (DPW), and its Property Management Trading Entity (PMTE), and the Department of Communications (DOC).
Mr van Vuuren outlined the mission of the Auditor-General (AG) as the Supreme Audit Institution (SAI) of
Mr van Vuuren firstly dealt with the Department of Public Works. He gave an overview that the DPW report was qualified because of incomplete matters relating to immovable tangible capital assets and matters regarding irregular expenditure. There was an emphasis of matter on the basis of accounting, as well as fruitless and wasteful expenditure.
Mr van Vuuren noted that in regard to the PMTE, revenue and receivables had given rise to qualifications, and irregular expenditure as incomplete.
Mr van Vuuren noted that the Department of Communications could not provide a complete picture on irregular expenditure. An emphasis of matter was raised on the basis of accounting, irregular expenditure, as well as fruitless and wasteful expenditure.
With regard to irregular expenditure, Mr van Vuuren said that the departments had not followed the proper procurement process for all procurements, which had resulted in the irregular expenditure.
He added that the audit qualifications had occurred as a result of a lack of oversight responsibility by leadership.
He noted the figures for all three Departments regarding unauthorized, fruitless and wasteful expenditure for 2008/9 and 2009/10 (see attached presentation for figures).
Mr van Vuuren then explained the remarks on non-compliance by noting that the DPW, PMTE and DOC had not complied with National Treasury Regulations and sections of the Public Finance Management Act (PFMA). He then listed a summary of the findings that had been reported for 2008/09 and 2000/10 (see section in presentation dealing with report on predetermined objectives). He added that there was a lack of effective, efficient, and transparent systems and internal controls regarding performance management, in respect of both 2008/09 and 2009/10.
Briefing by the Department of Communications
Dr Harold Wesso, Acting Director-General, Department of Communications tabled the Department's presentation on irregular, unauthorised and fruitless and wasteful expenditure as reported in the 2009/10 audit report.
He confirmed that during the 2009/10 financial year, the AG had identified R24.202 million of irregular expenditure, of which R15,701 million had been incurred in previous years, and R8.501 occurred during the 2009/10 financial year. He provided the Committee with a comprehensive breakdown in relation to irregular expenditure for the years 2006 to 2008 and 2009/10. The service providers listed for 2006 to 2008 were Distinctive Choice and Uniglobe. He provided reasons for the irregular expenditure as well as the corrective measures that had been taken. In 2009/10 the service providers involved were Draft FCB, Intelligent Edge, Distinctive Choice and others, and once again the reasons for the irregular and unauthorised expenditure and the corrective measures that had been put into place were presented. (See attached presentation for listing).
Dr Wesso said that the DOC had incurred fruitless and wasteful expenditure of R54 000 for the 2009/10 financial year. The service providers in this instance were Telkom, Visa fees, flights and duplicate payments. He provided the Committee with reasons for the expenditure as well as corrective measures that had been implemented.
Mr Wesso added that measures and key controls had been adopted and implemented by the DOC,
in response to the instances of non-compliance with Supply Chain Management (SCM) regulations that had been highlighted by the AG. Procurement was now being done in line with the SCM requirements, and all Responsibility Managers had been for training on SCM and the PFMA.
He said that the Audit Committee in the DOC was functional, and that disciplinary processes had been instituted against officials who had transgressed. He stressed that the DOC was taking the matter of PFMA and National Treasury Regulation compliance very seriously, and that the leadership of the DOC had adopted a 'Hands on Approach' for compliance issues.
Discussion
Ms A Dreyer (DA) asked Dr Wesso how long he had been the Acting Director General. She also noted that the Minister from the DOC should have been present.
Dr Wesso said that he had been in the post for seven months, since 23 June 2010. He added that he had to do substantial work to try to understand and identify the problems, and that he had had to devise corrective measures.
Ms Dreyer asked when the Minister was intending to appoint a permanent Director General. She noted that the DOC had recurrent problems with audits.
Dr Wesso noted that the appointment of the permanent Director General would take place very soon, as the post had been advertised and the closing date for applications was 11 February. It was hoped to have a new Director General in office by 1 April. The DOC had also identified 24 critical posts that would be filled by April and May 2011.
Ms Dreyer said that the AG’s report had indicated that the DOC had regressed, and asked why this was so, despite the measures put in place to improve the situation. She added that some of the problems with wasteful expenditure went back to 2006 and 2007, but did note that now disciplinary processes were under way. She asked when those processes would be finalized, stating that they could not stay “under way” forever.
Mr Sam Vilikazi, Acting Deputy Director General: Finance & Information and Communication Technology(ICT) Enterprise Development, DOC, said that the main qualification had been based on irregular expenditure, and the bulk of that expenditure had related to prior years. When the Acting Director General took office, it was clear that the internal controls needed to be re-examined. Many of the key internal controls within the Department were not functional, and in some instances there had been a violation of policies. That situation had now been reversed. Policies were in place, and the DOC was working very hard with the AG to ensure that all recommendations were being implemented. Compliance within the DOC had improved significantly.
Dr Wesso responded to the question of the disciplinary matters by saying that most of the cases were at the stage of hearings, since the investigations had been done. He noted that the DOC would keep the Committee updated on those hearings and outcomes.
Ms Dreyer wanted to know if the recommendation in regard to letters had been implemented. She noted the reference to “corrective measures” and wanted to know whether any steps had been taken against officials, questioning why this might not have happened.
Dr Wesso said that once proceedings were in referred to lawyers, they were essentially out of the hands of the Department’s officials. He said that the DOC was working hard to try to understand its problems. There was also much effort to ensure that the new incoming Director General would be given “a clean book”. He noted that the precautionary letters would be issued on the following Monday.
Ms Dreyer referred to the former Chief Financial Officer, who was responsible for a huge transaction, but had since left the Department. She said that it was an unfortunate but frequent occurrence that people would resign when they were implicated, that there might be a disciplinary hearing but after a few months that same person would reappear, having been appointed to another department. She enquired why no criminal charges had been instituted against the former Chief Financial Officer, and what the DOC had done to recover the money from him.
Mr E Nyekemba (ANC) said that the labour laws and Constitutional processes in
Mr L Suka (ANC) also displayed concern about recurring cases of irregularities, and sought clarity on time frames for vacancies.
Ms H Van Schalkwyk (DA) wanted to know why it was so difficult for the DOC to adhere to the correct tender procedures. She added that this was a problem throughout government, and wanted to know if the problem was with management.
Dr Wesso said that the tender process irregularities had arisen through lack of knowledge. That was why the DOC had decided to do some serious training. He said that the tendering process was a very involved process and that sometimes colleagues from other departments also needed to be trained.
Briefing by the Department of Public Works (DPW)
Ms Cathy Motsisi, Chief Financial Officer, Department of Public Works, tabled that Department's presentation. She said that she would discuss measures that had been implemented by the DPW in regard to the reported irregular and fruitless expenditure.
She said that R30,8 million had been reported as irregular expenditure for the 2009/10 financial year but that the amount was inclusive of R5 million for prior years. She gave the Committee a breakdown, noting that R15,683 million arose because proper procurement processes were not been followed, and R11,719 million related to tax clearance certificates that had not been attached. This then totaled R26.4 million for this financial year. She added also that in some cases there had not been proper authorization and some cases related to lack of supporting documents.
Ms Motsisi then outlined the progress that DPW was making towards corrective action in regard to the irregular expenditure. DPW was setting up a compliance unit, and was in the process of filling the post of the head of that unit, with interviews scheduled to take place before the end of February. Furthermore, the DPW was also developing new policies and improving internal controls. She added that all regions had been allowed to work overtime for the conducting of a compliance check on all documents from April 2010. DPW was further looking to implement an IT scanning solution for the purpose of safe keeping the documents.
DPW was in the process of verifying all the awards of contracts with the National Treasury (NT) before they were finalised, in order to prevent awarding to blacklisted service providers.
Ms Motsisi added that most of the cases reported were still being investigated, and disciplinary measures would be taken as soon as liability had been determined.
Ms Motsisi then turned to the emphasis of matter in respect of fruitless and wasteful expenditure of R389 000. Some of the problems in this regard were due to clients who had vacated buildings before the end of contracts, and others related to court actions where the courts ruled in favour of contractors. The DPW had initiated a project for the verification of occupancy on leased property. Its
organisational design was also under review, so that resources could be directed to property management.
Discussion
Ms Dreyer commented that most of the problems centred on the tendering process. She said that a key component of a healthy and open tender process was the declaration of financial interests by senior managers to prevent a conflict of interests. She noted that on an annual basis, senior managers were supposed to submit forms, by no later than 20 April 2011, declaring their financial interest. However, between 2007 and 2010, the national average for submissions had first increased, but had then had decreased. For the financial year 2009/10, only 46% of senior managers had submitted their financial interest forms before the due date. More serious was the fact that many did not submit any forms at all. In this regard, DPW was the worst-performing department. There were 131 senior managers at DPW, yet not one had submitted the necessary form by the due date. This information had been derived from a survey done by the Public Service Commission. She was concerned what DPW had done regarding these senior managers who had not disclosed, and what consequences they might face. She urged that the DPW must do something to prevent this from recurring.
Ms Motsisi agreed that this specific matter needed to be investigated further, and undertook that a response would be sent to the Committee.
Mr Suka was concerned that without this report having been received from the AG, the DPW would not have been taking any action. He said that Section 38(1)(g) of the Public Finance Management Act was very clear on the responsibility of the Accounting Officer.
Ms Motsisi said that the DPW did not only rely on the AG to identify the problems. The DPW had an internal audit unit, and this performed internal auditing throughout the year.
Ms van Schalkwyk referred to the Compliance Unit, noted that DPW was in the process of appointed a head for that unit, and wanted to know what the criteria for that specific post were. She added that since there would no doubt be a huge salary attached to that post, she wanted to know what the head of the unit would have to be able to do.
Ms Motsitsi said that the reason the Compliance Unit was to be headed by a Director was that the DPW took the matter very seriously. The budget of the DPW was R8 billion, excluding the funds that the DPW received from their client departments, and this was the reason why the unit would need to be strong. This structure would also include about nine to ten people working under the director.
The meeting was adjourned.
Documents
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