Audit outcomes for National Treasury & Department of Justice for 2009/10: Auditor-General, National Treasury, & Department of Justice briefings with specific reference to unauthorised, irregular, fruitless & wasteful expenditure

Meeting report

The Hon. Pravin Gordhan, Minister of Finance, the Hon. Richard Baloyi, Minister of Public Service and Administration, the Hon. Jeffrey Radebe, Minister of Justice and Constitutional Development, the Hon. Ms Ayanda Dlodlo, Deputy Minister for Public Service and Administration, and Mr Lesetja Kganyago, Director-General, National Treasury, all tendered their apologies for being absent from the meeting. The Minister and the Director-General were accompanying the President on a state visit abroad.

This meeting was part of a series of meetings during which the Portfolio Committee engaged the different state departments on the occurrence of irregular expenditure during the year under review. This particular meeting was dedicated to National Treasury and the Department of Justice and Constitutional Development. The Chairperson expressed the dissatisfaction of the Committee with receiving the presentations just before the meeting started. The Members had limited time to read through and engage with them.

The Acting Chairperson explained how the meeting would be structured. The Office of the Auditor-General of South Africa (AGSA) would deliver its presentation on National Treasury (NT). NT would deliver its presentation. The Members would then engage with the AGSA as well as NT.

Following that, the AG would deliver its presentation on the Department of Justice and Constitutional Development (DoJ&CD). Thereafter the DoJ&CD would deliver its presentation. The Members would then engage with both the AG and the DoJ&CD.

The Auditor-General’s Presentation on National Treasury
Mr Nico Purien, Senior Manager, AGSA, said that the outcome of the Audit Report for the NT for the financial year (FY) 2009/10 was financially unqualified with findings on compliance with laws and regulations and predetermined objectives.  An issue picked up, but not serious enough to cause a qualification, was that there was no approved Human Resources Plan.

There were, however, emphases of matter. The first instance was irregular expenditure to the amount of R2.7 million which was incurred during FY 2008/9, but only reported during 2009/10. It happened as a result of a contract not being renewed on time. The second instance was an amount of R176 000, incurred in 2000/01 as a result of paying for professional services rendered. These findings occurred due to the failure of the leadership in the Department to ensure that the laws governing the process of procurement were adhered to.

The Acting Chairperson handed the floor to the National Treasury.

The National Treasury’s presentation on Irregular Expenditure
Mr Freeman Nomvalo, Accountant General, National Treasury, delivered the presentation on behalf of the Director General (DG), National Treasury. He noted the dissatisfaction of the Chairperson and the Committee with receiving the presentations late and accepted responsibility.

The outcome of the AGSA Audit Report for the NT was unqualified. The issue at hand was irregular expenditure. Legislation provided, through Treasury Regulations, that once irregular expenditure had been discovered, it had to be dealt with. In the legislation, reference was made to disciplinary action. The Treasury Regulations made provision for the fact that the response would not necessarily be disciplinary action. The Treasury Regulations stipulated that when the accounting authority dealt with irregular expenditure, it had to consider the circumstances of the transgression, it had to consider the extent of the expenditure involved, and also had to consider the nature and seriousness of the transgression. Those factors would inform the nature of the action the accounting authority would take upon discovery of irregular expenditure.

There was emphasis of matter and the first matter was the irregular expenditure of R2.7 million. This related to the 2008/09 financial year (FY) and had been recorded as such, but it was discovered and pointed out in FY 2009/10. The second matter was irregular expenditure to the amount of R176 000 spent in 2001, which had not been condoned yet.

Regarding the R2.7 million, Mr Nomvalo explained that there was an employment agency providing short term contract staff to NT. The contract with this agency had expired, and was not renewed in time. To avoid the interruption of service provision on assignments that were underway at the time, the agency continued to provide the service, without there being a contract in place. The contract was renewed eventually. This incident happened as one manager was leaving office and another one took over his duties. This matter was not recorded and reported as such in the 2008/09, due to the staff dealing with the issue, not understanding the procurement policies and the laws of the state. The AGSA discovered it in the 2009/10 FY.

The matter was investigated and it was found that the state did not incur any loss and no employee benefited personally from the incident.

In terms of Remedial Action taken, 51 line staff members were trained on the Supply Chain Management (SCM) processes and Public Finance Management Act (PFMA) regulations. Nine SCM staff members were formally trained on SCM processes and contract management. Controls had been reviewed and tightened to detect and/or prevent recurrence.

A Contract Management Framework Manual was developed and was being rolled out in partnership with Legal Services. The contracting and payment functions were centralized. The contract with the employment agency was being monitored closely. An early warning system in the form of a calendar, was implemented which generated a six month notification prior to the expiry date of a contract. Information sessions were held and circulars sent out to sensitise staff to contract management and other SCM processes during the 2010/11 financial year.

The filing system had improved. Documents were files per supplier. Files contained valid contracts, tax clearance certificates and all relevant documentation for appointment and payment purposes. A SCM project, the Financial Capability and Maturity Model, was initiated to assess the effectiveness and efficiency of SCM processes.  The DG also embarked on a quality control exercise, consisting of random sample checks over time, to see whether procurement processes were adhered to. He would investigate further if he discovered anything suspect. This process proved to be useful in highlighting problem areas.

The R176 000 was incurred a long time ago, but until recently no department knew what to do with irregular expenditure once it had been discovered. The NT issued a communication that explained the process, through the Office of the Accountant General. The NT then clarified that communication through a practice note issued on the 24 April 2008. It clarified the procedures to follow once irregular expenditure had been discovered. Irregular expenditure happened when a requirement of the law had not been adhered to in the execution of a transaction. For every transaction, permission had to be obtained from the relevant authority. It happened on occasion that the relevant authority could not give permission, but a civil servant had to procure material or a service urgently. If the civil servant went ahead without the permission from the relevant authority, the spending on that item became irregular.  If the civil servant could obtain the permission afterwards, the amount could be condoned (legitimised).

Many instances of this occurrence would be found in many departments. The DG did an investigation into the issue of the R176 000 in order to understand how it was incurred. Dependant on his findings, he would either condone it, or take action if it was still possible.  This decision would be made before the end of this financial year.

Discussion on Irregular Expenditure in the NT
Mr A Williams (ANC) agreed with the Chairperson that the documents were provided too late. He requested that this practice be avoided in the future, because Members needed time to digest the information in these documents in order to interrogate them thoroughly.

Mr L Suka (ANC) said that he appreciated the transparency of NT. He wanted to make sure what the normal procedure was. If the DG was unavailable, did he not have to give written consent for somebody else, in this case Mr Nomvalo, to represent him? He asked this in the interest of making sure the DG was not misrepresented and that Mr Nomvalo authentically represented the DG.

Mr Nomvalo replied that the DG wrote to the Committee to inform it that he would not be attending this meeting due to other commitments. The Committee wrote to the Department to ask whether, in the absence of the DG, a replacement could attend the meeting, in order for Parliament to finalise the issues.

Regarding the issue of misrepresentation, he replied that Parliament was a public forum. He would be held accountable for everything he said in Parliament. He did not want to misrepresent the DG and would still be accountable to the DG when he returned.

Mr Williams asked whether the R176 000 was an accumulation of smaller amounts over time, or a once–off transaction.

Mr Nomvalo replied that the R176 000 was not an accumulation.

Mr Williams asked why the R176 000 could not be explained, which happened in 2000/01, but the R2.7 million which happened in 2008/09, could be explained.

Ms F Bikani (ANC) asked which laws governed condonation. She asked which control measures existed to prevent the abuse of this practice. It was becoming a trend. To what extent was the training effective in other departments to make sure that the malpractices did not recur? If the AGSA said it was an unacceptable report, how was NT going to be accountable to its sister departments? 

Mr Suka said that the R2.7 million awaiting condonation was a huge amount to be written off.  The report said that it was an oversight. It could not be taken as casual. Was there a written warning? Were there any other corrective measures? NT was the custodian of the purse in the country. The R176 000 had been incurred in FY 2000/01. It was still in the report 10 years later which meant that it had been carried over for 10 years. Would it still be in the report in the next financial year? Why?

Mr Suka said that something written, a cautioning, a warning had to be issued to the person that incurred the R2.7 million. Were no timeframes attached to the processing of the R2.7 million amounts classified as irregular expenditure?

Mr Nomvalo replied that, as he said in the presentation, the Office of the Accountant General issued a practice note in 2008 on how to deal with irregular expenditure once it was discovered. He further explained that when irregular expenditure was discovered, it had to be reported to the Accounting Officer and it had to be reported in the monthly financial statements. When the Accounting Officer received the report, he had to investigate the matter and put measures in place to prevent it from happening again. He had to determine whether there was any intention for any individual to benefit, or whether the state lost money. He then had to respond appropriately.

In relation to both instances of irregular expenditure, the DG asked what the intention, the level, and the nature and extent of the negligence was. Regarding the R2.7 million, the questions were all answered and the actions taken. The state did not lose any money. It was an honest mistake .There was no malice on the part of officials. Based on the findings regarding the R176 000, there was still questions remaining. Why did it take so long? How did a department get irregular expenditure off the list once it has been discovered? It could be carried ad infinitum, but after some time it did not contribute positively to accountability anymore.

Irregular Expenditure occurred under the following circumstances. An official needed to pay for goods/services that were part of the strategic plan and budgeted for. The official needed the permission of the DG in order to pay for it, but instead the official went ahead and engaged the bought the goods/services.  This official violated a prescript of the law.  The prescript was that the DG had to give permission. In order to reverse the violation of the law, the official now had to approach the DG, explain the actions taken as well as the reasons for it and the circumstances under which it occurred.

The DG now had to consider whether he would have agreed with the actions of the official, separate from the fact that the official violated a prescript. If the answer was yes, it would be reasonable to give the DG the opportunity to condone the expenditure after the fact. 

Condonation could be abused, but it did not lend itself automatically to abuse. It was how the condoning was done by the DG. What could be abused was the flexibility in the legislation. How did one guard against abuse? All these matters had to be reported properly and discussed at forums like this committee, and these forums had to interrogate these matters thoroughly and satisfy themselves that all the facts were known and that no malpractice remained hidden.

There was a procedure governing condoning as well as a procedure governing how these issues had to be reported. Concerning the issues raised about other Departments and whether they have been trained, when the PFMA was implemented, the Departments were trained on its procedures. The Departments were currently undergoing another round of training. There were quarterly meetings for the chief financial officers (CFOs), where procedures were discussed and explained and problems were highlighted. Workshops were run on specific procedures, depending on the need. Treasury had developed, during the last two years, the Financial Capability and Maturity Model. The purpose of this model was to provide the Departments with the tools to assess themselves and pick up weaknesses in their financial control systems with the help of NT. NT would then address these weaknesses. The NT and the department involved then formulated and signed a formal agreement stipulating the roles and duties of each party in resolving these weaknesses.

The R2.7 million had been dealt with. The R176 000 was still awaiting condonement. It was still a hanging matter because departments did not know how to deal with the matter after it had been discovered. The DG could ratify decisions taken in the past, after informing himself of the circumstances under which it had been taken. It could be taken to Parliament and Parliament could finalise the matter. As these items were picked up in other departments they would be processed and cleaned up properly. Irregular expenditure did not automatically imply that the state had lost money; it underlined out that there were weaknesses in their financial control systems. The Accounting Officers (AOs) in departments had to be careful and had to take steps.

Ms Bikani said that her concern was that it was a grey area in the policies and regulations of the state including the PFMA and other Acts governing state finances. She asked what specifically were the grey areas identified out of the processes, in order to improve control measures in the future. Her argument was that the AG would continue to say that it was irregular.

Mr Nomvalo said that the grey area in this instance was that once irregular expenditure was picked up, it could not be resolved. The condonement dispensation allowed it to be closed. The AG wanted it disclosed. When the AO condoned an amount, the AGSA could still refute the condonement and say that the AO did not apply his mind properly, on the grounds of evidence to that effect. In terms of Section 38 of the PFMA, every AO had to have risk management, internal audit and systems of internal control to ensure that malpractices did not occur. Whatever control systems were put in place, there would always be areas that were unprotected, and staff always found ways around the rules. As these were discovered, they would be improved upon. The Financial Capability and Maturity Model assisted in this process.

Ms Bikani asked whether the PC could have a copy of the Financial Capability and Maturity Model.

Mr Nomvalo replied that the model was used in the report to Standing Committee on Public Accounts (SCOPA) and that this report would provide more useful information and demonstrate the use of the model better that the model itself, and it was available. The model was also available.

Mr Suka said that, according to the report, the amount of R176 000 was paid for professional services. What did the term include?

Mr Nomvalo replied that an amount of R41 000 was paid for the economic information that NT received. An amount of R36 000 was paid for legal services. The rest was used to pay for the Peoples Guide as part of the national Budgeting process. It was a guide that was developed at the time to simplify the national budget for people on the street. Sourcing those three services in 2000 was not done according to the rules governing procurement at the time.

Mr Suka asked whether there was a ceiling to the amount of money an official could deviate, but still stay within the law.

Mr Nomvalo replied that normal supply chain policies had thresholds, for example, beyond X amount, quotation have to be invited, beyond Y amount, a tender have to be put out, etc. An AO could only condone amounts and functions that would fall within his normal scope of power.

The Acting Chairperson asked how the process of condonation would reflect on the financial books of the Department. In her understanding the debit and credit sides of the books had to balance out. Did the AG have to pronounce it as being resolved?

Mr Novalo replied that in most cases the official did exactly what he was supposed to do. He paid for a service that was rendered and there was nothing essentially wrong with the transaction. However, in paying for the service, he had to obtain permission from his superior, who was not available at the time of payment. This expenditure was then flagged on the books as irregular, because of the outstanding permission. The fact that the expenditure was flagged as irregular did not affect the normal running of the Department in any way; it was just a note in the financial statements. When the official obtained the permission from his superior at a later stage, the matter was considered resolved. The official was obliged to report it, until it was resolved. Controls had to be put in place to prevent it from recurring.

In the case of the R2.7 million, a contract expired while there was still a need for the service being in place. In order not to interrupt the service, which would have had a detrimental effect on the Department, the service stayed in place while the contract was being renewed. There was thus a period when the service continued, without a contract being in place. However, the company still had to be paid for this period. This was where the R2.7 emanated from.

The other element that was embedded in the question asked was this: the fact that an incident of irregular expenditure occurred did not automatically mean that the state lost money, or that an individual benefited from the situation or that something criminal had occurred. It merely meant that there was a deviation from prescribed procedures. The AO had to investigate the matter to determine whether anything untoward had occurred, in order to determine the course of action he would have to take.

The Acting Chairperson asked whether NT took the findings of the AG into consideration when it had to decide on allocating budgets to departments.

Mr Nomvalo replied that no executive authority could allocate money unless it was authorised by Parliament to do so. The allocation of money was the sole power of Parliament. This happened through the Appropriation Act and the Division of Revenue Act. Money Bills provided the process that Parliament had to follow. Treasury made the recommendations to Parliament and Parliament passed the law. The allocation of money was a legal matter. Did they consider audit outcomes in that process?  Yes, it would concern their minds, but priorities that Government had to satisfy, were more important. There was legislation that compelled all spending agencies to have controls to deal with this matter. There were committees like the Portfolio Committees (PCs) and the Standing Committee on Public Accounts (SCOPA) to assist and guide departments in terms of financial control. It would be assuming too much of a responsibility for NT to say no to entities when they asked for money, because it was the prerogative of Parliament, according to the law.

The Acting Chairperson thanked NT for its presentation and expressed the hope that the next time NT met with the PC, it would have dealt with irregular expenditure.

Mr Nomvalo replied that, realistically speaking, the NT was a big department and it was impossible to have absolute control over all aspects of its spending. He hoped that where irregular expenditure did occur it would be detected early and dealt with swiftly, by the risk management processes that had been implemented, and that the controls would thereby be improved.

The Auditor General’s presentation on the Department of Justice and Constitutional Development
Mr Lourens van Vuuren, Business Executive, AGSA, responsible for the DoJ&CD, delivered the presentation.

The DoJ&CD received a qualified audit opinion from the AGSA. The qualification rested on two issues. The first reason for the qualification was departmental revenue, receivables for departmental revenue and contingent liability relating to Third Party’s Fund. This was an historical matter and the Department was dealing with it.

The second reason for the qualification was the fact that the information on irregular expenditure was incomplete. For the 2009/10 financial year the figure stood at R 805.386 million, but the AGSA could not be confident that the figure would stay at that level. This figure was arrived at with the information available at this stage.

There was emphasis of matter as well. The first matter was fruitless and wasteful expenditure to the amount of roughly R2 million and the second matter was accruals. There was a Treasury Regulation that stipulated that Departments paid their creditors within 30 days. According to the financial statements, if the Department had paid all it creditors within 30 days, it would have spend more than its voted funds.

The irregular expenditure for FY 2008/9 was R58.790 million.

The Department incorrectly applied the Broad Based Black Economic Empowerment (BBBEE) Code of Good Practices instead of the Preferential Procurement Framework Act (PPPFA) Regulations which resulted in irregular expenditure amounting to R680.454 million.  Furthermore, the incorrect application of other Supply Chain Management Procedures resulted in an additional amount of irregular expenditure of R98.517 million.  The remainder of the irregular expenditure related to the Department entering into finance leases, which were prohibited in terms of the PFMA, as a result the annual instalments amounting to R26.415 million were deemed to be irregular. Some finance leases were RT3 leases for which Treasury issued a practice note which meant that it was condoned. It was thus incurred and condoned in the same year. This amounted to R12 million.

Irregular expenditure identified in the current year relating to the previous year amounted to R368.999 million and irregular expenditure identified in the current year, relating to the current year, amounted to R436.387 million.

The Department did not have adequate systems and procedures to identify and record all irregular expenditure.

Sufficient and appropriate audit evidence could not be obtained to determine the completeness of the irregular expenditure disclosed in the financial statements of the Department.

This audit qualification occurred as a result of a lack of oversight responsibility by leadership over reporting and compliance with laws and regulations and internal control.

There was fruitless and wasteful expenditure to the amount of R2.039 million and R2.2 million was awaiting condonement. These emanated from cancellation fees and lease contracts that expired, where the Department did not raise the lease amount for the new term.

Presentation by the Department of Justice and Constitutional Development on Irregular Expenditure
Ms Nonkululeko Sindane, Director-General, Department of Justice and Constitutional Development (DoJ&CD)   delivered the presentation. She mentioned that she briefed both the Minister and Deputy Minister on the contents of her presentation. She introduced her team but tendered an apology for the Chief Financial Officer (CFO), who was unwell. She apologized for providing the Committee with the documents just before the meeting started.

Ms Sindane explained the environment that the DoJ&CD was operating in currently.  The Department was working towards getting an unqualified audit report in the 2012/13 FY. To this end it implemented strategic interventions, which the presentation would elaborate upon.

She would also explain the status of the non-compliance and the Issues the AG mentioned. She would explain the disciplinary and corrective actions that had been taken. It would end with the way forward.

The first slide of the presentation explained the strategic interventions the Department embarked upon in order to stabilise itself and work towards an unqualified audit. It set up executive committee (Exco) subcommittees in Finance, information technology (IT) and Risk in order to strengthen the oversight function in these areas. Delegations were revised and improved. It instituted dedicated capacity to investigate and institute disciplinary action for non-compliance and misconduct at executive management level. It appointed additional personnel and embarked on training interventions in the supply chain management environment. It strengthened the internal audit function as well as national and regional oversight and monitoring. It included financial and internal control in performance contracts of executive and senior management. It revised and updated departmental prescripts and policies. It invited technical assistance by National Treasury. It strengthened audit committee oversight and periodic structured engagement with the AGSA.

As the AGSA had stated there was irregular expenditure to the amount of R680.454 million.  Irregular expenditure identified in the current year relating to the previous year amounted to R368.999 million and irregular expenditure identified in the current year, relating to the current year, amounted to R436.387 million.

As the AGSA had said, it was not possible to conclude on a final figure for the amount of irregular expenditure. The investigations were continuing and the disciplinary procedures that arose out of it would be fast-tracked. This investigation was confined to transactions that involved R30 000 and less, which was the quotations environment. The bid environment had yet to be investigated.

Through sampling transaction from different period, the AGSA had picked up that the transactions incurring irregular expenditure started from 2005. At the time the DoJ&CD was using the Government procurement system, Logistical Information Systems (LOGIS). The DoJ&CD opted out of that system for reasons that the DG did not want to explain at this point. The aim was to improve the system and to address the problems that the DoJ&CD had with LOGIS. The DoJ&CD started to use Justice Yellow Pages (JYP), a customised system. The suppliers were loaded onto that system and this system was used to do procurement from that point onward.

Some amounts had been condoned and others not. The presentation would deal with the un-condoned amounts only. R96 808 000 was incurred during the operations of the Department. R34 605 000 was incurred during the incorrect application of the principles relating to lease expenditure. R 680 961 000 was incurred because of the incorrect principles implemented for the procurement of goods and services, through contravention of the PPPFA.

Discussion

Ms Bikane asked Ms Sindane to explain the detail of what she was saying.

Mr Johan Johnson, Chief Director: Third Party Funds, DoJ&CD, assisted Ms Sindane by explaining that R96 million of irregular expenditure was incurred during the operations of the Department. Investigations confirmed that R66 million of the R96 million was not irregular, which still left R30 million as uncondoned irregular expenditure.

Slide 9 explained the status of the remaining R30 million. It showed that R295 504 had been condoned since 31/3/2010, R 28 726 516 was awaiting condonation, R 607 127 was not condoned and not recoverable and R 491 060 was still under investigation.

Ms Bikane said that the amount of money and the number of instances were inexcusable. The Supply Chain Management (SCM) system did not exist in this department. If the PC had all the time, it would tear the presentation into tatters, because a lot of issues were not acceptable. She wanted to know what the AG’s recommendations were. The Department had to get its system in order. Outstanding amounts of more than R800 000 000 were unacceptable. She said that the presentation was poor and the excuses put forward to explain it was unacceptable. She did not even want to proceed with questioning.

Mr Williams said that the DoJ&CD’s irregular expenditure made up 34.9% of the total amount of irregular expenditure in the country. The figure was unbelievable. R7.5 million was unrecoverable and not condoned. Did anybody go to prison?

Mr Williams asked whether the DoJ&CD’s human resources (HR) department had the capacity to deal with these cases or whether it contracted lawyers to deal with it.

Mr Suka appreciated the presentation. He referred to the HR capacity of the DoJ&CD. He noted that the Department only appointed Mr Jacobus Hughes to deal with the backlog. The Department needed a unit to deal with it. It may be saved by the national call to fill all vacancies. Staff could suffer from burnout because of the workload.

Mr Suka said that HR and the Budget were crucial to resolving the problem. He questioned whether the Department had the right person for the financial system. As long as the systems were not in order, the Department would always run into problems. The Department needed a system to respond to challenges. The question was whether the human capital was equal to the task at hand.

Mr Suka said, stressing the importance of systems, that legal people like the staff of the DOJ, should not have a problem interpreting the PFMA. They flouted quotations deliberately.

Acting Chairperson told the delegation to take down the questions and continue with a summary of the next section.

Ms Bikani said that the PC had to consider a governance and monitoring meeting of its own, where it would call the five departments that had the highest amounts of irregular expenditure. Together with NT and the AGSA, the Committee would have to assist these departments to plot a way forward to get these departments out of the red.

Presentation by the Department of Justice and Constitutional Development on Irregular Expenditure (continued)

Ms Sindane said that slide 22 dealt with Leases. There were a number of challenges because of the volume of the infrastructure. There were leases that should have been renewed or terminated; and there were lease agreements signed by the wrong people. What interventions were done? The lease register was updated, the lease database cleaned up and ordered and the availability of the relevant documentation was ensured. It remained a constant challenge. There was a need to improve the filing system.

The DoJ&CD was working towards developing an early warning system that would warn that lease agreements had to be extended or terminated.

The recordkeeping system would be set up so that a document had back-ups in different locations.
Steps had been put in place to create order, maintain lease register, and deal with the capacity problems at three levels, firstly with people that have been employed in DoJ’s own system. Ms Sindane then dealt with the compliance management unit. Staff would be in-sourced just before the end of the financial year.

Regarding some of the control measures implemented, circulars had not been working well on their own. An audit team would be set up whose duty it would be to monitor whether circulars were being implemented. People already in the Department with project management skills were used to follow up on this issue. Staff members who were appropriate people to sign leases were being trained. There was not enough capacity to do financial oversight in the regions and the DoJ&CD was capacitating the regions. The Department had to have its own bid evaluation committees, supported by the national bid evaluation committees.

In some cases leases were signed, but addenda to those leases were then signed by other people. Such practices had to be illuminated.

Mr Johnson said that no matter which system could be instituted and which circulars issued, at the heart of the matter was capacitated officers and trained personnel. The budget was an issue. The regions had no people to perform these functions. The DoJ&CD has just advertised 90 positions.

Ten interns would be taken on per region in order to boost the manpower to deal with this issue. Asset leases. They would be made permanent in the medium term. The capability of the audit function would be increased. The risk management function would be strengthened.

Dr Khotso De Wee, Chief Operations Officer, Department of Justice and Constitutional Development, said that the office of the CFO had a vacancy rate of 23%.The DoJ&CD advertised for three Chief Directors and two Directors and filled some lower level posts. The Do&CD was in the process of creating a position called Director: Asset Management to strengthen the capacity. Interns would be appointed at the rate of 10 per region to assist with the audit function. The internal audit function would be strengthened. Risk management would be strengthened.

With regards to forensic investigation ten investigators, six data capturing clerks as well as three administration staff were appointed, because compliance were often an issue.  The relationship between national office and the regions had to be strengthened.

Discussion

Mr Suka acted as Chairperson now. He asked for questions.

Ms Bikani said that there was no question about the way forward. The Committee together with the cluster had to sit on a given day determined by the Chairperson’s Office to decide on a plan of action, based on the challenges. There had to be plan of action, timeframes and a budget. The DoJ&CD had to be upfront about the challenges facing the Department which forced it to be non-compliant, for example the challenge of vacancies and capacity. Either the Department was appointing people without suitable capacities or these people had the right capacities and qualifications but were careless in the execution of their duties.

It was abnormal for staff to be unable to obtain three quotes or procure for R9 000. She was asking for a platform for the DoJ&CD in this Committee as well as the Standing Committee on the Auditor-General. She suggested a joint committee meeting to avoid repetition.

Ms Bikani said that the Committee would expect an improvement. She wanted to know the detail of the AGSA’s recommendations. Something really needed attention in the DoJ&CD.

Mr Williams referred to the General Report by the Auditor General. On page 118 it referred to drivers of audit outcomes. The DoJ&CD said it had sufficient building blocks in place to improve the state of affairs, but in his opinion, according to the report, it was not the case, because the fundamentals were not in place.
On pages 104, 176, and 70, amongst others, there were other instances that reflected the administrative crisis that the DoJ&CD was finding itself in. This document could be used as a core document to guide the path towards healthy governance for the DoJ&CD.

Ms Bikani said that National Treasury had left the meeting. She wanted to know from it what the situation was surrounding the Logistical Information System (LOGIS). The absence of a robust information system was in part responsible for the chaos in the DoJ&CD. She wanted to know whether the processes to resolve it could be speeded up. What was the status of Integrated Financial Management Systems (IFMS)? NT could come to the next meeting with answers.

The Acting Chairperson said that this was a transversal matter, as the top five Departments in terms of irregular expenditure, were implicated. He asked what the nature was of the relationship between DoJ&CD with the Department of Public Works (DPW).  DPW had to act as an agent for the DoJ&CD when it came to lease agreements.

The question of all-year-monitoring had to be raised at the cluster meeting. This involved monitoring all year round in order to track financial management and spending patterns. It generated quarterly reports. It served as an early warning system. He was glad that the HR capacity was in the process of being improved.

Ms Sindane said that the DoJ&CD was not on LOGIS anymore, but used JYP. The DoJ&CD was waiting for the IFMS. Her understanding was that the DoJ&CD would be the first to be put on IFMS.

Ms Bikani asked if JYP would be outside the IFMS and if NT agreed that it should be like that.

Ms Sindane explained that when the new system, IFMS, became available, the DoJ&CD would migrate from JYP to IFMS.

The Acting Chairperson (Mr Suka), asked Ms Sindane to move on.

Ms Sindane said that the PPPFA was the DoJ’s biggest Achilles Heel. The amount was not fixed at R 805 million. It could still be bigger. The DoJ&CD was not proud to say it, but it did not want to leave the Committee with the idea that the R805 million was the final figure.

Mr Johnson said that the DoJ&CD was aware that it looked bad, but something went wrong since 2005.

Ms Sindane said that a number of issues contributed to the development of the problem. The DoJ&CD should have implemented PPPFA. It had started developing JYP. JYP only catered for Broad Based Black Economic Empowerment (BBBEE) and not PPPFA. There was a clear distinction between PPPFA and BBBEE. PPPFA was law while BBBEE was a guide and good practice. When the Department started developing JYP, it was based on BBBEE, not PPPFA. The AGSA only picked it up in 2010. No money was lost, only the wrong system was applied. The DoJ&CD was ashamed, because it was not addressed in good time. The work related to quotations was not finalised yet. It did not get to the bids level yet. The period was 2005 till 2009, when it was discovered. The amount might be higher. No money was lost. It was an unfortunate mistake. The DoJ&CD consistently used the same system - BBBEE. It did not prejudice anybody in the application process. It regretted not using the PPPFA. The DoJ&CD was in the process of quantifying the irregular expenditure. It looked at JYP, Sun Repayments and Basic Accounting System (BAS). The methodology was accepted. Amongst transactions excluded were transactions with government garage and RT3 contracts. The finalised numbers would exclude these areas of work. The DoJ&CD had to capacitate officials to implement PPPFA. It had to calculate the points manually. In a nutshell, all translated into a new figure which would be reported at the end of the financial year. Then the DoJ&CD would move into a process of seeking condonation, and get agreement from the relevant bodies. It would take training, capacity, and direct supervision to correct the mistakes.

Mr Bikani said that she did not back off from her position that it was abnormal for an official to be unable to follow simple procedures of supply chain management. She would not accept that this figure should increase. She asked whether there was a ceiling amount for condonement. The laws had to be put into in place. It could be a camouflage word used for instances where the PPPFA was not applied.

Ms Sindane said that it was a ring fenced number and it would cut off at a particular time.

The Acting Chairperson (Mr Suka) was satisfied with the description that it was a ring fenced number. He said that he had a question concerning Public Administration Leadership and Management Academy (PALAMA) versus Government officials. He would raise it at an opportune time.

Ms Sindane said that she wanted to assure the meeting that people would account and be disciplined for their contributions to the state of affairs. The initiatives included that aspect as well.
The Acting Chairperson (Mr Suka) thanked the Committee for its participation and robustness. It served transparency.  He said that the Committee did not get the presentations in advance. The Do&CD had to learn to write reports in a manner that was not alarmist. He told Ms Sindane that written responses to the questions would be required by Monday, 07 March 2011. He handed over to the original Acting Chairperson, Ms Mohale.

The Acting Chairperson asked why the mistake was only picked up in the 2009/10 FY. The AGSA should have picked it up earlier.

The meeting was adjourned.