Unauthorised Expenditure by the Departments of Home Affairs, Trade and Industry, Presidency, Defence and Military Veterans, Correctional Services and Transport: National Treasury briefing

Public Accounts (SCOPA)

16 August 2011
Chairperson: Mr T Godi (APC)
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Meeting Summary

The National Treasury told the Standing Committee that unauthorised expenditure by the Department of Home Affairs amounted to R97 million. Expenditure was related to the conversion of a manual fingerprint database to electronic, and funds earmarked for capital expenditure used for current expenditure. The Treasury recommended that the amount be recovered from the baseline.

Members expressed displeasure with the long delay in bringing matters to book, seeing that the year in question was 2005/06. It was felt that individuals responsible for unauthorised expenditure had to be called to account and acted against. The Department was asked if the fingerprint project had produced value for money, to which it replied that it would grant national access to all security agencies.

In the Department of Trade and Industry, unauthorised expenditure was related to debts written off in the general export incentive scheme. There were irrecoverable former personnel debts, and a claim in terms of a trade agreement with Switzerland. The Treasury reasoned that expenditure was due to factors beyond Departmental control, and recommended that it be charged against the National Treasury fund.

Members of all parties expressed concern about irrecoverable personnel debt. The approach that a debt could be written off, if it could cause hardship for a former member of staff , met with resistance from Members. There was also a general feeling that more could be done about companies that had become untraceable and were in debt through the general export scheme. There was some concern about amounts settled out of court.

In the Presidency, unauthorised expenditure was related to consultants brought in to fix the asset register. The Treasury felt that unauthorised expenditure had been avoidable, and recommended recovery from the baseline.

A Democratic Alliance Member asked about the salary increase for the new Minister. An Inkatha Freedom Party Member advised that the impact of non-condonement be considered.

In the Department of Defence and Military Veterans, unauthorised expenditure was due to military veteran museums and peace support operations.

An Inkatha Freedom Party Member remarked that protocols between the Presidency and Defence had to be established, so that the Presidency could stop calling on a department without a budget, as he phrased it. The Department responded that it was discussing a contingency budget for peace support with the Treasury.

In the Department of Correctional Services, unauthorised expenditure was related to compensation for employee overtime. The Treasury held that it would have been avoidable if the  seven-day establishment had been implemented earlier. It was recommended that the amount of R483.821 million be taken from the baseline.

In discussion, a Democratic Alliance Member and an Inkatha Freedom Party Member took the Department to task for what was seen as willful disregard of advice from the Treasury, regarding unauthorised expenditure and delay due to negligence. However, African National Congress Members interrogated the Treasury about refusal to approve funds requested by the Department. The Treasury countered that it had to adhere to Government priorities and was limited by resource constraints. The Chairperson asked the Director-General if delay with the seven-day establishment had been unavoidable, and he answered in the affirmative. The Chairperson advised a route of further engagement with the Treasury.

In the Department of Transport, unauthorisedexpenditure was related to the rationalisation of its services. The Treasury noted that there had been delay with implementation, but recommended that expenditure be condoned and approved.

In discussion, a Democratic Alliance Member was severely critical of the Department, for what was seen as willful disregard of Treasury recommendations, and a failure to rationalise bus subsidies. The Chairpeson asked about possible delay with the replacement of ticket based contracts with tendered contracts. An Inkatha Freedom Party Member asked if proper policies were in place to regulate communal bus subsidies. An African National Congress Member of the Transport Portfolio Committee concluded that statements by the Portfolio Committee and the Treasury were informed by the conditions under which departments operated. If such conditions were not taken into account, a department could appear negligent. The Chairperson agreed that it was important to know how departments thought and felt, and that the position of the Public Accounts Standing Committee would be informed by the inputs of the day.

Meeting report

National Treasury on unauthorised expenditure in the Department of Home Affairs
Mr Devan Naido , Chief Deirector: Economic Services from National Treasury told the Committee that the total unauthorised expenditure by the Department of Home Affairs (DHA) stood at R97 million. Overexpenditure during the 2005/06 financial year, amounted to R52 million. An informcation and communications technology (ICT) project had been launched in the last quarter of that finance year. The Treasury had been interested to know the reasons for that. An amount of R4.6 million, earmarked for capital expenditure, had been used for current expenditure. The Department had declared that there were measures in place to prevent recurrence, but steps against a specific person responsible were considered. The Treasury recommended that the amount be recovered from the baseline.

The Chairperson remarked that accountability was departmental.

Ms A Dreyer (DA) asked who the Director-General of Home Affairs had been at the time. Consequences had to be considered and actions taken against persons who had to be held to account.

Mr Issac Mabena, Deirector: Administrative Services from the Department of Home Affairs answered that it had been Ambassador Mzuvukile Maqethuka.

Ms Dreyer proposed that he be called in to answer.

Mr N Singh (IFP) remarked on the long time lapse that had occurred before matters were brought to book. The unauthorised expenditure by Home Affairs dated back to 2005/06. He asked why it had taken so long to bring the matter before the Committee. The person responsible in one instance may have disappeared or gone underground.

The Treasury replied that the danger of unauthorised expenditure had been consistently highlighted by it. The Department had neglected to write a letter to it about problems experienced. Engagement with the Treasury about facts was necessarily time-consuming.

The Chairperson remarked that the call had to go out to departments to act with speed, where unauthorised expenditure was concerned. If there was procrastination, the Treasury could not act.

Ms M Mangena (ANC) referred to the amount of R53 million, and asked what had happened. With reference to the DA proposal, she said that the DHA could have made an offer for R46 million to be recovered. She asked what had to be done to recover that amount.

Mr Mkuseli Apleni, the Director-General (DG) of Home Affairs, replied that the Department had allocated R92 million in 2004/05 for the back record conversion project. Service providers had been appointed. The project was initiated to establish an electronic fingerprint record of everyone in the country. Little work was performed during 2004/05, with work only commencing in March. The DHA was unable to spend the R92 million. R389 million was saved in that year. The Department submitted a rollover request. The contract was signed in September 2004. Judgement estimates were decided in October. R132 million was required for the project. In August 2005, the Treasury approved R97 million out of the R389 million saved, to be reserved. The amount was granted on condition that it be allocated in the Department if spending trends were to tend towards overspending. The Department eventually spent R226 million on the project. The baseline amount came to R132 million. Money was being placed outside of the process. R51 million was reserved. There was overspending on goods and services. R46 million was allocated to capital expenditure. Money was taken for licences. Licences were not software, but in that case it was interpreted as being so. Software was part of capital expenditure. The Auditor General found that to be wrong. Overspending may have been wrong, but the DHA did approach the Treasury for a rollover of funds, which was approved. R389 million was returned to the fiscal. The R97 million reserved for the Department, was not requested at the right time. No access to the R97 million would have a major impact, seeing that Home Affairs had not yet turned the corner as a department. The Committee was asked to consider condoning the expenditure.

Ms M Matladi (UCDP) pointed out that there was a difference between saving and underspending. If an amount was budgeted for service delivery and a department failed, it was not a saving. The DHA had admitted that it had been wrong not to go back to the Treasury about the matter. She asked what had been done to correct the situation.

The DG responded that the way to correct the matter was first to acknowledge the problem. A letter had to be written to Treasury.

Ms T Chiloane (ANC) asked about value for money for the project undertaken.

The DG responded that Home Affairs was the custodian of fingerprints. The change from a manual fingerprint record to an electronic one, meant that access to fingerprints for the police and others, had been established. The Department was proud of that achievement.

Ms G Saal (ANC) said that overspending was better than underspending. She asked for reasons why there had been the delay to report back about the promised money.

Mr Singh opined that it had been up to the Treasury to pick up the error. He was not in favour of condoning the expenditure. There had to be efforts to see whow much could be made up by other means. It could be staggered, if necessary.

The Chairperson reminded the Committee that no decisions needed to be reached on that day.

Unauthorised Expenditure in the Department of Trade and Industry (DTI)

Mr Lionel October, Director General of the Treasury, offered an apology for the delay in bringing unauthorised expenditure to book, seeing that it dated back to 2004/05, in this instance. One reason for the delay could be ascribed to difficulties in tracing documentation from the Treasury. Details had to be gone through and checks and balances applied. At the time of its annual report in 2005, unauthorised expenditure for the Department of Trade and Industry stood at R37 million. The general exports incentive scheme had resorted to writing off debts. R6 million had gone towards the bilateral trade investment with Switzerland. An amount of R125 000 was ascribed to irrecoverable former personnel debts. R31 million was ascribed to irrecoverable debts incurred in the general export incentive scheme. Out of court settlements with companies in debt had been resorted to in some instances. In others, companies had closed down, become untraceable, or had no moveable assets. There had been a R6 million claim (10 million Swiss francs) lodged by Pumlani Lodge. Mr October opined that the unauthorised expenditure had been due to factors beyond the reasonable control of the Department. He recommended that the R37 million be considered as a charge against the National Treasury Fund.

Ms Chiloane referred to the recovery of former personnel debt. One reason for writing off debt had been the possibility of undue hardship caused to former employees. She found that unacceptable. It was an insult to unemployed people in the country. She asked exactly what the notion implied in practical terms.

Mr October responded that hardship was a subjective term that referred to the impact debt recovery would have on a specific person.

Ms Chiloane referred to companies that had become untraceable. There was a recent law that prescribed the blacklisting of owners in such instances. She asked if such persons had been blacklisted.

Ms Z Balindlela (COPE) remarked that when an employee resigned, the identity of that person was known, and debts could be recovered from a pension fund. With regard to possible hardship and suffering, she said that the person must have known all along that debts would be recoverd sooner or later. She said that every effort had to be made to obtain the names of owners of untraceable companies. She said, amidst laughter, that money was going down the drain, there had to be interventions before a company owner vanished into the water like a crocodile, and it became impossible to recover anything.

Mr October responded that companies were owned by individuals, but a company was also a juristic person. The owner as individual could escape. There had to be efforts to close down escape routes for such people.

Ms R Nyalungu (ANC) agreed that steps had to be taken to get hold of untraceable companies.

Ms Dreyer remarked that the Committee agreed that the practice of writing off debt due to hardship foreseen did not go down well. Non-recovery caused hardship to the taxpayer. Government officials were wasting money. In case of hardship foreseen, a settlement offer could have been resorted to.

Ms Nyalangu asked for a breakdown by year of irrecoverable former personnel debts, with names attached. She asked what was meant with the statement that recovery of debt from former personnel was in some instances uneconomical. 

Mr October responded that it could be more expensive to chase after a small debt, than it might have been to write it off.

Ms Nyalangu noted that with regard to the general export incentive scheme, she was interested in a breakdown according to years. The Committee had to get more flesh, in the form of detail about companies and amounts involved, and reasons for debt written off.

Ms Saal referred to personnel debts. She asked where such persons were, and about reasons for debts written off, whether it had been salary overpayment. Personnel had in fact borrowed money from the Department and had to adhere to consequences. She asked for more straightforward explanations of other debts written off. She said: Verduidelik plat en simpel - explain in down to earth and simple terms.

Mr October answered that when personnel moved to other branches of government service, it was easy to track them down. It was hard when they had left government service.

Mr Singh remarked that he was not convinced that the unauthorised expenditure had been due to circumstances beyond the reasonable control of the Department. ID numbers of company owners could be obtained. It was not advisable to let them off the hook. Nothing prevented such persons to again apply for an incentive, having been declared untraceable previously. Names of company owners who had moved to Taiwan, had to be obtained.

The Chairperson asked if the amounts linked to the general export incentive scheme, referred to amounts owed or amounts settled on. The scheme was introduced in 1990. There had been fraud in paying reparation. He asked who was running the Department at the time, and what the relation to the culprits had been.

Mr October replied that he did not have information about amounts settled on or amounts owed, on that day.

The Chairperson said that he only wished to know if the amount quoted referred to the amount settled on, or the amount owed.

Mr October replied that it referred to the actual amount settled on.

The Chairperson asked what it added up to.

Mr October replied that it was R31 million.

The Chairperson asked if that was the amount owed or the amount paid.

Mr October responded that it was the amount written off.

The Chairperson noted with concern that in the case of Nestle SA, that amount had run to R4.1 million.

A Treasury delegate added that when the amount owed by a former personnel member was too small, the cost of recovery became too great. He cited three cases where the DG had condoned hardship. A Mr Magadla had worked for the Department for some years when it was discovered that his salary had been calculated wrongly. After recalculation, it was clear that he had been underpaid by R35 000. The amount was paid out, but R4 000 towards pension was never deducted. When that was discovered, Mr Magadla was no longer in a position to pay that amount, and it was written off. A Mr Sasa was employed as a driver for the Minister, and his allowance for being attached to the Minister was calculated at the wrong notch. That caused him to be overpaid by R22 000. The DG had advised that the matter not be pursued. A Mr de Bruyn was unable to return a R289 salary overpayment.

He continued with regard to the tracing of companies, that overpayment had initiated an investigation. The matter had been turned over to Justice. Rules for payment to investment schemes, had been tightened up. After 1994, there had been a bilateral treaty for foreign investment . The South African Government had offered protection to investors. A Swiss lodge owner had been forced to leave for lack of state protection, and money was lost. The DTI did not directly pursue debtors. A claim was written off after three years. Details would be furnished regarding the overpayment of 15 employees.

The Chairperson requested that information before the end of the week. He asked if R25 000 lost because of people fired had to be condoned.

The delegate conceded that it had led to an adverse award.

Briefing on Unauthorised Expenditure in the Presidency
The Treasury reported that there had been overspending of R15.1 million in 2008/09, which had been classified as unauthorised expenditure. Consultants had been brought in to fix the asset register. There were legal fees and salary increases. Parliament had approved that. It was felt that the Presidency could have avoided the expenditure, and that the money had to be taken from the Presidency baseline.

Mr P Pretorius (DA) asked about a salary increase for the new Minister.

The Treasury responded that it would come from the Presidency budget.

Mr Singh suggested that the impact of non-condonement be considered.

National Treasury on unauthorised expenditure in the Department of Defence and Military Veterans

The Treasury reported unauthorised expenditure related to military veteran museums and peace support operations. In the case of peace support, an amount of R40 million had been involved that the Department had not budgeted for. The amount was later authorised.

The Chairperson drew attention to an amount of R5.9 million for contract photocopiers.

Mr Singh remarked concerning peace support operations, that a protocol between the Department and the Presidency had to be established. The Presidency had to stop asking delivery from a department without a budget.

A Defence delegate responded that a contigency budget for peace support had been discussed with the Treasury. Projections would be used from previous years. The contingengy requirements would be based on interventions and projections about situations on the continent. The Department had to respond to the Public Service strike. For the Medium Term Expenditure Framework (MTEF) 2012/13 a component of the Defence budget would be reserved for that. Protocols had to be finalised, like the rights of the Commander-in-Chief. Treasury had been approached for peace support operations.

The Chairperson noted that donations had been made to Somalia, which had been managed with Departmental resources.

Ms Mangena referred to photocopiers hired from 1990 to 1991, at an exorbitant price. Other means had to be looked into.

The Department responded that a Colonel in the army had unlawfully concluded the contract. Currently there was a system of operating leases in place, rather than purchase. Photocopier services were transversal for all government departments, and were obtained through the Treasury. The service provider was responsible for maintenance.

National Treasury on Unauthorised Expenditure in the Department of Correctional Services

Ms Rachel Mujuru, Director: Justice and Protection Services in the Treasury, reported an amount of R483.821 million spent during 2008/09 as compensation for employee overtime. R1.2 billion had been spent on overtime. The amount would be taken from the baseline.The seven-day establishment was only implemented in 2009. If the Department of Correctional Services (DCS) had implemented it earlier, spending could have been avoided. The Department had become aware of overspending early in the year, and the Treasury had warned against unauthorised expenditure. National Treasury did not grant additional funding, and overspending occurred. Additional funding was not always given as a grant.
Ms Dreyer opined that analysis showed that the Department could have prevented expenditure. There had been willful disregard. R1.2 billion had been spent on overtime because of delay with the implementation of the seven-day establishment. Treasury had warned the Department against unauthorised expenditure. Implementation of cost containment measures could have avoided expenditure. The Director-General at the time had to be called in to explain.

Mr Singh asked who had been negligent with the implementation of the seven-day establishment. The Treasury had warned the Department several times. He recommended that the R483.821 million be charged against the budget. It could take the form of a once-off or staggered from the baseline.

Mr Pretorius asked about the impact on the current and new budget.

Mr Tom Moyane, Director-General, Department of Correctional Services, said that the situation had to be contextualised. The Department had decided that if overtime for Saturdays, Sundays and public holidays could not be paid, officials had to be given time off. There had been a 2007 resolution to compensate for Saturdays, Sundays and public holidays. Virements were requested in 2008/09.

Mr Moyane said that challenges included an abnormal inflation rate. In 2008/09 R543 million was requested to offset that, but it was not approved. There were budgetary cuts in 2008/09 that aggravated the situation. The seven-day establishment was implemented in April 2009. It could not be paid for during 2008/09 from existing resources. Overtime loss had to be compensated for. The Occupation Specific Dispensation (OSD) was used to bridge the gap. The Department could not pay that process from its own resources. Core activities of the Department might have to be curtailed. There had been overspending to the tune of R183 million.

Ms Chiloane asked why the Treasury had not approved additional funding requested.

Ms Mujuru replied that in the 2008/09 adjustment, the Department had received R460.484 million. In the 2008 MTEF, it received R165.243 million.

Ms Mangena remarked that the question had been asked the previous year why the Treasury had not approved funding, and the question was still being asked.

The Chairperson remarked that if every department got what it wanted, it would not work. He asked how much the Department had received, and how much it had requested.

Mr Moyane replied that there had been a moratorium on the filling of critical posts. Organised labour had to be negotiated with. The Treasury gave R460.484 million for compensation.

The Chairperson noted that the Department had asked for R1.1 billion, and received R460.484 million. That left a shortfall of R540 million. He asked why the Treasury had not approved that.

Ms Mujuru replied that it was impossible to give departments all they asked for. There were government priorities and resource constraints to be taken into account.

Mr V Smith (ANC), Chairperson of the Correctional Services Portfolio Committee, said that there would be implications if Treasury recommendations were agreed with. It could impact on service delivery, and the Department could not afford to lose any more of that. His committee checked every month for savings. Correctional Services was a security cluster department, and inadequacies were well known. He suggested that the Standing Committee condone the unauthorised expenditure, and that there be an appeal against the R400 million taken away. It could affect security.

Ms Nyalungu asked what the Treasury meant when it said that departments could not get everything they wanted. That was not the exact reason.

Mr Pretorius remarked that the impact of R480 million deducted from the next budget had to be considered. The Department had to sit down and plan what would have to be curtailed.

Mr Singh opined that money had to be spent due to circumstances. He asked if money had been used directly to meet salary requirements. He could accept that money had been needed that had not been budgeted for. The question was what the money had been used for.

Ms Chiloane again asked why the Treasury had not approved requests for additional funding. Money shortages could prevent departments from carrying their mandate.

The Chairperson told Mr Moyane that that the Treasury was saying that the Department could have done something. The Department had a lack of money and had to deal with the unions. But on the other hand it would be unacceptable if the police, for instance, were to say that they had to receive money or else the country would be insecure. It did seem that Correctional Services had no way out. He asked Treasury to state what their analysis had concluded.

Ms Dreyer intervened to say that her question about the delay with the seven-day establishment, had not been answered.

Ms Mujuru responded that the seven-day establishment had been considered as early as the 2005 MTEF process. R225 million was approved for spending in 2007/08; R228 million for 2008/09, and R96 million for 2009/10. If things had proceeded as planned, huge sums would not have been required for overtime.

Mr October noted that the Treasury was the custodian of the budget. A Ministerial budgedt committee made the decision to allocate. Recommendations were based on technical expertise.

Mr Moyane remarked that the implementation of the seven-day establishment was delayed by protracted negotiations with labour. The Department had to deal with the overtime issue.

Ms Mujuru replied that the Department had refused to implement saving measures.

Mr S Thobejane (ANC) said that both parties had their reasons. The Treasury could say try to find the way again. The DCS had to say which programmes it could take from.

The Chairperson noted that the Treasury had said that the DCS had been negligent.

Ms Mujuru replied that the Department had not done an analysis of areas where money could be obtained from.

Mr Moyane noted that the amount spread over three years was for the recruitment of officials for the seven-day establishment.

The Chairperson referred to the statement by the Treasury that earlier implementation of the seven-day establishment could have avoided overtime costs. He asked if it had been unavoidable.

Mr Moyane replied that it had been unavoidable.

The Chairperson asked if that applied to 2007 retrospective.

Mr Moyane answered that it was so.

The Chairperson advised that the route of further engagement with the Treasury be taken. According to the letter of the law the DCS had overspent. But one had to ask what the circumstances had been.

Mr October suggested that a Treasury official sit with the DCS,

Mr Smith urged that the Committee (Scopa) insist on a time frame. Lack of that had been the reason for the qualified audit that the department received year after year. Politicians had to decide on the matter. Continuous qualification due to matters of three or four years before, had to be avoided.

National Treasury on Unauthorised Expenditure in the Department of Transport

National Treasury reported that R1.2 billion had been spent on bus subsidies during 2008/09. The Bus Operators Association had taken the Department to court. There was a lack of implementation of remedial policies. The Department had to rationalise its services from 2003 to 2007. There had to be a transition from monthly contracts to interim contracts. Routes had to be rationalised and subsidies reviewed. The Department of Transport could request R100 billion per year. After the court case the Treasury earmarked funds for bus subsidies. The Treasury would insist on clarity of policies concerning that. In 2008/09 the Department reported two months after reports had been tabled. The Treasury recommended unauthorised expenditure to be condoned and approved. Scopa was asked to approve a charge against the R1.1 billion.

Mr Singh referred to policy proposals mentioned. He asked if there were proper policies in place to regulate communal bus subsidies. He remarked on general underspending of R5.7 million, whereas one province had overspent.

The Treasury replied that the overexpenditure had been due to conditional grant allocations. Less than R1 million had been allocated to KwaZulu-Natal. The grant could not cause liability to the Department, as it was a small amount. The Land Transport Act included a condition that regulation of transport had to evolve to local level. There had to be an operational subsidy policy.

The Director General of the Department of Transport said that municipalities had to be assisted to build capacity to manage.

Ms Dreyer asked about an investigation into the effective management of bus subsidy contracts.

The Department said that increased allocations had been expected. Public transport might well have come to a halt. The Minister could do little. There had been long delays in the implementation of remedial procedures, but some remedial actions had been performed.

The Chairperson asked what had changed. He asked how the Department was currently managing.

The DG replied that responsibility had been shifted to the provinces.

Ms Dreyer protested that the Department had willfully disregarded Treasury recommendations. It had failed to rationalise bus subsidies. Charges could be laid for non-compliance with the Public Finance Management Act (PFMA).

The Department replied that additional allocations had been requested since 2005. Costs had been anticipated, but the backlog caught up with the Department in 2008.

The Chairperson remarked that there had been delay in the replacement of ticket-based contracts with negotiated and tendered contracts. He asked if there was nothing that the Department could do.

The DG responded that the development of transport plans had been necessary for the conversion. There were new routes that had not been serviced before. The introduction of new routes would increase subsidy amounts. Transport plans for municipalities had to be finalised. Agreement to conversion had to be negotiated, there had to be protective conditions for workers. When new tenders came in, workers previously employed had to have protection. Such negotiations took long. Public transport had to be located at the municipal level, and there was no clear pipeline to move by, especially when it came to dealing with labour. The Department had to manage a complex process. There had not been dereliction of duty.

A Member of the Portfolio Committee (PC) for Transport concluded that accountability for expenditure and compliance was hard for the Department. A response to transformation was expected of the Department. When the PC for Transport or the Treasury reported that the Department had not done certain things, it was informed by conditions under which they had to comply. If those conditions were not understood, it could seem like neglect. The whole transport system was being restructured, with a move from interim to negotiated contracts. There would be higher costs involved. An environment conducive to the transformation had to be created.

The Chairperson remarked that it was important to know how Departments thought and felt. The position of Scopa would be informed by the departmental inputs of the day.

The Chairperson adjourned the meeting.


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