The Pension Fund Adjudicator (PFA) presented its Annual Report 2010/11. The major challenges that it faced related to compliance with the Public Finance Management Act Treasury Regulations, and implementation of the new policies drafted and approved by the Financial Service Board (FSB). It also had problems because of out-dated Information Technology (IT) and case management systems. Cash flow emerged as another problem during the discussions. In its finance division, there were challenges because of the sudden resignation of two accountants. The turnaround times in dealing with complaints also posed a challenge for the PFA, but it was hoped that a new case management system would alleviate a number of problems once it was fully implemented and fully functional. 6 220 new complaints were received, of which 894 complaints were settled by conciliation, 1 430 were determined and 3 799 were resolved without requiring determination. The PFA currently had 55 staff members and its gender and demographic representation was good. All staff had been required to undergo legal training and had also received training on English report writing.
The Auditor-General expressed an unqualified audit opinion on the financial matters of the PFA, but had drawn attention to a number of matters of emphasis. There had been irregular expenditure of R1 216 609, and it had incurred fruitless and wasteful expenditure of R590 164. The AG reported that the performance information and reporting on performance against targets were not fully accurate, nor complete. The Accounting Authority had not ensured that the entity had an effective, efficient and transparent system of internal control, that described processes and monitoring fully. Some goods, both those valued at up to, and over R10 000 had been acquired without the right procurement processes being followed. There were some material misstatements identified during the audit. Fixed asset valuations did not meet the audit criteria so that depreciation and amortization charges could not be commented upon, but it was noted that there had been a revaluation of assets. Although the AG did not raise any comments on internal controls, it did raised issues of leadership, noting that the Accounting Authority did not exercise oversight responsibility, and that in some cases proper record keeping was not implemented to ensure that complete, relevant and accurate information was accessible and available. Financial and performance reports were not prepared. There were two investigations held into possible misconduct, and a forensic investigation was done for the year ended March 2010. The PFA currently held a surplus of R3.1 million, an increase of 1.2% in comparison to the previous financial year.
Members welcomed the presentation, but determined that more discussions would be needed, particularly on the finances and the responses of the PFA to the audit report. Members asked why the Financial Services Board (FSB) was the Accounting Authority, and heard what the roles of the FSB and Adjudicator were. Members asked about the bonuses paid out in error, the investigations into misconduct and the reasons why staff members had left, as well as what actions would be taken, and commented that they did not consider it sufficient that actions would not be pursued simply because the staff had since left. They commented that there seemed to be lack of corporate governance, although they also noted that lack of oversight by the parliamentary committees in the past could have contributed to the problems. Members also questioned the training, saying that it should not be limited to language training.
Pension Fund Adjudicator (PFA) 2010/11 Annual Report
Ms Emelda Rey, Acting Pension Fund Adjudicator, Office of the Pension Fund Adjudicator, said the office of the Pension Fund Adjudicator(PFA) was established on 1 January 1998 to investigate and decide complaints lodged in terms of the Pension Fund Act (No 24 of 1956). The purpose of the PFA was to resolve disputes in a procedurally fair, economical and expeditious manner. The PFA would investigate and determine complaints of abuse of power, maladministration, disputes of fact or law and employer dereliction of duty in respect of pension funds. The Annual Report 2010/11 indicated that the major challenges faced by the PFA related to compliance with the Public Finance Management Act (PFMA), National Treasury Regulations, implementation of the new policies drafted and approved by the Financial Service Board (FSB), and out-dated Information Technology (IT) and case management systems. In the finance division, the challenges were exacerbated by the sudden resignation of two key personnel. The turnaround times in dealing with complaints remained a challenge for the PFA. However, a new case management system should alleviate a number of problems once it was fully implemented and fully functional.
The Annual Report indicated that 6 220 new complaints were received during the year under review, 894 complaints were settled by conciliation, 1 430 were determined and 3 799 were resolved without requiring determination. In terms of human resources management, the PFA reported that it had 55 staff members, compared to 54 staff members in the previous financial year. The report indicated that in an effort to improve the quality of drafting, all staff members were required to undergo legal training, which would result in improvement in the quality of work. No funds had been spent on the purchase of tickets for the 2010 FIFA World Cup. However, R8 666 had been spent on purchasing of 60 scarves, mugs and gift bags, and seven flags for members. Most of the challenges faced by the PFA were reported to have been addressed or were in the process of being resolved. In terms of employment equity, out of the 55 staff members, 37 were females and 18 were males. Africans made up 81.8% of the total staff, while Coloureds made up 10.9%.
The Auditor-General (AG) expressed an unqualified audit opinion on the financial matters of the PFA as at 31 March 2010. However, the AG had drawn attention to various emphases of matters. During the reporting period, the PFA incurred irregular expenditure of R1 216 609, and incurred fruitless and wasteful expenditure of R590 164. The AG reported that the performance information was deficient in respect of accuracy and completeness. The report on performance against targets was not accurate and complete, when compared to source information. The PFA had not complied with section 51(1)(a)(i) of the PFMA, because the Accounting Authority did not ensure that the entity had, and maintained, an effective, efficient and transparent system of internal controls with regard to performance management, which would describe how the PFA’s processes of performance planning, monitoring, measurement, review and reporting were conducted, organised and managed. The AG indicated that with regard to procurement and contract management, there had been procurement of goods and services valued between R10 000 and R500 000, amounting to R1 080 357, without the necessary invitations for three written price quotations from prospective suppliers. This was in contravention of the National Treasury Practice Note 8. Furthermore, there was no evidence that R136 252 of goods and services (valued between R2 000 and R10 000) were procured after obtaining at least three verbal or written price quotations.
The financial statements submitted for audit did not comply fully with Section 55(1)(c) of the PFMA. Some material misstatements were identified during the audit, some of which were corrected by management, but there were others that were not corrected, and these were enumerated.
The AG indicated that the fixed assets of the PFA did not meet the audit criteria, so the AG did not express an audit opinion on the depreciation calculated of R699 341 and the amortisation charge of R23 314 during 2010/11. The accuracy of the fair value adjustment of R424 653 could not be verified. The PFA had revalued its assets for the first time in the 2010/11 financial year. However, it had not applied the Generally Recognised Accounting Practice (GRAP3) accounting policies change correctly, in that there was no retrospective application, as there should have been, in terms of GRAP 17, when property, plant and equipment were affected.
The AG did not indicate any significant matters with regard to internal control but raised various issues regarding leadership. The Accounting Authority did not exercise oversight responsibility regarding financial and performance reporting and compliance and related internal controls. Management did not implement proper record keeping in a timely manner to ensure that complete, relevant and accurate information was accessible and available to support financial and performance reporting. The Accounting Authority did not prepare regular, accurate and complete financial and performance reports that were supported and evidenced by reliable information. Management did not review and monitor compliance with applicable laws and regulations. The AG indicated that two investigations were held during the year in respect of financial misconduct with management. A forensic investigation into possible fruitless and wasteful expenditure was conducted for year ended 31 March 2010.
The total assets of the PFA amounted to R11,6 million during the year under review, which was a 3.7% increase from the previous financial year. The liabilities for the reporting period amounted to R2,2 million, which was a decrease of 55% as compared to the previous financial year’s amounts of R4.9 million. The total revenue during the reporting period amounted to R35,3 million, a decrease of 7% compared to the previous financial year. The total expenses amounted to R32,2 million, which was a 7.7% decrease on the previous year’s figure. This resulted in a surplus of R3,1 million, an increase of 1.2% when compared to the previous financial year.
Mr D Van Rooyen (ANC) welcomed the presentation, which gave the Committee a good idea of the state of the institution.
It was interesting the see the Accounting Officer named as the Accounting Authority, and he asked how this situation occurred.
Mr Dube Tshidi, Executive Officer, Financial Services Board, agreed that it would seem unusual for one individual to act both as Accounting Authority and an Accounting Officer, but those provisions were made under the Pension Funds Act. He suggested that the Act could be amended if it was problematic. The Minister of the Finance had realised the abnormality within the Act, and as a result had appointed the Financial Services Board (FSB) as the Accounting Authority.
Mr van Rooyen noted that the PFA had provided most of the information on the third lease but had been silent on the other two. He asked for more information and wanted to know if the buildings were occupied or unoccupied.
Mr Tshidi noted, in respect of the leases, that the PFA had shared the concerns of the Committee. At a stage there had been a need for more office space, as the staff and responsibilities grew, and as a result the Adjudicator had delegated the financial manager to go and look for more office space. The financial manager had visited some premises, and signed documentation which was understood to indicate a possible intention to lease, but on closer investigation these turned out to be binding contracts. An investigation was under way. There had been interaction with lawyers. The PFA’s next report to Parliament would indicate the outcome and action on the incident. A letter was written by the Minister on 1 April 2010 giving the responsibility to the FSB to become the accounting authority. The Board had also been given the task to lead the investigations.
Mr Tshidi added that the FSB had been appointed Accounting Authority in April 2010, but there was a separate role for the Adjudicator. The Adjudicator alone would attend to the adjudicatory matters. However, in regard to financial administration and expenditure, the Adjudicator must get the concurrence of the FSB. The previous Adjudicator had approached the FSB with a request for permission to seek more office space, and this was agreed to, although the FSB did not concur with the signing of the agreements. The FSB did not take over all financial functions of the PFA but was intended to play a supportive role.
Ms Rey stated that the previous financial manger signed three rental leases on different occasions from different service providers. The entity ended paying for all three premises.
Ms P Adams (ANC) asked why the Adjudicator was still acting after being in the position for nearly a year.
Mr Tshidi noted that the PFA had been searching for and headhunting possible candidates for the Adjudicator position and had interviewed not less than six candidates. It had not succeeded thus far, since and all candidates lacked the required qualifications. The battle to find an Adjudicator continued but the entity was confident that it would find someone soon.
Ms Adams applauded the institution for having 66% female representation of staff, but wanted to know what positions they occupied.
Ms Rey said that there was a general feeling in the office that there were too many females and more males were needed. Females were well represented on all levels within the office, including the Acting Adjudicator.
Ms Adams asked if there was a link between the two staff members who left on short notice, the two investigations, and the bonuses paid to two staff members in error.
Mr Z Luyenge (ANC) asked for more clarity on the R70 000 bonuses paid in error and the R46 491 that was written off. He appreciated the openness on the part on the PFA, but asked the entity to make sure that, in future, noting was able to be taken under the assumption that it could simply be written off.
Ms Rey confirmed that the R70 000 was paid as a bonus error and the R46 491 was due to a contract entered into by the previous Adjudicator just before she left. The suppliers never delivered on this, and could not be traced. The PFA had been advised by its legal advisors to write off this amount.
Ms Rey confirmed that two Accountants left at short notice and the PFA had to get a retired official from the FSB to help out until it could appoint a new Chief Financial Officer, in May 2010.
Mr Dawood Seeld, Chief Financial Officer, FSB, said the uncovering of the irregularities led to the sudden disappearance of the two staff members.
Ms Rey noted that the PFA had taken legal advice on whether it could recover the bonuses paid in error, but were told that it would not be possible. The performance ratings for the bonuses had been done falsely, but this was only discovered later. The PFA had now taken steps to ensure that the same error did not recur in future and it had a better system in place.
Mr van Rooyen noted that Parliament had been mandated to see that there was proper use of public funds took place and would wait anxiously for the outcome of the investigation. Criminal charges had to be pursued if possible.
Ms N Sibhidla (ANC) could not find any clear linkages between the strategic plan of the PFA and its annual report. She requested the PFA to clearly identify its measurable objectives it had set for itself.
Mr Dawood Seeld thought that Ms Sibhidla”s question referred to the 2010-2013 strategic plan because details of the linkage between the strategic plan and the Annual Report were reflected on page 44 of the Annual Report.
Ms Sibhidla said it was important for the Committee to know the progress on the 2010-2013 targets. The Committee had to do oversight, and needed a full progress report in the next Annual Report.
Mr Z Luyenge (ANC) was of the view that measurables should be static in nature and should reflect numbers.
Mr D Van Rooyen (ANC) thought that English was one of the main requirements for working within the office of the Adjudicator, and he was not sure whether it was necessary to have training in this regard. He wondered if there might not be a need to amend the Act if there were problems.
Ms Rey said the entity got an English language expert to train staff members on report-writing skills, not on the spoken aspects of the language.
Mr Tshidi added that the judgments made by the Adjudicator had the same authority as those made by a court of law, and therefore good report writing skills were crucial.
Mr van Rooyen asked what the intention was with the current arrangement, and if the aim was to keep the FSB in place, or to establish a different structure to oversee the PFA.
Mr van Rooyen asked if the PFA had formulated any action plans to deal with the concerns raised by the AG.
Ms Sibhidla also wanted to know how the PFA would deal with the issues raised by the AG. The AG had also indicated that the leadership did not do its oversight work and she wanted to know what the institution would do to resolve all the issues raised.
A Member said the qualifications in the audit report seemed to highlight a lack of corporate governance and he wondered if this was linked to the two staff members who had left.
Mr E Mthethwa (ANC) asked for more detailed information on the AG’s report, saying that the information presented was just a summary and lacked detail. He asked for the investigation to be concluded speedily and for criminal charges to be laid if necessary.
Ms Sibhidla identified the area of funding as one of the challenges and asked if the entity had any idea how it could be better allocated in terms of funding.
Mr N Koornhof (COPE) said the Minister of Finance placed a lot of emphasis on saving, in the Mid Term Budget Policy Statement on 26 October 2010. He was of the view that the State had reached its limit on expenditure and would like to see a plan on how entities could save for the next six months. He noted that entities should cut the size of delegations, fly economy class and rent non-luxury vehicles.
Ms Rey replied that PFA currently had a problem with its cash management system and this posed a great problem to management in getting accurate statistics. PFA was currently engaging various service providers and would be able to provide accurate information on measurables once the system was fully operational.
Ms Rey clarified, for Mr Koornhof, that the reason that such a large delegation was present from the PFA was that they were attending a conference at the same time, and so no extra cost was incurred in bringing this delegation to Parliament. All had flown economy class.
The Chairperson said the interaction with the PFA was long overdue. He was of the view that the lack of oversight by an elected institution like the Committee also contributed to the dysfunctional systems within the entity. Training was important, but could not be limited to English alone, and he hoped that the English training had been necessary only in respect of writing of reports.
The Chairperson agreed that a report was needed on the detailed AG findings and progress reports in respect of the investigations. The PFA could not state that it would not consider pursuing criminal charges, on the basis that someone was no longer working for the entity. It seemed that the issue of leases was a new scheme for making money and breeding corruption. He noted that the Adjudicator’s offices were situated in Sandton, and questioned whether this was the best location since it had to interact with people daily. The Chairperson agreed that there should be more detailed and intense discussions with PFA, to strengthen the Committee’s oversight.
The meeting was adjourned
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