Minister and Department of Public Works on remedial action to address 2010/11 audit challenges

Meeting report

After welcoming the newly-appointed Minister of Public Works, Mr Thulas Nxesi, to the meeting, the Chairperson said she wanted it put on record that the members of the Committee had not received the documentation dealing with the Department’s response to the Auditor-General’s (AG’s) report in time to engage properly on the issues raised. If it were not for the Minister’s presence at the meeting, she would have asked the delegation to return to Pretoria. In the circumstances, however, she proposed that the presentation should proceed, and after brief discussion, this was accepted by the Committee.

The Chairperson said it seemed from the report to be presented by the Department of Public Works (DPW), that it intended to start “everything from scratch.” It appeared that everyone involved in Supply Chain Management (SCM) was new, and people did not seem to understand the policies of the DPW, as they did not follow them. These were serious concerns. The DPW had received qualified audits or “emphasis of matter” issues every year since 2003/04, and these same issues were not being attended to.

The Minister said that when one succeeded someone in a position, one had to accept everything, whether good or bad. He apologised for the late submission of documentation and said that as a parliamentarian, he knew that departmental officials could be “very tricky” in trying to hide things from Parliament. He had called for openness and honesty from DPW officials, because they could not run away from the fact that the Department was in the spotlight for a number of reasons. In order to turn the Department around, the first step was to acknowledge there was a problem, and to deal with it openly and frankly. The development of a strategy to address the challenges required the proper investment of time and thought, so that the Committee could obtain the information it needed to analyse and participate in its formulation. He supported the proposal to dismiss the delegation after the presentation in order to analyse it and then to come back and engage with the Department. He conceded that the strategy to be presented at the meeting might not be the one to resolve all the issues, and urged the Committee to “punch holes” in it and come up with alternative strategies.

The Acting Director-General, Mr Mandla Mabuza, added his apology for the late submission of documents, and gave an assurance it would not happen again. He committed the Department to being frank and open, and not defensive, in its engagement with the Committee, from which it sought guidance.

A concerted effort had been undertaken to analyse the root causes of the AG’s disclaimer and to identify trends which would point the way towards corrective measures. Apart from capacity issues, inadequate policies and business processes and systems, the functioning of the Department had been impacted by the fact that it had had two different Directors-General during the review period. What was needed was an urgent, robust and sustained culture change, including the holding of managers accountable for non-performance and non-compliance, improving basic processes such as filing and reporting, and developing a comprehensive turnaround strategy.

Better planning of capital budgets would be introduced to avoid the problem of under-expenditure, and a concerted effort was being made to ensure budgets were in place by the third quarter of the preceding year, at the latest. As the slide illustrating this issue was not part of the hard copy issued to members, the Chairperson fielded complaints from members, and reiterated that there would be no discussion at the end of the presentation. She had read through it, and in her opinion, there was nothing in it that would solve the problems of the Department, or help it to go forward.

The Chief Financial Officer (CFO), Ms Cathy Motsisi, listed a series of action plans to improve accounting within the DPW, in accordance with the AG’s audit findings.

The poor reconciliation of ledger accounts on a monthly basis had led to an improvement in compliance certificates so that reconciliations from the regions could be validated and consolidated at head office level. There were still problems in getting the reconciliations on time, owing to capacity constraints. All suspense accounts would be reviewed and monitored monthly, with effect from December. Some of the regions were not properly structured to deal with the complex nature of the Department, and had to focus on the SCM side at the expense of the financial management. To overcome this, it was planned to contract audit firms to help capacitate the regions while a long-term strategy was being developed.

The preparation of accurate financial statements had drawn criticism from the AG, as a result of poor preparation of the audit working files. Solutions included the training of officials on the preparation of working paper files, and a “dry run” of the files, using the interim financial statements, would be carried out by the end of December. Other areas being addressed were contingent liabilities, which involved the support of legal services with regard to timeous assessments of litigation cases, and the validation of accruals and commitments at year end with the aid of user-friendly guidelines to help regions avoid making simple mistakes in future. Finance managers would be held accountable to ensure compliance.

Turning to Supply Chain Management, Ms Motsisi said there was high staff turnover in this area, so there was a need for continual training. A five-day training programme had been developed with the Public Administration Leadership and Management Academy (PALAMA) in June, and training had already been conducted, or was scheduled, at all the regions. In-house training was also taking place. A handbook dealing with frequently asked questions and “do’s and don’ts” would be issued in January, while an in-house SCM orientation course would be developed by March next year.

The AG had found instances where the competitive bidding process had not been followed, or where excessive use had been made of urgent and emergency procurement. These instances had been reviewed, and were found to be due either to poor planning, or else to unavoidable and unique situations which were inherent in the DPW’s business. A procurement plan had been submitted to National Treasury in September, and any request for procurement was now checked against the plan. The number of urgent and emergency requests had been drastically reduced, and most were now going through the open tender process. To ensure compliance with SCM prescripts, it was mandatory for the Declaration of Interest document, SBD4, to be attached to quotations.

There were a number of instances where three quotations were not obtained, and one of the root causes was the use of an outdated supplier database, with some of the businesses closed and others with invalid contact details. There were also cases where the responsible officials had been negligent. The database was being updated, and disciplinary measures were being instituted to address the negligence issue.

To eliminate the problem of tax clearance certificates not being attached to quotations, all certificates were now being filed in a central database. All deviations from procurement processes were being scrutinised to ensure that orders or payments were not generated until the relevant approval was received.

Responding to the AG’s findings that investigations and reporting of irregular, fruitless and wasteful expenditure were not always carried out, the Department had finalised a draft policy on loss control for review and approval. This would improve the current loss control Committee and formalise its appointment and terms of reference.

Ms Motsisi presented a slide – not part of the hard copy provided to members – which showed an analysis of almost all the reported cases of irregular expenditure involving the DPW and the Property Management Trading Entity (PMTE), which showed where most of the irregular spending was taking place, and where it was necessary to intervene and ensure the necessary systems were in place.

The Chairperson said the Committee would be very interested to receive the documentation regarding the renewal and non-renewal of leases, as this had previously been denied them.

Ms Motsisi said this information would be provided.

Investigation into the causes of not complying with the 30-day payment requirement had revealed that these included the lack of effective tracking tools, inadequate monitoring, the use of service providers who were not on the database, invoices not certified by the chief users and no banking details for the service provider. Where all the procedures had been followed, it was rare that the 30-day deadline was missed. An electronic invoice tracking tool would be rolled out to the regions during the third quarter of the financial year.

A task team was being set up to review and align the business processes and delegations with the SCM, as the AG had reported a misalignment of SCM and Property and Projects Management delegations during the audit.

A major source of the DPW’s problems was the lack of effective systems for records management, as well as poor archiving systems. All filing systems and storage facilities were being reviewed and assessed, and the SCM unit was in the process of acquiring bulk filing cabinets for the safeguarding of documents. Managers would now be held accountable for missing records.

The DPW had been found wanting as far as risk management was concerned, and a process was under way to acquire a risk management tool. A risk management committee comprising all the Deputy Directors-General (DDGs) had been formalised, and would sit once a month. A fraud prevention plan would be rolled out through awareness workshops in five regions by March next year.

Mr Butcher Matutle, Acting Chief Operating Officer, said not much progress had been made to date regarding the AG’s findings on monitoring and evaluation (M&E), where the DPW had been taken to task over the consistency, measurability, validity, completeness and accuracy of information on the predetermined objectives. The M&E unit had been dysfunctional for some time through lack of leadership. The proposed solution was to review the current targets, outputs and objectives to ensure they were aligned to the strategic plan, to improve the validation and verification process for all data to ensure accuracy, and to fill M&E vacancies and train officials.

Ms Sasa Subban, DDG: Asset Management, said the AG had found there was non-compliance with the National Treasury specific guide for completeness and accuracy of the Immovable Asset Register (IAR). The challenge was to be able to demonstrate reliably that all the assets under the control of the DPW were recorded. The IAR Enhancement project had begun on 1 October, under the direction of a programme manager, and was scheduled for completion by March 2014. A secondary service provider would be appointed in January to handle the physical verification of all properties.

The Chairperson invited a representative of the AG’s office to comment on the presentation.

Ms Ilze Slabbert, Senior Manager at AGSA, said the DPW’s initial action plan had been reviewed at AGSA and some significant shortcomings had been identified. There were also some good initiatives, but she felt that a “back to basics” approach would be necessary, and the proposed culture change should be encouraged. The Department needed to tackle areas which had not yet been addressed, such as the PMTE. She assured the Committee of AGSA’s willingness to work with the Department and to monitor progress in resolving the issues.

The Chairperson advised the ADG that if he wanted the DPW to run smoothly, there needed to be a “reconstruction” of the mind, soul and heart of the officials. In compiling the annual report, he had asked the units to make their submissions, but they had merely e-mailed the submissions and he had never sat down to have a proper discussion about the inputs with the units. This was why there were so many gaps in the annual report. She appealed to the ADG to assist the new Minister to get the DPW running smoothly again.

The meeting was closed.