Public Service and Services Sector Education & Training Authorities' Annual Reports 2010/11: hearings with Deputy Minister of Higher Education and Training

Public Accounts (SCOPA)

07 March 2012
Chairperson: Mr T Godi (APC)
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Meeting Summary

Members questioned the Public Service Sector Education & Training Authority, which had received a disclaimer from the Auditor-General, on its Annual Report and Financial Statements 2010/11, with special reference to the disciplinary procedures against seconded staff from the Department of Public Service and Administration, the PricewaterhouseCoopers forensic report and if it was value for money, irregular expenditure, and a going concern risk due liabilities exceeding assets. In particular, DA and ANC Members deplored the views of PSETA's own audit committee, expressed in the Annual Report, against the Auditor-General.

Members also questioned the Services Sector Education Training Authority, which had received a qualified opinion from the Auditor-General, on its Annual Reports and Financial Statements 2010/11, with special reference to irregular expenditure and expenditure management. They also asked about the outsourcing of the internal audit function and chief financial officer function, called for extensive research on how many accounting firms were doing work for governmental departments and entities and asked what were their functions, what were they being paid, and why the state used private agencies when it would achieve a substantially better job with its own state agencies.

The Deputy Minister of Higher Education and Training acknowledged that the Committee's concerns raised were serious and assured it of her support. The statement in PSETA report, which cast doubt on the capability of the Auditor-General, was regrettable and the officials concerned had apologised. The investigation under discussion was evidence that the Ministry had acted correctly when it became aware of serious allegations.

Meeting report

The Chairperson sought simple and straightforward responses on the serious challenges with the two Sector Education and Training Authorities (SETAs) - firstly with the way in which the affairs of these SETAs were managed, especially around financial management, which was not at a desirable level; and secondly because of the mandate of SETAs in the broader scheme of things, for they could not be allowed to operate at a level below the minimum expectations. So it was only correct that Parliament should engage so that areas of concern could be clarified and solutions found. In its post mortem approach, the Committee looked back to look forward. 

Public Service Sector Education & Training Authority Financial Statements 2010/11: hearings
Department of Public Service and Administration seconded staff: disciplinary procedures
Dr P Rabie (DA) noted that the Public Service Sector Education & Training Authority (PSETA) had been placed under administration in April 2010. It was significant that PSETA had received an audit disclaimer. The Special Investigating Unit (SIU) was conducting a number of investigations. He noted that PSETA had a special arrangement with the Department of Higher Education and Training (DHET) and with the Department of Public Service and Administration (DPSA). Apparently some of PSETA's staff members were still members of the DPSA and this had caused some problems of discipline. How many DPSA staff members remained? He asked PSETA Chief Executive Officer to elaborate on the special relationship with the DPSA.

Ms Shamira Huluman, PSETA CEO, replied that PSETA, relative to all the other SETAs established under the Skills Development Act, was in a different space. PSETA's relationship with the DPSA had been dual-reporting in that PSETA had existed within the DPSA as a chief directorate until re-listing as a Schedule 3A public entity in May 2006. It had then become semi-autonomous while the DPSA retained administrative control over operations, budget, corporate services, human resources and procurement. In August 2009, in terms of the amended Skills Development Act, the reporting lines of all SETAs changed to the Minister of Higher Education and Training. For the past financial year, however, PSETA was still funded by the National Treasury through the budget of the DPSA. As a result PSETA's dual reporting continued to both the Minister of Higher Education and Training and the Minister for Public Service and Administration. However, since 1 April 2011, post the administration period, PSETA had been operationally independent of DPSA. PSETA, however, had six DPSA staff members still on secondment. The majority of them had gone back to the DPSA on 01 April 2011. When PSETA's licensing period ended at the end of March 2012, there would be decision made by these six staff members to make a choice between remaining with the DPSA or staying with PSETA. She agreed with Dr Rabie that this arrangement had some implications for discipline, because secondment arrangements in the public service provided that an employee seconded to another entity would still be subject to the employment policies of the department of which he or she was an employee. Thus these six seconded staff members were still subject to the DPSA's performance management and discipline. During the administration period two employees who were implicated in the PricewaterhouseCoopers (PWC) forensic report were returned to the DPSA with a request by the administrator that disciplinary procedures needed to be initiated against the two employees.

Dr Rabie asked if the PWC investigation had been completed.

Ms Huluman replied that there had been a preliminary investigation to assess the severity of the allegations and determine the period that PSETA wanted the SIU to investigate. PWC had produced 'a pre-assessment report' and submitted it to the PSETA Board, in which PWC said that it would need to apply for a presidential proclamation. The Board had supported that and the motivation for the presidential proclamation was being finalised. The object of applying for a presidential proclamation was to give PWC full powers of subpoena and seizure.

The Chairperson accepted this.

Dr Rabie asked how many vacancies existed at senior management level.

Ms Huluman replied that PSETA had filled all its vacant posts at executive management level: there was just one vacant post of project manager that PSETA was in the process of filling. However, since the beginning of the period of administration, PSETA had succeeded in filling all executive management positions.

Irregular expenditure
Dr Rabie noted that in 2005 some money was taken from the National Skills Fund (NSF). He asked if the investigation into irregular expenditure had been completed. Had the SIU given its report?

Ms Huluman replied that this matter also was referred to the SIU for investigation. The period that the SIU would be investigating was from 2005 to 2010, until PSETA was placed under administration. PSETA was still waiting for the full investigation by the SIU.

Dr Rabie accepted that the law must take its course, but the sooner that the findings were made public the better. On page 57 of PSETA's Annual Report, there was mention of a register of irregular expenditure. Had this particular register been updated, because this was what was implied in the Report?

Mr Thabo Sibiya, Chief Financial Officer (CFO), PSETA, replied that PSETA was keeping the register of all irregular expenditure. This case was a once-off occurrence in the 2008/09 financial year, and it was under investigation by the SIU. During the period of administration and this financial year there was a register of all irregular expenditure.

Dr Rabie referred to a number of items of irregular expenditure on page 57; in particular he referred to the payment of board fees from the NSF. Had this been rectified, or was it still continuing? Such payment was not in accordance with the Public Finance Management Act (PFMA).

Mr Sibiya replied that this was correct. Some board members had been paid from the NSF fund. This had resulted in irregular expenditure. However, during period under review, no board members were paid from the NSF, but instead board members were paid from PSETA's administration allocation through the DPSA.

Dr Rabie asked for clarity on the relationship between PSETA and the DPSA on the payment of levies and other payments. Had this been cleared, and was it in accordance with the PFMA?

Mr Sibiya replied that PSETA received levies from some public entities in the region of R90 000 per annum. In terms of the Skills Development Act, Government departments were not compelled to pay levies to PSETA.

Audit Committee's disagreement with the Auditor-General
Dr Rabie referred to pages 48-49. The first Audit Committee was disbanded by the Minister, and a new one appointed. The Audit Committee was not satisfied with the report of the Auditor-General. He sought the Audit Committee's views on its disagreements with the Auditor-General's findings.

Mr Sabelo Wasa, Chairperson, Audit Committee, PSETA, replied that the Audit Committee was trying to carry out its responsibilities. In terms of Section 76 of the PFMA, the Audit Committee had to express, as the external auditor, an opinion on the work of the Auditor-General. In that regard, the Audit Committee had had a number of engagements, which were continuing, and the Audit Committee was trying to resolve the issues that had led to the disagreement. At present the Audit Committee was still engaging with the Auditor-General. However, for the sake of making sure that the Annual Report had a balanced view, the Audit Committee had to express that opinion in its report.

The Chairperson asked if the Audit Committee had disagreed with the substance of the Auditor-General's findings or on technicalities.

Mr Wasa replied that the Audit Committee had disagreed with the Auditor-General on technicalities (or characterisation) not substance.

The Chairperson replied that it was the first time in the Committee to hear such a view. The areas of difference seemed to be merely technical. It was surely the substance that counted. He did not know how to treat the matter.

Dr Rabie inferred that the Audit Committee had no confidence in the Auditor-General's report.

Mr R Ainslie (ANC) said that it was highly regrettable that PSETA's Audit Committee should have expressed its disagreement with the Auditor-General in two pages of the Annual Report. Differences with the Auditor-General should be discussed with the Auditor-General. In any event, the Audit Committee's assessment was wrong. The mis-statements in PSETA's financial statements were both material and pervasive. The Audit Committee had agreed that they were material. Also by the Audit Committee's definitions included in its audit report, they were also pervasive. The Audit Committee had given three elements to its definition of pervasiveness. The statements in the report conformed to each one of those pervasive elements. For example, if PSETA's income was approximately R600 million, the NSF funds in dispute were R30 million. That was almost 5% of PSETA's income. That was very pervasive. How more pervasive could one get when PSETA's reserves, its opening balance, and its closing balance were in dispute. Surely this was pervasive. He disliked the Audit Committee's approach. In future, if it had disputes of this nature, their place was not in the Annual Report, but around the table with the Auditor-General.

The Chairperson noted the above as a comment.

Dr George's view was that Members were present to hold the Executive to account and not shout at the officials, but he angrily deplored the disgraceful statement of the Audit Committee against the Auditor-General. The Audit Committee was undermining one of the most basic institutions of South Africa's democracy. Was this the Audit Committee's unanimous opinion?

Mr Wasa replied that it was a unanimous opinion.

Going concern risk: liabilities exceeded assets
Dr Rabie referred to page 87, note 23: PSETA's current liabilities exceeded assets by R19.9 million. An inter-ministerial task team had investigated this particular state of affairs. He asked for further clarity.

Mr Sibiya agreed that PSETA's liability exceeded its assets. This was the result of deferred income liability. Money was given to PSETA to run a project in 2005; the NSF was saying that PSETA did not submit all the relevant documents, hence this liability, which resulted in liabilities exceeding assets by R19.2 million. He was not privy to the information on the Inter-Ministerial Task Team (IMTT)'s progress. Perhaps the PSETA board chairperson could answer that question directly.

Ms Koko Mashigo, PSETA Board Chairperson, replied that the IMTT had been created by the Minister of Higher Education and Training to examine the funding model for PSETA. As previously reported PSETA did not receive levies from Government departments, except from a few public entities. She had attended one of the meetings, along with the Department, since the IMTT was driven by the Department of Higher Education and Training. Also there was input from the DPSA. The information received was that there was progress on the matter but that it still had to be taken through various Government structures. She hoped to receive a positive response from the IMTT process.

Dr Rabie referred to the Auditor-General's report. The CFO was available, for meeting with the Auditor-General's team, for only two days because he was seconded to the Construction SETA for interviews. Dr Rabie believed that the Auditor-General should be given preference. This should not happen in future. R800 000 was budgeted in two instalments for a forensic report. Had that forensic report been completed yet?

Ms Huluman replied that the R800 000 was for the PWC pre-assessment (before referral to the SIU) to which she had referred earlier. PWC had completed the pre-assessment phase, which cost R800 000, and had submitted it to the board. Now the SIU would make a full investigation and cover the cost from its own budget.

The Chairperson asked Ms Huluman if that was merely her understanding or if it was the SIU's written commitment to cover the cost.

Ms Huluman replied that the SIU had given an undertaking at a board meeting.

Ms Koko Mashigo replied that the SIU would send a plan; in that plan the SIU would indicate whether it would carry the cost. However, PSETA had indicated its constraints. At this stage it was merely a verbal undertaking until the SIU had given its plan to PSETA for the full investigation.

The Chairperson was satisfied.

Dr Rabie said that PSETA had previously appeared before the Committee when he was not a Member of the Committee. The performance audit of PSETA would have to improve, as it must provide skills to the civil service. He had no further questions.

Follow-up questions: PWC preliminary investigation
Mr Ainslie asked why PWC did a preliminary investigation. Why was that necessary? If there was prima facie evidence of wrong doing, and PSETA knew well in advance that PWC had no subpoena powers and no powers of prosecution, why spend the time, the energy and the money on engaging private consultants to do a preliminary investigation? If there was an inkling of wrong doing, why not go to the Hawks or to the SIU? Why a private consultant and not one of the official investigative agencies of South Africa? Obviously, in the end the private consultant would apologise that it could not subpoena or prosecute. How much did PSETA spend on the PWC investigation, and how long did it take?

Ms Huluman replied that the action was initiated by the former Acting CEO in 2007. The cost of the PWC investigation was R800 000. PWC's report was submitted to the former board in July 2010; this was at the end of three years.

Mr Ainslie said that this was three years of wasted effort.

Ms Huluman replied that the executive management and the accounting authorities agreed. Such an investigation did not bring the necessary results.

Mr Ainslie asked if disciplinary measures had actually been taken against the staff members returned to the DPSA.

Ms Huluman replied that the DPSA should respond.

Mr Ainslie objected: the employees concerned had committed wrongdoing in PSETA. So it was surely PSETA's responsibility to ensure that at the end of the day these people were disciplined, wherever they were, particularly if they were still in the public service. It was in PSETA's interest to take action.

Ms Huluman replied that the public service regulations were very clear that PSETA could not institute disciplinary action.

The Chairperson observed that PSETA had sent the officials back to the DPSA with a recommendation that disciplinary measures should be taken. He asked if Ms Huluman had written a letter to the DPSA and if the DPSA had replied.

Ms Huluman replied that PSETA did receive a response from the DPSA that it would begin disciplinary procedures. Thereafter, PSETA was not aware of any written communication, but in terms of monitoring PSETA was aware that procedures had begun. However, she was not aware of the specifics of whether the officials concerned had been charged. On the other hand, PSETA knew that the hearings had begun.

Mr Ainslie asked if PSETA would monitor the procedures.

Ms Huluman agreed that it was PSETA's responsibility to monitor.

Mr Kenny Govender, Deputy Director-General: Human Resource Management, Department of Public Service and Administration, representing the Minister and the Director-General, replied that the disciplinary process had been initiated in the DPSA with regard to both those employees. It was interesting to note that one of the employees had since left the DPSA. The disciplinary process was currently ongoing.

The Chairperson asked what misdemeanours they had committed.

Mr Govender replied that his understanding was that the basis of the charges was the employees' involvement in the actual process of the funds and poor managerial oversight.

The Chairperson asked how much was in question.

Mr Govender replied, subject to correction, that the initial amount, according to the National Prosecuting Authority (NPA)'s initial assessment, was R900 000. The two individuals who had been charged with the theft of the money were in prison at the moment. A former financial officer had been charged and was now serving a prison term for that particular theft.

The Chairperson told the Deputy Minister that this was where the Committee's problems started. It was so difficult to obtain clear answers. Now there might appear to be a third person. The Chairperson noted that the two persons returned to the DPSA were charged with mismanagement of funds. All he was asking was how much was involved. If the individuals were charged for separate amounts, there was need for detail around the figures.

Ms Huluman replied that in terms of the PWC report, there was R10.8 million. The material loss in terms of the fraudulent transaction by the former project finance manager who was in prison was R1.4 million.

Mr Ainslie objected that the amount in question pertained to the two individuals whom PSETA had sent back to the DPSA. What amounts was one talking about? These amounts were in millions. Was it not worth pursuing the person who had left? He asked for more detail. Was one talking about fraud? Everybody was being very vague. If officials could not answer, they should admit their inability. Perhaps they could give coherent answers in writing at a later stage. It was pointless going on while neither PSETA nor the DPSA could answer clearly. In the meantime the responses had indicated, on the part of PSETA and the DPSA a lack of concern with officials who had done wrong.

The Chairperson observed that there was little point in the officials' presence if they could not answer.

Ms Koko Mashigo replied that both the employees – even the one that had resigned – had been brought to the attention of the SIU. Now the investigation had been left to the SIU because PSETA's understanding from the SIU was that PSETA must not interfere in the investigation.

The Chairperson pointed out that Mr Ainslie's and his question was around amounts. He asked if the R10.8 million related to these two former employees – the two who then they went back to the DPSA, after which the other one was just allowed to resign. Was that person off-the-hook?

Mr Govender was not in a position to respond. He did not know the facts. All he knew was that the individual had resigned. He was not sure whether the DPSA had pursued further disciplinary measures post resignation.

The Chairperson asked what was the point in Mr Govender's presence if he did not have the facts.

Mr Govender replied that the Head of Corporate Services, DPSA, would have that information.

The Chairperson appealed to the Deputy Minister for her understanding of challenges such as these that the Committee was facing.

Ms Koko Mashigo replied that the SIU's brief was to pursue current and former DPSA and PSETA officials. That anyone had resigned did not excuse him or her. Nobody was off-the-hook.

Mr Ainslie objected that it was a long hook.

The Chairperson's focus was more on the Department. Departments could not shed their responsibilities in the hope that the SIU would do their jobs for them.

Follow-up questions: internal audit process
Dr George noted that there had been some continuity in the Audit Committee. It met regularly. What was the interface with the internal audit unit? Was that process working and was the Audit Committee applying its mind? What actions was it taking, if any?

Mr Wasa replied that the internal audit was outsourced to AURCO, which provided regular reports to which the Audit Committee applied its minds.

Dr George said that the internal audit unit had clearly not done its work. What was the Audit Committee doing about it? Dr George asked if he had misunderstood the situation.

Mr Wasa replied that AURCO was appointed in October 2010. Before AURCO, there had been no functional internal audit. AURCO's term of office as internal auditors expired at the end of March 2012.

The Chairperson asked PSETA how it explained its state of affairs.

Ms Huluman said that PSETA had had serious issues of governance, but had in the last 12 to 18 months made much progress. There was now a risk management policy and measures to prevent fraud. It had created capacity for a full financial management function, including supply chain management and procurement. Internal audit had been outsourced, but in the new financial year, once the funding model was determined by the IMTT, PSETA would want to create an internal audit function because it was extremely important to have those checks and balances. PSETA was on the road to recovery.

The Chairperson observed that the presence of policies and procedures was a good starting point. However, there had to be compliance. He noted that the Annual Report had been signed off by the Administrator but not by the Chairperson of the PSETA board.

Ms Mashigo replied that the board's term of office had begun in April 2011. The board sought to monitor adherence to prescripts. The board was monitoring closely the newly established procurement function.

The Chairperson asked Ms Koko Mashigo what her prediction would be.

Ms Koko Mashigo replied that removing the disclaimer would be the outcome hoped for. She hoped that management would help the board in that regard.

The Chairperson asked how the board was interacting with the Auditor-General.

Ms Koko Mashigo replied that the board was working closely with the Auditor-General and had adopted the audit plan.

The Chairperson was happy to learn that the internal audit function would in future be internal to the organisation. It was preferable to have internal capacity rather than to depend on outsourcing. He appealed to the Deputy Minister to facilitate completion of the funding model as soon as possible.

The Chairperson sincerely hoped that there would be a better outcome the following year. It was unfortunate that SETAs had come to be cast in a bad light for whatever reasons.

Deputy Minister of Higher Education and Training, Hlengiwe Mkhize, assured the Chairperson that she would convey the spirit of the discussion to Dr Blade Nzimande, the Minister of Higher Education and Training. There were a number of areas that required further attention.

The Chairperson said that a disclaimer could never be anything but unacceptable. It raised issues of leadership.

Ms Koko Mashigo replied that the board was taking steps to remedy the situation.

Services Sector Education & Training Authority (SSETA) Financial Statements 2010/11: hearing
The Chairperson observed firstly that he had hoped that the former CEO of the Services Sector Education and Training Authority (SSETA) would be present. However, the Chairperson had received a letter of four pages from the gentleman's lawyers to the effect that it would not be fruitful, in view of the Congress of South African Trade Unions (COSATU) march to travel to Cape Town, and that the Committee might not be the best forum in which to discuss the matter. The Chairperson had referred this letter to Advocate Frank Jenkins, Parliamentary Legal Adviser.

Secondly the Chairperson had received a letter of three pages from the former CFO of the SSETA, which described the historical background of how the former CFO had been relieved of his post. The gentleman concerned had written the letter by himself. It had only arrived on Monday 5 March.

Thirdly, the SSETA had outsourced its internal audit function to KPMG and that was why the latter was present.

Irregular expenditure
Ms T Chiloane (ANC) asked the SSETA to explain the irregular expenditure of the payment of severance packages that had resulted in a qualified audit opinion.

Dr Sihle Moon, Administrator, Services Sector Education and Training Authority, (SSETA), replied that the SSETA had embraced each of the opinions of the Auditor-General. The severance packages were a key element. The entire management team benefited. This matter was subject to investigation by the NPA. The SSETA was taking corrective action.

Ms Chilaone asked how long the matter had been under investigation.

Dr Moon replied that the SSETA had referred the matter to the Hawks in May 2011; the NPA had said that it was receiving attention.

Ms Chiloane asked about irregular expenditure to the amount of R86 197 615 resulting from SSETA's exceeding its 12.5% limit on administration expenditure.

Dr Moon replied that the SSETA embraced that as well. As would be seen from the management report, the absence of systems and policies in the entity and the severance packages partly accounted for that.

Ms Chiloane said that according to the Auditor-General, no authorisation was obtained for that level of excess.

Dr Moon replied that there was no evidence that the accounting authority had authorised that expenditure.

Ms Chiloane asked who was responsible.

Dr Moon replied that the entire executive team had resigned and was subject to the investigation referred to.

The Chairperson commented that the management report implied that no steps were taken.

Dr Moon replied that said that several steps had indeed been taken since the Auditor-General's report. These included putting in place the necessary systems and procedures.

The Chairperson observed that no measures had yet been taken against the officials for exceeding the 12.5% limit.

Dr Moon replied that the investigation was with reference to all these matters.

Ms Chiloane asked Dr Moon how long he had been Administrator and if he had a team to assist him.

Dr Moon had been involved since 26 April 2011. For much of 2011 the SSETA had been at legal loggerheads with the Ministry of Higher Education and Training, which really affected what could be done in that period. The legal matters were resolved in an out of court settlement only in July 2011. It was only from July 2011 that the SSETA could operate. A number of colleagues had been brought in to turn things around so there was a team.

Ms Chiloane asked about the lack of systems. What was the role of the internal audit unit? How long had this role been outsourced?

Dr Moon replied that the SSETA had inherited that situation, which dated back to the formation of the entity in 2000.

Ms Chiloane noted that the Deputy Minister had decided that the SSETA should be administered. The internal audit had been outsourced to KPMG and there were some challenges. Surely the internal audit should have detected some of the issues? What was the role of the internal audit? Had it not been paid? How much was paid to KPMG? This highly professional firm had been there for 11 years, yet there was no advice given.

Dr Moon was sure that colleagues from KPMG would response. It was necessary to ask why these matters were not detected, especially when SSETA had been lauded as one of the best performing SETAs for a long time. There had now been discovered substantive lapses in accounting.

The Chairperson accepted this. He asked questions to be directed to KPMG and to the SSETA's Audit Committee.

The Chairperson how much KPMG was paid annually?

KPMG replied that in 2011 it was paid R275 000.

The Chairperson wanted more on the substantial issues of the SSETA. What were KPMG's responses to the issues?

KPMG replied that in KPMG's internal audit reports of 2011 there were minimal issues. The firm had done a balance between risk-based audits and compliance audits. The plan been submitted to the Audit Committee and approved by it. Based on that, and subject to time and budgetary limits, KPMG had selected a sample and did testing in terms of that plan. KPMG had presented its findings to management, which then either agreed or produced evidence that controls existed. Based on that KPMG updated its working papers and reported accordingly. The net finding of the four internal audit reports that KPMG did in 2010/11 was that there were no material findings, so it was a surprise now that the Auditor-General found so many irregularities.

Ms Doris Dondur, Chairperson, Audit Committee, SSETA, replied that, if one examined the audit plan and the scope of the internal auditors, the internal auditors at the SSETA had always done very little work based on the scope and the plan approved by management. To earn only R200 000 plus per annum was an indication thereof. Before the middle of 2011 the Audit Committee also did not have many meetings and probably did not function as effectively as it should because it was not independent. The majority of Audit Committee members had been members of the SSETA's board too. This had changed when independent members were appointed in 2010 – these members were Ms Dondur herself and another member who had previously been a senior manager at KPMG. The Audit Committee had examined the audit plan and noticed that not all areas were covered. It had agreed on an increased scope to ensure that all areas of internal audit were covered and that everything would be done by March 2011. Regrettably, many of the Auditor-General's findings had bow been confirmed by KPMG because of the change in scope. It was clear from looking at internal audit standards that if management overrode many of the controls and gave responses that one could question, then internal audit would be none the wiser. There were no red flags or traffic lights. Now that the Audit Committee knew that there was substantial override in management controls, the Audit Committee was able to go beyond that and ask how far back these controls had been overridden. The Audit Committee had been able to determine with certainty that as far back as 2007 and 2008 there had been an over-ride of controls. All contact from the internal audit perspective as well as from the Auditor-General's perspective was centred in one individual, the previous CFO. This in itself posed problems for testing the veracity of responses.

The Chairperson commented.

Ms Chiloane thanked the Chairperson of the SSETA's Audit Committee and KPMG for putting it on record. Most of the problems arose from management's overriding of controls. It was necessary to find the people responsible.

Expenditure management
Ms Chiloane said that there were no appropriate steps taken to prevent the irregular expenditure.

Dr Moon replied that there were now steps being taken to avoid a recurrence.

Procurement and contract management
Ms Chiloane was about to ask about contract management.

The Chairperson said that he was not hopeful that the officials could explain what had happened because they were new.

Compliance with laws and regulations
Ms Chiloane referred to the Annual Report, pages 43-44. People who were doing business with the state did not declare their interests. Also there was not sufficient audit evidence in respect of goods and services. She had now completed her questions.

Dr Moon observed that the team of the Auditor-General was present. When he was appointed there was extreme hostility to the audit process, but he and his team had done its best to obtain the documents required, but some were not obtainable. There had been massive conflicts of interest among staff and board members.

Follow-up questions: possible culpability of consultants
Mr Ainslie hoped that KPMG would not be let off the hook. They had performed internal auditing for the SSETA for 11 years. The Chairperson of the Audit Committee had said that the then audit committee had had limited scope. KPMG was given responsibilities for the internal audit; these five or six qualifications did not arise overnight. He was not convinced that KPMG did all in its power to ensure compliance. KPMG should not be let off the hook because of the limited scope of the audit plan. Why had KPMG not told those in authority that the audit plan was too limited? The question was not so much the money as the responsibilities that KPMG was given.

The Chairperson wanted to exempt KPMG since as the Committee had heard yesterday the Minister of Transport was reporting Deloitte to its professional body; he gave other examples, so to expect KPMG to be any different was unfair. Such entities existed to make money out of Government and could not be expected to behave any differently.

Mr Ainslie called for extensive research on how many of these accounting firms were doing work for governmental departments and entities. What were their functions, what were they are being paid, and wee they value for money?

The Chairperson agreed. By the end of April 2012 a report from the Auditor-General on the use of consultants was expected be available. It had to be asked why the state used private agencies when it would achieve a substantially better job with its own state agencies.

Follow-up questions: the outsourced SSETA CFO position
Mr Ainslie noted that the SSETA's CFO position was vacant and financial functions were being performed by a firm of consultants.

Dr Moon replied that the SSETA had advertised that position. The accounting firm was brought in also to overhaul that section.

Mr Ainslie noted that there were two different accounting firms operating in the SSETA.

Dr Moon said that PSETA could not give the financial function to KPMG as this would have been a conflict of interest.

Ms S Mangena (ANC) asked if any savings were derived from using a firm of consultants instead of paying a CFO who might earn perhaps a twentieth of what the SSETA was giving the firm.

Dr Rabie referred to the SSETA Annual Report, page 32. The SSETA had appointed 38 people and reported 22 resignations. This was reported as was due to the turbulence experienced the previous year. What did the SSETA mean by it?

Dr George would be interested to see the management report of KPMG and wanted the Committee to take all possible steps to summons those two gentlemen (mentioned by the Chairperson at the beginning of the SSETA hearing) before the Committee, which now had before it a highly esteemed group of officials who were unable to answer its questions because the officials were new. Accountability lay with the Executive but it could not answer because it did not know what was going on. What pleasure could the Minister take in offering Parliament these Annual Reports?

Ms Dondur replied that the SSETA was getting value from the consultants. At this point the SSETA was because they were addressing the issues from the Auditor-General's management report, which the Audit Committee was monitoring. The Audit Committee was meeting on a monthly basis to ensure that the Auditor-General's management letter issues were addressed. Before the Auditor-General's report 2010/11, the management reports from KPMG were pretty much clean because after KPMG produced its findings they were disputed and resolved by management, in particular by the previous CFO. So by the time the summaries of the audit report were presented to the Audit Committee, the issues had largely been resolved. The Audit Committee asked KPMG to find out if same issues were occurring; it produced an extensive report, which it reported to the Audit Committee and management. Its findings were that these matters were problematic and the findings went back to 2007. The only difference with this report was that there had not been a middle person from management disputing the findings. So with this report KPMG was confirming the Auditor-General's report.

Dr Moon replied that the SSETA had not appointed anyone since the senior executive managers had resigned. The SSETA had hired a new human resources manager. People had resigned of their own accord. The SSETA had advertised and hoped to recruit the entire team by the end of May 2012.

The Chairperson thought that if Dr George listened to the Chairperson of the SSETA Audit Committee, he would appreciate the two challenges which had impacted on internal control. The scope of the internal audit function had been highly circumscribed while the then Audit Committee had included board members at the same time as being required to report to the board. This raised governance issues. Therefore there was merit in Dr George's suggestion to pursue the leading personalities who were then running these institutions so that the Committee could meet them face-to-face.

The Deputy Minister appreciated the chance to talk about the two entities. With regard to the audit outcomes, Dr Rabie, Dr George, and Ms Chiloane, in particular, had raised a number of issues on the audit outcomes. It was necessary to apply one's mind very carefully and find a strategic response to the need to strengthen systems. She assured the Committee of her support. She acknowledged that the concerns raised were serious. There were many lessons in risk management and risk management was in place. The statement in PSETA's Audit Committee report which cast doubt on the capability of the Auditor-General was regrettable and the officials concerned had apologised. It was clear that much more was required and would be vigorously pursued. The Ministry pledged full support and speedy resolution of all matters. The SSETA was placed under administration when the Minister had become aware of financial irregularities. This investigation under discussion today was evidence that the Ministry acted correctly when it became aware that serious allegations needed attention. The Ministry would continue to provide support and management systems were also in place to ensure close monitoring of these entities so internal audit committees could draw attention to any form of malpractice. With those words she thanked the Committee.

The Chairperson thanked the Deputy Minister, officials, and Members, and adjourned the meeting.


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