Meeting SummaryThe Minister and the Department of Labour briefed the Committee on matters arising from the Auditor- General’s (AG’s) report for the financial year ended 31 March 2011.
Most of the meeting was devoted questions and discussions related to issues raised in the report. These ranged from a lack of leadership in the Department, to poor financial management, non-compliance with laws, regulations and internal controls, supply chain management weaknesses, irregular, fruitless and wasteful expenditure, state employees being awarded government contracts, lack of performance assessments, bonus payments and inadequate inventory controls
The Committee was told that the post of the Director-General (DG) had been vacant for a long time because the former DG had been suspended and people had been placed in an acting capacity in the DDG Corporate Services position. There were challenges facing the Department in getting committed leadership.
A Member commented that every time the Auditor General (AG) addressed the Committee, it was on the question of leadership in departments. If there were good leadership, then financial management could be turned around, as had occurred in the cases of the Departments of Science and Technology, Home Affairs and Labour. The Department had moved from qualified reports to the current unqualified report, but the AG had indicated various concerns which if not corrected would lead the Department back to qualified reports.
Asset management had been indicated as a challenge for the Department to attain an unqualified audit. The Department had taken a decision that the asset management issue would be corrected even if the CFO had to visit each Department of Labour office physically.
Members raised issues relating to human resource management and compensation, where the accounting officer had not ensured that performance assessments of senior managers had been conducted or that funded vacant posts were filled, and asked on what basis five members of senior management had received bonuses of R19 000 each.
The Department was asked to explain why the accounting officer did not take effective and appropriate steps to prevent and detect irregular expenditure, and why procurement procedures were not always adhered to. There had been the wrongful remuneration of inspectors and casual labourers -- why had PFMA rules not been applied?
Members then criticised the Department’s financial and performance management, where management had not prepared adequate, regular, accurate and complete financial and performance reports, and the Department was either not achieving or only partially achieving the targets it had set itself. The Department responded that this was occurring in many other departments and the challenge was that departments were spending 90% of their budgets but the performance outputs only equated to 40% of output targets.
Members asked for more information on the investigation into the Ndlela Program which had been transferred to the Department of Higher Education and Training (DHET).
Members then questioned Sheltered Employment Factories (SEF) on its irregular, fruitless and wasteful expenditure and on its material losses and impairments, and asked why there were material inventory variances and why the cost of sales had been underestimated. Reference was also made to the fruitless and wasteful expenditure of R29 m in the procurement of supplies, without following Treasury guidelines.
The Honourable Ms Mildred Oliphant, Minister of Labour, apologised at the outset that she would be leaving the meeting early to attend the NCOP meeting on the Department of Public Service and Administration
The Chairperson accepted that the Minister had extra temporary responsibilities she had to oversee and said that since the last engagement with the Committee, the Department had made progress with regards to audits, but that the Sheltered Employment Factories (SEF) was an on-going challenge of a repetitive nature that needed to be brought to an end.
Mr R Ainslie (ANC) said that every time the Auditor-General (AG) addressed the Committee, it was on the question of leadership in departments. If there were good leadership, then financial management could be turned around as had occurred in the cases of the Departments of Science and Technology, Home Affairs and Labour. The Department had moved from qualified reports to the current unqualified report, but the AG had indicated various concerns which if not corrected would lead the Department back to qualified reports. These concerns were regarding compliance with laws and regulations and internal controls, in particular procurement and contract management where the Department did not comply in certain instances with National Treasury Practice Note 8 for transactions between R10 000 and R500 000 and those exceeding R500 000, as the accounting officer had not invited written quotations or competitive bids respectively as required.
Mr Bheki Maduna, Chief Financial Officer of the Department, said the issue concerned the advertising of posts. He said that a challenge was that there were few media houses and the Department had not tendered, but had invited quotes from Media24 and Independent Newspapers. Eventually both media groups had been used..
The Chairperson said the problem was that the Department had not gone to everybody before making the decision to use the two media groups. All media groups had to be invited otherwise there was no need to have a tender process.
Mr Ainslie said the process was not fair or transparent and asked if disciplinary action had been taken against personnel for this contravention.
Mr Maduna said there had been a deviation request.
The Chairperson asked what the basis for the deviation was, as this was not a deviation but non-compliance. He said it was a simple process to follow the Treasury Practice note. It was not a minor issue, as it could foster the wrong culture.
Minister Oliphant said that Mr Ainslie had said that there was a lack of leadership in the Department, but the post of the Director-General (DG) had been vacant for a long time because the former DG had been suspended and people had been placed in an acting capacity in the DDG Corporate Services position. There were challenges facing the Department in getting committed leadership.
She thanked the AG’s office for their assistance in indicating where the Department had to focus its attention urgently, and the Department had dealt with these particular issues. Asset management had been indicated as a challenge for the Department to attain an unqualified audit. The Department had taken a decision that the asset management issue would be corrected even if the CFO had to visit each Department of Labour office physically. It was unfortunate that the report was being discussed after the Department had dealt with the issues, even that of Private Public Partnership (PPP) and SEF. In the latter’s case, the AG had said that there was a need for financial management in SEF and the Department had employed a CFO to deal with the challenges raised in the AG report. Similarly a CFO had been appointed for the Compensation Fund and also for the CCMA. She believed progress had been made, and thanked the AG‘s office for its assistance. The Minister then left the meeting.
Mr Ainslie said awards were made to suppliers who did not submit a declaration on whether they were employed by the state or connected to any person employed by the state, as per Treasury regulations. How many were awarded and for what amounts? Why did this happen and what were the consequences?
Mr Maduna said that some of the documentation was incomplete. This issue needed to be reinforced among staff. He said he could not provide detailed figures offhand, but instances were found among lower levels of staff where government officials did business with other government officials. The Department had instigated an investigation insofar as it concerned their Department.
Mr Ainslie wanted a copy of the investigation report.
The Chairperson asked what the Department had done to correct any errors and what the state of affairs in the Supply Chain Management (SCM) in the Department currently was.
Mr Maduna said that the SCM fell under the CFO and the Director-General and was also present at the provincial offices. After the AG’s report, the CFO had conducted training on the SCM prescripts and conducted checks to see if staff adhered to SCM principles. It had conducted workshops and had evaluated that there had been improvement.
The Chairperson asked what monitoring tools and mechanisms were in use as the issue might not be related to training, but rather the wilful transgression of procedures.
Mr Ainslie said the AG had said that there were no proper control systems in place, especially in asset management.
The Chairperson said that it was better to have systems that protected and detected fraud and theft.
Mr Ainslie then moved on to human resource management and compensation, where the accounting officer had not ensured that performance assessments of senior managers had been conducted or that funded vacant posts had been filled.
Mr Nkosinathi Nhleko, DG, Department of Labour, said that this related to the vacancies in the posts of the Director General and the Deputy Director General of Corporate Services. He said that assessments would in future be conducted twice a year
Mr Ainslie asked on what basis five members of senior management had received bonuses of R19 000 each.
Ms Lerato Molebatsi, DDG, Corporate Services, said assessments had been done on an ad hoc basis by senior managers and so only five had received bonuses.
The Chairperson said that the process appeared not to be centrally managed and asked what tool was used and who had authorised the payments
Mr Nhleko said that at the DDG level there had been no assessments and that at the lower levels there had been assessments.
Mr Ainslie said the vacancy rate had improved from 13% previously to 8.6% currently, but that there were particular areas like the Public Employment Services (PES) which had exceeded these average rates and stood at 49%, which would have affected the output of the program. Why was there such an enormous vacancy rate?
Ms Molebatsi replied that the posts were unfunded posts and that the rate had been decreased to 7.2%. She added that the Department had inadequate human resources and was putting together a human resources review process for the entire organisation.
Mr Ainslie then moved on to expenditure management, where the accounting officer did not take effective and appropriate steps to prevent and detect irregular expenditure and the Department incurred irregular expenditure due to procurement procedures that were not always adhered to. Why had the procedures not been adhered to? There had been the wrongful remuneration of inspectors and casual labourers. Why had PFMA rules not been applied?
Mr Maduna said that casual labour had presented a challenge in the provinces insofar as there had been questions as to who should approve casual work. It had to be an accounting officer, not the chief director.
Mr Ainslie said that issues kept on repeating themselves because there were no consequences for contraventions and misconduct.
Mr Nhleko said the Department was focussing on management structures to make them functional in order to pick up those issues.
Ms M Mangena (ANC) asked who was held accountable for reimbursing the Department for irregular and wasteful expenditure..
Mr N Singh (IFP) then discussed leadership, asking why Mr T Mageza had attended only one out of five Audit Committee meetings.
Ms Madiboka Chokoe, chairperson of the Department’s audit committee, said Mr Mageza had been out of the country.
Mr Singh asked what the risk management strategy for information and communications technology (ICT) was.
Ms Molebatsi said the problem lay in governance structures, which had not been settled.
Mr Singh asked for the name of the company appointed to assist the Department for their ICT needs and for the length and the value of the contract.
Mr Nhleko said the name of the company was Accenture and that it did not replace the PPP, but was there to assist the Department with the ending of the PPP contract with Siemens, and to help with ICT strategy.
Ms Molebatsi said two phases had been completed to assist in the exit services transfer and the company would work till the end of November. In addition it was assisting with capacity building in the different entities of the Department. The company had been paid R2.3 m
Mr Singh asked if there had been other bidders.
Ms Molebatsi said it had sought the best practice, and had liked what Home Affairs, the Treasury and SARS had. It had not opened the contract for tender
The Chairperson said the Department was back to the issue of not inviting tenders.
Ms Molebatsi said the Department had requested a deviation as the exit services transfer needed to have happened two years ago.
The Chairperson said that it was a self-made emergency and raised questions of leadership.
Mr Singh then moved on to the financial and performance management, where management did not prepare adequate regular, accurate and complete financial and performance reports and the Department was either not achieving or only partially achieving targets it had set itself.
Mr Nhleko said that it was a difficult question to answer. It was a matter that was occurring in many other departments and the challenge was that departments were spending 90% of their budgets but the performance outputs only equated to 40% of output targets.
Mr Singh said a Public Accounts Committee report said it was because of a lack of capacity, application of skills and a culture of non-performance.
Mr Singh then moved on to the governance issue that management had not implemented an adequate risk management strategy.
Ms Molebatsi said that the Department still needed to appoint a director of risk management. It was expected to happen by the end of July. The current person had been in an acting position since the end of 2010. She said the unit had had three new appointments.
Mr Singh asked that the Department provide the Committee with a report by the end of July confirming the appointment of the head of risk management and that the unit was operating at full capacity. He then asked for more information on the investigation into the Ndlela Programme which had been transferred to the Department of Higher Education and Training (DHET).
Mr Maduna said the DHET had instituted an investigation and the Department had received the DHET report. The DHET had taken disciplinary action. The Ndlela Program had been transferred to DHET, inclusive of the staff.
The Chairperson asked who had incurred the fruitless expenditure.
Mr Maduna replied that Ndlela had incurred it.
Mr Dion George then questioned SEF on its irregular and fruitless and wasteful expenditure and on its material losses and impairments. He said there were no details on its operating lease commitments.
Mr Silumko Nondwangu, the CEO of SEF, said that the factories operated from buildings belonging to the Department of Public Works. Various attempts had been made to ascertain how much rental was owed for the factories but that there had been no response from the Department of Public Works and the matter was still unresolved.
Mr George asked what had been done to resolve the matter.
Mr Nhleko said the matter had been followed up on at least two occasions.
The Chairperson said that unless the matter was resolved the AG would make a similar finding on the issue as in the past.
Mr George asked if they had a copy of all leases on record,
Mr Nondwangu replied that they had eight out of the twelve leases.
Mr George asked why there were material inventory variances.
Mr Nondwangu replied that there had been problems at the Silverton factory because it had not been ready, but that the matter had been attended to.
Mr George said the AG had not been satisfied on the value of inventory sold.
Mr Nondwangu said this had occurred in the absence of a competent CFO, but that controls were in place to address the AG’s concerns.
Mr George said that the cost of sales had been underestimated.
Mr Nondwangu replied that at the time no systems had been in place for management and stock control, but that they were using the Syspro system to address those issues.
Mr George asked if Mr Nondwangu had known about the issues.
Mr Nondwangu replied that he had known, but that he did not have the technical competence of a CFO, hence the appointment of a CFO.
Mr George asked what had been done once he had become aware.
Mr Nondwangu said that he had contracted the services of Price Waterhouse Coopers (PWC) to assist with the problem in the short term. PWC had given a detailed report on the nature of the problems.
Mr George asked why these errors had occurred.
Mr Nondwangu replied that factory administrators did not have competent skills.
Mr George asked if the performance of the CEO of Sheltered Employment Factories (SEF) had been evaluated.
Ms Molebatsi said the matter needed to be referred to the DDG for Public Employment Services, who was out of the country.
Mr George then spoke of the fruitless and wasteful expenditure of R29m in procurement of supplies without following Treasury guidelines.
Mr Nondwangu said the SEF was trying to address six decades of neglect through the completion of a situational analysis and the development of a legal identity for SEF.
Mr George asked who had stolen the factory inventory.
Mr Nondwangu replied that there was no security at the factories and that a case had been filed with the SAPS regarding the stolen goods and he had repeatedly asked for updates from SAPS on the matter.
Mr George asked if a disciplinary case had arisen.
Mr Nondwangu said there was a need for more security.
Mr George asked if he was the accounting officer.
Mr Nondwangu replied that the accounting officer was the DG.
Mr Nhleko said the report talked to the absence of a CFO.
Mr George said that internal controls were neither effective nor efficient.
The meeting was adjourned.
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