Department of Public Works and Department of Women, Children and People with Disabilities: 4th Quarter Performance

Standing Committee on Appropriations

28 August 2012
Chairperson: Mr E Sogoni (ANC)
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Meeting Summary

The Department of Public Works’ presentation was aborted after Members took issue with the fact that the responsible accounting officer was not present, and it was unfair to expect the presenter – the Acting Chief Financial Officer – to respond to questions of a political nature regarding over- or under-spending.  There was dissatisfaction that the absence of senior officials appeared to be a regular occurrence, that the Committee was being treated with disrespect, that the role of Parliament was not being properly understood, and that sending delegations back to Pretoria was time-consuming and costly.  The presentation was rescheduled for Wednesday, 5 September, at 2 pm.

There was also debate about the absence of the Director General at the presentation of the Department of Women, Children and People with Disabilities (DWCPD). It was established that she had been placed on three months’ special leave, and the meeting continued. Its purpose was to discuss over-spending issues arising from the 3rd quarter report, and to learn the outcome of the Committee’s directive that the DWCPD should work with the National Treasury to ensure that its budget was properly aligned with the Department’s needs.

The Department said the 2011/12 estimate of national expenditure (ENE) had been submitted in December 2010 without a strategic plan as basis. The strategic plan had been approved only in February 2011, with two additional chief directorates, so there had been no alignment between the budget and the organogram. There had also been insufficient provision for operational costs, as it had been assumed that the estimates had been based on the allocation used for programs that had been incubated while the functions of the Department fell under the Presidency. Other factors were that there had been no provision for corporate services personnel, who had to be appointed, international roles which had formerly been handled by the Department of International Relations and Cooperation (DIRCO), had to be taken over – without any budget provision – and there was pressure to appoint staff to implement planned activities.
 
The Department did not have sufficient capacity within the finance unit to fully implement the Public Finance Management Act and regulations, and the lack of internal controls in both finance and human resources had contributed to the problem. The lack of proper governance structures, such as the internal audit function, risk committee and audit function, was also a factor. A turnaround plan had been developed, in conjunction with the National Treasury, to ensure a clean audit, and arrangements had been made to second an acting CFO from the Treasury with effect from September, while a CFO was being recruited. Additional capacity had been sourced from Statistics South Africa on an ad hoc basis to assist the finance, risk and human resource teams, as these were critical areas. Quarterly finance reports were being produced in the Treasury template to enable accurate reporting.

The Department’s expenditure analysis for the period April 2011 to March 2012 showed that overall it had over-spent its budget of R143.1m by R22.7m. The compensation budget of R36.4m had been exceeded by R11.2m, while the goods and services budget of R44.4m had been over-spent by R12.4m. Transfer payments and capital expenditure had been slightly below budget.

A breakdown of the goods and services expenditure indicated that the main cost drivers were advertising (R6.5m), catering (R4.5m), communication (R3.3m), consultants (R8.0m), audit fees (2.5m), inventory (R2.7m), travel and subsistence (R18.9m) and venues and facilities (R2.6m).

Much of the discussion focussed on areas of over-expenditure, with concern being expressed over how long it had taken for the trend to be identified and action to be taken. It was suggested that Treasury should shoulder some of the blame, but it responded that its monitoring systems had identified the problem timeously and meetings had been held with the DWCPD, but it appeared the Department was intentionally over-spending to prove to Treasury that its budget was insufficient for it to implement its mandate.

A Member proposed that the DWCPD’s turnaround strategy should not be presented to the Committee before it had been fully discussed with the Treasury. Time needed to be negotiated in the House, so a report on the DWCPD could be prepared and it could be debated.  The Executive needed to know whether they had made an appropriate decision by creating the Department in the first place, or whether its functions could reside elsewhere, in other departments.

The Committee will consider the turnaround proposals at its meeting on Wednesday, September 19.


Meeting report

Department of Public Works
The Chairperson advised the Committee that he had just received an apology from the Acting Director General (ADG) of the Department of Public Works (DPW), who had been booked off sick and was unable to attend the meeting.

Mr N Singh (IFP) pointed out that the presentation would be dealing with the DPW’s financial performance, and the ADG was the responsible accounting officer. It would be unfair to expect the presenter – the Acting Chief Financial Officer – to respond to questions of a political nature regarding over- or under-spending. The absence of senior officials indicated the Committee was being treated with contempt. It was a situation which was occurring far too frequently – it had happened at yesterday’s meeting with the SA Police Service (SAPS).

Mr M Swart (DA) said the Committee had asked the Minister to report on the DPW’s financial performance. There were questions he wanted to put, such as the under-spending of some R768 million, but now not even the ADG was present to provide a response.  The SAPS had been asked to leave yesterday’s meeting and return with the required information, and he proposed that the same procedure should be adopted with the DPW.

Mr J Gelderblom (ANC) also expressed his disappointment, and said the Committee should decide whether to proceed or not.

Ms R Mashigo (ANC) agreed that the responsible people should have attended in order to explain the challenges which had led to the DPW’s under-expenditure.

The Chairperson commented that the Committee did not like sending a delegation back to Pretoria, especially as representatives of the National Treasury had travelled to attend the meeting, as this amounted to a waste of time and money.

Ms L Yengeni (ANC) said it seemed as if the role of Parliament was not being properly understood. There was a new Minister heading the DPW, and he was doing his best to implement a turnaround strategy, so the Committee needed to know exactly what was happening within the Department.

The Chairperson assured the DPW’s two delegates – Ms Sue Mosegomi, Acting Chief Financial Officer, and Ms Kelebogile Sethibelo, Chief Director:
Expanded Public Works Programme Operations – that the Committee had nothing against them personally, but they should accept that the “buck stops” with the Director General and the executive authority. The Committee wanted to assist the DPW to meet its challenges, and asked that the presentation figures be reviewed ahead of the next meeting, which would be scheduled for 2 pm on Wednesday, 5 September.
 
Department of Women, Children and People with Disabilities: introduction
The Chairperson welcomed the Acting Director General, Ms Thandeka Mxenge, and her delegation from the Department of Women, Children and People with Disabilities (DWCPD), and said the reason for the meeting was to discuss over-spending issues arising from the 3rd quarter report, and to learn the outcome of the Committee’s directive that the DWCPD should work with the Treasury to ensure that its budget was properly aligned with the Department’s needs. The Minister had been keen to attend the meeting, but there had been a clash of commitments, and she was therefore unable to be present.

Ms Yengeni asked why the Director General (DG), Dr Nonhlanhla Mkhize, was not leading the delegation herself.

Ms Mxenge said Dr Mkhize was on special leave, and she understood the Minister had written to Parliament and other relevant stakeholders, informing them.

Mr Singh asked what “special leave” meant, and whether a copy of the letter which had been sent to Parliament could be given to the Committee, as Members were Parliamentarians and needed to know the circumstances. Would the ADG now be responsible for handling all the questions on behalf of the DPW?

The Chairperson acknowledged that the Committee had not received a copy of the letter, and surmised that this might have been because he had not been keen to become involved in the DPW’s internal matters. However, if the letter had been sent to Parliament, the Committee should have been informed.

Mr Singh said that at the last meeting, the Minister had told the Committee the DWCPD had problems with leadership, and that she had heard allegations of nepotism, fraud and financial mismanagement, particularly in respect of supply chain management. She had instituted an investigation with labour lawyers at the beginning of April, and had asked the Auditor General to probe possible violations of the Public Finance Management Act. She had added that the DG had been put on three months’ sick leave in June. Where was the report on these investigations?  How far had they progressed?

The Chairperson said this matter should be taken up with the Minister.

Department of Women, Children and People with Disabilities 3rd quarter performance report
Acting Director General, Ms Thandeka Mxenge, opened her presentation by explaining the background to the financial situation of the DWCPD. The 2011/12 estimate of national expenditure (ENE) had been submitted in December 2010 without a strategic plan as basis. The strategic plan had been approved only in February 2011, with two additional chief directorates, so there had been no alignment between the budget and the organogram. There had also been insufficient provision for operational costs, as it had been assumed that the estimates had been based on the allocation used for programs that had been incubated while the functions of the Department fell under the Presidency. Other factors were that there had been no provision for corporate services personnel, who had to be appointed, international roles which had formerly been handled by the Department of International Relations and Cooperation (DIRCO), had to be taken over – without any budget provision – and there was pressure to appoint staff to implement planned activities.

In hindsight, it would have been better to defer appointments until funding was available, the DIRCO programmes should have been taken over on condition that the accompanying budget was transferred to the DWCPD, and the Department and Treasury would have detected the problem much earlier if in-year monitoring had been in place. However, the DWCPD could not avoid remunerating current employees, regardless of their being appointed outside the allocated budget, and the fact that many had been employed at higher notches, as they had been transferred from other departments.

Ms Mxenge said the Department did not have sufficient capacity within the finance unit to fully implement the PMFA and regulations, and the lack of internal controls in both finance and human resources had contributed to the problem. The lack of proper governance structures, such as the internal audit function, risk committee and audit function, was also a factor.

A turnaround plan had been developed, in conjunction with the Treasury, to ensure a clean audit, and arrangements had been made to second an acting CFO from the Treasury with effect from September, while a CFO was being recruited. Additional capacity had been sourced from Statistics South Africa on an ad hoc basis to assist the finance, risk and human resource teams, as these were critical areas. Quarterly finance reports were being produced in the Treasury template to enable accurate reporting.

Mr Llewellyn Louw, Director of Finance, DWCPD, presented the Department’s expenditure analysis for the period April 2011 to March 2012. Overall, it had over-spent its budget of R143.1m by R22.7m. The compensation budget of R36.4m had been exceeded by R11.2m, while the goods and services budget of R44.4m had been over-spent by R12.4m. Transfer payments and capital expenditure had been slightly below budget.

A breakdown of the goods and services expenditure indicated that the main cost drivers were advertising (R6.5m), catering (R4.5m), communication (R3.3m), consultants (R8.0m), audit fees (2.5m), inventory (R2.7m), travel and subsistence (R18.9m) and venues and facilities (R2.6m).

Ms Mxenge said she had been shocked when she saw these figures in June. However, the nature of the DWCPD’s work, where one was dealing with vulnerable groups of people, often entailed additional costs, such as for transport and catering. Communication costs were related mostly to the use of cell phones and land lines, and this was now being controlled through itemised billing and a change in the service provider contract.

Mr Louw said consultants had had to be employed for asset management purposes, and contractors were required to put infrastructure in place for functions such as Women’s Day and Children’s Day. The biggest amount spent on catering was about R2m for the Women’s Day event.

Ms Mxenge said that with the current interventions, the R18.9m figure for travel and subsistence should start going down. All travel costs were being strictly monitored.

Discussion
Ms Yengeni sought clarification on whether, in the process of closely monitoring its expenses, the DWCPD had set a target amount which it would not exceed. This would enable the Committee to judge its performance when it reported again.

Ms A Mfulo (ANC) said she was concerned that the DWCPD seemed to focus on ceremonies and events, as she understood its prime function was to ensure that other departments complied in regard to issues involving women, children and people with disabilities.  There appeared to be little planning or forethought.  She strongly criticised the Department for allowing costs in areas such as communication, consultants, contractors and out-sourced services, to escalate for so long.

Mr Swart said that while money had been spent irresponsibly, this was now “water under the bridge,” and attention should be focused on the current budget.  Was the DWCPD really monitoring its performance now, and would its expenditure be within budget for the first quarter of 2012-13?

Dr S van Dyk (DA) referred to the DWCPD’s expenditure trends for goods and services, and noted that the amount spent on consultants was “quite heavy.”  He asked whether difficulty was being experienced in recruiting capable and experienced financial personnel to implement the PFMA and other regulations. While staff was being seconded from Treasury and other departments, what challenges faced the DWCPD in filling these skilled positions?

Mr G Snell (ANC) asked about the role of the Public Service Act (PSA) in approving the DWCPD’s organogram and funding – and why things went wrong. How did a department secure an overdraft – how could one pay out more than one had budgeted for? He wanted to know if the Treasury’s monitoring systems were not working properly, resulting in the DWCPD’s problems not being picked up.

Mr Gelderblom asked how many changes had taken place in the Department’s top level management structure in the past six months, and said it was important to see how the DWCPD had performed when it presented its first quarter performance report.

Ms H Lamoela (DA), attending the meeting as a member of the DWCPD Portfolio Committee, asked whether the R23m which had been over-spent in the past financial year, would be deducted from this year’s budget.

Mr L Ramatlakane (COPE) said that Limpopo province had been placed under administration for spending money they did not have, and asked if the same principle should not be applied to the DWCPD. He wanted to know why compensation costs were higher than budget, even though the DWCPD was seconding from other departments. He asked for an explanation of how the R18m in travelling costs had been incurred, and said the Treasury should have been aware of the Department’s over-expenditure and taken steps to manage it. What were the implications of the extra capacity being provided by Statistics South Africa – if the arrangement continued, would it be free of charge?  The budget should have been based on the requirements detailed in the Department’s strategic plan – had the plan been submitted? 

Mr Singh said the DWCPD had come with a lot of “baggage”, and the Committee had the responsibility to assist in meeting these challenges. The last time the Committee had met with the DWCPD, it had been agreed that the Department and Treasury would get together and come up with joint strategy for future action. What was the outcome of that meeting?  Treasury also had a responsibility in the matter, and if it had endorsed the DWCPD’s organogram, it was equally culpable. There had been blatant non-compliance with Section 39 of the PFMA – which clearly spelt out the responsibilities of the accounting officer – and none of these had been carried out. The Committee needed to know why, and what was being done about it. Sound financial management was the key requirement for the Department, yet it lacked skilled management in this area while paying top salaries for people working in other areas. He said the R2m cost of a single Women’s Day function should be investigated, including details of the suppliers, the tender process, and the number of people who had attended.

Mr D Kekana (ANC), who also attended the meeting as a member of the DWCPD Portfolio Committee, to which he had belonged since its inception. said he was hearing much of what was being discussed for the first time. As early as 1998, the United Nations had described South Africa as the country with the worst living conditions in the whole world for people with disabilities. For this reason, it was important for the DWCPD to address these issues and build a better future. However, other means should be found to achieve a turnaround, rather than placing the DWCPD under administration, as it was an important department which should not be “thrown away.”

Ms Mashigo said the Committee had been asking for an organogram and reports providing a breakdown of expenditure, with details of advertising, travel and out-sourced services, since March 2011, but had yet to receive a report. She asked what was preventing the Department from honouring the Committee’s requests.  She also sought clarification on whether the budget for the Women’s Day event was with the DWCPD or the Department of Arts and Culture.

Ms Mfulo said the budget had been overspent, yet she could see that projects such as gender mainstreaming, implementing a monitoring and evaluation system, a gender barometer, skills training for women in construction, waste management cooperatives and other issues, had not been completed, and asked where the money budgeted for them had gone.

The Chairperson said the Committee was asking for the DWCPD to report back on its engagement with the Treasury. It was accepted that its first budget was “a thumbsuck”, and this had created the original problems for the Department.  It was unlikely that all the answers were readily available, but details could be provided later in writing. He asked if Treasury could provide some information.

Ms Gillian Wilson, Chief Director:
Public Finance, Treasury, assured the Committee that its monitoring system was working, and had picked up that the DWCPD would overspend its budget. Meetings were held with the Department to discuss this, but Treasury had gained the impression that the DWCPD intended to over-spend in order to demonstrate to Treasury that its budget was not adequate for it to execute its mandate. There was a misalignment between the strategic plan and the budget, and while planning had taken place, the actual spending had not corresponded with the plan. The organogram had been approved by the Department of Public Service and Administration, but the DWCPD had implemented the staff establishment without ensuring there was funding available. Since the last meeting, a task team had been set up to conduct a diagnostic study on what had gone wrong, and to come up with recommendations on remedial action. A study had also been conducted to establish a benchmark with other departments which had been created under similar circumstances, so that this information could be shared.  A detailed report had been compiled, highlighting eight focus areas, and this was with the Treasury’s DG and Minister, and would be forwarded to the DWCPD’s Minister. It was intended to present this to the Department once it had been signed off, to ensure that all areas covered were part of its draft turnaround strategy.

The Chairperson commented that it seemed that there would be no difference in the current budget year, and over-spending would continue, and unless the recommendations in the report were implemented in the DWCPD budget for next year, the same situation would prevail.

Ms Yengeni said the same questions were still being asked, and the same answers being given. The Committee needed to see a solution, and the joint Treasury/ DWCPD report on how to turn matters around should be presented.

Mr Ramatlakane agreed this proposal.

Mr Singh said the turnaround strategy should not be presented to the Committee before it had been fully discussed with Treasury. Time needed to be negotiated in the House, so a report on the DWCPD could be prepared and it could be debated.  The Executive needed to know whether they had made an appropriate decision by creating the Department in the first place, or whether its functions could reside elsewhere, in other departments.

Ms Mfulo cautioned Treasury not to be too rigid in its budget proposals, as complex issues surrounded vulnerable groups, and the Department’s budget had to take account of these complexities.

The Chairperson said the Department should provide written answers to the questions raised by Wednesday, 5 September. A meeting to consider the Treasury’s report on the turnaround strategy would take place on Wednesday, September 19.

The meeting was adjourned.


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