Department of Women, Children & People with Disabilities & Commission for Gender Equality 2011/12 performance: Auditor-General & FFC inputs

Meeting report

Auditor-General South Africa on 2011/12 financial performance of Department of Women, Children and People with Disabilities & Commission for Gender Equality
Mr Ahmed Moola, Senior Manager at the AGSA, presented the 2011/12 audit outcomes of the Department of Women, Children and People with Disabilities (DWCPD) and the Commission on Gender Equality. There was no improvement in the audit outcomes in the portfolio when compared to the prior year. Although the DWCPD received an unqualified audit opinion with findings, the number of non-compliance matters identified had increased from the prior year. The financial statements were also subject to material adjustments.

There were three drivers of internal control: leadership, governance and financial and performance management. Problems had been identified at a leadership and policy level. Governance was a big problem, as an internal audit function had still not been established.

The movement in key controls in the Department showed a regression from the previous year. This was due to additional non-compliance identified in the 2011/12 year and a set of financial statements that was subject to material adjustments at the Department. The governance structures, such as the internal audit and external audit, were not functional. Although an audit committee was appointed it was appointed late in the year and thus had no impact. For the same reasons, there was also a regression in the movement of the key controls at the Commission for Gender Equality.

The predetermined objectives (PDO) findings, or performance information, was unchanged with findings for both the Department and the Commission for Gender Equality. At the DWCPD, targets were not consistent with the indicators and targets as per the approved Annual Performance Plan. Targets were not specific in clearly identifying the nature and the required level of performance and some were not measureable. Indicators were not well defined in that clear, unambiguous data definitions were not available to allow for data to be collected consistently. At the CGE the reasons for major variances were not explained, and the reported targets were not consistent when compared with planned targets.

Unauthorised expenditure amounting to R25.2 million was due to overspending of the budget vote as well as main divisions within the vote. The accounting officer did not implement sufficient and appropriate budgetary controls to prevent and detect unauthorised expenditure. In terms of irregular expenditure, the Department did not have sufficient and appropriate supply chain management controls.

The DWCPD had audit findings for non-compliance with laws and regulations in numerous areas. In strategic planning, the Department did not have and maintain an effective, efficient and transparent system of internal controls regarding performance management. Steps were not taken to prevent overspending, the the budget for compensation was overspent, increases in the budget for compensation of employees were not approved by National Treasury. The Annual Financial Statements were subject to material adjustments. The Audit Committee did not review the effectiveness of the internal control systems and accounting and auditing concerns identified from external audits. It did not review the adequacy, reliability, and accuracy of the financial information provided to management and other users and did not review the institution’s compliance with legal and regulatory provisions. There was no internal audit established. In terms of procurement, three quotations were not obtained, tax clearance certificates were not obtained, preference point systems were not applied, contracts were awarded to bidders who did not submit a declaration on whether they were employed by the state or connected to any person employed by the state and employees of the Department performed remunerative work outside of their employment in the Department without written permission.

Human resources management was another problem area. Job descriptions were not established for all posts, appointments were not only made in posts which were approved, salary ranges of posts were increased without a job evaluation that supported the increase, employees received over time compensation in excess of 30% of their monthly salaries and the human resource plan did not include a budget analysis that ensured that the plan could be executed within the available budgeted funds. The accounting officer did not take effective steps to prevent unauthorised and irregular expenditure, nor did he take effective steps to collect all monies due to the Department.

The Commission for Gender Equality had audit findings on its Annual Financial Statements (which were subject to material adjustments), asset management (where proper control systems were not implemented for safeguarding and maintenance of assets) and bank reconciliations (which were not performed on a weekly basis). Effective and appropriate disciplinary steps were not taken against officials who made or permitted irregular or fruitless and wasteful expenditure and payments to creditors not settled within 30 days. The accounting officer did not take effective steps to prevent unauthorised and irregular expenditure. Deviations were identified and not justified in procurement and contract management.

The root causes in the Department were identified as failures in leadership, accountability and sustainability. Leadership problems were that the accounting officer did not ensure that sufficient monitoring controls exist to ensure compliance with laws and regulations and proper implementation of the overall process of planning, budgeting, implementation and reporting of performance against predetermined objectives were developed and implemented. The accounting officer did not have sufficient monitoring controls to ensure that funds were utilised in accordance with the approved budget and for the purpose for which they were intended.

In terms of financial and performance management, the effectiveness of in-year monitoring of compliance with the financial and budgetary requirements as well as all applicable legislation was adequate, and non-compliance with laws and regulations could have been prevented had compliance been properly reviewed and monitored. The financial statements contained misstatements that were corrected. This was mainly due to staff members not fully understanding the requirements of the financial reporting framework and a lack of internal control procedures to ensure accurate and complete financial reports.

The governance structures required, by the Treasury regulations, were not established. There was no internal audit function in place, and the audit committee was appointed late in the year.

Leadership was also identified as a root cause at the Commission for Gender Equality. The accounting officer and management did not adequately exercise oversight responsibility regarding financial and performance reporting and compliance and related internal controls. Management did not timeously monitor the implementation of action plans to address internal control deficiencies resulting in repeat audit findings. Management did not adequately establish and communicate policies and procedures to enable and support understanding and execution of internal control objectives, processes and responsibilities.

Mr Dawood moved on to discuss Public Finance Management Act (PFMA) audit outcomes for 2011/12. Improvements had not been made in the majority of the key focus areas. The DWCPD had no improvement in supply chain management, predetermined objectives, HR management, material errors in Annual Financial Statement submitted for audit, and financial health. There was little improvement in IT. The CGE had no improvement in supply chain management, predetermined objectives, HR management, and material errors in Annual Financial Statement submitted for audit. There was little improvement in IT and some improvement in financial health. Mr Dawood gave a more detailed description of each finding, its root cause and AGSA’s recommendation for each key focus area:

Supply Chain Management
The DWCPD had the following findings. Goods and services with a transaction value below R500 000 were procured without attaining the required price quotations as required by Treasury regulations. Contracts were rewarded to suppliers whose tax matters had not been declared by the South African Revenue Service to be in order, as required by the Treasury regulations and the preferential procurement regulations. The preference point system was not applied in all procurement of goods and services above R30 000 as required by the Preferential Procurement Policy Framework Act and the Treasury regulations. Contracts were awarded to bidders who did not submit a declaration on whether they were employed by the state or connected to any person employed by the state which is prescribed in order to comply with Treasury regulations. Employees of the Department performed remunerative work outside their employment in the Department without written permission from the relevant authority as required by the Public Service Act.

The root causes were identified by the AGSA as including the fact that controls were not implemented to ensure compliance, no internal audit unit was in place, and there was a lack of skills within finance and supply chain management to ensure compliance. AGSA recommendations were that the Department needed to ensure that the supply chain management unit was sufficiently resourced, controls should be implemented to ensure compliance with supply chain management regulations and appropriate actions should be taken against wrongdoers.

The Commission on Gender Equality had similar findings. Goods and services with a transaction value below R500 000 were procured without attaining the required price quotations as required by Treasury regulations. The preference point system was not applied in all procurement of goods and services above R30 000 as required by the Preferential Procurement Policy Framework Act and the Treasury regulations. The root cause in this case was found to be that management did not timeously monitor the implementation of action plans to address internal control deficiencies resulting in repeat audit findings. AGSA recommendations were that management should ensure that the supply chain management unit implements the institutions supply chain management policy and also complies with all the supply chain management legislations and disciplinary actions should be taken against supply chain management unit officials or other officials for any non-compliance with supply chain management policy and supply chain management legislation.

Predetermined Objectives
The DWCPD had the following findings: Treasury Regulations required that the Annual Performance Plan should form the basis for the annual report therefore requiring the consistency of objectives, indicators and targets, between planning and reporting documents. A total of 42% of the reported targets are not consistent with the indicators and targets, as per the approved annual performance plan. This is due to the fact that indicators and targets were not suitably developed during the strategic planning process.

The National Treasury Framework for Managing Programme Performance Information (FMPPI) requires that performance targets be specific in clearly identifying the nature and required level of performance. A total of 27% of the targets relevant to Programme Two: Women Empowerment and Gender Equality were not specific in clearly identifying the nature and the required level of performance. The FMPPI required that performance targets be measurable. The required performance could not be measured for a total of 50% of the targets relevant to Programme Two. The FMPPI required that indicators and measures should have clear, unambiguous data definitions, so that data is collected consistently, and is easy to understand and use. A total of 27% of the indicators relevant to Programme Two were not well defined. This was due to the fact that indicators and targets were not suitably developed during the strategic planning process.

The root cause was a lack of understanding of the FMPPI resulting in incorrect application and interpretation. The AGSA recommended that the Department should ensure that it followed up on its action plans to ensure that appropriate action was taken to address issues noted. Workshops should be conducted with the National Treasury to ensure clear guidance on expectations when the strategic plan was being drafted. The Department should report quarterly on the progress made with the Strategic Plan to the Committee.

The Commission for Gender Equality had similar issues with predetermined objectives. A total of 38% of major variances between planned and actual achievements were not explained in the annual performance report for the year under review as per the National Treasury annual report preparation guide. This was due to inadequate review of the presentation of the annual performance report by management. Treasury regulation required that the strategic plan should form the basis for the annual report, therefore requiring the consistency of objectives, indicators and targets between planning and reporting documents. A total of 33% of the reported targets were not consistent with the targets as per the approved strategic plan. This was due to inadequate review of the completeness of reporting documents by management.

The root causes were that action plans were inadequate and not implemented correctly to address matters reported for the previous year. These were issues identified every year, and picked up in every audit, but thus far no action had been taken to resolve them. The AGSA had recommended that management should implement procedures to ensure that the annual performance information was reported according to the Treasury regulations requirements. The internal audit should be more involved in verification of quarterly reports. Management should ensure that the planned targets per the Annual Performance Plan should match that which is reported on in the annual performance report. This should be reviewed by a senior official who critically analysed the reports and ensured its consistency.

Human Resources
Human resources was a critical problem for the Department, and accounted for around 50% of the unauthorised budget, which amounted to R12 million. Job descriptions were not established for all posts in which appointments were made in the current year as required by public service regulation. Sufficient appropriate audit evidence could not be obtained that appointments were only made in posts that were approved and funded as required by public service regulation. Salary ranges of posts were increased without a job evaluation that supports the increase based on incorrect grading or without sufficient funds in the budget and contravention of public service regulation. Employees received overtime compensation in excess of 30% of their monthly salaries in contravention of public service regulation. The human resource plan did not include a budget analysis that ensured that the plan could be executed within the available budgeted funds as required by public service regulation. This resulted in posts and appointments that were not funded.

The root causes were that officials in key positions did not have the minimum competencies and skills and poor leadership skills. The internal audit was not established and the audit committee was appointed late and had no impact. Action plans were not developed and monitored to address matters reported in 2010/11. Risk assessment was not performed timeously to address any emerging risks. The AGSA recommended that the accounting officer should establish a mechanism to ensure compliance with laws and regulations. He should also initiate the processes in terms of the Treasury regulation with regard to irregular expenditure. Management must implement controls to ensure that the appropriate level of management review and approve overtime as required in terms of the public service regulation. Controls should be implemented to ensure that the monthly compensation for overtime constituted less than 30% of the employee’s monthly salary. A checklist should be prepared to ensure that all the requirements were adhered to. The plan should be adequately reviewed by the HR executive.

Information Technology Controls
The DWCPD’s user controls were not adequate as they did not fully address or mitigate key risks. IT management had not formally approved the documented IT disaster recovery plan. Informal controls were in place but were not adequate. IT management had not formally designed IT governance controls, such as policies procedures and guidelines, to mitigate the risk of IT goals and objectives not being aligned with the business strategic goals. The root causes were that officials in key positions do not have the minimum competencies and skills and poor leadership skills. The internal audit was not functioning effectively to make recommendations on internal controls to accounting officers. A risk assessment had not been performed timeously to address any emerging risks. Action plans were inadequate to address previous year matters that were reported.

The AGSA recommended that the CFO who was the data owner should ensure that the PERSAL and BAS user account management procedures were approved and implemented. The review of the BAS and PERSAL system control activities with regard to the user account management should be performed regularly. In addition the system controls controllers should ensure that evidence of monitoring of user profiles was retained for audit purposes. The accounting officer should ensure that a Business Continuity Plan (BCP) was developed and approved. Whilst awaiting the development and formal approval of the BCP the Director of IT should ensure that the IT Disaster Recovery Plan was formally approved by all the required parties within the next three months. The plan should also be communicated to the relevant stakeholders, stored at an off-site facility and tested on a regular basis. The test results should be retained for audit purposes.

The Commission for Gender Equality was found to have an inadequately designed Information Technology Strategic Plan and its IT Governance Framework was not designed. It had inadequate implementation of service level management, inadequate design of the security policy, a lack of user account management procedures for Pastel and VIP application, inadequate design of the change control process. This was another year-on-year repeat finding, for which action plans had not been adequate. The root cause was that action plans were inadequate to address 2010/11 matters reported. Recommendations to the CGE were the development and approval of the necessary policies. Compliance with these policies should be monitored.

Material Errors and Omissions in Annual Financial Statements submitted for Audit
For the DWCPD and the CGE it was found that the financial statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework, as required by the Public Finance Management Act. Material misstatements of disclosure items identified by the auditors in the submitted financial statements were subsequently corrected and the supporting records were provided subsequently resulting in the financial statements receiving an unqualified audit opinion. The root causes for the DWCPD were a poor understanding of what was an appropriate system and why key controls were essential in driving a working administration. The internal audit was not established, and the audit committee was appointed late. Key financial management skills were lacking, as the CFO was not performing adequately. The root causes for the CGE was that action plans were inadequate or not implemented correctly to address previous year matters reported. The recommendations for both were that management should ensure that annual financial statements were prepared at least quarterly if not monthly. These annual financial statements should be reviewed by the governance structures such as management internal audit and audit committee. The annual financial statements prepared should be adequately supported by substantiating evidence to corroborate validity, accuracy and completeness thereof. Annual financial statements which are submitted must be the final set approved by the leadership and supported as referred to above.

Financial Health Status
The DWCPD’s current expenditure exceeded the approved expenditure budget. The Department would not have been able to fund all liabilities from the current year’s voted funds if all liabilities had been paid at year-end. The total voted funds approved for the next year would not be available for use. An accrual adjusted surplus for the year was not achieved. An accrual adjusted net asset position was not achieved. The year-end bank balance was in overdraft. The root causes included a poor understanding of what was an appropriate system and why key controls were essential in driving a working administration. Officials in key positions did not have the minimum competencies and skills. No internal audit was established and the audit committee was appointed late. The recommendation was that the accounting offer should ensure that sufficient budgetary controls be established.

Discussion
The Chairperson thanked the AGSA for the comprehensive presentation. She was stunned that after so many years there was still the same repetition of irregular, unauthorised expenditure from this Department. Most concerning was the issue of vacant posts, she asked if these vacant posts were originally part of the budget. The Chairperson noted that the presentation would have generated a lot of questions for the Department, which they could pose when the Department came to present on 11 October. For the present, she asked that questions of clarity to be directed to the AGSA.

Ms M Nxumalo (ANC) thanked the AGSA for arming the Committee with information with which to confront the Department.

Ms H Lamoela (DA) thanked the AGSA, and commented that she was very upset to see that the same issues were being brought up year after year. She noted that the AGSA had made clear recommendations this year, and asked if that had been done in previous years.

Mr Moolla responded that the AGSA had recommended a simple action plan and that the implementation of this plan be monitored monthly or at least quarterly. At the time, action plans were being prepared, but the actions were not adequate or were not being monitored and some action plans did not address the root cause of the problem. Normally audit committees would review the action plan quarterly but the Department had not had a fully functioning audit committee for most of the year.

Ms Lamoela asked if the Department would ever be able to get out of this financial disaster of the overdraft.

Mr Moolla responded that the AGSA’s recommendations had been to implement budgetary controls. The recommendation was also to produce actions to mitigate any further financial disasters. In terms of the overdraft, he understood that the Department was in the process of possibly obtaining further funding from National Treasury.

Ms L van der Merwe (IFP) asked whether the AGSA had seen the turn-around strategy and if AGSA felt it would be adequate to address the problems that had been presented.

The Chairperson reiterated Ms van der Merwe’s question, asking what issues the Committee should look out for in the turn-around strategy.

Mr Moolla responded that the Department was in the process of developing a turn-around strategy, including high-level and detailed actions to address the problems. The strategy could be reviewed by the Committee, who could also request presentations on the progress made. The Committee could also request that the Department present quarterly reports on financial information.

Ms van der Merwe asked how the overdraft had been accessed and if it had been approved by the Treasury.

Mr Moolla responded that departments could go into overdraft without requesting approval from their Minister or the Minister of Finance.

Ms C Diemu (Cope) asked for clarity on the issue of employees of the Department performing remunerative work outside their employment in the Department without written permission. She asked who these Department officials were, what kind of work they were doing, and for how long.

Mr Moolla responded that this information could be requested from the Department, the AGSA had given them a list of instances.

Ms Lamoela asked whether the AGSA had met with the Minister to discuss these issues.

Mr Moolla responded that he and other AGSA staff had met at least once a quarter with the Minister of the Department and had put forward the key issues of concern. The AGSA felt they had put initiatives in place to warn the Department of the problems that were arising.

Ms Lamoela said that she had not known that a Department could go into overdraft without consulting the Minister of Finance, and commented that somebody needed to be accountable for this.

Mr Moolla responded that if a Department went into overdraft it was reduced from the voted funds the Department would receive in the future. From now on, 13% of the budget would have to be used to cover the overdraft, leaving only 87% of the budget available.

Mr Paul Serote, Corporate Executive at the AGSA, explained that a few years ago the AGSA had initiated a program trying to engage the Ministers. The idea was to meet regularly, at least every quarter, to provide feedback and to give early warning signals if anything was going wrong. This was to achieve a number of things, including clarifying what a solid control environment entailed, such as design elements of the controls, and ensuring that controls operated the way they were designed. This process had been termed the key controls assessment. Key controls such as bank reconciliations, asset reconciliations, and the preparation of monthly financial statements had to be tested. The executive needed to understand why they prepared financial statements, and that this was not merely a compliance issue but was intended to make sure that the Department could monitor that their goals were being implemented.

Therefore AGSA had had detailed discussions with the Department on a quarterly basis, and had from very early on highlighted the weaknesses in the key control environment. The responsibility for acting on this was in the domain of the Accounting Officer and the Chief Financial Officer, but despite meetings with both of them, as well as the Minister, actions were not taken. Mr Serote felt that the CFO had not responded appropriately.

The Chairperson commented that the Committee was very frustrated with this situation. She asked if there was a formal agreement with the National Treasury committing to giving extra funds because of the overdraft.

Mr Moolla responded he had heard about this from discussions with management but had no confirmation.

Ms van der Merwe added that the turn-around strategy was a joint department-national treasury initiative.

Ms van der Merwe asked where were the majority of those posts not budgeted for initially.

Mr Moolla responded that he could not remember the details, but in general, management was not able to give the AGSA approved staff structures. That is why he concluded that there was not sufficient evidence to say that the posts had been approved.

Ms Lamoela said she felt like calling for the Department to be closed down. Any Department or business that did not adhere to these regulations would not reach any goals. This was the Department’s fourth year and yet it had been failing and wasting millions of Rands.

The Chairperson thanked the Office of the Auditor General. This Department had fought for so long to be in existence, it was a pity for people to call for it to be closed. The Committee would be meeting with the Department this week. The Minister would present a turn-around strategy and the Annual Report. The Committee would then have an opportunity to hear the Department respond to the questions and concerns. After having heard from the AGSA they had enough ammunition to engage with the Department.

Financial Fiscal Commission on spending patterns of Department of Women, Children and People with Disabilities and FFC Recommendations to the Departments for financial year 2011/12
Ms Tania Ajam, Commissioner of the Financial Fiscal Commission (FFC) introduced the briefing. She explained that the FFC had received a request to present on some spending trends in the Department, and had decided to look at the annual reports, which had been audited, and the budget statements for 2012. They had also looked at the non-financial side, as a budget was a presentation of the execution of the mandate, so it was important to assess both.

Mr Ghalieb Dawood, FFC Programme Manager: Budget Analysis, presented the non-financial and financial performance of the DWCPD, the AG’s findings, and questions for fiscal oversight which the FFC felt would be helpful to the Committee. He briefed the Committee on the background of the FFC and the DWCPD. The Department’s key Medium Term Expenditure Framework (MTEF) priorities included advocating for the protection of rights; monitoring and evaluating gender; ensuring targets for people with disabilities and children integrated into macro-compendium of indicators; ensuring that the mainstreaming of gender, disability and children’s rights happened in key forums, such as the Cabinet and DG forums; strengthening the institutional capacity to deliver quality services; and strengthening initiatives in bilateral and multi-lateral initiatives. The FFC felt that the mainstreaming of gender, disability and children’s issues was the area where the Department could have the biggest impact, and that the Committee should focus its attention on monitoring this area.

The DWCPD achieved 54% of all its targets in 2011/12. Its Administration programme achieved 63% of its targets, Women’s Empowerment 37%, Children’s Rights 57% and People With Disabilities 50%. The major reasons cited for outputs not achieved were a lack of staff capacity, as there were some consultations or approval still to take place, and financial reasons. In many cases, the narrative justification which was provided lacked clarity.

Mr Dawood gave some information on the quality of non-financial information for oversight purposes. The indicators in the Annual Report read as objectives or goals rather than specific indicators, and were not measurable. For example, one indicator was a safe and secure working environment, which was difficult to quantify. The AGSA had reported that a total of 50% of the indicators for Programme Two: Women’s Empowerment, were not measurable. Some indicators also had more than one target, or the area of performance was not properly defined. The AGSA reported that 27% of the targets of Programme Two did not define the nature of the performance. 42% of targets were not consistent with indicators and targets as per the approved APP. Some priority indicators were hidden among 120 departmental indicators.

The organisational structure revealed a lot about the performance of the Department. There were four main programmes: administration, women’s empowerment, children, and people with disabilities. Performance information revealed that some outputs were duplicated across the three main programme areas. For example, all three had developed a separate monitoring and evaluation tool. The FFC suggested that the Department could have improved its performance, achieved economies of scale and reduced costs if some outputs were delivered jointly by programmes.

Mr Dawood gave an overview of the progression of programme spending and the MTEF budget. Departmental spending had increased by 23.5% in real terms in 2011/12, mainly due to the migration from the Presidency to a stand-alone department. The Department budget over MTEF had expanded by average by 9.9% per annum in real terms, increasing from R143 million in 2011/12 to R214million in 2014/15. The increase over MTEF was largely to fund the deputy minister’s office, to recruit new staff and to sustain the Department’s annual programmes.

The women’s empowerment programme constituted the largest share of the total budget, but decreased significantly over MTEF to 43% in 2014/15. This was positively skewed in relation to other sectors, mainly caused by the transfer payment to the Gender Commission which comprised around 70% of the program budget. Administration expanded from 30% in 2011/12 to 39% in 2014/15 mainly as a result of increasing capacity and financing the Deputy Minister’s office. The share of the children’s programme remained fairly constant over the period, with Disabilities increasing substantially after coming off from a low base of 3% in 2010/11.

In terms of the progression of line item spending and MTEF estimates, CoE increased by 56% in 2011/12 and was set to increase by 29% per annum in real terms over the MTEF to fund vacant posts. The staff complement was expected to more than double between 2011/12 – 2014/15. Goods and services had decreased from 25% growth in 2011/11 to 8% per annum real growth. Major cost drivers were property payments, travel and subsistence and venues. Transfer expenditure to the Gender Commission did not grow in real terms in 2011/12 and only a 1.2% forecasted real growth was predicted per annum over the MTEF. This suggested that there may be future budgetary tension between the Gender Commission and funding Department programmes. Performance and spending were not reported on in the Annual Report. The Department stated that exercising accountability of the Commission fell outside its mandate, given that the Commission is a Chapter 9 institution.

With regard to the line item share of total expenditure and MTEF budget, the doubling of the staff complement over the period drove up the share of CoE from 21% in 2010/11 to 37% in 2014/15 while the share of transfers and subsidies fell dramatically by 17%. Transfers were still a significant share of the Department’s budget although no detailed breakdown was provided in the BS or the Annual Report. Goods and Services had decreased marginally over time, with savings in some line items offset by dramatic increases in travel and subsistence from R9million in 2011/12 to R24.8million in 2012/13. No reason for this was cited in the BS.

Mr Dawood then gave an overview of the spending performance, or fiscal discipline. DWCPD only spent 54% of its total budget in 2010/11 compared to 117% in 2011/12. Overspending by the administration programme increased from 31% in 2010/11 to 57% in 2011/12. The reasons cited for overspending in the 2011/12 annual report were not very clear. The disabilities programme only spent 3% of its budget in 2010/11 and 87% in 2011/12 due to posts not being filled, hence projects not being implemented. Overspending on CoE increased from 17% in 2010/11 to 31% in 2011/12. Reasons cited were critical posts being filled and Senior Managers being appointed. The AGSA mentioned increases not approved by the National Treasury as per Treasury Regulations.

Employees received above 30% of monthly salary for overtime in contravention of PSR, and salary range posts increased based on incorrect grading in contravention of PSR. Spending on goods and service increased from 123% in 2010/11 to 128% in 2011/12 due to relocation costs which were not budgeted for and delayed payments. The reason for under-spending on capital budget in both years was not clear.

The in-year spending profile showed that Department spending only commenced in the last quarter of 2010/11 because of migration issues. A negative amount was noted in September of 2011/12 and not clearly explained. The spike of R50m in October 2011 could be the transfer coming off the Department budget. Second quarter spending in 2011/12 was lower than the other quarters, and unlike many other departments, no significant spike was observed in the last quarter.

Unauthorised expenditure amounted to R3.7 million in the 2010/2011 financial year as a result of overspending on the vote. This had increased dramatically to R25 million for the year of 2011/2012, with no reason cited for the unauthorised expenditure. An amount of R6.6 million irregular expenditure was recorded in 2010/11 as a result of savings on capital budget used to defray current expenditure. The amount was condoned in 2011/12.

The Department had incurred R35million irregular expenditure in 2011/12 due to overtime costs of R973 000 and overspending on compensation which amounted to R11.3 million. There was currently an investigation under way regarding R21 million irregular expenditure in 2011/12 but the reasons cited in the Annual Report were not clear.

Mr Dawood summarised the financial assessment. The Department was facing a challenge in balancing its mandate with available resources, and the problem would continue in subsequent years unless it was addressed in some meaningful way. Some suggestions would be for the Department to re-look at existing projects and activities and assess if some were non-value adding or non-core and could be done away with or reduced. Overseas travel was an obvious example. The Department could also re-look at its implementation strategy to find cost-effective means to implement projects and programs. Similar outputs between programs could be implemented jointly, leveraging IT technology such as teleconferencing facilities to reduce travel and other expenses. They could also address the issues related to HR which had been raised by the Auditor General’s office. Budget planning, implementation and monitoring were very weak and needed to be improved, and as the AGSA had reported, the Accounting Officer had not taken appropriate steps to prevent overspending.

The FFC had identified a number of transversal, non-financial and financial questions for oversight. Transversal questions included: have Committee recommendations in Oversight Reports on the previous Annual Report been implemented and/or reported on? Can the DWCPD publish the full APP report on its website? How will the Department address the issues raised in the 2011/12 AG report? How has the DWCPD responded to the recommendations made in the report on the investigation of overtime, recruitment and irregular appointments? Non-Financial questions included: when and how will Performance Information (SOs, PIs and targets) be streamlined in terms of best practice criteria, better reflecting performance dimension, and measuring efficiencies? How can Department prioritize key outputs in future AR in order to facilitate better oversight? Financial questions were: Has an internal control committee been established? What steps was the Department taking to avoid over-expenditure in 2012/13? Has the HR plan of the Department been costed?

The FFC pointed out that Parliament could dictate the format of the Annual Report. National Treasury Regulation 18.3 (2005) “Contents of annual reports” stated thatin preparing the Annual Report of an institution, the accounting officer must include any additional information required by Parliament or the provincial legislature. They therefore suggested that the Committee require the Department to publish their responses to previous Committee oversight report; and publish their progress on priority outputs as defined by the Committee, on first pages of Annual Report.

Ms Lydia Ntenga, FFC Programme Manager: National Budget Analysis, briefed the Committee on the FFC’s recommendations. The FFC presented all previous recommendations relevant to the Committee that it had made last year. For its 2013/14 Annual Submission, the FFC had made recommendations related to financing e-Education and achieving policy goals in public ordinary schools, as well as assessing gender responsive budgeting in the local government sphere in South Africa.

It was necessary to understand why the e-education challenge was not being met. Some reasons included the need for concerted cultural and technological adaptation, the requirement for explicit budget allocations for e-education, supporting strategies and funding, building public accountability for policy implementation. National and provincial education sectors required firm and expert guidance on designing e-education, which could come in the form of an e-Education Commission.

Limited data was available on e-education expenditure and specifically on e-learning expenditure. This should be remedied through making explicit budget allocations in the annual budgeting process and through explicit reporting on expenditure on e-learning and e-education. A well-structured inter-governmental (IG) financing mechanism should be established with explicit guidelines to provincial departments of education regarding the budget line items that require prioritisation.

Therefore National and Provincial Governments should:
▪ run a pilot on gender budgeting in a few municipalities;
▪ ensure that gender planning is institutionalised in municipal IDPs by sector;
▪ provide gender budgeting good practice guides and toolkits; and
▪ provide guidelines for collecting sex disaggregated data.

In addition, Local Government should:
▪ institutionalise gender responsive budgeting process linked to IDPs;
▪ build capacity for gender mainstreaming and gender responsive budgeting at the local level;
▪ ensure gender-responsive appropriations and budget allocations;
▪ ensure gender-sensitive public participation and consultations at local level.

Discussion
Ms Lamoela said that the AGSA had claimed that they had quarterly, high-level meetings with the Department alerting the Minister, the CFO, and the DG of the need for steps to prevent unauthorised expenditure. She asked for the FFC’s opinion on how the unauthorised expenditure had happened regardless of these meetings.

Mr Dawood responded that as the AGSA had picked up on, there were not sufficient steps taken by the Accounting Officer. In addition there were weak internal controls and no internal audit unit in place, which could look at internal control systems.

Ms van der Merwe noted that only 54% of the Department’s targets had been achieved. The FFC had suggested that the best way to evaluate this percentage was to compare it to other departments. She asked if this had been done and how the Department compared.

Mr Dawood responded that the Department of Human Settlements had achieved 77% of their targets and that was considered not to be a good performance. It was difficult to make a judgement on the Department of Women, Children and People with Disabilities, especially as many of their outputs were policy related and depended on other institutions. However, as the Department was not only under performing on achieving its targets but also over spending by large amounts, this was very concerning.

Ms van der Merwe asked about the FFC’s relationship with the Department and how often they engaged.

Ms Ajam responded that at present they did not collaborate formally but that they would like to do so in the future.

Ms Ajam noted that this was still a young Department, but it faced an enormously challenging task ahead. The global and domestic economies were in poor shape and its budgets were going to be tight for the foreseeable future. It was essential to ensure that women and children and people with disabilities were protected from bearing the brunt of budget cuts. These were the strategic issues facing the Department. In addition, the Department had to determine how to encourage departments to make sure that their planning and spending was gender sensitive when it had no formal control over them.

The Chairperson commented that much of the engagement would have to take place with the Department. The Department was young but it was very worrying that it was not improving. The overspending while under-performing was very concerning, especially as the Department’s focus was targets that were generally overlooked. It had been hoped that the existence of the Department would have helped to alleviate the burden of vulnerable sectors of society who were not being budgeted for by various departments. It was hoped that these issues would be mainstreamed and budgeted for.

As there were no further questions, the meeting was adjourned. The Committee would meet with the Department of Women, Children and People with Disabilities on 11 October 2012 to hear their responses.