Department of Economic Development 2011/12 audit outcomes: Auditor-General briefing: EDD performance 2011/12: briefing continued

Economic Development

15 October 2012
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The Office of the Auditor-General (AGSA) briefed the Committee on the Economic Development Department (EDD)'s audit outcomes. The very few findings could be solved by changes in training of executive management and recruiting experienced staff to fill vacancies in key leadership positions.

The problems raised about supply chain management and the International Trade Administration Commission (ITAC) were not to do with changes in legislation or a split between departments, but more to do with lack of training and insufficient action plans to redress previous problems. The training should be supplied by the National Treasury, and the AGSA also provided training on the Framework for Management of Programme Performance Indicators (FMPPI) for departments.

The EDD continued its briefing as it covered the AGSA audit, as well as briefing the Committee on its expenditures and revenue. The Department spent R577.6 million and had a revenue of R592.9 million, though the revenue was promptly surrendered to the National Revenue Fund.  The EDD maintained the status of an unqualified audit report. The AGSA had raised only one non-compliance matter, namely material misstatements of expenditure. These were subsequently corrected by the Department. There was a reduction from six instances of non-compliance in 2010/11 to only one in 2011/12. The EDD was committed to continuous improvements on internal controls, ensuring that it obtained a clean audit report by continuing to meet with the AGSA and internal audit committees on a regular basis, and to starting an interim audit in October 2012.

The EDD was attempting to recruit more experienced staff and had begun recruiting, though it found it hard to compete with the private sector as public salaries were lower and were very structured.

Members asked whether supply chain management failures were because of the new legislation, if the reason for the failing of ITAC in many areas was because it was split between the Department of Trade and Industry and the EDD, to what degree the Department had been able to meet the 30 day requirement for paying those who supplied goods, if the Department could do internal training by itself, about the difficulties of finding experienced staff and the retention of those that were trained. They also asked about the transfers to Proudly South Africa and Wits University, how the Wits University transfer was monitored, and how accounting took place for transfers to entities such as Wits, the South African Institute of Chartered Accountants, and Proudly South Africa. Members voiced concerns with the Department putting emphasis on reliance of using less staff to achieve more. The danger of having a too lean Department was that it could hamper service delivery and that would not please the Members.

Meeting report

Economic Development Department (EDD) audit outcomes 2011/12: Auditor-General briefing
The Office of the Auditor-General of South Africa (AGSA), represented by Mr Ahmed Moolla, Senior Manager, was invited to give a presentation on the audit outcomes of the Economic Development Department (EDD) portfolio. No unauthorised expenditure was incurred by any of the entities in the portfolio. Some irregular and fruitless or wasteful expenditures were noted, but these were less than the previous year’s. The root causes of this and other discrepancies were vacancies and instability in key leadership positions, which led to a lack of accountability and sustainability. (See AGSA PFMA audit outcomes for the 2011/12 financial year, paragraph 4).

There was a point of complaint from Mr X Mabasa (ANC) who argued that the presentation was too technical and not readable for those in the room.

The Chairperson said that it was not the fault of the presenters, but the Committee's own fault.

Mr Moolla replied that different slides would be prepared for future presentations and these would be an improvement on the slides today.

Mr Moolla continued the briefing on the audit with a more in-depth presentation on the Public Finance Management Act (No. 1 of 1999) (PFMA) audit. In regards to supply chain management (SCM); it was found that the Competition Commission, the Competition Tribunal and the International Trade Administration Commission (ITAC) all procured goods without obtaining the required price quotations. He stated that this, and other transgressions, was because of inadequate review and monitoring of compliance with the laws and regulations for the Department and recommended extra training for management and staff to rectify this issue. In regards to predetermined objectives, both ITAC and the South African Micro-Finance Apex Fund (SAMAF) did not meet their stated indicators. Similarly to SCM, the root cause was a lack of understanding of the FMPPI and the
Specific, Measurable, Attainable, Relevant and Time-based (SMART) goal setting criteria, and further training was recommended. In regards to material errors, the audit found that the financial statements submitted where not prepared according to the prescribed financial reporting framework, for which the root cause was a lack of adequate review by the CFO. It was recommended that financial statements were prepared monthly rather than quarterly and that they were reviewed by the CFO.

The Minister had committed that there would be a development of a risk assessment strategy, increased focus on the effectiveness of the internal audit, and follow up and resolution of all internal control deficiencies at all of the entities to rectify the problems found in the audit, though no investigations or performance audits were currently underway at the EDD.

Discussion
Ms S van der Merwe (ANC) asked about the extent to which SCM failures were because of the new legislation or whether it was just a learning curve.

Mr Moolla answered that the new legislation was not applicable during the audit, so it was not because of that and that failures were due to insufficient action plans and that more training on SCM was needed.

Ms Van der Merwe asked if the reason for the failing of ITAC in many areas was because it was split between the Department of Trade and Industry and the EDD and whether this was detrimental to ITAC.

Mr Moolla answered that the EDD took responsibility for ITAC and was the executor, so issues of performance and compliance were because of insufficient action plans for resolving findings from the past.

Mr Mabasa asked to what degree the Department had been able to meet the 30 day requirement for paying those who supplied goods.

Mr Moolla answered that in previous years it could not pay within 30 days. This year, the Department was, on average, settling within 30 days. It did not know the exact time period, but the EDD would have more information as the AGSA used a random sample to check the times.

Mr Mabasa asked, if training was identified as a solution, if the Department could do this internal training by itself or if it would it be outsourced. Mr Mabasa would be happier if the former was encouraged.

Mr Moolla replied that training for SCM and predetermined objectives was the Department’s decision but was unsure if it had the proper resources to do the training. The National Treasury could provide training for FMPPI, which would be best.

Mr Z Ntuli (ANC) asked about local procurements and whether the Department was complying and to what extent it used local suppliers.

Mr Moolla replied that the AGSA had not identified any procurement for suppliers that were not local. That said, the AG did not look into it in detail, but most seemed to be local.

The Chairperson asked about predetermined objectives and what these actually were.

Mr Moolla answered that in the past, it was called performance information, but had now changed. This was information that was subject to audit by the AGSA office to determine whether the Department had reached its goals.

The Chairperson asked about ITAC’s root problem, which was that it did not understand FMPPI, which was standardised from the National Treasury to guide departments and entities. Did it lack understanding or was it not willing to follow it?

Mr Moolla replied that executive management should have a better understanding of FMPPI and that the AGSA did perform high level presentations on performance information for departments.

The Chairperson asked about the recommendations which said “entity does not exist anymore” for issues of transgression. What did this mean?

Mr Moolla replied that transgressions occurred year after year. One reason was that when a transgression happened, sufficient action was not taken, so it repeated itself. In this instance, there was a merger of entities, so the entity did not exist, so there was no reason to continue the recommendation.

There was a five minute break before the presentation by the EDD.

EDD performance 2011/12: briefing continued from previous meeting
The briefing on the EDD performance was continued from last week by Mr Saleem Mowzer, EDD Acting Director-General. Expenditure increased 44% in the Department while the budget was increased 33%. This discrepancy was because in 2010/11 the EDD only spent 89% of its appropriation, while this year it spent 97%. The previous year's lower expenditure was accounted for because of the challenge of finding suitably qualified and experienced staff, which meant that the Department was understaffed.

The EDD maintained the status of an unqualified audit report. The AGSA had raised only one non-compliance matter, namely material misstatements of expenditure. These were subsequently corrected by the Department. There was a reduction from six instances of non-compliance in 2010/11 to only one in 2011/12. The EDD was committed to continuous improvements on internal controls. During the audit, a steering committee was set up which met every two weeks to discuss commitments to make to address improvements in the internal control environment. There were also meetings between the AGSA and the Minister, the Accounting Officer and the audit committee in this same regard.  An interim audit was started in October 2012.

The commitments made were to develop and implement a human resources (HR) plan with a view to meeting the HR needs of the Department, improving the payment process to ensure that payments were made within 30 days and improving the processes regarding the declaration of interest. All commitments had been developed and implemented.

The Committee was then addressed by Mr Zweli Momeka, EDD CFO, on the detailed expenditure of the Department. Total expenditure for the Department was R577.6 million, compared to R400.6 million the previous year. The total expenditure without transfers to the EDD entities was close to R90 million, compared to R44 million in 2010/11. Spending on administration totalled R51 million, which included the Ministry, office of the Director-General and general management services. Expenditure on Economic Policy Development was R12 million and R13 million was spent on Economic Development and Dialogue. The majority of the expenditure was on Economic Planning and Coordination, in which just over R500 million was spent. This programme included: spatial, sector and planning; economic development, financing and procurement; investment for economic development; and competitiveness and trade for decent work.

Much of this expenditure was done through transfers to the EDD’s entities, such as: Khula, which received R132 million; the Competition Commission, which received R126 million; SAMAF, which received R90 million; ITAC, which received R70 million; the Industrial Development Corporation (IDC), which received R34 million; and the Competition Tribunal, which received R15 million.

In addition, other entities which received transfers were: Proudly South Africa for the cooperative agreement on work relating to the Local Procurement Act, which received R8 million; the University of the Witwatersrand (Wits University) for its economic development capacity building programmes, which received R5 million; and the South African Institute of Chartered Accountants (SAICA) for establishing a hub and training programme, for which it received R6 million.

The Department also collected R593 million in revenue, the majority of which was through fines and penalties from the Competition Commission and dividends from the IDC. The revenue was not spent by the Department but promptly surrendered to the National Revenue Fund.

Mr Mowzer concluded the presentation by noting that, in terms of payments, the EDD took an average of 15 days to pay its creditors and that the Department had made a concerted effort to spend its budget in an economic, effective and efficient manner in view of the mandate of the Department. It was committed to continuous improvements on internal controls, ensuring that the EDD obtained a clean audit report by continuing to meet with the AGSA and internal audit committees on a regular basis and starting an interim audit in October 2012.

Discussion
The Chairperson asked how often the DG and CFO briefed the Minister on the progress, as well as how often the audit committee briefed the DG and the Minister.

Mr Mabasa asked about the difficulties of finding experienced staff as this was very important, as well as whether pursuing no irregular spending might result in a lack of taking financial risks which might pay off in the end. Mr Mabasa also enquired about the retention of those that were trained and whether they stayed with the Department.

Mr S Ngonyama (COPE) asked about the transfers to Proudly South Africa and Wits University, as well as the functions of the steering committee. He also asked about who declared that the issues presented by the AGSA were resolved, as mentioned on slide 12.

Ms D Tsotetsi (ANC) asked how the Department would rate itself.

Ms M Mpane-Mohososi (ANC) asked about the Wits University transfer and how it was monitored, as many did not complete the courses.

Ms Van der Merwe asked how accounting took place for transfers to entities outside of the EDD, such as Wits, SAICA and Proudly South Africa.

Mr Ntuli asked about the merged entities and the funding of the IDC, as well as whether the Department had created more jobs and good employment.

The Chairperson asked if the Department had knowledge of how others countries functioned in regard to economic development and whether it had first hand information or used the internet or newspapers. 

Ms Tsotetsi asked how the Department can function without full staff.

Mr Molefe Matsomela, EDD Director: Human Resources Management,  answered that it had 120 staff members, and a target 142 members. With regards to contract members, eight contract members had been absorbed into staff. The reason for 13 resignations was that people who were on contract who could not be absorbed as the salary would have been too large.

The Chairperson related a story of two ladies who were not absorbed into the staff for no reason  and that while the Committee did not want to run the Department or tell it how to do its work, things must be fixed in the EDD.

Mr Mowzer replied that the strategy for recruitment must be to retain people, where they enjoyed coming to work and had a purpose. It must be seen as a stepping stone to career progression in the Department and beyond and that the EDD could now recruit people into positions where there were vacancies to reach 142 members. Contract staff should be moved into permanent positions. Posts had been advertised and hundreds of applications for each post received, and most positions had filled. It was hard to match the private sector for salaries: the public sector salaries were very structured in what could be offered.

Many of the questions asked were not answered immediately, as the meeting was adjourned until 3:30pm.

When the Committee reconvened, the Chairperson asked to the Department to respond to earlier questions.

Mr Matsomela replied that people were hired to do work at the lower level. EDD absorbed such people and, in future, contracts would be limited at the higher level so as to have permanent staff. The process had commenced and EDD hoped to push it to the required level. This applied from level 5 right through to level 8.

The target on vacancies this year was 142, but vacancies were currently standing at 120 positions. The Department was also filling the positions; 13 had already been advertised. Given the space, it was tight because the end of the financial year was around the corner. But the Department worked hard to try and meet the target.

Indeed, EDD asked for assistance from other departments like Justice and Constitutional Development and the Presidency.

In order to promote people, the Department first advertised the positions, and all positions had specifications on the kind of people required. The Department was able to appoint people and promote them; most were from administration.

13 of the people who resigned went to join the private sector; seven of the 13 went to the University of Johannesburg (UJ), the mining industry and Edcon. Some joined other Government departments, and some just resigned without indicating their future prospects.

"Abnormal appointments" related to independent external audit committee members that EDD had. These were people independent from the establishment of the Department, and abnormal appointments specifically related to the external audit committee members.

Mr Mowzer said that 'abnormal appointments' was a term used by the National Treasury (NT). There were five holders of abnormal appointments as external audit committee members.

Mr Matsomela replied that highly skilled production referred to those employees at the lower level. They were too critical and most of who were from administration. But also there were highly skilled employees at the supervision level who oversaw both administration and the line function.

EDD training and induction courses happened at the Department. Some employees were trained internally as well.

All employee had declared their interests as required by law to the Minister who then submit the reports to the Public Service Commission.

The three zeros and an R
Mr Matsomela said there was an issue of average in table 2.2; there was a particular formula that was used to get to the averages, but he did not have calculations of the averages at hand.

The Chairperson sought clarity on the amount paid to the "abnormal appointments", as it looked excessive for five people.

Mr Matsomela replied that the figure expressed in the report was an error. The system calculated the average automatically.

The Chairperson wanted further clarity from the Chief Financial Officer (CFO), pertaining to the reliability of the information contained in the annual report.

Mr Zweli Momeka, EDD CFO, replied that he was not sure what was being discussed and that he would need time to familiarise himself with the report.

The Chairperson retorted that the Committee wanted answers and was discussing the financial statements. The point of discussion was table 2.2; unless the CFO had not been part of the meeting.

Mr Momeka replied that he agreed with Mr Matsomela that the three zeros appearing on table 2.2 were an error. If one looked at the salary bill of the Department for 2011, it totaled R48.3 million, and the figure expressed in table 2.1 was expressed correctly. Figures on 2.2 were expressed on the HR oversight report, and there was a need to go and verify them.

The Chairperson asked what was this supposed to mean. She asked if the documents were not circulated to everybody prior to being submitted. It was strange that officials from the same Department would not have an explanation on figures contained on their report. This did not make sense; there were figures from HR and finances, and figures on HR report should have been taken from the Finance Unit. She said she found the explanation as feeble and unacceptable. Why was the figure on personnel cost in table 2.1  expressed differently in table 2.2? She said she wanted to establish what was cost by programme, and what was cost by salary band.

Mr Momeka replied the figure on 2.1 personnel expenditure was the same as the figure on income statements, except for the rounding of one. This was how the information was pulled from Persal, and had resulted in a difference of R68. He said that he still had to double check personnel cost per employee, as he was not confident of the figures. The rounding issues was raised with the AGSA, but the personnel cost in both tables were in agreement with what was contained in the income statement.

Mr Mouzer replied that the R48.3 million was an audited figure. The Department would come back to the Committee on the personnel cost per employee. Although he did not understand the discrepancy of R68 in the tables, it still needed to be clarified. He apologised for being unable to provide clarity on the issue.

The Chairperson pointed out that in fact it was R68 000, and allowed the discussion to go ahead.

EDD responses continued
Mr Momeka replied that the lower expenditure on personnel cost meant expenditure on compensation of employees was a significant single item excluding transfers. It amounted to 60% of the budget and was an important cost driver. If there was underspend on compensation that would have a rippling effect on the Department's budget expenditure.

Mr Mabasa commented that he had reservations about the Department putting emphasis on reliance of using less staff to achieve more. The danger of having a too lean Department was that it could hamper service delivery and that would not please the Members. The number of personnel needed to be proportional to the capacity required to deliver to the people.

Mr Momeka replied the comment was noted and the Department would try to improve. He said with regards to the AGSA's view that EDD was free from the three undesirable forms - irregular, fruitless and unauthorised - of expenditure; Section 38 of the Public Finance Management Act (PFMA) compelled the accounting officer to ensure that systems were in place to avoid that any of the three did not occur. Section 45 also compelled officials to avoid those forms of expenditures. In the process of procurement EDD tried to adhere to the prescripts in ensuring that it procured properly.

Mr Mabasa commented that it was fine as long as the Department was happy that in meeting the legislative prescripts it did not disadvantage beneficiaries and voters. The concern was that a perfectionist approach was great, but it needed not be at the cost of failing to deliver. If EDD managed adequately to  provide to the people on the ground without having to venture into irregular expenditures that was great.

Mr Momeka agreed that compliance to rules and regulations needed not stifle service delivery. In fact, bureaucracy was there to ensure that service delivery happened. Officials needed not be rigid at the expense of service delivery.

Mr Momeka replied that slides on cost drivers were meant to provide information on the process that the Department followed when budgets and strategic plans were formulated. The reason this information was given was just to indicate to the august Committee that when budgeting the Department did not just aggregate, but unpacked the cost variables. This was the system encouraged by National Treasury. EDD highlighted and unpacked cost of employees and ensured that it did not employ people who were not funded in terms of the budget. Traveling was one of the cost drivers. There was a model where managers were expected to give estimates of traveling.

Mr Momeka replied that the steering committee the Department had with the AGSA was a bi-monthly consultative structure where officials met to discuss the audit process as it unfolded. The intention was to ensure that the audit process ran smoothly. Lack of cooperation had a potential to lead to the AGSA staying longer at the Department resulting in high cost. Challenges from both sides were shared, and clarity was sought on matters that needed to be clarified. This was the forum where all the queries raised by the AGSA were engaged. This was a better platform for communication and it worked well. The DG was a standing invitee.

The Chairperson sought clarity on the kind of feedback sessions that were there with the DG and the Minister. Were there set days where the DG and the Minister were briefed on the outcomes of the meetings? Were there management meetings where the ministers got briefed? If yes, how often did such meetings happen? That exercise would help the Department understand if there was a flow of accurate information. The AG was concerned that EDD was not following the right procedures that were there for the CFOs. If there were reviews there should not be concerns around reconciliation of figures.

Mr Mouzer said that he interacted with the Minister after every internal audit meeting, and briefed him on the outcomes. The Minister had at least one or two briefing meetings with the internal audit committee. The AGSA also briefed the Minister, and the CFO would join in those briefings. The audit issue, together with HR and financial matters, were standing items at every executive committee (Exco) and management meetings. From time to time, there was a meeting called MinExco, where the Minister addressed staff on a range of issues. During the audit process the Minister was briefed every second day. There was an effective interaction in relation to the issues.

The Chairperson commented that it sounded as if officials met only in preparation for the AGSA. She also enquired about the in-year monitoring briefings.

Mr Mouzer apologised if that was the impression he gave but briefings with the Minister were regular. Since his appointment he briefed the Minister weekly on audit, HR and financial related matters. One of the commitments was that the internal controls should be strengthened, and the Minister gave a commitment that he would receive quarterly reports from the Department around that. Those reports were submitted.

Mr Momeka replied EDD was required by law to submit expenditure as well as revenue for the past month and projections. That information was submitted to National Treasury; based on that a monthly report was prepared to brief the DG and the Minister. The Act required the Department to brief the Minister in case there would be an under spending or over collections.

The Chairperson pointed out that it was a weakness that the reports started at National Treasury before the Minister was briefed, especially if the Minister wanted to change anything. She said the management and controls concerned her; the AGSA raised the same concern that the CFO should ensure that financial statements were prepared regularly (monthly and quarterly). These financial statements should be reviewed by the CFO, and those statements should be the final set approved by the leadership.

She read a finding in the report and said that the financial statement submitted were not prepared in accordance with the prescribed financial reporting framework as required. Material misstatements of disclosure items identified by the auditors were subsequently corrected. If these material issues were not corrected the Department would have received a qualification.

The root cause of this situation was the lack of adequate review of financial statements by the CFO. She said this was the reason a recommendation that whatever was submitted needed to be approved and verified by, among others, the Minister. If this was happening there would not be zeros in wrong places in the report. Before the report was submitted it needed to be scrutinised. There was nothing wrong in engaging the AGSA on issues the Department felt unhappy with. It was EDD's responsibility to ensure that what appeared here was correct.

Mr Mouzer agreed and said the Department would ensure that happened. It was the responsibility of the DG and the Department to ensure that it reflected accurately the expenditure of the Department on monthly basis. This was done on the 15
th of every month. Where there were issues that needed the attention of the Minister the reports were forwarded to him.

The issue around monthly and quarterly statements in the AG's report was puzzling because this was done. Material misstatements was the only issue in the audited statements; when that was picked up the AGSA engaged the Department. In terms of the process EDD was given an opportunity to correct. The presentations made by both EDD and the AGSA outlined the nature of the cordial and good working relationship that was there.

Mr Mouzer said that through the engagement with the AGSA only one issue was raised. If one looked at the audit process, and measures put in place, the Department had done well. The Minister played a very active role in the financial, audit, and HR affairs of the Department. The Minister believed there was a need for a strong work ethic to work towards a clean audit. There was a strong culture of working together at the Department.

The Chairperson wanted to know if senior managers supported the CFO in terms of providing adequate and efficient support structures. If the support was not there EDD would always run into troubles. The Department needed to support the CFO so that he could confidently deal with issues.

Mr Mouzer replied the CFO got the necessary support. In terms of staffing, the Department could strengthen the audit and finance units. He said he noted the comment, and that it was his responsibility to provide the necessary support that the CFO needed.

Mr Mabasa said filling posts was so essential that the Committee could not over emphasised it. The Committee did not believe in the concept of a lean Department. He apologised for raising the issue of filling vacancies at the Department but it was tasked with a massive work of fighting poverty, and could not afford to fail on account of being understaffed.

Mr Mouzer replied that EDD was committed in filling the vacant posts, and even more so those that were funded and approved by National Treasury and the Department of Public Service and Administration (DPSA). It was a fairly new Department, and mainly tasked with policy development as opposed into delivering an actual service like water. In the discussions with the Public Service Commission (PSC) and National Treasury, there was a number of posts that were agreed to.

Entities within the Department like SIFA needed to be creating employment and be visible in provinces.

The Department had a good relationship with the Government Communications and Information System (GCIS). EDD worked with it on a regular basis. He would look into the claim GCIS had made about not getting information from EDD; that was noted and would be taken up.

The Department had its own website where information could be sourced, but clarified that the information (IT) system of the Department was still administered by the Department of Trade and Industry (dti). EDD was hoping to secure additional space in the next two months, and once that was attained EDD would then establish its own systems.

A Director for information technology (IT) had been appointed and was already working in the Department. It was agreed at the Forum for Directors-General (Fosad) that the GCIS website should have links to all departmental websites; over and above that, EDD had also said it needed to have GCIS link on its website. A webmaster had been employed, together with media liaison personnel for both the Minister and the Deputy Minister.

Mr Mabasa said that to facilitate communication, hard copies of documents needed to be available at functions, especially since huge chunks of the South African population were still without access to the internet.

Mr Mouzer agreed and said hard copies would always be made available on departmental communication materials. He refuted the claim that SIFA was not well resource, such that it could not print information in preparation to workshops. He said he would engage the chairperson of SIFA, as officials at the entity should have all that was expected of them.

Mr Mabasa asked that the statement be qualified, as the argument was not about should or not have. He said that at the meeting he attended with SIFA, officials pitched up with no business cards; no presentation; no stationery.

Mr Duma Nkosi, EDD
Acting Deputy Director-General said it would be important to identify those officials who attended the workshop so that a feedback could be received from those officials. The idea was to verify and correct that situation. EDD did not want to deny that such a situation did not occur, but a follow up was needed to correct that.

The Chairperson indicated that when Members asked questions the intention was not to put blame on or undermine anyone, but just strengthen the performance of the Department.

Mr Momeka replied that a tracking mechanism was put in place to process payments. There was commitment to stick within the 30-day payment rule. During the period under review it took an average of 15 days to process payments. The intention of EDD was to continue with that number or even reduce it. The target was 10 days.

Entities' confusion
Ms Tsotetsi said the findings of the AGSA also indicated quotations awarded to bidders who did not submit declaration documents. The AGSA recommended that transgressors should be held accountable. It was bothering that the AGSA had concluded that, despite this fact, no investigations and audit performance were underway. What could be the reason for not complying with that recommendation?

Mr Mouzer replied that the recommendation specifically referred to entities. The AGSA had reported that the Department was compliant and paying within the 30 days. EDD had taken that up and engaged them.

Ms Tsotetsi commented that entities needed to be treated separately from the Department. She said it was concerning that entities were behaving in such a way.

The Chairperson said that, because EDD transferred funds to entities; it needed to not be comfortable with getting clean audits whilst entities were not.

Mr Momeka replied that the point was noted and that there was a need for oversight. It was correct that funds were paid to the Department and were transferred to entities. In trying to ensure that entities were compliant, there were governance systems in place to deal with it. He chaired a forum of CFOs quarterly. They were meant to submit reports to National Treasury via the Department and that happened. There was a relationship from a financial point of view.

The Chairperson commented that it was important that the Committee understood the relationship. The CFOs forum should bear fruits. She wanted to know what issues were dealt with at the forum. It was important that the CFO ensured that there were no findings against the entities, as they were accountable to the Department.

The lack of involvement of the Committee on departmental issues needed to be looked at and improved. This was not the case without Committees, but Economic Development did not have information on important issues. The Committee had just heard that the ITech new commissioners had been appointed and no one bothered to inform Members. The Committee did not know if the DG sat at the forum meetings of the CFOs. This was no intention to manage the Department remotely, but it was the Committee's duty to help officials account for the money it had spend.

Virements of personnel costs
The Chairperson asked if the Department had any shifting of funds between programmes in the previous year.

Mr Momeka replied there were.

The Chairperson asked if that included the personnel cost money. She also sought clarity on the
PhytoEnergy Group of Companies programme, founded in 2004 by a group of South African and German project developers, which received R39 million that came from the ECF. The ECF got money from a particular donor; could the Committee be given more information around this.

Mr Momeka replied that virements happened last year in terms of Section 3 of the PFMA. But before virements happened the Department needed to get National Treasury authorisation and it did. This was done within the parameters of the law. Virements did not change the baseline of the Department as they were about shifting funds from under-performing programmes to where they were needed.

The Chairperson said that the Department was not supposed to shift money that related to personnel costs.

Mr Mouzer replied that, as part of the process when the expenditure was reviewed, EDD was in a position to determine if the budget would be spent by particular programmes. If it was foreseen that the money would not be spent, the Department engaged National Treasury.

The Chairperson disputed that and said the money for personnel could not be shifted. The Committee had to be sure of what had happened and if the information was correctly captured.

Mr Momeka disagreed and said the Act restricted money that had been earmarked for capital expenditure to current; it did not restrict money that was available for current. He explained that 'current' was programmes like goods and services and compensation of employees.

Employment Creation Fund (ECF) processes
Mr Momeka replied that ECF was a fund managed by dti. A memorandum of understanding was entered into with Fyto, dti and EDD, where dti permitted donor funding to be paid to the Department and it was transferred to entities. An initial agreement was for R39 million but, by the end of the year, R28 million had been paid to EDD. This was money that came in for the bio-diesel project. By the end of the financial year, EDD had no funds in its account of donor funding. The R39 million was a multi-year transaction and it overlapped to the current financial year; and R11 million this financial year had been received and already transferred.

Mr Mouzer said further explanation would be provided in the written responses.

The Chairperson said in the responses there was a need to indicate how the money would be accounted for. EDD could not just say that R28 million was transferred to the Department and yet not know what the money was used on. Also the statement that the Fund was administered by dti, needed to be clear.

Mr Saul Levin, Economic Development Department Chief Director: Development Finance Institutions (DFIs), explained that ECF was a joint fund administered by the dti using European Union funds. There was a steering committee that approved funding to projects. Any department in the country could apply for funding. Departments applied for the projects they supported; EDD still retained oversight over the work of that project. The Fyto project was collaboration between dti and EDD to try to unblock particular investments around bio-fuels. The project needed funding, and EDD, working with other stakeholders, was involved to make that project a success.

Mr Levin said the dti was administering the Fund on behalf of everyone, and also accounted for its role in terms of good governance.

The Chairperson wanted to why EDD was involved only in the transfer of money, and not all processes to which the money was subjected, including processing applications.

Mr Levin explained the process again and said EDD was much involved from the application process to transferring. The Department identified the project as worthy of support. Then EDD submitted an application through dti to the Steering Committee; it had done all the work together with
PhytoEnergy Group of Companies. The application then went through the Fund administrator – the dti - and then to the Steering Committee for approval.

The Chairperson said that the relevant stakeholders would have to be invited to the Committee so as to account on the Fund. She requested that the outstanding questions were to be answered in writing by Thursday noon.

The meeting was adjourned.

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