Department of Higher Education & Training audit outcomes: Auditor- General briefing; Department of Higher Education & Training Annual Report 2011/12 with Deputy Minister in attendance

Higher Education, Science and Innovation

16 October 2012
Chairperson: Adv I Malale (ANC)
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Meeting Summary

The Office of the Auditor General (AG) reported that the Department of Higher Education and Training had received an unqualified audit, and out of the 27 SETAS presented, 23 had obtained unqualified audits. The Fibre, Processing and Manufacturing SETA (FP&M) and Quality Council for Trades and Occupations (QCTO SETAs) were new and had not been audited. The Public Service SETA (PSETA) had been given a disclaimer, and the Services SETA had received a qualified audit. The Audits had looked at three areas of financial statements, predetermined objectives and compliance, focusing on areas such as supply chain management, human resources, information communication and technology, service delivery, and quality of information.

In regard to financial information, all programme expenditures had exceeded 90% of their respective budgets.  Total spending for the year was R38.306bn, which was 99.3% of budget. The Department had underspent by R8.8million, excluding direct charges.  There had been R3.2m underspending due to vacancies not being filled and equipment and materials not being bought. Vocationals and Continuing Education and Training’s underexpenditure of R4.6m was due to outstanding amounts of claims that could not be paid out.  Direct charges had not been listed in the report, and had amounted to an underexpenditure of R69.8m – the result of transfers not made to SETAS.  When SARS provided the revenue they generated from levies, they also indicated which levies belonged to which SETAS. An amount of R6.9m had not been transferred as SARS could not identify which levies they were. The irregular expenditure final amount was R485 000.

The Committee was generally not happy about the performance of the Department in the management of its own affairs and its coordinating role for the entities, particularly the SETAS. The Committee felt that the SETAS had failed dismally and had become dysfunctional, yet money was still being given to them. Some Members questioned the continuing existence of the SETAS, saying that they really did not see the point of them continuing.  Some were disappointed to see that there was so much fruitless and wasteful expenditure, which seemed to recur every year.  They felt that the Department and the entities did not have regard for the rules and regulations. The SETAS with qualified audit outcomes would need to come to Parliament to explain.

Meeting report

Chairperson’s opening remarks
The Chairperson welcomed everyone to the meeting and informed the meeting that the Deputy Minister, Higher Education and Training, the Hon. M.C Manana, would address the meeting briefly.

Mr Manana thanked the Chairperson and Members of the Portfolio Committee for providing the opportunity for the Department to give their input. He said their mandate was to respond to Outcome Five of the Programme of Action. He said the Department had made great strides in delivering what they had set out to achieve in the year under review. The Department achieved 60% of the planned targets, with 40% in the process of implementation. He was certain that the Department would be able to report in the near future that they had also achieved the rest of the targets.


Ms M Nkau, Business Executive in the Auditor General's Office, delivered the presentation on the outcome of the audit for the Department of Higher Education and Training.  Out of the 27 SETAS, 23 of them had received unqualified audits. The Fibre, Processing and Manufacturing SETA (FP&M) and Quality Council for Trades and Occupations (QCTO SETAs) were new and were not audited. The Public Service SETA (PSETA) got a disclaimer and the Services SETA got a qualified audit.

Ms Nkau explained that the Audits looked at three areas of financial statements, predetermined objectives and compliance, focusing on areas such as supply chain management, human resources, information communication and technology, service delivery, and quality of information. Over and above those areas, there was also the focus on oversight and government structures. In relation to risk assessment and management and effectiveness of audit committee for the education portfolio, the AG had an interest in supply chain issues, as there had been a very slow reaction to the issues concerned, but there had been an intervention to address such concerns. There was a need to improve the quality of the non-financial support information.  For example, in 2011 there was no legislation to require universities to report on predetermined objectives as required by the Strategic Plan of the Department.  Every university reported the way they saw fit. Some universities submitted detailed reports and others just one paragraph. The universities were also not regulated on supply chain management. FET Colleges also needed to report, as there was no legislation requiring them to report.

An official of the Auditor-General’s Office continued the presentation, saying that their role was to give an overview of the audit outcomes for the year 2011/2012 for the Department with its entities. The Department itself had an unqualified audit opinion, with findings. In terms of predetermined objectives, the AG Office said that they had not found adequate and reliable corroborating evidence to explain 29% of the major variances for programmes 2, 3 and 4, which were human resources, university education and continuing education and training respectively. The Energy and Water SETA audit was unqualified, with findings as well, with the AG raising concerns about the validity and accuracy of information in relation to the achievement of targets. Though the Wholesale and Retail SETA had had an unqualified audit with no findings, the AG pointed out that out of 31 planned targets, only 14 had been achieved, which represented 51%. The strategic plan had not formed the basis of the annual performance report. It was noted that the inconsistencies had all been corrected by management.

The Health and Welfare SETA had received an unqualified audit opinion, with findings. A total of 71% misstatements in proportion to the targets in the annual performance report were identified in the targets that were not specific and measurable. The Culture, Arts, Tourism, Hospitality and Sports SETA (CATHSETA) had an unqualified opinion, with findings. The AG had found that 50% of the targets reported were not consistent with the targets, as per the strategic plan, due to the significant changes made to targets that were not submitted to the executive authority for approval. The Fiber and Manufacturing SETA had not achieved 51% of its targets. The National Skills Fund had a qualified opinion with findings. The AG had found that only 66% (14 out of 21) targets had been achieved. The issues identified had also been corrected by management.

In the category of Human Resources, the AG pointed out that the DHET did not always verify the process of new appointments and did not cover criminal record checks/citizenship verifications/financial record checks in terms of the Public Services regulations.

Discussion
The Chairperson pointed out that the DHET and its entities had used up R40m without following the laws and regulations of the country. He emphasised that the SETAs needed to be accountable, as much of the information they had was unsuited for audit purposes. He did not know what the SETAs were doing and how they were performing, but they were getting a lot of money. He urged the Members to look into those matters during their discussions. He also suggested that the SETAs who had qualified audits and who had disclaimers, needed to appear before the Committee to explain themselves. 

Ms Nkau said that out of 19 universities, three had received unqualified financial opinions, with findings on compliance, and one had received a qualified opinion, with findings. At the end of the audit, there were 21 universities who had submitted annual reports on time and two who had submitted financials after the legislated date. In relation to FET colleges, 11 FET colleges had received clean audit outcomes.  Twelve were financially unqualified, with findings. Six had qualified audit opinions, two received disclaimers. Nineteen audits of FET Colleges were still outstanding and the names would be sent to the Committee in writing.  Six FET reports were still outstanding from the 2010 financial year.

Ms Nkau mentioned that a spreadsheet had been handed out which gave findings relating to outcomes presented, looking at predetermined objectives and giving reasons for variances in terms of non-achievements. The Department did not always provide reasons, as they needed to be auditable. For example, there were a number of DHET portfolio components that had not been achieved according to the Strategic Plan. When targets and indicators went along with the budget, the entities indicated they could not achieve targets due to budget limitations, but this needed to be audited.

Ms Nkau referred the meeting to the slide on the pyramid of accountability which had three levels, where the bottom level was the base that held credible information flowing to Committees to do effective oversight, and the first level needed to have appropriate skills in the Department. That meant that the capacity should be sufficient and aligned to the strategic plan of the organisation. Every individual needed to have a performance contract. Why such was called the pyramid of accountability was because every person needed to be accountable. The entity needed to have policies and procedures to enhance effective control. Every employee needed to understand that, and proper planning also needed to be included in the accountability process. In relation to material adjustments to financial statements, the AG found instances where entities had made adjustments to information and reported on a quarterly basis, reflecting material accountability. Every management level needed to take responsibility to ensure checks and balances were done on a daily basis. Everyone had done credibility and liability tests. The challenge in the public sector was that reporting was done on income and expenditure-related outcomes, and the auditor saw the disclosure items for the first time during that period when the audit was being done, which could result in a disclaimer of opinion because there was not enough time to correct it.

The Chairperson said that there was a need for a workshop between the Committee and the SETAs, with internal objectives. He reminded the meeting that he had always said in previous meetings, that departments and entities needed to work together with the office of the Accountant General who released on a monthly basis, income and expenditure figures for every department. Each department had a responsibility to show their spending and the Accountant General was willing to give information. He said it was important for the departments and entities to note that, and to solicit the help of the Accountant General who was very happy to help, in order to get unqualified audits at the end of the financial year. The Accountant General had often said that failing to execute a project was not the problem, but the failure to account for it.

The Chairperson apologized, as he had to attend another meeting and asked another Member to continue chairing the meeting.

Mr G Radebe (ANC) thanked the AG’s office for the useful information. He was very disappointed to see that there was so much fruitless and wasteful expenditure – and it seemed to appear every year. It seemed to him that the Department and the entities did not have regard for the rules and regulations. He suggested that the Department needed to be called to come and explain.

Mr S Makhubele (ANC) asked what the disclaimer was, if the audit report was unqualified. He asked if it was related to capacity and skills. 

Ms A Lotriet (DA) asked what kind of irregular expenditure it was.

Another member asked what the basis of the reporting irregularities was.

Ms Nkau explained that irregular expenditure was identified through audit. If the arrow was yellow for two years in a row, then they would classify it as red, as there would have been no improvement. She continued that the Local Government (LG) SETA usually sent their information by 31 July.  In the current year, however, they had not heard from them, and they just had to leave them out, as the problems were too big. If an organisation did not perform monitoring and evaluation throughout the year, then they could not leave it to the audit. Irregular expenditure referred to the inconsistent reporting of the universities.

Another AG officer said that the majority of SETA irregular expenditures related to non-compliance with supplier regulations. The statements at year end indicated that when one looked at pyramid accountability, the first level was to have skills, internal control, support accountability and every person in the organisation needed to know what the were supposed to do. If something went wrong, either the person was not doing their job, there was no oversight, or no discipline in the public sector to prepare monthly financial statements to be complete, accurate and credible.

Mr Radebe asked if the AG Office could say that what was in the report was not acceptable, and that someone should be charged.

The Chairperson asked if funds should continue to be poured into FETs who were not performing.

Ms Nkau said that the AG had made a commitment a few years before to increase visibility and improve audit outcomes, to capacitate every stakeholder, and to hold different levels of management accountable. The AG reported on findings and raised red flags to take corrective actions through recommendations. The AG office was not in a position to say if someone should be charged or not, or if FET Colleges should continue to get money.

Department of Higher Education and Training - Annual Report 2011/12 Presentation
The Director General of the Department of Higher Education and Training Mr G.Qonde, thanked the Committee for the discussion and indicated his Department had taken cognizance of issues raised by the AG, and some had been addressed. He also acknowledged that though the Department had received an unqualified audit report, the issues raised by the AG had been addressed through the Action Plan, as the Department had looked at them before they came to the meeting. He also pointed out that the figure he was given for the irregular expenditure was R400 000, and not R2m as mentioned in the report. The CFO confirmed the figure of R400 000. The various coordinators presented the respective findings of their programmes.

In relation to the financial information, all programme expenditures had exceeded 90% of their respective budgets. The direct charges were included as funds flowed through the Department. Total spending for the year was R38.306billion, which was 99.3% of budget. The Department had underspent by R8.8million, excluding direct charges. Administration’s R3.2m underspending was due to vacancies not being filled, and equipment and materials not being bought. There was also less billing from the AG’s office, which helped the Department.  Vocationals and Continuing Education and Training’s (Programme 4) underexpenditure of R4.6m was due to outstanding claims that could not be paid out.  Programme 5 - Skills Developmen – underspending was due to the security system process run by Public Works, which was very slow in progress.  Direct charges were not listed in the report and amounted to underexpenditure of R69.8m, which was a result of transfers not made to SETAS. When SARS provided the revenue they generated from the levies, they also indicated which levies belonged to which SETAS.  An amount of R6.9m had not been transferred, as SARS could not identify which levies they were. The irregular expenditure final amount was R485 000.

Discussion

A Member asked how many of the graduates had been employed already. He also asked if there had been collaboration between DHET and the Department of Basic Education to determine how many teachers were needed for the foundation phase, and how many were encouraged to pursue it. He also asked the Department how it saw its coordinating function in relation to the SETAs, if it was able to see how dysfunctional the SETAS had become, and how it viewed their dismal performance.

The DG DHET thanked the Committee for their comments, which indicated that the Department took their concerns and issues raised seriously. The Department was engaged with industry in regard to opening up their work places for access by graduates, which potentially resulted in a placement. They had also worked to ensure the programme offered by institutions was improved in quality. He pointed out a study conducted by the Ford Foundation, which concluded that getting academic qualifications had a high correlation to being employed.

Dr. D Parker, Acting DDG, DHET, added that one on one discussions had taken place with professional bodies to look at ways to deal with blockages between graduation and employment, and setting up systems to monitor if graduates got employed. The Department was also working with the Department of Basic Education to strengthen foundation teaching as part of the plan. The DHET compiles a document called trends and teacher education, to determine what kind of teachers were being produced

Another Member pointed out that there was no adequate explanation for the variances and why certain targets had not been achieved. He asked why 29% major variances were not adequately reported. Why had 25 members identified by the forensic investigations had not been submitted to forensic investigations. He also queried the delay caused by amount of consultation and asked how much time was required.

The DHET explained that 15 officials had been implicated by the audit report, but the Department had to be cautious.  Letters of intent had been issued on why they should not be charged, followed by a process with the auditors themselves. For example, one official was taken through the process and the sanction was dismissed, but they had appealed to the Minister, who had confirmed the dismissal. Five officers were charged in addition, which in resulted in one dismissal, one demotion, and three suspensions without salaries for a month.

Another Member asked about the update needed for the regional office, as indicated in slide 7. He also referred to Slide 17 on the provision of student housing policy at South African universities, and how a project was not approved in Stellenbosch because they were rich enough to provide for themselves. He asked the Department why that was. He also asked what “childhood education academics” were. 

The DHET DG said that the Department did not have a regional presence. He also mentioned that they had visited the University of Stellenbosch and had engaged with the engineers, and they had informed the Department that what they were putting up was just a stop-gap measure, not a structure that would sustainably provide student accomodation . The Department was supporting them on student housing.

The Department explained that the phrase “new childhood academics” was a phrase being used in the system at the moment, which referred to developing academics to produce teachers for young learners.

Another Member asked if the reason for non-achievement of targets was a lack of staff capacity. He asked if the programme on primary health starting in 2013 would be available to all institutions. He asked for an explanation on under-expenditure relating to staff compensation.

Another Member asked if the objectives not achieved in one year were rolled over into the next. She also asked when the regional officers, planned for in the previous year, would start operating. Was the budget closely related to the targets?  What was the funding model for the universities? How far were the SETAS with the strategic plans that had not yet been signed.

The DG said that the objectives not achieved in one year were carried over to the following yea,r but did not necessarily add to the predetermined objectives. He also pointed out that the university with the qualified audit mentioned in the presentation, was the Walter Sisulu University.

Dr Parker said that a review of funding for universities had been done and the report was being developed with recommendations. Some of the things done had included earmarking and introducing criteria to steer funding to universities that needed it, to ensure an equitable system. She remarked that the Walter Sisulu University’s audit status in the year was actually an improvement, as the previous year it was a disclaimer. The Department was looking at earmarking funding and allocating a large proportion of it towards historically disadvantaged students for housing.

The Chairperson returned from his meeting and resumed his seat. He asked the CFO to advise on the application for coordination. The Department also needed to submit all policies to the Committee, as requested at the previous meeting. He clarified that the Committee needed evidence to support that the Department had actually done what it was supposed to do. The Committed was not interested in hearing about money being spent, but about how the money was being used.  He referred to a report that was being collated on State Owned Enterprises, and was interested to know how the SETAs would be reflected as he thought they were being paid for doing nothing.

A Member referred to the accountability of SETAs to the Department, and pointed out that the Department was responsible for the SETAs, as it was the coordinator.  What was the Department coordinating, if the SETAs were dysfunctional?  Did they still have reasons to exist?  He also asked about the job evaluations and why they had not been done.

The DG replied that the need for SETAS was not a decision that the Department could make, but they were taking the issues raised seriously.

Ms Lotriet asked about the outstanding certificates from the SETAS, and whether they were likely to be issued. 

A DHET Officer said that the reason why no job evaluation had been done was that they had given statistics in a number of posts evaluated in 2011/2012.   Evaluations could be done on request from staff.  It was also done on newly created posts and evaluated senior posts

The meeting was adjourned.



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