Department of Home Affairs audit outcomes: Auditor-General briefing; Department of Home Affairs 2012 Annual Report

Meeting report

Briefing by Auditor General
Mr Kevin Lachman, Business Executive, AGSA, said audit opinions in the presentation document had been given for DHA, the Independent Electoral Commission (IEC), the Government Printing Board (GPB), and the Film and Publication Board (FPB).   DHA had achieved qualified audits in 2008-09, 2009-10 and for the current 2011/12 (see page 4).  Page 4 also tabled a rundown of areas of qualification across all four bodies.  Improving the quality of financial information that was being presented could be achieved through improving government structures. This information should be available at any point of time, not just at the end of the financial year.

Page 6 tabled key focus areas, where some challenges remained around supply chain management, predetermined objectives had seen regression, human resource (HR) management had met with minimal improvement, information technology (IT) controls were strong, but material errors in annual financial statements submitted for audit had also shown a regression.

From pages 6 to14 findings were detailed, including root causes and the AGs recommendations for the DHA, Independent Electoral Board, Government Printing Board, and the Film and Publication Board across supply chain management, predetermined objectives, human resources, material errors in annual financial statements, and other areas of non-compliance (please see attachment).  The quality of financial information would be an area of focus for the Auditor General (AG) in regard to the DHA, as submitted statements had not been prepared within the prescribed financial reporting framework. All users of financial information needed it to be credible, and this would occur only if management had adequate processes in place to support the preparation of valid, accurate and complete financial statements.

The internal audit function had not submitted quarterly reports detailing performance against the annual internal audit plan as required.  There was also no three-year rolling strategic plan in place. The internal audit function had not evaluated the reliability and integrity of financial and operational information as required by Treasury regulation 3.2.11(b). It was recommended by the AG that the internal audit should be sufficiently staffed in order to ensure that appropriate assessment controls were in place and recommendations made to managers in a timely manner. The head of Internal Audit should ensure that there was a three-year strategic plan in place, as well as the current year’s internal audit plan, which would be based on a risk assessment approved by the audit committee before the commencement of the financial year. The internal audit should make use of monthly and quarterly reporting of DHA and the interim annual financial statements.

Of the total number of planned targets for the year, only 22 had been achieved, meaning that 25% of the total planned went unachieved. No investigations or performance audits were currently underway by AGSA.

Other matters of interest included unauthorised expenditure (page 15) where DHA had recorded R687.3m in 2011, compared to zero expenditure in 2012.  On fruitless and wasteful expenditure, DHA had seen an improvement from R334.6m in 2011, down to R700 000 in 2012. The IEC and FPB also saw decreases, while the GPW remained flat. Overall there was a downward trend in these types of negative expenditure.

Discussion
The Chairperson noted the various findings brought forth in the audit report emphasising vacant funded posts, accounts not being settled within 30 days as was required, and problems with DIRCO on the collection of revenue and revenue sharing between DIRCO and DHA.

Mr G McIntosh (COPE) noted that the criticism made by the AG was constructive and said that emphasising 30-day payment was very important. If government did not provide an example in this area, private sector entrepreneurs would not do the same. It was asked what a “Highly Disadvantaged Individual” (HDI) was on page 7.

Mr M Mnqasela (DA) said the speed with which vacant posts were filled was constantly being questioned by the Committee, and the AG’s report backed this up. The issue of internal financial controls was also of note, as were the annual and quarterly targets set for DHA.

Ms G Bothman (ANC) said that the previous audit statement for the last year had raised the same issues as the current audit report, but the audit opinion had gone from qualified to unqualified. What was the reason for this?  Also, the different internal bodies like the IEC within the DHA, seemed to have different reporting systems. Could this not be more systematic?  In terms of the PFMA, she believed there were two accounting officers (this was later corrected). Where the overall accounting officer was the head of department (HOD), if the accounting officer was unable to grasp the right numbers, where was the problem located?  Understanding this would make it easier for the Committee to conduct oversight.

Mr A Gaum (ANC) said there had been a qualification the previous year, so there seemed to be an inconsistency within the office of the AG – one year something wasn’t regarded as a problem, and the next year it was. Could this be explained?

Responses
Mr Lachman agreed with Mr Mnqasela that internal financial controls needed to be an area of focus. In terms of revenue, there was an emphasis on the control environment. The reason why one year a qualified audit was issued and the next year an unqualified opinion was given, depended on the extent of problems found. There was one accounting officer who was either the DG or the HOD. Root causes needed to be consistent in order for the Department to take effective actions to right the findings in the audit.

Non-compliance started at the junior level, where initial errors were made. It was a requisite for the management level to then detect these errors and rectify this through training, to prevent the same problems from reoccurring year on year. International and business sector models were excellent examples of best practices and should be applied in South Africa.

Mr Gaum asked for further information.  What methods were used to come to a material audit?

Ms Bothman asked about tenders and procurement.

Mr Lachman said that auditing was conducted in terms of international auditing standards and methodologies. Assessment was done at the level of materiality and the errors that were made, and their effect, were looked at. In this regard, last year these factors were below the threshold and this year they were above, indicating the difference in audit opinion. This was done by looking at percentages involving the financial base and other factors, as well as levels of risk within the financial statements.

Briefing by DHA on Annual Report and Financial Statement 2011/12
Deputy Minister Fatima Chohan, DHA, apologised for the absence of the Minister, who was attending a bilateral Zimbabwe-South Africa meeting. She began her commentary by noting that DHA continued to consolidate gains made on the back of the National Population Register (NPR), a cornerstone of South Africa’s security and in full compliance with the laws of Parliament. There was a legal requirement that all South Africans were registered within 30 days of birth. There was only a single point of entry into the register and the late registration of births was gradually being phased out. Now DHA was in the “mop-up” phase in rural communities of this campaign, and was hoping to deal with the last vestiges of apartheid aimed at depriving people of citizenship. The annual report showed a 41% decline in late registrations since last year.

DHA had assisted in the stakeholder forums established most recently in Limpopo and Mpumalanga. DHA had visited half of all high schools in the country or roughly 7 000 schools to process identity documents (IDs) for all 16-year-olds. As a result, there were a low number of queries on hotlines established by DHA to specifically address concerns of matriculants this session.  In the main, queries dealt mainly with changing surnames, not receiving IDs as in the past.

Registrations of birth within 30 days of birth had increased by 11.2% over last year, and there had been a noticeably improved service delivery for citizens. DHA’s website had been updated and 72 more hospitals had opened up online registration of births. Rural mobile teams had been augmented by the addition of 4x4 vehicles to better access remote areas. The refurbishment of 14 more DHA offices to comply with a more modern and efficient look and feel had been completed. The foundations of the Department’s learning academy had been laid and 350 new immigration officers had been taken through a very much improved training course. There had also been an expansion of counter-corruption efforts and the scope of these efforts included, but was not limited to, officials of the Department. In the annual report, under the section on security and counter corruption, the extent of illegal marriages was outlined. These were foreign persons who were complicit in trying to attain permanent residency and later citizenship through marriage to a South African citizen. DHA had begun arresting people, including certain priests, as this crime had taken on a syndicated character and was becoming more widespread.

On the 8 November 2011, DHA had launched a partnership with various banks – African Bank, ABSA, First National Bank and Standard Bank – and the SA Social Security Agency (SASSA) and Department of Human Settlements, to create an online system for the verification of bank clients through fingerprinting. The initiative was now gaining momentum, with a combined total of 164 branches conducting 10 904 fingerprint verifications. This would boost customer confidence and ultimately benefit every single South African.

During this period of reporting, DHA’s head office had been relocated to the Hallmark Building, and there had been challenges surrounding the integrity of the asset register.  However the Deputy Minister was pleased to announce the team led by the DG had been able to meet these various challenges and this had led to a successful move.

The Deputy Minister wished to record DHA’s commitment to ensure effective financial reporting. This had been found wanting in terms of revenue collected with DIRCO, involving the incorrect registration of revenue from missions abroad. This situation still required the submission of physical vouchers to be presented to the Department by officials, leading to a risk of misclassification as there were different languages on vouchers. The clear solution was an automated system in each overseas mission and unfortunately due to costs, this would not be fully addressed by the next reporting cycle. As a result, DHA would have to contend with the current manual system, but was looking at dealing with these challenges as quickly as possible. This aspect of reporting had not previously been audited and had begun only this August.

DHA had already set about developing new plans to remedy matters raised by the AG and it was noted that there had been no regression regarding financial management. The Deputy Minister pledged to address all of the challenges found by the AG’s office in the audit report, as effective management of public finances would ultimately contribute to a better way of life for all South Africans.

Mr Mkhuseli Apleni, DG, DHA, said that the Minister had signed a performance agreement (PA) with the President for a five-year period, beginning in 2009, on the following issues: completion of all strategic information and identification projects with already defined budgets and time frames; effective and efficient refugee management strategies and systems; contributing to the level of skills and general economic development with a positive skills migration trend of around 50 000 migrants annually; the registration of births within 30 days; the issuing of IDs to every South African 16 years or older; improving turnaround times for all services, queuing times and unit costs; and determining and improving the maximum distance for a citizen to access DHA services.

The Department’s strategic plan was grounded in three outcomes: secure South African citizenship and identity; immigration managed effectively and securely in the national interest; and a service that was efficient, accessible and corruption free.

Measurable objectives for outcome 1 were to ensure that registration at birth was the only entry point for South Africans to the National Population Register (NPR), to issue identity documents to citizens turning 16 years of age, to ensure registration and identification of all South African citizens, foreign residents, refugees and asylum seekers, to enhance integrity and security of identity.

Objectives for outcome 2 were to ensure a secure, responsive immigration regime, to implement effective an efficient asylum seeker and refugee management strategy, to facilitate the efficient movement of bona fide travellers, and to contribute towards realising a positive skills migration trend of roughly 50 000 migrants annually.

Objectives for outcome 3 were to transform the culture of the organisation in support of securing identity, citizenship and international migration, to ensure ethical conduct and a zero tolerance approach to corruption, to obtain a clean audit report, to ensure secure, effective and accessible service delivery to clients.

High level priorities of DHA for 2011/12 were given as the achievement and maintenance of a clean, secure National Population Register (NPR), the effective implementation of risk-based and efficient management of immigration, the ongoing transformation of DHA values as embodied in its organisational and service delivery approach, and the effective harnessing of technology to support the above priorities.

The main achievements of the DHA included 51% of new born children being registered within 30 days, which was a 11.2% increase from the previous financial year. Of total births, 90% were registered within 12 months and late registrations declined by 41%. The effective implementation of risk-based, efficient management of immigration was accomplished by DHA chairing the Inter-Agency Clearing Forum of departments involved in the border environment, as well as chairing a committee to coordinate security operations related to immigration. DHA had played a key role in South Africa’s hosting of the UN Climate Change Conference.  Improvements had been recorded within the immigration environment through the approval of a new permitting structure and project to enhance security and reduce backlogs. The Dispensation for Zimbabweans Project had progressed well, with a total number of 203 364 cases resolved by 31 March 2012. The Refugees and Immigration Acts had been amended to streamline key processes and address gaps in legislation. And a national framework had been developed for the implementation of the Cessation of Angolan Refugees, in consultation with Angola and the United Nations High Commission for Refugees (UNHCR).

The ongoing transformation of DHA had been achieved through the strengthening of human resource capacity within the Immigration Services Branch by training 350 new immigration officers from the SANDF at OR Tambo International Airport. DHA was voted an employer of choice, and introduced the first-ever South African Qualifications Authority (SAQA) accredited Home Affairs training course. Three leaders forums enhanced leadership capacity and the Coaching Clinics Framework had been developed and launched in March.

The effective harnessing of technology had led to producing a more secure crew-member certificate for airlines, using smart card technology. The smart card system itself would be piloted in 2012/13.  In addition, a backend system for the smart card had been designed and integration testing initiated. An Enhanced Movement Control System (EMCS) was deployed to 11 ports of entry to bring the total to 45 ports. Infrastructure capacity assessment for offices was planned, with live capture deployment performed in 167 offices, and would be further upgraded to increase bandwidth and improve services.

Overall, DHA had achieved only 26% of its targets, with 50% partially achieved and 24% of 12 targets not achieved in 2011/12. The targets not achieved included rollout of live capture, piloting of the smart card, National Immigration System, the Trusted Traveller Programme, adjudication committees, Refugee Appeals Authority, costing of IMS services, finance systems, Draft Access Model test, and an unqualified audit report.

Performance against strategic objectives for Outcome 1 was detailed on pages 17-21, for Outcome 2 on pages 22-27, and for Outcome 3 on pages 28-34.

Audit findings related to pre-determined objectives highlighted the following challenges: usefulness of information, reliability of information and the fact that reported performance had not been accurate.

On the usefulness of information, the auditors found that the use of a track and trace system to obtain data resulted in a 10% margin of error when a sample of application forms was compared with records on the system. The main problem was that the application date on the track and trace system differed from the actual application form, and there were instances of poor filing and compliance.

On the reliability of information the example of scarce skills permits was given, where auditors had found a mismatch between the supporting information and the statistics derived from the permitting track and trace system. The major challenge was that the permitting system had many kinds of permits, but only two were specifically designed to enable the recruitment of scarce skills.

On the reported performance not being accurate, the example of DHA visits to high schools was provided. It was stated that 7 342 out of a total of 11 219 schools had been visited during the review period, or 65.4%. However, given the scope of the campaign and the context, such as visits by mobile offices to rural area schools, it was difficult to collect evidence consistently across all nine provinces. DHA would have to improve their data collection and monitoring techniques. A function had also been added to the relevant database to enable DHA to measure the number of ID applications received at schools as opposed to those received at offices.

It was noted there were 202 vacant posts in DHA, of which 45 were priority postings. Out of a total of 1 418 vacancies, 1 216 posts had been filled, or 85,75%.  Natural attrition or people resigning had resulted in 300 vacant posts, out of which 143 had since been filled, with 157 of the 202 total vacancies unfilled (please see Human Resources section on pages 40-45). Challenges regarding the inclusion of minorities and persons with disabilities still existed, with deficits in all demographic categories excepting Africans, which had a surplus of 6,54%.  From a gender equity perspective, females were over represented at DHA, encompassing 58,96% of all employees. On employee relations in 2011/12, there were 216 cases of misconduct (up from 139 the previous year), 23 suspensions (down from 138), 73 grievances (down from 120), and 97 disputes (up from 67).

Key priorities going forward were: establishing and maintaining a National Identity System, secured early registration of birth, biometrics and effective management of immigration; finalising the immigration policy review; transformation of Immigration Services and the establishment of a Border Management Agency; ensuring that quality services were delivered to all citizens; developing a Home Affairs cadre of officials that were patriotic, professional and humane;  and systems modernisation, which included the ID Smart Card rollout to provide an integrated, automated, and secure IT platform.

Briefing by DHA on Audit Outcomes
Ms Rudzani Rasikhinya, Chief Financial Officer (CFO), presenting the audited financial results (slide 3) said that out of an allocation of R5.8bn there had been expenditure of R5.6bn or 96.5%, an under-spend of 3,5%. The norm from National Treasury was that a department could under-spend its budget by 1%. Under spending on employees was R43m, or 2.2% less than budgeted. Under-spending on goods and services resulted from R46m for the printing of passports and R53m for the defrayment of unauthorised expenditure from 2005/06. Therefore DHA had actually under-spent its budget by only 1,.68%.

The audit for the 2011/12 financial year had commenced in January 2012 and no interim audit had been conducted, as the Head Office had been relocated to Hallmark. The annual financial statements (AFS) had been submitted on 31 May 2012 in line with the legislative framework and towards the end of July the AG had reported material findings. All findings had since been resolved, except the accounting treatment for revenue collected in overseas missions. Due to the unique dynamics of the DIRCO/DHA relationship, National Treasury had approved a new accounting policy for revenue received through DIRCO with regard to revenue generated at foreign missions. Since the issue had been raised late into the auditing process, DHA had requested an extension which was granted through the Minister, as it had not met the 31 July deadline.

The new accounting policy provided for the treatment of revenue received abroad as follows: 1. Revenue; 2. Payable (new); 3. Receivable for departmental revenue; 4.Contingent assets (new).  Revenue was then split between fines, other revenue, repatriation deposits and unallocated credits. While preparing the revised AFS, management was still debating the classification of unallocated credits, which had resulted from the fact that one voucher had been issued for all money collected on a particular day. This made it difficult for DHA to correctly allocate vouchers, vouchers were in foreign languages, and were generically described as consular fees. All issues were later resolved, except for transactions disclosed as contingent assets where there was a likelihood that DIRCO owed DHA funds, but there was no supporting documentation or the description of the vouchers was not clear enough for allocation.

At the end of the year, the balance between DIRCO and DHA was in agreement.  DIRCO showed payables amounting to R226m, with DHA showing an equal sum for receivables. This had led to a material overstatement of a negative R34m for 2011/12, down from an understatement of R113m for the previous year.

Other issues raised in the audit report were that there had been significant uncertainty relating to various pending legal claims amounting to R1.2bn. The late finalisation of the audit had also been of concern and the following findings were raised regarding performance indicators: 30% of indicators were not well defined, 26% of the indicators were not verifiable due to inadequate process, and 32% of the actual reported performance was invalid when compared to source information. On compliance with laws and regulations, material misstatements were identified by the AG during audit in commitments, accruals, contingent liability, leave liability, moveable assets and revenue.  On revenue management, appropriate processes had not been developed, nor had the recording of reconciliation and safeguarding of information. Effective controls had not been taken to prevent irregular expenditure and payments were not always settled within 30 days. This had seen an improvement, however, due to the decentralisation of procurement and payment to provinces and the roll out of the LOGIS system.

On procurement and contract management, contractors had not been selected for four offices according to the criteria of the Construction Industry Development Board (CIDB). The offices affected were the Lusikisiki, Ladysmith, Ratanda Thuso and Pietermaritzburg regional offices. This had resulted in irregular expenditure of R3.9m. Contracts had not been recorded on the register of the CIDB and 44 employees of DHA performed remunerative work outside of their employment with permission. Although a majority of contracts had been awarded though state institutions, there were two instances amounting to R108 017, where an employee or family member had done business with DHA.

Areas of concern for human resources were the non-certification of the monthly payroll, vacant posts were not advertised within the allocated six-month time period, and the performance agreements of 46 employees had not been signed by 31 May 2011.

On the way forward for DHA, management had developed the following plan: acquiring an accounting system to record transactions, developing a procedure manual for missions and officials to ensure consistency, and monthly monitoring and reporting of progress made. The Immigration Act had been amended, where DHA would not charge a repatriation deposit for travellers – instead a traveller would be required to produce a return ticket. In addressing issues raised by the AG, debriefing sessions would be held with the AG and National Treasury to diagnose the root cause of findings.  An audit action plan signed off by EXCO would be developed with managers and was due by November 15 2012. Weekly meetings would be held on monitoring progress, with monthly reporting to the Audit Action Monitoring Committee. Existing policies would be updated, while there would be an ongoing audit of the action plan and interim financial statements.

Discussion
The Chairperson said the issue of revenue sharing with DIRCO needed to be worked on. The relocation to Hallmark should not have been complicated from a logistical perspective. Clarity was asked for on the role of a proposed Border Management Agency as the Chairperson felt there were already agencies working in this area.

Ms N Mnisi (ANC) noted the improvement, with a 41% decline in late registration of births and mobile teams in rural areas with the addition of 4x4 vehicles. What interventions would be taken on irregular expenditure?  Would DHA be able to submit annual reports on time from now on? How did the Department monitor and ensure targets were met? What measures were in place to address the low levels of disabled persons employed at DHA?

Mr McIntosh was encouraged by the concern DHA had shown to comply with requirements of PFMA. Was a clean audit achievable in future? He praised school visits by DHA but noted not all students made it to matric and agreed that although DHA had recorded over 7000 school visits it was difficult to monitor if this was a true representation. He evinced a view that there was a need to look at foreign border agencies as possible examples moving forward.

Ms D Mathebe (ANC) asked what the Deputy Minister meant by “syndicated groups of priests.”

Responses
Deputy Minister Chohan said that particular priests’ names appeared again and again on marriage documents for fraudulent marriages between illegal foreign residents and South African citizens, which supported the notion that this process had become syndicated. It was hoped that by raising this issue in Parliament in a public forum, it would draw attention to it as an important and emerging problem. The marriage and property laws meant that little known spouses became responsible for loans and other actions conducted by spouses, which could create huge problems for unsuspecting South Africans. If discovered, foreign nationals would be deported and citizens who were complicit would be dealt with accordingly. It was DHA’s intention to elicit the aid of the Committee and take action in line with what other countries in the world were doing, where some measures were rather draconian.

On the issue of NPR and rural areas, where services were often out of reach for local people and where mothers still gave birth at home, DHA did not have all the answers, as there were huge financial constraints, but this did not negate the need to continue to operate and make existing services more efficient.  DHA took to heart the oversight visits conducted by the Committee, and noted where it had been mentioned that maintenance of facilities was an issue. It was incumbent on all involved to try and find solutions to very practical problems. One example was child immunisation. How was this being conducted? It should take place within the first four weeks after birth and therefore all related departments needed to correlate their processes.

DHA remained very concerned as public representatives that there were continued problems with late registration, as it was a serious security issue that affected everyone collectively and increased the risk of corruption and fraud. DHA would expand its footprint as much as possible through mobile units in rural areas, but citizens had to take responsibility as well. The Deputy Minister lauded the ‘good interactive relationship and vigorous oversight’ of the Portfolio Committee.

The meeting was adjourned.