Meeting SummaryMembers requested clarity from National Treasury officials on certain emphases of matter raised by the Auditor-General in connection with the Annual Report of National Treasury for the 2011/12 financial year. Members felt that Treasury should set the example for other government Departments, and had been less than perfect. The same consequences did not seem to apply to Treasury in the case of a lease on a building which had led to fruitless and wasteful expenditure as would have applied to any other Department.
Other issues raised were the non-disclosure of outside remunerative work by Treasury staff. While the definition of remuneration could be interpreted broadly, there was concern over possible conflicts of interest and other matters relating from such external employment. Another matter of concern was the long-standing vacancy for the position of head of internal audit. There was some doubt if the function was being performed adequately despite reports that it was. An arrangement had been made to share this function with the South African Revenue Service. There was no causal link between the vacancy and reported areas on non-compliance.
Members were assured that audit meetings had been attended by the Director-General and his Deputy. The issue of special pensions was being investigated. The unemployed wage subsidy had not been fully implemented yet.
The Chairperson called on the delegation and Members to introduce themselves. He also welcomed a delegation from the Namibian Parliament.
Dr D George (DA) noted the absence of both the Minister and Deputy Minister and asked what the reason was.
Mr Lungisa Fuzile, Director General: National Treasury, explained that the Minister was on his way but there had been a major accident on the highway.
Mr R Ainslie (ANC) said that the matters to be raised were not pervasive. However, National Treasury (NT) should be setting the example in financial matters but had again not received a clean audit from the Auditor-General (AG). In fact, it seemed that NT was regressing in its financial controls. Members needed a reassurance that the matters highlighted were receiving attention.
Mr Ainslie started with supply chain management (SCM). Firstly, five officials had been conducting remunerative work outside the employ of the NT. He asked who these people were, and if disciplinary action had been taken.
The Chairperson welcomed the Minister of Finance, Mr Pravin Gordhan, on his arrival.
Mr Fuzile said that NT tried its utmost to avoid situations where there was a breach of regulations. The system was huge, and there were sometimes situations which led to such transgressions. The rules were clear for senior management, Disclosure had to be made, and permission sought. At lower level, members still had to obtain permission for other remunerative work. Until the Minister had delegated the scrutiny of disclosure forms to NT staff, he did not see these disclosures and sometimes did not see them at all. Members could be dismissed during the financial year, but their presence would still be recorded during the audit process.
Mr Fuzile added that a decision had been taken that a check-list must be compiled for new recruits to NT. There was a small matter of nuance on the members involved. Subsequent to the AG query, NT had found that in some cases the persons concerned were still reflected as active members of outside companies. However, in almost all cases, they had not been remunerated by these companies.
Mr Ainslie said that the DG was taking a narrow interpretation. It was not just about remuneration. There were other considerations. He quoted from the Public Service Act. There was also a question on whether outside work would impede the performance of NT employees. There was also a question of a conflict of interest. He understood that the AG took a sample, and there could be other persons involved. He asked if there was something wrong with the system of declarations.
Mr Fuzile noted that he had not finished speaking before Mr Ainslie's interruption. Firstly, the employment of persons during the financial year (FY) might create loopholes. After the AG's report, it was decided that newly joining members of NT would have to make their disclosures the instant that they were employed rather than wait for the start of the new FY. He was going to get to this point. He noted the possibility of interference with the time and work of NT employees. Where rules were in place to prevent such situations they had to be followed, but errors did occur. The problem lay in persons joining the NT between the last checking point before the end of the FY.
Mr Ainslie was happy that lessons had been learnt and the situation should not arise again.
Min Gordhan said that there were procedures and principles involved. NT would not tolerate any activity contrary to the spirit of the law. The law was in itself not fully satisfactory. Although rules were stated clearly, exceptions were tolerated. Some discretion was needed given the scope of all types of work done outside one's normal employment, for example, by acting as a guest lecturer at a university for an honorarium. More generally in the public service, some of the rules were vague and there was a lot of interpretation involved. Creativity in human endeavour was well known. Human beings would find a way to circumvent any rule put in place.
Ms M Mangena (ANC) asked if this was the first time ever such a breach had been uncovered.
Mr Fuzile said that it was first year of his appointment as DG. He could not comment on what had happened before his appointment.
The Chairperson accepted the statement made by the Minister. A performance audit had been carried out on officials doing work with government.
Mr Freeman Nomvalo, Deputy DG: Office of the Accountant-General, NT, assured Members that all NT employees had been screened for outside remunerative work.
Mr Ainslie confirmed that it was the first time this particular emphasis of matter had been raised. On human resource (HR) matters, a resource plan had not been in place, as was required by public service regulations. He hoped there was now one in place.
Mr Fuzile said that a resource plan had now been signed and put in place. There was a plan on paper for almost the full time of the FY, but it had not been signed off by all relevant officials. Therefore the plan existed, but did not have the full legal status required. An addendum might be needed to keep the plan in line with regulations. It would have been better to have signed off the plan at first, and then make amendments as required.
Mr Ainslie said that Members were often relieved to see that issues had been addressed. He asked why the head of internal audit position had stood vacant for twelve months. Vacancies, especially in the internal audit function, were leading to poor performance.
Mr Fuzile replied that the former head of internal audit had resigned. The post had been advertised, but it was not possible to fill the vacancy. NT had thought it would be wise to share the South African Revenue Services (SARS) internal audit division. The rules made provision to do this, but it was a long process. Work should not suffer in the process. A two step approach had been followed. Firstly, the contract of the in-sourced expertise had been extended. He did not know of any planned work that had not been completed as a result. The audit reports confirmed this. The second step was to investigate the logistics of conducting the internal audit facility within SARS. A study showed that 26 posts were needed. Finally, NT had decided that the post should be advertised regardless of what solution was eventually reached.
Mr Ainslie asked if the work had suffered due to the long-standing vacancy. The most important AG finding was that material errors had occurred in the financial statements. He asked if this was due to a lack of proper governance. He was linking the reported errors to the vacancy. Some transactions had to be monitored on a daily basis. The DG quoted from the Annual Report. The report of the internal audit committee was that the work was being done correctly, yet this was contrary to the AG's findings.
Min Gordhan said that an interesting experiment had been conducted. It was difficult to fill internal audit positions. Limited capacity should be used more wisely. Better use should be made of what capacity was available. He had encouraged NT and SARS to create a single internal audit authority. There had been some concerns of down-sizing. These were not material concerns. The right level of compliance was needed. There must be an explanation for any material mistakes reported.
Mr Ainslie appreciated what the Minister said, but further delays in filling this position could lead to greater concerns.
Min Gordhan said that there was no causal link. Just because there was no head, it did not mean that the whole organisation was not working.
Mr Vuyo Jack, Chairperson: Audit Committee, NT, said that mistakes in statements were due to misinterpretations. The audit committee was happy with the system being used. There was compatibility between the HR systems at NT and SARS. Just because there was no head did not mean that the work was not being done. He assured Members that internal control measures were working properly.
The Chairperson agreed that that there was no causal link. However, perpetual vacancies were not a desirable condition.
Mr Fuzile said that steps had been taken to cover the vacancy. He was not saying that NT was prepared to accept the situation indefinitely. The material finding related to special benefits. A lot of work had gone into making sure this did not become a problem area. The situation could not be avoided. The special benefits captured in the previous FY had been studied by the Special Investigative Unit (SIU). There was a law which said that the now dissolved Special Pensions Board could not have any decision overturned except by a Court. NT had worked with the AG on a plan. This had been explained to various other Committees. Everything had been done. The only remaining issue was that of the non-reversibility of decisions taken. There were 752 cases, and each had to be processed properly and individually. An unfair impression could be created that specific problems were in fact general ones.
Mr Ainslie apologised for asking uncomfortable questions. He was concentrating on the findings of the AG, which were broader. One would have to accept that there were problems which needed to be addressed. There might be a qualification in the future if the situation was not resolved. He was concerned about the audit committee report. There was material evidence that concerns were not being addressed. Deadlines were not being met. The audit committee had not expressed a concern on this matter.
Mr Fuzile said that he understood the problem was specific to the area of special pensions. Government had legislated on the issue. It was an emotional issue, but he had taken legal opinion on the provisions of the law.
Mr D Majeke, Chief Financial Officer: NT, said that an action plan had been put into place. This was monitored weekly. Special pensions had been addressed with the relevant department. It was more an issue of disclosure than a pervasive problem.
Mr Jack said that the weak areas had been discussed, and action plans devised. There was a system in place to deal with problems. This particular area had been resolved. The system was working. There was an audit finding register, which tracked the progress in solving problems.
AG representative said that there had been six major material findings, four of which related to special pensions.
Mr Ainslie said that there were other areas of concern.
Mr Fuzile asked what the other two issues were.
Mr Vusi Msita, Business Executive, AG, said that there was an issue of cash and cash equivalents, and another related to leases.
Mr Fuzile said that there was a risk that a general statement could create a bad impression.
The Chairperson said that the issue should be dealt with on a basis of potential.
Mr Fuzile said that a layman's interpretation was that things had been recorded tin the wrong place. Much was about implementation. He did not understand how this could be interpreted that things were being hidden. Interaction with the AG should be perfect, but there could be differences of opinion.
The Chairperson was very clear on the extent of the issue. The scare might not be as bad as in other Departments, but there were areas of concerns.
Min Gordhan said that when general statements were made, the wrong proportionality was being communicated. In the relationship between auditor and client, there were always questions of interpretation. Matters which could be resolved could be compromised where communication was not clear. He had instructed NT officials to engage much more vigorously with AG staff so that understanding could be reached before final reports were written. His Deputy dealt with special pensions, but he knew that a lot of progress had been made. He did not feel that NT was threatened with a qualification.
Mr Ainslie said that the AG had found that senior managers had not signed performance agreements. He asked if this had been done subsequently.
Mr Fuzile said that this kind of thing happened when promotions were made mid-year. It was a similar discussion to the comments made earlier regarding disclosures.
Dr George said that in order to get a good report, internal processes were needed. Internal audit had to be in place, and the result should be a good report. As NT was an oversight body, he asked what was being done to ensure that good governance was in place.
Mr Nomvalo said that a framework was needed to establish the parameters. Institutions which had recurring problems would be prioritised. A model was in place to ascertain weaknesses. The financial systems would not work well unless appropriately qualified persons were in place. A competency framework had been developed to evaluate prospective staff on the competencies required. There had been a review of all courses available to government, and there were major discrepancies. The proviso was that attendees had to be trainable, and then returned to their organisations to do the work they were trained for. The Accountant-General could not monitor all the institutions. A forum had been started. This had been abandoned earlier due to a lack of interest, but the concept had been revived. Ordinary citizens should be exposed to certain programmes.
Mr Nomvalo said that internal audit functions were reviewed. Proposals were made where needed. These would work if the right people were employed in the right areas. There was a dire shortage of internal auditors globally, hence the reliance on service providers. The qualifications of those that did occupy such positions might be questioned.
Dr George said that the major issue was the problems relating to financial management. The AG said that regular reports were needed in the lead-up to the final audit. This process was not working. He asked what NT was doing to ensure compliance with reporting frameworks.
Mr Nomvalo said that Dr George was referring to expenditure reports. The problems lay more with management reports. There was no Public Finance Management Act (PFMA) requirement for regular reporting, but Departments had been requested to conduct regular reporting in this field as well. Information was needed for management. Managers should have processes in place to gather information.
Dr George had three specific questions. One was on the meetings of the audit committee. The accounting officer was represented, but he did not know if this meant the DG attended personally.
Mr Fuzile said that the DG and DDG attended all meetings personally.
Dr George said that his second question related to special pensions, and this matter had already been discussed at length. His third question was on why money set aside for the unemployed wage subsidy had not been spent.
Mr Fuzile said that the money budgeted would not have come from the fiscus, but from tax concessions. It was a big project, and bodies would have to compete for resources. Applications were not always satisfactory, and were sometimes referred back to the drafters for amplification. The R2 billion would have meant creating R4 billion's worth of jobs as it would have been a 50-50 partnership with the private sector. It was not possible to start such a project at short notice. Applications were thus called for well in advance. Once the budget had been tabled, and there was some support, it became time to establish an institutional framework. It had not been possible to spend all the money in the current year.
The Chairperson asked when the structure would be in place.
Mr Fuzile said that the decision was taken in the final stages of the budget process. The Jobs Fund of this magnitude had been announced at the 2012 budget speech. It could not be regarded as a done deal already. Institutional arrangements were now being discussed with the Department of Public Service Administration (DPSA). The website had been launched in June 2012. Many applications had been submitted, only some of which were viable. Other applicants had to be assisted, and this was taking time. The institutional capacity now existed. People knew of the existence of the scheme. There were R1.8 billion in commitments over a two to three year period. R408 million had already been declared as savings, and had been transferred to other departments although this could be reallocated for short term projects.
The Chairperson said that fiscal dumping must not be encouraged.
Dr George had dealt with the special pensions on another Committee in the past. The DG was the accounting officer for NT even though he did not have a financial background. He asked what his relationship with the AG and the audit committee was like.
Mr Fuzile said that he had a better relationship with the AG. On the matter of special pensions, a report had been tabled the previous year. A plan had been developed and shared. There had been constructive discussion. He was disappointed with the way in which matters were reported. Lengthy discussions were condensed into a single paragraph. This was disheartening.
The Chairperson said that the AG, when interacting with Departments, would always have contested findings. He worked well with his colleagues at NT.
Dr George said that he was very satisfied with the response. There had been difficult relations in the past, but he was happy that the communication was open.
Mr S Mfundisi (UCDP) said that the question of fruitless expenditure needed to be discussed. R3.9 million had been spent on new premises, only for this to be cancelled at an advanced stage. He asked why a proper feasibility study on the building had not been conducted.
Mr Stadi Mngomezulu, Deputy DG: Corporate Services, NT, replied that it was a challenge to provide proper accommodation. NT was located within the Pretoria Central Business District (CBD), and planned to remain there. The Department of Public Works (DPW) was made aware of vacant buildings. The building in question was ideally located relative to the existing accommodation of NT. Parking was at a premium in the CBD, and was a crucial matter. NT had looked at which unit would be a better fit for them. DPW had to be kept in the picture. At the point that a unit had been identified, the landlord had decided to sell the building. The parking had been used, but the fruitless expenditure had been declared as a result of the building itself not been occupied while there was a process of planning on the use of the office space.
Mr Mfundisi asked what had become of the building. He asked if no lessons had been learned from recent government experiences with leases.
Mr Mngomezulu said another building had been identified, which was already a government asset. This was being refurbished to accommodate NT. The public might think otherwise, but it was not NT's intention to operate in this way. The lesson could only make NT wiser.
Dr P Rabie (DA) noted that an investigation had been conducted on an irregular appointment of service providers by the Public Service Commission (PSC). He asked if this had been finalised.
Mr Fuzile said that the PSC was still conducting the investigation.
Ms Mangena said that officials like Mr Nomvalo was always publicly urging public servants to avoid fruitless expenditure. Perhaps he should pay the fruitless expenditure back to the fiscus. Another Department might be penalised in such a case.
Mr Fuzile replied that the reason the expenditure was declared fruitless was that the lease had already being paid. The change of ownership had prompted NT to decide to cut its losses and withdraw from the arrangement. It would have been more expensive to stay within the contract. The CBD was now growing quickly enough to satisfy all stakeholders.
The Chairperson asked how the change of ownership impacted the decision.
Mr Fuzile said that the change would have prevented the required refurbishment, and it would have taken NT longer to move in.
The Chairperson asked how the contract had been structured.
Mr Mngomezulu explained that the fruitless expenditure was accruing on a monthly basis. The NT was renting the whole property, including the parking lot. This space had been used, but the NT was still paying a lease on the building which it had intended to renovate before occupation. Some months had passed. He apologised if Members had misinterpreted his body language. He felt very bad over what had happened. He was not trying to show an attitude of indifference.
The Chairperson asked what progress was being made with the integrated financial management system, and what risks were encompassed by the delays.
Mr Fuzile said that the bulk of the work was being done by the State Information Technology Agency (SITA). There was a steering committee overseeing the work. The project had been a bit too optimistic when conceptualised. Some of the modules had been completed and were being tested. One was the SCM module and others were asset management and HR. Tenders had been issued for the remainder of the modules. Payments were only made for work completed. He said there about three outstanding modules. It had taken long. Similar work had been undertaken in other parts of the world, and similar delays had been experienced. All the modules were to be developed before the end of 2013 and could then be tested. Some departments were working with SITA. There was a risk that major upgrades had been halted in order to invest in old systems while a new system was being developed.
The Chairperson asked who was driving the process.
Mr Fuzile said that SITA was driving the process.
The Chairperson noted that SITA had been limping for some time.
Mr Fuzile said that the Chief Executive Officer of SITA had now been in office for some time, and the situation was improving.
Mr S Thobejane (ANC) felt that NT always had a solution for other Departments, but asked if they would apply the same solutions to themselves. He asked why NT did not apply for an amendment to the law. Different Departments were abusing public funds, particularly regarding procurement. He asked if NT was planning to review government procurement systems. The Department of Police had been subject to a huge uproar on building leases. He asked for how long similar situations would arise.
Mr Nomvalo said that the requirement and system for disclosures should be reviewed. Procurement issues had also been raised with DPSA.
Min Gordhan asked how good practices could be spotted, recorded, made available, and be adopted elsewhere. There were management weaknesses in government Departments. Enforcement of regulations had to be in place. Parliament's perspective on problem areas would be welcome. Skills were a general issue. If there were no consequences for doing the wrong thing, there was no incentive to do the right thing. Enforcement had been historically weak. In many government institutions people operated with impunity. A chief procurement office was to be established. In time, there should be national oversight over major procurement items. The current system was weak. The current head of the Financial Services Authority in the UK had said how important it was to change cultures. If there was a culture of benefit from state resources, these problems would continue. Oversight and intervention measures were weak. Internal audit reports could currently be blocked at the desk of the accounting officer. Some national oversight might be needed. The Executive rarely got involved.
The Chairperson emphasised the need for Parliament to engage with NT on a regular basis. Challenges of the time had to be addressed. NT had been in the main exemplary, and Members wished to see this trend continue.
Min Gordhan thanked the Committee for the robust interaction. The NT had a number of good managers who were constantly trying to improve their performance.
The meeting was adjourned.
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