Progress report on issues highlighted by the AG in the 2011/2012 Annual Report: briefing by Wholesale and Retail Sector Education and Training Authority, with Deputy Minister

Higher Education, Science and Innovation

20 March 2013
Chairperson: Mr M Malale (ANC)
Share this page:

Meeting Summary

The purpose of the meeting was for the Board of Wholesale and Retail Sector Education and Training Authority (W&RSETA) to present a progress report to the Portfolio Committee of Higher Education and Training (hereafter referred to as ‘Committee’) on the Auditor-General’s qualified opinion and findings for the 2011/12 financial year.  These included: completeness, accuracy and balance of contracted grant commitments amounting to R345 601 649; usefulness of information; achievement of planned targets; indicators and targets not consistent with objectives; non-compliance with laws and regulations and the Public Finance Management Act; ineffective steps by the accounting authority to prevent fruitless and wasteful expenditure; procurement and contract transactions with a value of above R500 000 not inviting competitive bids nor awarded to bidders based on original criteria for quotations - whether suppliers are state-employed/connected to a state employee, have valid Tax Clearance Certificates, B-BBEE certified, or have completed the Standard Bidding Document (SBD) and declaration of interest forms; and records and condonation of deviations with regard to bursary administration. The Chief Financial Officer reported that all matters had been addressed and that there was a time factor for some of the matters to be corrected. Progress on the two cases under investigation would be relayed to the Committee.

Members felt that the Board had failed its W&RSETA mandate and failed to serve and protect the people of the country and help the poor. Public Finance Management Act requirements were not new to auditors and the W&RSETA Board ultimately failed to take the necessary steps to prosecute offenders and prevent irregularities and errors from occurring. The competency of the outsourced internal auditors and the Board was in question. Furthermore, condonation of deviations - for the sake of a clean audit - added fuel to the fire and that W&RSETA should not celebrate a deviation committee and deviation register. It appeared that W&RSETA output was being compromised by managerial issues. There should be no second chance for offenders of the law and a Member suggested that DHET take action immediately. Members asked for more detail on the investigations being conducted by the police in Durban and Pretoria.

Members questioned W&RSETA on the functions of the outsourced internal audit company and why they would rather pay them than build in-house capacity; who these unknown outsourced internal auditors were; and how much they were paid.  They also asked what the top risks were; the reason why creditors would award tenders of more than R500 000 without competitive bidding; if the tracking system had been procured, how much it would cost and when it was expected to be up and running effectively; and if the tracking system could determine what happened to youth after their 12 month learnership programme. Members asked for clarity on what the targets were for PhD students in 2011/12 and what they were in 2012/2013; if the Chair fitted the description of a Dean of a university; and finally, whether W&RSETA would pay the salary for the position and what the cost per Chair would be. Questions also covered why invoices were not submitted timeously by the regional managers; if the inaccuracies, indicators and targets had been corrected and submitted to the AG; and whether the AG’s office could be called verify whether, regarding the R340 million, W&RSETA had completed and corrected their inaccuracies fully.

The Office of the Auditor-General South Africa was called to the meeting to comment on the progress by W&RSETA. The Office reported that W&RSETA had prepared an action plan within a time-line to address the findings and if the plan was fulfilled, AGSA was comfortable that the matters would be cleared. 

The Deputy Minister, Higher Education and Training (DHET) said that comments made were welcomed and noted and that the DHET would act decisively when called upon by parliament. Indeed, W&RSETA was committed to turning things around and DHET had committed to change the face of SETAs so that they became more effective and efficient and do as per the dictates of their mandates. Mr Clive Mtshisa, Acting Deputy-Director General, Skills Development, DHET and Mr Maluviwe Lumpka, Chief Director, W&RSETA, would need to be more involved as SETAs tried to live up to their promises, so that they were supported and assisted.

The Chairperson added that W&RSETA’s strategic plan, which would be approved by the Committee, should have clear and proper pre-determined objectives in line with W&RSETA’s mandate. The Committee would visit the Brooklyn Police Station to follow up on progress with the fraud case and would expect W&RSETA to provide written documents of the requests to the Board for condonation of deviations, as well as the responses given by the Board, so that the Committee could be satisfied with those decisions made by the Board.
 

Meeting report

Briefing by Wholesale and Retail Sector Education and Training Authority W&RSETA)
Mr Pascalis Mokupo, Chair of the Audit Committee, W&RSETA, said that he would like to guarantee to the Committee that the Audit Committee had met with the internal audit committee for risk analysis on a quarterly and annual basis and the Board was responsible for an action plan to address those risks. The Board had visited all provinces to establish whether their strategic objectives were realized and this had proven fruitful. It was not enough to rely on reports and was necessary to monitor progress on the ground. Findings of the visits were that the Board was on top of the issues raised by the Auditor-General (AG).  If W&RSETA had to be brought before the Portfolio Committee again to answer to Auditor-General findings, ‘heads would roll’.

Mr Joe Dikgole, Chief Executive Officer, W&RSETA said that the presentation by the Chief Financial Officer (CFO) would focus on the audit findings in the AG’s report and would address the progress made on each one. In the previous sitting, W&RSETA was requested to provide detail on the bursary beneficiaries. The CD provided in the Annual Report included email addresses, phone numbers and qualifications and since there were 5000 learners on their database, if more detail was required it could be obtained from the IT department.

The fraud issue was being handled by the Brooklyn Police Station in Pretoria. There was a case number and the matter had been forwarded to a detective who had requested more information. W&RSETA had thus completed what was required of it. Also, one of the providers was under a litigation claim for R4 million and the provider had not contested the claim, nor provided any response. The matter had been taken to the police in Durban and the latest report was that the matter would be handled by the Hawks. However, nothing had been forthcoming until recently when W&RSETA was informed that Lieutenant Du Plooy would be visiting the office in Durban where the transaction took place. W&RSETA lawyers had traced the service provider’s office in Bloemfontein and found that the office had been vacated. Follow up on all matters would be communicated to the Committee. 

The two main areas in the Annual Report from the Auditor-General were: the qualification – completeness and accuracy of the grant commitment; emphasis of the matters which needed to be addressed.

Ms Daphne Matloa, Chief Financial Officer, W&RSETA, presented the issues and progress relating to the above two points (see handout).

The contract register was updated with the commitment register on a monthly basis.  The usefulness of information referred to by the AG was related to room for measurability of targets. 43 percent of indicators had not been not well-defined. These had subsequently been defined so that they were simpler and measurable. A new strategic plan had been developed along the same lines.

14 of the 17 targets had been achieved. The three that were not achieved or only partially achieved were:

• the information tracking system that would link to that of the DHET.

• the sector skills plan. This involved set criteria for application. Of the 21 applicants, there was only one of two required PhD applicants who was an outright successful candidate. One applicant may be added. Therefore the target was partially achieved.

• The target for establishment of a business school for the sector required a wholesale and retail chair to work with the PhDs in the province wholesale and retail sector and on the professionalisation of the sector. So far, a chair had been appointed in the Western Cape. The business school would be born from that process. In hindsight, the target was back to front. Therefore the target was partially achieved.

W&RSETA agreed that the annual performance report was not fully measurable according to the strategic plan and this had been reviewed and adjusted by the time the Annual Financial Statement was submitted to the AG. Financial statements were now submitted quarterly and presented to the Audit Committee and Board.  Contract and lease commitment spreadsheets were now in alignment and audited internally. Exchange and non-exchange payables which were in non-compliance were now classified independently (normal creditors and levy creditors) rather than together.

Contracts had been procured without inviting competitive bids for regional offices. W&RSETA had followed up so that procurement above R500 000 now complied with Treasury requirements. Quotes awarded to bidders were based on points which differed from those in the original invitation for bidders and the new automated process now accurately reflected the points for evaluation.

As part of the action plan, all deviations in all respects had to be sanctioned and approved by the Board on the deviation register.  The deviation with regard to bursary administration had been duly approved and communicated to the AG.

All irregular expenditure not approved by the delegated authority in the 2012/13 Annual Financial Statements had since been presented for condonation by the accounting authority and condonation had been granted. Suppliers were now required to disclose upfront their certification for doing business with W&RSETA. Broad-Based Black Economic Empowerment (B-BBEE), TTC and Standard Bidding Document (SBD) checklist requirements were being rigorously enforced.

Regarding expenditure management, regional managers had been reluctant to submit invoices where the services were not delivered by the service provider and this led to delays in the recording liabilities. Also, the accounting authority did not take effective steps to prevent irregular expenditure and fruitless and wasteful expenditure and in some cases, service providers had submitted invoices before the learners had been verified or accounted for. W&RSETA had thus started with a process whereby the finance department at head office would receive all invoices as liability and record them. Providers encouraged the service providers to comply and submit the correct invoice. These would be monitored at head office and regional level.

Discussion
Ms N Gina (ANC) asked for clarification on why the invoices were not submitted by the regional managers.

Mr S Makhubele (ANC) asked for clarity on why (page 59 of the 2011/12 Annual Report) the AG could not confirm the completeness, accuracy and occurrence of the balance of contracted grant commitments amounting to R345 million as disclosed in note 16 to the financial statements. He also asked why the invoices were not submitted by the regional managers.

Ms Matloa explained that projects were run country-wide and when providers felt that they had reached a milestone, they submitted an invoice together with documentation. If they have not met the conditions of the contract, the regional managers hold the invoice until the provider has accounted for discrepancies, such as verifying the number of learners accounted for. Once oversight had been conducted, the invoice was then revisited or a credit note was requested. In the meantime, the invoice deadline may have expired or fallen within the previous financial year. W&RSETA had addressed this problem by having all invoices from regional managers submitted to head office and recorded as an accrual, despite discrepancies, and accruals would then be complete.

The Chairperson asked if the Board was happy with outsourcing internal auditing. A private company was earning millions when people could be employed permanently to perform that internal function.

Mr Mokupa, Chairperson, W&RSETA Audit Committee, replied that as the chair of the Audit Committee, he was satisfied with the auditing standards of the outsourced internal audit. W&RSETA was however looking at succession planning and the feasibility of bringing on board internal auditors and building internal capacity - also with regards to IT service providers.

Mr Maliviwe Lumpka, Chief Director, W&RSETA, added that the outsourced internal audit company was in its last year of service to W&RSETA. However, he did not want the Committee to think that it did not perform and that the qualification was due to this company. As an organization running for 10 years, internal audits had been outsourced.  The risk of employing an internal auditor was that young chartered accountants would be attracted elsewhere and leave the company. However, W&RSETA was looking at it more seriously.

The Chairperson said that despite paying millions to an unknown internal auditor, this auditor was not able to advise the Board on the Public Finance Management Act (PFMA) requirements and on unlawful procurement procedures. The Chair should not be satisfied with such standards. He asked which company performed the internal audit and how much the auditors were paid.

Mr Mokupa replied that the name of the audit company was Sizwe Ntsaluba Gobodo and it was paid about R700 000 per year. This was their final year of service to W&RSETA. The audit requirements, according to law, were that the internal auditor prepared a risk assessment plan and took cognizance of the previous year’s finding by AG. The Audit Committee identified the top risks and then approved a plan for them to audit the challenges to the organization. This process had been followed.

The Chairperson asked what these top risks were.

Mr Mokupa replied that the top risks were supply chain management, fixed assets and cash reserves. W&RSETA was not able to adequately spend reserves on delivering services to the public.

The Chairperson said that it appeared that W&RSETA had not been aware that supply chain management had been identified as a risk by the internal auditors. Then there was a register for deviation - for illegal issues - which were then taken to a Deviation Committee for condonation. However, the Committee expected W&RSETA to walk within the law and to serve the people of the country and dismiss offenders.

Mr Lumpka said that he could not guarantee that there would never be instances of deviations, but that such instances would be exceptional cases. The Board would always explain the deviation. The minutes of Management and Board meetings had to be documented in writing so that there was no confusion on the deviation and to avoid qualification by the AG.

Mr G Radebe (ANC) asked what internal steps had been taken to prosecute those responsible for proper procedures not being followed. It was daunting that the Board could not manage funds involving millions of rands. The PFMA had been in place since 1999, and yet staff members were jumping quotation procedures. He believed that W&RSETA should commit itself publicly to penalties being accepted should proper procedure not be followed.

The Chairperson asked if the Committee could be assured that there would not be future bad or qualified audits. The detail on what was being investigated was necessary. The Committee would like to engage with the police the following week to know what the progress was. Transactions made had been unlawful. 

Mr Makhubele said that he was also concerned that steps had not been taken to punish those who had committed an offense. There had not been sufficient explanation in the presentation - as if W&RSETA was not ready to punish these offenders. The regulations were clear and competent persons could integrate regulations with projects. He asked how it happened that the procurements involving more than R500 000 were permitted to be awarded without competitive bidders. 

Ms Gina asked if the reason that creditors had awarded tenders of more than R500 000 without competitive bidding was because of capacity issues or if the error was committed deliberately. The Board was the authority and therefore could have prevented this from occurring. She asked how the Board would ensure that such errors did not occur in future.  

Mr Lumpka said that since the qualification, the organization had undergone a number of internal changes. The contract register existed but did not meet the AG requirements. In previous years the internal auditors and AG had always audited contracts, but that these were related to a specific project. In 2011/12 the AG wanted confirmation on how the R800 million allocated towards projects had been contracted out. W&RSETA had been running a manual system for the 678 contracts and these were listed on the CD provided. Changes to contracts, such as the amount of learners, were tracked but not always documented. He added that there would always be mistakes when using a manual system. The register was not deliberately incorrect. A few years ago there were 23 staff members. This had now expanded to 130 all over the country with the growth of the organization. There were people being trained in supply chain mangagement which was a difficult area and there were pockets of people who made mistakes. Human Resources policy was that if someone stole money, they were fired.  With others, there were warnings and disciplinary processes. With the manual system, as the contracts increased, the records lagged behind. There was a contract register, and the AG found the numbers did not add up due to changes and hence did not meet requirements.  Since then, every current contract and amendment had been recorded and staff members were continually being trained on the new IT system, which would better monitor contracts. The negligence and errors were not intentional.

Prof S Mayathula (ANC) asked what was meant by deviation that had been approved for the bursary administration.

Mr Dikgole replied that the National Student Financial Aid Scheme (NSFAS) and Career Wise were the two bursary institutions which administered bursaries. Due to its success, Career Wise’s contract was extended past the one year contract and this caused deviation. NSFAS was back on track with W&RSETA after some challenges and non-performance due to a change in NSFAS leadership but subsequently the contract had been renewed due to is performance, particularly with respect to launching W&RSETA in FET colleges.

Mr Makhubele asked if the irregular expenditure was granted condonation for the sake of the books looking good or if there were other reasons.

The Chairperson asked who procured the provincial offices without following procedure and what action had been taken by the Board.

Mr Lumpka replied that the AG had stated that unless there was condonation, emphasis of the matter would stay on the books. The main issue was that contracts for regional office leases did not go out on tender. As explained in the Annual Report, during the interim period there was uncertainty about SETAs and then they were subsequently merged. Quotes for new offices were sourced but there was no public tender for these offices. The Board condoned this on good bases. As stated by the CFO, subsequently anything that had to go out for tender would go out for tender. 

The Chairperson requested that within the following week W&RSETA should provide the documents that were written to the Board to request condonation, as well as the responses given by the Board, so that the Committee could be satisfied with those decisions by the Board.

Mr Makhubele responded that this would be most helpful for insight into and verification of the decisions made by the Board.

Mr Radebe asked if the tracking system had been procured, how much it would cost and when it was expected to be up and running effectively. If it was over R500 000, he wanted assurance that procurement procedures had been followed correctly. In the Free State the IT system had cost a lot while websites in other provinces were not working.  

Mr Makhubele asked if the tracking system could determine what happened to the 4500 youth in the Unemployed Youth Assistance Programme after they left the programme.

Mr Lumpka replied that W&RSETA kept track of the 4500 learners in the Unemployed Youth Assistance Programme. There was no condition stipulating that the company offering the learnership had to employ these learners after training. This was at the request of the companies who did not know if they would want to employ them after the 12 month learnership programme.  W&RSETA could make the information available on which learners were retained by companies. He added that the tracking system was an enterprise-wide integrated system which would track contracts, finance and skills development on one system with one provider, as opposed to the various providers in the past.  This would be rolled out on 1 April 2013.  Procurement procedures had been followed and the cost of R5 million/year, plus escalation of costs, would be paid to the company that won the tender.

Mr Makhubele said that there was also a problem on the usefulness of information.  On the part of measurability, 43 percent of indicators were not well-defined and 55 percent (14/31) of planned targets were not achieved. He asked for clarification on why this was so.

Mr Lumpka replied that the AG had faulted W&RSETA in that the three year plan and the quarterly plan did not mirror each other in respect of the description of objectives, indicators and measures. This had been corrected in the Annual Report. The reasons for certain targets not being achieved were highlighted in the Annual Report performance.

Prof Mayathula commented that there was one out of 21 successful PhD applicants in the financial year 2011/12, yet by March 2013 still there were only two PhDs.  He asked what the 2011/12 target was for PhDs and what the target was currently.

Mr Dikgole replied that targets for 2011/12 were two PhDs and two MBAs. The reason these targets were not achieved was that it was critical to establish the Chair of the institution so that research by the PhD students would be part of the W&RSETA research plan. This was the first time in W&RSETA history that it would sponsor PhD students. It is perhaps fair to say that W&RSETA was a bit ambitious with its targets. There was a tender process to all universities and the Cape Town University of Technology (CPUT) was selected. Someone had been brought in to pay particular attention to skills development in the wholesale and retail sector. Since most of the sector was in the Western Cape, it was logical that the Chair should be in the region. The target was to get two PhD students in 2011/12 and two in 2012/2013

Prof Mayathula asked for clarity on whether the Chairs referred to for establishment of business schools were Deans (of the 23 Universities), what the target was to find these Chairs, if there were limitations to funding them, how much they would be paid and whether W&RSETA would fund them.

Ms Matloa replied that the Chair position would be funded with R3 million per annum for three years. This was not necessarily the salary of the Chair, but would cover the role of the Chair’s office which had to liaise and coordinate researchers at other universities.

Mr B Bhanga (COPE) said that he felt that W&RSETA output was being compromised by management issues.  He asked what their mandate was and whether they were succeeding.

Mr Dikgole replied that stakeholders would best answer that question. The AGM included management explaining the qualification to the audience. The Annual Report painted a clear picture of what the plan was for each province. W&RSETA still had much to do but believed that it was carrying out its mandate.  Still, 2.5 million people were unemployed and required training. Most of the money went to learnerships for unemployed youth who were paid stipends and most were employed by the organisations.

Mr Bhanga commented that the qualifications and training of the Board should be examined. Despite academic qualifications, it could not be assumed that they understood their role and responsibility, and the implementation of regulations and rules. In South Africa, it seemed ‘normal’ and ‘acceptable’ to tamper with regulations and get a second chance. Their responsibility was to protect the tax payer’s money and the poor, yet "with due respect, the CEO and CFO presided over breach of legal statutory requirements. The Board was supposed to act on that". He proposed, on behalf of the people of South Africa, that the Department of Higher Education and Training become involved and people be suspended immediately.

Mr C Moni (ANC) asked if it was coincidence that W&RSETA was spending less of its mandatory expenditure in poor provinces.

Mr Dikgole replied that the wholesale and retail sector existed in the Western Cape, Gauteng and KZN where most retail companies existed and submited reports in line with the criteria for mandatory grants. Thus more mandatory grants were given to those provinces. Where there were fewer levy-paying companies, less money was allocated to those provinces. However, each year, W&RSETA tried to cover all provinces and make sure that small retailers (99 percent of stakeholders) claimed their money.

The Chairperson asked the AG’s Office to verify whether, regarding the R340 million, W&RSETA had completed and corrected their inaccuracies fully.

Ms Meisie Nkau, Business Executive, Auditor-General South Africa (AGSA), said that after the findings were raised, W&RSETA prepared an action plan and provided a time-line in which to address those findings. If W&RSETA fulfilled the terms of their action plan, then AGSA would be comfortable and the matter would be cleared. 

The Chairperson commented that W&RSETA was liberated by this response and the Committee would wait for the upcoming audit report.

Mr Sibusiso Busane, Board Member, W&RSETA thanked the Committee for their input.

Mr Mduduzi Manana, Deputy Minister of Higher Education and Training (DHET), said that comments made were welcomed and noted and that the Department of Higher Education would act decisively when called upon by Parliament. Indeed, W&RSETA was committed to turning things around and DHET had committed to changing the face of SETAs so that they became more effective and efficient as per the dictates of their mandate. Mr Clive Mtshisa, Acting Deputy-Director General, DHET, and Mr Maluviwe Lumpka, Chief Director, W&RSETA, would need to come closer to the situation as SETAs tried to live up to their promises, so that they were supported and assisted as they tried to find themselves. He was certain that issues discussed would be brought up at their next Board meeting.

The Chairperson added that W&RSETA’s strategic plan, which would be approved by the Committee, should have clear and proper pre-determined objectives in line with W&RSETA’s mandate. The Committee would visit the Brooklyn Police Station to follow up on progress.

The meeting was adjourned.

 

Present

  • We don't have attendance info for this committee meeting

Download as PDF

You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.

See detailed instructions for your browser here.

Share this page: