Use of consultants by the Department of Water and Environmental Affairs

Public Accounts (SCOPA)

23 April 2013
Chairperson: Mr T Godi
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Meeting Summary

The main purpose of the meeting was to discuss the “excessive” use of consultants by the Department of Water and Environmental Affairs, which had been highlighted in a report by the Auditor-General.   The Committee noted the split between water and environment affairs within the Department, and the kind of impact that might have had on departmental stability, but while there might have been internal shifts, officials remained the same.  Members sought clarity on whether all Department of Environmental Affairs (DEA) contracts had been reviewed in line with the findings of the AG. The officials should also indicate the current vacancy rate within the Department, because for the period under review the AG indicated it stood at 34%. Members also sought clarity on the apparently massive variations that appeared to be a trend in the AG’s report.

The DEA pointed out that the audit was done on work undertaken in previous years. The Department was now focussed on interventions to improve the control environment and various other aspects pointed out in the report.   Many of the variations were the result of estimated costs not matching the available budget, and it was acknowledged that this was a grey area that needed to be resolved to correct the situation.  The Department did not have internal capacity for what it outsourced. Terms of reference could be improved upon because they were drafted by line managers. There was now a Specifications Committee at the Department that assisted with tightening up on the contracts.
Other matters involving the DEA included delays in appointing contractors, the backlog in issuing landfill permits, and confusion over the appointment of a transaction adviser.
The Department of Water Affairs (DWA) was the second largest spender on consultants, after the Department of Defence. According to the Auditor General’s report, well over R4 billion was spent on consultants. Of the eight departments invited to the Committee, the DWA ranked highest on the vacancy rate.  There was a correlation between the lack of internal capacity and the use of consultants.  The Department responded that much of the work was now being done through and by the departmental staff.   There was also lengthy discussion over a possible conflict of interest in the appointment of a particular consultant.
The DWA had been accused by the Accountant General of “abusing” the extension of contracts by means of variation orders. The AG’s report indicated 14 of 25 contracts examined were subject to 46 variation orders amounting well over R500 million. The Department had claimed to the AG that these variation orders were done in line with procurement procedures. The Department responded that the word “abused” was too heavy, but there had been excessive use of the variation orders with those tenders.  This matter was being addressed now.
The Minister of the Department, who attended the meeting, referred to the phenomenon of “javelin throwing”, sometimes referred to as post employment contract, which occurred when officials left government employ only to do the work as consultants. She requested the Committee to assist in the finalisation of post employment arrangements into the future. There were no rules governing this aspect. Government was looking to formulate such rules which would specifically regulate the cooling-off period. The Department would have a meeting with the AG to determine a way forward on issues raised in the report. Both Departments (DEA and DWA) would improve on planning and implementation of programmes. The departments worked with the national treasury in ensuring systems improved, and that there was funding for projects highlighted as essential in the annual performance plans.

Meeting report

Opening remarks
The Chairperson said the Committee had been trying hard to schedule the meeting in the first quarter. Members wanted to engage the Department on the use of consultants, as had been the case with other departments. Following the Auditor General’s (AGs) report, Members felt the Department needed to be among the departments summoned to Parliament.

The Committee had in the past engaged the Department, but today’s interaction would specifically look at the AG’s performance audit. The Minister would have time at the end of the meeting to comment on whatever issues she felt needed clarification. This was, indeed, not to say the Minister could not comment during the proceedings.

Minister Edna Molewa commented she was happy the meeting had finally taken place.  The invitation letter had been confusing, as it simply indicated that the Minister should be present for purposes of observing. The introductory remark by the Chairperson clarified the purpose of the invitation better, and it would be ideal if it could be clearly stated in future correspondence.

Department of Environmental Affairs (DEA)
Not reviewing contracts since AG’s findings
Mr N Singh (IFP) commented that the Committee noted the split between water and environment affairs within the Department, and the kind of impact that might have had on departmental stability. The line of questioning would be on the basis that while there might have been internal shifts, officials remained the same. The questions would be relevant to all officials.

Mr Singh pointed out the AG’s report was only a sample audit, and the Department of Environmental Affairs (DEA) would be aware of the AG’s definition of a consultant. He commented that 80% of consultants used by DEA were warm bodies and not on contracts. Given that the AG picked up only 10% of the contracts in value, had DEA done anything since the publication of the report, to look at irregularities with all other contracts that had not been dealt with in detail by the audit?

Ms Nosipho Ngcaba, DEA Director General (DG), replied the audit was done on work undertaken on previous years. The Department was now focussed on interventions to improve the control environment and various other aspects pointed out in the report.

The Chairperson clarified the question to establish if DEA had sought to review any other contract outside of the 10% that was sampled by the AG.

Ms Ngcaba replied DEA had not reviewed any other contract following the AG’s report.

Mr Singh commented that almost R500 million worth of contracts awarded to consultants had not been re-looked at. He figuratively commented the Public Accounts Committee’s mandate was to conduct post mortems to ascertain what killed the patient. It was regrettable that the Department did not see fit to look at other contracts to pick up the kind of issues that the AG had raised. The AG only audited 15 projects and had identified all the areas where DEA had fallen short. The report indicated an 81% increase in estimated project costs and contract costs.

Estimated costs and variations confusion
Mr Singh cited the Developing a National Framework contract, which was exceeded by 288% -- the estimated cost was R1 million and the contract amount was R3.8 million. Were there people in the Department who were responsible for contracts with consultants?  DEA indicated it resorted to consultants when it lacked capacity; was there expertise within the Department to make such a determination, but also to draw the terms of reference for contractors?

It seemed there were no persons with the required expertise to make decisions within the Department; hence the Department gave extraordinarily incorrect estimations. The officials should also indicate the current vacancy rate within the Department, because for the period under review the AG indicated it was 34%.

Ms Ngcaba replied that the estimated figures that the report referred to were reflected in a submission. When DEA appointed a consultant it first identified areas that it knew were areas for outsourcing, and reasons for outsourcing would be outlined in that regard. The process started with a line manager submitting them through to the DG for approval.

The Chairperson clarified the question, which sought to address variations in the estimated cost and the actual contract. The Committee had heard enough about processes that were involved from other Departments that had appeared before it. The question sought to establish the vacancy rate and the variation between the estimated and actual costs of contracts. How did the DEA explain such variations?

Ms Ngcaba replied the figures reflected in AG’s report as estimated costs were budgeted figures in the Department.

The Chairperson asked if the reply meant to suggest there should be no concern for the variation in the estimated cost and the actual cost of contracts.

Ms Ngcaba replied that there should not be concerns; the figure reflected as the estimated cost was what the Department had budgeted for. When the Department advertised tenders it got quotes from competent service providers. Then there were prescripts from National Treasury (NT) that allowed for the shifting of funds.

The Chairperson wanted to know the basis for the estimated costs as reflecting in the AG’s report.

Ms Ngcaba replied the basis was what was available from national treasury (NT).

Mr Singh said this was all about budgeting and planning correctly. There should be a scientific way of estimating more closely what the cost of a service would be. NT should not just be approving these virements; there had to be a more scientific way of explaining the estimates. The manner the figures were reflected in the AG report, this was not the case at DEA. To say the estimated amounts were merely budget estimates was not sufficient, because budgets were prepared on the basis of estimates.

Ms Ngcaba replied there was no other way it could be done. The scientific way of arriving at an estimated cost would be to first ask those tendering to indicate the amount they would charge. But this was not allowed.

The Chairperson said available budget and estimated cost were two different things. There surely had to be a process of determining figures for estimated costs. If the estimated figures varied so significantly from the actual costs, then there should be a worry about how costs were estimated in the Department.

Ms Ngcaba explained the submission to AG had since been changed, because the source document looked at had been an estimated budget. This was the budget that was available for a particular activity.

The Chairperson interjected and asked if the report entry “estimated cost” by AG was written wrongly.

Ms Ngcaba replied the entry as written on DEA’s submission had been changed to show the amount was the available budget, as opposed to estimated cost. DEA would have to change the entry to reflect that the estimated cost was actually what was budgeted.

The Chairperson asked if the official was suggesting that the entry was wrong.

Ms Ngcaba replied that the challenge was with how that entry item was interpreted at the Department. This was interpreted as the available budget, and not the estimated cost, in all submissions.

Mr Singh requested that the AG explain an “estimated cost” and how it aligned with the thinking of the Department.

Ms Chrisna Janse van Rensburg, AG Senior Manager: Performance Audit, said it was important to note that part of the needs determination should include accurate estimates. Once the submission got to the DG for approval, she signed not only on what was expected for the project, but also the money. This was the money that was available. As soon as the DG approved the estimated budget, this was what was available. In future, if one engaged in more contracts at higher costs, then reprioritisation would have to happen. This was a planning issue, where one could prioritise and commit to what was available prior to going out and advertising contracts.

Mr Singh sought to establish if the DEA agreed with the views expressed on how one needed to look at appointments.

The Minister said the question, whether this was an available amount or not, was important. She said she understood the AG to be confirming that this was money available, but there had to be planning.

Ms Janse van Resburg said when one conducted a needs determination, part of it was to estimate the accurate costs of appointing consultants.  The DEA had indicated to the AG that the amount reflected on the report were only limited to the available budget.  During this process, as part of the needs determination, the DEA should have gone to a process of accurately confirming the amount, and not just indicating what was available on the budget.

The Minister said she was not condoning unplanned expenditure. She hoped to leave the room secure in the knowledge that she would hold managers accountable on issues that were practically possible. The figures reflected the 2006 scenario, during which time only one official was in the Department. During this time there was no capacity in the Department. The needs determination exercise could indicate how much was required for projects that were available. This meant that one had to get the needs analysis from a competent institution which was a service provider. This was the only way that estimates could be done scientifically.

The Minister doubted if accurate estimates were practically possible, and wondered if this was the process to be followed in future. Secondly, the annual performance plans (APPs) required the DEA to do all these things, and given the limited funding, what could one do or leave out?  The DEA would be required to leave out some APP projects if service providers were to compile a cost analysis. Reprioritisation and virements were there if there was a fault in estimating correctly. She said she worried only if a project had an undreamt of escalation, with no value for money; but if there was value for money, then incorrect estimation was not an issue.

The Chairperson commented that Members were slow to grasp the explanation by the DG.  The Committee had never understood that the practice had been to disregard the correct estimations, for available budget. This was the challenge in understanding the AG’s report. The report indicated estimated cost, and yet the DEA considered the estimated cost meant the money available in the budget. Even if the Department estimated a project correctly, say, at R5 million, the estimated cost submission remained the available budget even if it was far below the correct estimation. When the figures were read, as they stood, they indicated there were unimaginable escalations. This was a matter with the use of English -- instead of saying “budget available” the report said “estimated cost.” This was the grey area that the Committee wanted clarified.

Ms Ngcaba said this was being addressed in terms of practice so that it would be clearly understood, because in public service there were estimations based on budget available. Even when the DEA did the Estimates of National Expenditure (ENE) with NT during the budgeting cycle, it indicated projects and put budgets based on the final allocation.

Mr Singh asked NT to comment and indicate if this was how things normally happened with departments.

Ms Marissa Moore, NT Chief Director: Urban Development and Infrastructure, said it was difficult for departments to estimate the cost of expenditure. Departments should collect more information about the work that was needed and rates being paid, to improve on estimates. However, NT accepted that they would never be perfect. The responsibility remained with the DG to ensure there were sufficient funds to cover the liability.

Mr Singh sought confirmation that the trends that were there in 2006 were no longer there now. Surely by now, estimates had been worked out or were getting closer to what the budget was. He asked if this was the case.

Ms Ngcaba replied the Department was not closer, but that she had asked the internal audit to look at all the tenders.  That would be done as the work proceeded.

Mr Singh asked if the Department was satisfied that it received value for money in the contracts that had been sampled. Who monitored these, and who drew the terms of references?

Ms Ngcaba replied that the DEA paid specific attention to what was outsourced. The Department did not have internal capacity for what it outsourced. Terms of reference could be improved upon because they were drafted by line managers; the Department was not perfect. There was now a Specifications Committee at the Department that assisted with tightening up on the contracts.

Contractor appointment delays
Mr Singh commented that the AG had also noted an issue about delays to appoint a contractor. Sometimes it took up to 212 days. Why might this have taken place at that time; and what was the position at the moment?

Ms Ngcaba replied the Department was improving on this aspect. But a number of reasons  contributed to delays. The adjudication committee would sometimes meet and cancel contracts. There was now a system of matching the demand plan with the dates of meetings.  Line managers were working on each of their plans; when submissions were made to NT at the end of the financial year, the Department submitted a demand plan and project plans. In the plans, the meeting dates for  the adjudication committee were set out.

Mr Singh asked what the average time would be now.

Ms Esther Makau, DEA Chief Financial Officer (CFO), replied that based on a study conducted on this exercise, it was discovered that it took the Department 123 days from the time of advertising up to awarding. The DEA was now looking at the demand plan and trying to understand how many contracts it could close in a year. It was looking to shorten the process, but had not really looked at the time that it would take to finalise procurement.

Mr Singh commented that the reasons advanced by AG on the delays were poor planning and meetings frequently cancelled or postponed. When that happened, it impacted on the taxpayers in terms of escalations. Who sat at the committees and what reasons were given for cancelling meetings? What systems were there to ensure the meetings happened and that there was capacity to look at tenders?

Ms Ngcaba replied the adjudication committee was made up of line managers, supply chain management and the financial team. Ideally, the committee should have its own people who were only focussed on its business.  The DEA was a small department and the line managers were chasing other targets, so it was no surprise that they would miss the meetings sometimes. To counter that, she had personally lowered the quorum from 12 to 8, and appointed three persons.

Mr Singh sought clarity on the vacancy rate.

Ms Ngcaba said the vacancy rate was below 10%.  The DEA had filled posts and had had to grow internal capacity. The Minister had approved the current establishment.

Mr Singh requested that the Department provide the Committee with a list of all consultants that were used during the period under review. It would be appreciated if the list indicated the names of directors and shareholders of the companies. The list should also indicate former DEA officials who were working for the consulting companies.

Mr Singh sought clarity on contracts that were awarded before the terms of reference were completed, as suggested by the AG. Who drew the terms of reference? How could this situation have arisen?

Ms Lize McCourt, DEA Chief Operations Officer (COO), replied the consultants’ register would show there were certain areas of expertise that the Department used. In the bid adjudication committee, all the relevant expertise was included. There were standards built into the specifications now. The head of the Information and Communication Technology (ICT) sat on the committee and ensured that bid specifications, evaluation and awarding requirements were met. She was not sure who members of the committee were.

Mr Singh suggested that this information be sent to the Committee as well. He asked if money had been lost as a result of contractors who could not perform.

Ms Ngcaba replied that this had not happened. Where the DEA had to terminate contracts as a result of failure to deliver, that was done at no cost to the Department.

Mr Sekwati Rakhoko, DEA Chief Director: Supply Chain Management (SCM), said at the end of the contract there was a questionnaire normally sent to project managers to ascertain whether it had been carried out satisfactorily. In future, when there were more contracts, contractors were appointed on basis of their performance record as recorded in the questionnaire.

Mr Singh wanted to know if the Bojanala Project was still ongoing and, if so, had challenges surrounding terms of reference and impossible deliverables, as indicated by the AG, been resolved.

Ms McCord replied the contract had come to an end. The matter had been closed.

Landfill sites licensing process
Mr Singh requested a comment on the AG’s finding regarding the backlog in approval of waste disposal sites.

Ms Ngcaba replied the AG knew the DEA differed with the finding.  The waste services function was not a national competence, but rather local and provincial. Because of the approved programme of the Government, the Department had been asked to help. This necessitated capacity to deal with the backlogs.  Municipalities were required to submit an application for investigations on environmental processes.  The Department had conducted a study and realised that the submissions from municipalities required further work. This was not a once-off project, as the submissions of all municipalities had to be addressed. Consultants would be appointed until the work of landfill restoration was complete.

She said some landfills had to be closed as polluted water resources, as well as those that were badly located. The Department had to assist the municipalities to identify the correctly placed sites, but the permits were issued by provinces. A consultant would then be appointed to help with the application and undertake the Environmental Impact Assessment (EIA). She confirmed after an interjectory inquiry from Mr Singh, that the work continued to cost around R280 000 a month.

The Chairperson enquired about the total number of landfill site permits that still had to be issued.

Ms McCord replied that the backlog in licensing was about the issuing of the licences.  It was about facilitating the ability to get the licences. The DEA had dealt with 56 applications so far, and there were still about 187 unlicensed sites where the Department needed to help with the processes over the next two years. Processing the 56 was not a challenge as there was a limited process that was required, but the rest would cost more and take a little longer. There were a whole range of special investigations that had to happen in areas like geology, underground water and a whole range of other aspects. The cost associated with that would be higher over the next two years.

She indicated there was no internal capacity for this kind of a service. The DEA issued the licences, but could not be preparing applications and issuing the licences. The “use of consultants” section in the report indicated this was one area where the DEA would always rely on using consultants. Municipalities were the ones who could help, but they were mandated by legislation, that an expert should conduct an environmental assessment.

Transaction advisor dilemma
Mr Singh sought clarity on the finding of the AG as it pertained to the appointment of a transaction advisor. Something did not sound right in reading this. The AG had pointed out this was not the best person in terms of the bid point; the person lacked skills; what was the background to this kind of thing? What impact was this decision of 2007 having now?

Ms Ngcaba replied that the finding of the AG was that the Department had not appointed the highest point scorer. There were two things considered -- price and technical speciality. The company scored higher on technical but was not the cheapest. When the points were combined for technical and price, the company became the second highest on the list.

The Department decided to use the highest technical scorer. From the departmental assessment, this was the correct decision. The process of finalising the awarding had been concluded late last year and construction had started. The Department made changes in the specifications as there were certain energy efficiencies that were required at the time.

It was realised that for such buildings there was an accreditation requirement that had to be met. It was introduced during the process; this was where variations had occurred in respect of the appointment. Nevertheless, the DEA did not regret the process and the value for money aspect was not compromised.

Mr Singh wanted to know if the Department of Public Works (DPW) was involved, as it was a custodian department for Government construction projects.

Ms Ngcaba replied DPW and NT were both involved. It was initially thought that DPW would build but it was found during the feasibility study that the Private Public Partnership (PPPs) route was the most cost effective.

Mr Singh commented that there were deficiencies pointed out in the report where the Department had not appointed an NT official as a voting member, which it should have done. He requested that both departments comment.

Ms Ngcaba replied that the NT participated in the committee but had chosen not to be involved in the actual scoring. The NT was the custodian of the PPP guidelines; NT was there and should have objected. All the steps involved in arriving at the decision to award required NT approval. They were part of the process and they did the voting.

Ms Marisa Moore, NT Chief Director: Public Finance, commented that if the permission had been granted, then NT would have accepted that the prices were done in a proper manner.

Ms T Chiloane (ANC) sought clarity on whether any official had been charged for not following proper procedures in relation to the appointment of consultants. She also sought clarity on whether the consultants transferred skills as per the agreements.

Ms Ngcaba replied that no charges were laid against officials who were involved in the adjudication committee. There were no unlawful activities undertaken; everything was done according to the prescripts of law. There was no wrongdoing; even on the part of the consultant that had a longest involvement with the Department, there were approvals in place and secondments were done by the Department of Public Service and Administration (DPSA). She said where a transfer of skill was not a requirement in contracts, that was addressed, and the transfer happened anyway.

The Chairperson asked if the questionnaires were the only monitoring mechanism used to source information from project managers. Was this the sole basis for determining if there was value for money?

Mr Sekwati Rakhoho, Director: Supply Chain Management, replied that the DEA also used service level agreements (SLAs). The SLAs had deliverables linked to time. If the service provider did not comply as per the SLA, then the project manager would raise the matter. He said the Department was also using the close-out report and the questionnaire. That information was then passed over to future evaluations.

Ms Ngcaba commented that DEA was thinking of an intranet based system that would allow other managers to see how the Department was controlling projects.

Department of Water Affairs (DWA) -- Vacancies
Mr R Ainslie (ANC) commented that a lack of planning resulted in the over use of consultants by departments. The DWA was the second largest spender on consultants, after the Department of Defence. According to the report, well over R4 billion was spent on consultants. Of the eight departments invited to the Committee, it ranked highest on the vacancy rate.  Expressing percentages as averages concealed the fact that there were annual increases in the vacancy rate at the Department. There was a correlation between the lack of internal capacity and the use of consultants. The Minister had indicated to the National Assembly (NA) in December of 2011, that there were 49 vacant senior level positions. What was the vacancy rate in the Department; and what was the picture like at senior management level?

Mr Trevor Balzer, DWA Acting DG, replied that the vacancy rate as of December 2012 was 10.5%. The staff establishment in terms of funded posts was 7 890; vacancies at that time were 848. Vacancies were dealt with at senior management staff (SMS) level, and significant progress was made in filling those. A list of those vacancies could be forwarded to the Committee. The DWA was currently dealing with the final recruitment process at the second line management level; recruitment of four DDGs had been completed and the next step would be to subject those to the Cabinet approval process.

Mr Ainslie commented this was very good news, and asked if this had resulted in a reduction of the use of consultants.

Mr Balzer replied that it had. The DWA had recorded R4.2 billion in consultancy fees, averaging about R1.4billion a year, during the period under review. In 2011/1his amount had been reduced to about R647 million. The DWA would however never get to a point where it did not use consultants. There were specialised skills required that the Department could not justify for building capacity internally.

Mr Ainslie said the Committee did not expect any department to do away entirely with consultants. The concern in the AG report was that the core functions went to consultants. Could the DWA give an assurance that the core functions of the department were not being outsourced, and that there was a permanent establishment at the Department.

Mr Balzer replied much of the work was now done through and by the departmental staff. The finding by the AG related to assignments in the process of moving from a Systems, Applications and Products (SAP) in data  processing-based system, to an Enterprise Resource Planning  (ERP) system on the trading account. Those contracts had drawn to a conclusion. But from time to time there was a need to contract the SAP system. Since the audit was taken, the DWA had the main account and the water trading account under the management of a single CFO.  In 2011, the function was split and two financial components had been created. The water trading entity still had an acting CFO, but this was one of the four appointments that awaited Cabinet approval.

Extension of contracts and variation orders
Mr Ainslie asked if the DWA had been abusing the extension of contracts by means of variation orders. The word “abuse” had been used by the Accountant General (AccG), Mr Freeman Nomvalo, who spoke of the gross abuse of variation orders. The AG’s report indicated 14 of 25 contracts examined were subject to 46 variation orders amounting well over R500 million. The Department had claimed to the AG that these variation orders were done in line with procurement procedures.

Mr Balzer replied the word “abused” was too heavy, but there had been excessive use of the variation orders with those tenders.  This was being addressed now. All variation orders were dealt with in terms of the departmental delegation at the time. There were only four cases to evaluate, involving R16.2 million, which constituted irregular expenditure. Guidelines and processes were put in place to deal with this matter. Certainly there would not be another excessive use of variation orders, as seen during that period.

Mr Ainslie commented that the abuse of variation orders boiled down to not carrying out proper planning. The AccG circular – dated 20 May 2011 – dealing with variations was specific: item 3.93 said “we are talking about gross abuse of the current SCM systems in relation to variation orders, contract may be extended or varied by not more than 20% (R20 million) in the case of work and other services, and 15% (R15 million) for other goods and service.” As the trend in this Department had been the “excessive use” of variations, how had the circular affected planning at the DWA?  What steps had been taken to implement this?

Mr Balzer replied that the DWA had taken on board the practice note of the AccG. The Department had put in place robust planning.

Mr Ainslie interjected and wanted to know if the official was conceding that lack of planning had led to the variation orders.

Mr Balzer replied: “to some extent, yes”. The DWA had put in place vigorous and robust systems in respect of the appointment of professional service providers (PSPs). One such system was that the providers’ submissions were now first closely scrutinised by the top management of the Department to determine whether indeed a submission could go to the bid adjudication committee. The submission would have to convince the Department that the skills were not available internally, and that it would have to be contracted out to the PSP. While scrutinising the submission, the top management would make a determination as to whether the PSP fitted into the departmental plans submitted at the beginning of the year. He did not foresee the trend highlighted in the report continuing into the future.

Mr Ainslie requested that a list be provided of the number of consultants engaged since the circular was made public to date.

Mr Balzer promised to provide that by next week.

The Minister said it was unfortunate that the work reported on should have been accounted for a while back, when some officials were not even there. The Department was engaged in a process to ensure there were few vacancies, although it was impossible not to have any vacancies.  A decision had been taken that posts occupied by PSPs be filled by full-time employees where possible.  The DWA had done a thorough process of business processing engineering, without waiting for the AccG’s circular. The reduction from R1.4 billion per annum to R642 million said a lot.  The DWA was doing work internally to reduce and control the use of consultants.

The Chairperson said the Committee could only ask questions based on that circular, but it was incumbent on the Department to provide the Committee with further details.

Changing accounting systems and the two contractors
Mr Ainslie commented that it was very good news that DWA had gone beyond the circular. The Committee would prefer a report on the result of the circular on planning at DWA and the use of consultants. The Department had appointed five different consultants to assist with the accrual base system, as opposed to cash based. Why five different consultants to perform the task of transferring from one system to another?

Mr Balzer replied the consultants were appointed to perform different responsibilities. This was indeed around the time the Department changed to the SAP finance system. One of the contracts related to the provision of financial managers that the Department did not have within the water trading entity. Other consultant delivered on the business requirement for the SAP front end; cash management procurement to pay, registration of the cash process and also developed a policy around accounts payable, revenue accounts, inventories, revenue account, receivables; and another consultant was used to procure the power users and also conducted the trainer’s training.

The consultant was involved with the training aspect of internal staff in all provinces. The DWA was regrettably unable to retain all of the staff trained. The staff  trained were so competent on the SAP accrual system that they were on demand at other institutions using the same system. There were also PSP used to deal with changes in management within the Department. The move to accrual based system necessitated that DWA move to changed management.

Mr Ainslie sought clarity on whether there was now internal capacity, and if so, why the continuation of qualifications. Was DWA getting value for money?

Mr Balzer replied that over time, DWA should be able to derive value for money. He indicated that some of the staff trained had been lost. There was capacity in-house, but one still needed to use some SAP support within the Department. There would still be deficiencies, given the 10% vacancy rate. There was a plan to target clean audit by 2014/15 financial year. This was part of the work that was being put in place.

Mr Ainslie sought clarity on the appointment of two consultants who were doing the same work. The Department appointed two consultants in 2006 and they came up with two different asset registers. Why appoint people to do the same work?

Mr Balzer replied the consultants were not appointed to do the same work. They were appointed in terms of the Section 15.2 of the Public Service Act, and in fact they were seconded to the Department. This was done with the concurrence of NT and one consultant was appointed to handle audit work within the branch, but also prepare separate reports on the donor funded programme. In the latter part of that year the official was appointed acting CFO for the water trading entity. The contract terminated 31 March 2013. The second contract was a much shorter assignment that was to provide financial support to the CFO in the main account. Monthly reports were submitted and the close out report had since been submitted as well. Internal capacity had been built, such that subsequent to the engagement of the consultant, no extra support had been provided for the CFO in that regard.

Mr Ainslie also sought clarity about the two consultants appointed to assist in the water trading entity. He asked if what was reported was duplication, as it appeared that the providers dealt with billing operations and accounts administration. Was this not the duplication of effort, he asked?

The Acting DG requested Deputy Director General (DDG) IT Support (Ms Zandile Mathe) to respond, as he was looking to respond on the Kwinana Contract, to which Mr Ainslie retorted that he should not anticipate him, as he had a question on that contract.

Ms Mathe said the first contract – the IT Business Group – started in 2007 and ended in December 2008.  There were no policies; it was more like starting a new business. The Department needed accrual based policies, services and processes that fed into the SAP development project. Subsequent to the completion of the policies and processes, DWA then required support to implement the process at offices for roll out and ensuring that they were used effectively at offices. She said there was no duplication when looking at the whole value chain of the process. The process started with developing the policies, and subsequently it moved to implementation.

Kwinana and Associates
Mr Ainslie sought clarity on the second consultant, Kwinana and Associates. This consultant was given the range of different tasks to do outside the initial scope of the contract and one of those was to perform forensic investigations into fixed assets, yet the same consultant was previously asked to provide the Department with a fixed assets list. Did DWA not see a potential conflict of interest in a consultant in investigating his own work? This scenario was bizarre. There had been instances of consultants investigating other consultants, but this was the first case of its nature.

Ms Mathe replied that the appointment of Kwinana was during the time when the Department did not have a fixed asset register. They were roped in to assist with putting up the asset register, putting up a system and loading everything onto that system. The second appointment of Kwinana was specifically for an incident regarding the loss of equipment in one of the provinces.

Mr Ainslie interjected that the Department had appointed a consultant to provide fixed assets expertise; then it appointed the same person to investigate these assets; was there no conflict?

Ms Mathe replied she did not think there was a conflict.

Mr Ainslie said there was a difference of opinion, but he personally thought there was. He asked to move on.

The Chairperson asked that the official be allowed to elaborate.

Ms Mathe said the allegation involved internal people, and hiring the people who knew how its asset base was structured would have been beneficial to the Department. These were people who were involved in the structuring of the asset register. This had led to the successful prosecution of some of the people who were involved. Some had even left the Department, but there were mechanisms of trying to recover the money. Paper work was being engaged in between the state lawyers and the Department.

Conflict of interest
Mr Ainslie asked if Kwinana and Associates was the company owned by the former DG of public works, Mr Sipho Shezi.

Mr Balzer replied he did not know members of the ownership of the company, but an indication from the CFO and Ms Mathe was that it was the case.

Mr Ainslie asked why the Department did not see a conflict of interest in the awarding of the contract especially as a Chief Director (Ms Zandile Mathe) of the water trading entity worked directly under Mr Shezi. She was the chairperson of the tender board that awarded the contract. Did DWA not concern itself with the potential conflict of interest, if the chairperson of the tender board awarded the contract to a company partly owned by someone she reported to.

The Chairperson pointed out that Ms Mathe was at the meeting.

Mr Balzer replied he was not aware of any issues of conflict raised at the time of awarding the contract.

The Chairperson clarified that the question did not refer to issues raised back then, or not.  Looking back now -- was this appropriate?

Mr Balzer replied he was not aware of the relationship of the two individuals during their time at DPW. He said he was not aware of any particular conflict of interest in that particular tender.

The Minister commented it would be worrying if a matter of that nature was left unattended. She said she was not sure what would have been done when officials were not even present at the Department. Ms Mathe was present at the meeting and she should indicate if the matter should be investigated going forward.

The Chairperson commented that the concern of the Minister --  having to explain decisions that were taken whilst she was not there -- was the same concern the Committee had experienced with many government departments. Because of the continuous turnover of leadership, the Committee was faced with officials who always claimed they were not there when called to account. This had the potential of rendering the work of the Committee irrelevant. And

The Chairperson figuratively said the work of the Public Accounts Committee sought to establish what killed the patient; it was retrospective. This frustration also came to Members when they had to deal with situations where the people responsible for the mess were no longer there. He clarified that the gist of the question was about establishing whether Ms Mathe sitting on committees that decided bids, in a department where Shezi was a DG, did not amount to conflict of interest. Was it appropriate to allow her to chair a committee that ultimately took a decision to award a contract to a company that Mr Shezi partly owned?

The Minister could not say if it was appropriate. She said it could not be correct to assume that when people worked together, they were engaged in corruption.

The Chairperson pointed out that the word was “appropriate”, and not “corruption.”

The Minister said she would prefer not to leave the matter unattended, and requested Ms Mathe to respond.

The Chairperson said he would have preferred that the response came from the Minister or the DG, to indicate if Ms Mathe worked at Public Works, and if Mr Shezi had got the tender through a committee she chaired.

Mr Balzer replied he would have to go back and look at the declaration every member had to make prior to the sitting of the adjudication committee. The Kwinana contract was part of the special report by the AG which he considered in 2010, and resulted in the dismissal of the CFO at the time. The contract was part of the SIU investigations at the moment, and formed part of the variation orders that were not approved, to the amount of R16 million.

Dr P Rabie (DA) sought clarity on the claim that the Department did not safeguard documents as per the initial agreement of the contract. Consultants also alleged poor planning on the posts to be evaluated.  He asked the Department to provide clarity on those three issues.

The Minister said the  DWA was in the middle of implementing a turnaround to the extent of seeing vast improvements on all the things that had been highlighted. She reiterated the DG’s sentiment that the Department had targeted 2014 for a clean audit.  The new organogram, with business process review, was complete. Job evaluation had been done and the structure was with the DPSA. If DWA had its way, it would be implementing the structure right now.

Mr Balzer said the contract referred to had not been taken to conclusion; it was terminated before the contract value had been completed. The contractor had completed 17 job evaluations and they were paid an amount of R53 000. There was a claim of R255 000, but this was disputed and not paid. The job evaluation function was done in-house by the Department’s own staff, through the organisational design unit.

The Minister said the phenomenon of “javelin throwing”, sometimes referred to as post employment contract, occured when officials left government employ only to do the work as consultants. She requested the Committee to assist in the finalisation of post employment arrangements into the future.
There were no rules governing this aspect. Government was looking to formulate such rules; they would specifically regulate the cooling-off period. The Department would have a meeting with the AG to determine a way forward on issues raised in the report. Both Departments (DEA and DWA) would improve on planning and implementation of programmes. The departments worked with NT in ensuring systems improved, and that there was funding for projects highlighted as essential in the APPs.

The Chairperson said the intention of the meeting was to afford the Department an opportunity to clarify issues. From the Committee’s side there was no intention to imply that a corrupt relationship existed regarding Ms Mathe. However it was only correct to seek to find out the impact of such a relationship on the functioning of the department. The Committee would write a report to Parliament to raise some of the issues it thought needed to be addressed from the side of Government. The AG’s report had been very useful.

The meeting was adjourned.


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