Audit outcomes of Department of Transport for 2012/13

Meeting report

Consideration of Committee Minutes
The Committee considered the minutes of its meetings held between 14 August and 17 September 2013.  

Mr P Mbhele (DA) moved the adoption of the minutes of the meeting held on 14th of August, seconded by Mr L Suka (ANC).

Ms R Motsepe (ANC) moved the adoption of the minutes of the meeting held on 4 September, seconded by Ms N Ngele (ANC).

The adoption of the minutes of the meeting held on 10 September and 17 September, were moved by Mr I Ollis (DA) and Ms Ngele respectively, and seconded by Mr Suka and Ms Motsepe, respectively.  

Auditor-General briefing on audit outcomes of Department of Transport for 2012/13
Mr Vinay Ramballi, Senior Manager: Office of the Auditor-General South Africa (AGSA), said the presentation would focus on the progress made in terms of audit outcomes, the problems the portfolio was contending with, the root causes of such problems, as well as AGSA’s recommendations to address the problems. The presentation was specifically divided into four sections.   These were the status and progress of the audit outcomes of the transport portfolio, the particular areas that should be focused on, the vital actions that should be taken to move the portfolio forward, as well as the progress on the commitments by key role players and other commitments expected from such players.

AGSA would be reporting on 16 entities, including the Department of Transport (DoT). The entities were South African National Road Agency (SANRAL), Road Accident Fund (RAF), Cross Border Road Transport Agency (CBRTA), Road Traffic Management Corporation (RTMC), Road Traffic Infringement Agency (RTIA), Driving Licence Card Account (DCLA), Passenger Rail Agency of South Africa (PRASA), Railway Safety Regulator (RSR), Autopax (Pty) Ltd (Autopax), Intersite Property Management Services (Pty) Ltd (Intersite), Air Traffic and Navigation Services (ATNS), Airports Company of South Africa (ACSA), South African Civil Aviation Authority (SACAA), South African Maritime Safety Authority (SAMSA), Independent Ports Regulator (Ports Regulator), as well as the Department of Transport (DoT). However, Air Traffic and Navigation Services (ATNS) and Airports Company of SA (ACSA) were not audited by AGSA but by private firms as they were Section 4(3) entities.  

The analysis of the status of the transport portfolio was done by drawing upon the concept of traffic lights, with green representing the best position or status that was most desirable. The entities and DoT that were analysed sat in the yellow and green zone, and this was an indication of a movement away from some red zones recorded in 2011-12 financial year.  There had, however, been impediments to progress within the portfolio and some of these were at a high level, such as the response time to act on commitments by key players such as the Minister, DoT and the Committee, the response time to implement action plans, the lack of regular updating of the notes to support the financial statements, the ineffective review of some financial statements, lack of consequences when non-compliance was identified, as well as ineffective monitoring of compliance with laws and regulations. Should these matters be addressed, further progress would be made in moving the transport portfolio towards the green zone.

Mr Ramballi expanded on the status and progress of the audit outcomes of the transport portfolio, stating that there had been a net improvement over the 2012-13 financial year. In the concept of traffic lights that was utilised for the analysis, green represented entities that were “unqualified with no findings”, yellow represented entities that were “unqualified with findings” and red was an indication of “adverse or disclaimer with findings.”   In 2012-13, 11 entities representing 69% of the total entities in the portfolio were sitting in the yellow zone, while five entities representing 31% were sitting in the green zone. There had been progress in the movement to the green zone, as entities in the green zone had increased from two in 2011-12 to five in 2012-13. There was no entity located in the red zone in the 2012-13 financial year. 

In terms of specific entities sitting in the different zones, ATNS had maintained its clean audit and was located in the green zone, while RAF, DLCA, ACSA and SACAA had moved into clean audits (green zone). SANRAL, however, had regressed from a clean audit to unqualified with findings, while DoT, PRASA, RTMC, RTIA, RSR, Autopax, Intersite, SAMSA and Ports Regulator had maintained an audit outcome of unqualified with findings. There had also been significant improvement in CBRTA which had previously been qualified, but which was now sitting with “unqualified with findings” on the compliance matter.  In essence, there had been some positive movements, one negative movement, and many entities remaining unchanged in terms of their audit outcomes.

Mr Ramballi noted that the AGSA’s analysis of entities regarding their status of compliance with legislation specifically excluded ATNS and ACSA, which were Section 4(3) entities. The analysis of compliance with legislation covered a broad spectrum of compliance matters, such as compliance with the Public Finance Management Act (PFMA), Supply Chain Management (SCM) practices and Treasury regulations. There had been a net improvement over 2011-13, as there had been material findings in 79% of the auditees, compared with 93% recorded in the previous year. The quality of the annual performance reports also indicated a net improvement over 2011-13, excluding the Section 4(3) entities, and there were material findings in 21% of the auditees, compared to 36% in the previous year. About 79% (11) entities did not have material findings in their performance reports, while 21% (3) entities had material findings in their performance reports.

Three issues were considered in the audit process of the entities’ annual performance reports. These were the usefulness of the information, the reliability and consistency between the plan’s target and what was being reported on, as well as compliance issues. Findings on the quality of annual performance reports of the entities, excluding Section 4(3) entities, indicated that there was no non- or late submission reported, while two entities (Autopax and Intersite) had problems with the usefulness of the information, against five recorded in the previous financial year. One entity (RTMC) also had a problem with the reliability of information, compared to two entities in the previous year.

Mr Ramballi identified the risk areas that should receive attention in the entities, excluding ATNS and ACSA. The identified risk areas were supply chain management, quality of performance reports, human resource management, quality of submitted financial statements, information technology controls, as well as financial health. There were material findings in supply chain management in 25% of the entities, with the key issues being competitive bidding and deviation from acts and regulations. Three entities had material findings in the quality of performance reports, and the usefulness and reliability of information were the major concern. The material findings in human resource management concerned the DoT, and related to the issue of advertising and filling of vacant posts, which had not been done. There were material misstatements some financial statements and three reasons were responsible for this -- skill issues in certain entities, failure to update disclosure notes on a monthly basis, and the review process of the financial statement, which was problematic. Three issues concerning information technology controls were of serious concern for 50% of the entities.  These were security management, user access management or control, and disaster recovery.

There were also concerns on the financial health of about 25% of the entities. AGSA was not convinced that these entities would be able to continue operations in the foreseeable future. In terms of the quality of submitted financial statements by the entities, about 50% of auditees were able to avoid qualifications due to the correction of material statements during the audit process. About 43% of the entities submitted financial statements that were not of appropriate quality, but corrections had been effected on the financial statements by the entities which eventually resulted in a 100% submission of financial statements that were of appropriate quality.

He highlighted the vital actions that should be taken in order to improve audit outcomes of the transport portfolio. The actions included the improvement of the key drivers of internal control, which were leadership, financial and performance management, and governance. Although there had been notable improvements in leadership and governance, particularly in the 2012-13 financial year, there was still room for further improvements. Financial performance management had, however, shown some regression and it was important to change this. The continuing widespread root causes of undesirable audit outcomes should also be addressed. Financial statements should be adequately reviewed against applicable reporting frameworks. The review of annual performance plans needed to be strengthened to ensure that indicators and targets were SMART and that they were aligned to the framework developed by the National Treasury. Controls should also be put in place to ensure that the annual disclosure requirements were tracked and updated on a monthly basis.

Mr Thami Dibisli, Business Executive in charge of the Transport Portfolio in AGSA, expounded on the progress on the commitments required from key role players, and other actions and commitments that had to be undertaken by such key players. The commitments required from DoT included enhanced performance and consequence management. People must be held accountable, as there were entities maintaining their status quo in terms audit outcomes for three consecutive years, and not making progress in moving from the yellow to the green zone. AGSA would be engaging on a quarterly basis with the DoT, where the key controls required to drive the audit outcomes of the portfolio to the green zone, would be discussed.  The DoT must also undertake a review of monthly management accounts and reconciliations, including disclosure notes. Regular interaction with relevant stakeholders on critical compliance matters, as well as regular meetings of the forum to share knowledge and seek the common goal of achieving clean administration, must also be done.  The DoT should prioritise requests for assistance directed to the Minister, such as exemption applications and deviation requests.

The Minister should engage the Department on the takeover plan for the Electronic National Traffic Information System (E-Natis) system, to ensure smooth transition once the court processes were completed. The Minister should also prioritise the filling of the vacant Director General post at the DoT, and the appointment of the additional members of the SAMSA board and audit committee. The encouragement of cooperation from the Members of Executive Councils of provinces and all other important stakeholders in the implementation of the Administrative Adjudication of Road Traffic Offences Act of 1998 (AARTO), should be prioritised by the Minister. The Minister should invite the Road Traffic Infringement Agency (RTIA) to the shareholder committee meetings of the Road Traffic Management Corporation (RTMC), and should also revise the contract management process, especially in those entities where other regulatory requirements were applicable.

The Portfolio Committee on Transport should assist with the follow up of both the E-Natis take over project plan with the DoT, to ensure smooth transition of the system, and the appointment of the Director General of DoT and any other key vacant posts within the portfolio. The Committee should also follow up on the consequence management for all significant non-compliance issues identified within the portfolio, as the problems or issues identified had been recurring over the years. 

Discussion
Mr I Ollis (DA) commended AGSA, stating that their input was valuable and that the presentation was quite a high level one. He referred to PRASA Corporate Real Estate Solutions’ (PRASA CRES) suppliers, and noted that some of them were not VAT registered.  PRASA CRES was, however, paying the VAT amount to such suppliers. He asked if AGSA had looked at the invoices paid to PRASA CRES, and whether or not money was being paid to firms that were not registered for VAT. There was a particular firm that was paid about R600 000, and all of the services were not rendered by the company to PRASA CRES. He asked if AGSA was able to pick up the invoice of that particular firm, and whether AGSA was also able to pick up some of the PRASA CRES transactions which dated back to 2006, where the transactions’ reconciliation had not been fixed up till now. He alluded to the duplication of entries during migration to the SAP system, and asked if AGSA was aware of this and what was being done to rectify those duplications.

Mr Ramballi replied that AGSA’s scope was limited in terms of the depth that AGSA went into. Materiality, for instance, was always used for evaluating statements, and what AGSA normally took into consideration was whether an issue was significant enough to justify its mention in an audit report.  Materiality and sampling were always used in the selection of issues to be analysed in the audit process. The sampling methodology afforded the entire population an equal opportunity of being selected and certain invoices might unfortunately not be selected or interrogated, based on sampling methodology. The issue AGSA had with PRASA CRES related to non-compliance and supply chain management, and AGSA would have highlighted the issue of the payment of VAT to firms that were not registered if it was significant enough. The payment of R600 000 to the particular consultant might have been left out due to the sampling methodology utilised.  The notion of significance also applied to the SAP migration, and AGSA would have decided that the issue did not impact on the financial statement to the extent that AGSA might want to highlight it. It might however have been highlighted in the management report and not in the audit report, which was a public document.    

Mr G Krumbock (DA) noted that the presentation was so high level that a lot of details were missing. It would be preferable to have an in-depth analysis and a detailed performance audit, which would show which funds were efficiently utilised or not. It would be better to have given a presentation that would highlight the efficiency of entities based on an analysis of the value for money obtained from expenditure. 

Mr Ramballi replied that AGSA’s audit report was not a specific performance audit that would consider output as well as outcomes, and this was perhaps a limitation in terms of the regularity of the process that AGSA conducted.

Mr Krumbock referred to the fact that 5% of all the fines that were levied as a result of the AARTO process was being paid, and said that the particular system was in a state of disfunctionality.  Any entity or department that was able to implement only 5% of a process ought to attract attention from AGSA.  Why was the particular analysis absent from AGSA’s report?

Mr Ramballi replied that in terms of AARTO’s functioning, AGSA -- from a regularity point of view -- looked at performance targets entities set for themselves, and whether or not those targets were SMART and also achieved.  AGSA would also want to know if entities had evidence to substantiate their achievements. The Committee could, however, decide whether it wanted to look at each entities involved in administering AARTO’s Act to see if there were measures that they had included in the strategic plans, and how these entities were tracking their achievement.  

The Chairperson alluded to questions by Mr Krumbock about the 5% success rate for fines collection under the AARTO process, noting that the matter had been discussed several times by the Committee. The entity responsible for following up on firms who were fined had said that their hands were tied because of an Act that specified that registered letters through the post office should be used to track down firms who had to pay fines. There had been a strategic meeting held in 2011-12 with RTI, as well as a strategic planning meeting in 2012-13 for the amendment of the Act, and the Committee had agreed on the need for the amendment.   The DoT was supposed to draft a bill for the amendment of the section that related to how those that should pay fines would be tracked down, so that RTI would be able to do a proper follow up. The Committee, DoT, RTI, and RTMC had all agreed that the Act had to be amended, as it was serving as a hindrance to fines being paid. If the Department was not taking action on the amendment, then the Committee could go ahead and work to put out a bill to enable RTI to overcome the problem. It was not the system that was not working, but the Act that was preventing the system from working.

Mr Krumbock responded that he was in agreement with the Chairperson on the need to amend the Act, but that his point was still valid. The Committee needed an appreciation of the issue by AGSA, which would alert the Committee on what the actual success rates for fines collection were. The Committee needed the figures factually and objectively, because being armed with the actual figures would provide a far more compelling case for the amendment of the bill.   That was why he wanted AGSA to respond, so as to advance the understanding of the nature and extent of the problem. He would still want AGSA to reply if that kind of analysis was available, in order to understand the nature of the problem and figures.

The Chairperson replied that she was not in disagreement with Mr Krumbock, but provided only a brief background on what the situation with the fines collection under the AARTO process was. The Committee should not only concentrate on the figures, but should broaden its understanding, as this would help the Committee to be informed and to reflect on its commitment to the issue. 

Mr Krumbock questioned the rationale in the assessment of objectives of entities by AGSA in the audit process, noting that the objectives of the entities would have been looked at and an assessment made about whether these objectives had been met. He inquired if the objective concerning the collection of fines was to collect 5% of the fines, or whether some other objectives had been adopted with regard to AARTO. He asked what the objectives audited were, and whether AGSA was satisfied with the 5% success rate of fines collection.

Mr Ramballi replied that the strategic plans AGSA looked at were based on the mandate of the entities. AGSA evaluated using the SMART criteria, and one of the features of SMART was the realistic aspect. AGSA looked at the measure and indicator to determine whether it was realistic, and AGSA would report that the target was achieved if the target was achieved, with evidence to show the achievement.

Mr Krumbock responded that he had not asked what the principle or theory was.  What he wanted was an explanation of what had actually happened and what the strategic objectives were in terms of RTI administering the process of collecting fines laid out in AARTO.   He asked if the strategic objective had been met, and whether the objective had been to collect 5% of the fines, or whether it was actually higher than that. 

Mr Ramballi replied that the issue was specific to an entity, and AGSA would not be able to provide an answer immediately. AGSA did not have that detail and would not be able to tell the Committee what the actual measure or target was.  AGSA would provide the details at a subsequent meeting.

Mr Ollis asked if AGSA would also be able to answer the question on PRASA CRES by referring to their report at subsequent meetings.

Mr Ramballi replied that AGSA would make the information available if it was in the management report. If the information was not in the management report, however, AGSA would ensure that the risk assessment for the 2013 audit cycle included the information in its work.

Mr P Mbhele (COPE) asked why ATNS and ACSA were not audited by AGSA, but by private firms, and whether their clean bill of health had to do with private firms auditing the entities.  He also asked if the three entities that had regressed in 2011-12 were the same that had made progress to the green zone in 2012-13, or were they different entities entirely.

Mr Ramballi replied that AGSA would not be in a position to comment on whether the clean bill of health recorded by ATNS and ACSA was because private firms had handled the audit, as the private auditors had applied the same standards that AGSA was applying. The entities that had a clean audit in 2010-11 were SANRAL, ATNS, Intersite, ACSA and Autopax, while SANRAL and ATNS were the entities that had clean audits in 2011-12.  ATNS, RAF, DLCA, ACSA and SACAA were the entities that had clean audit in the 2012-13 financial year. 

Mr L Suka (ANC) noted that the presentation was a high level one, but requested clarification on the movement of clean audits in the yellow zone, particularly the notion of improvement from qualified to unqualified findings. He asked AGSA to clarify the nagging issues which resulted in persistent material findings, and which were keeping some entities in the red zone.   He inquired about how often AGSA met with the DoT to assist them in order to avoid the issues identified by AGSA in its presentation.

Mr Ramballi replied that the common findings that kept entities in the yellow zone were issues around supply chain management, the quality of financial statements, presence or absence of audit committees and their functioning, predetermined objectives reporting or performance reporting, especially the criteria of usefulness or reliability. Entities that had findings in their annual performance reports were Autopax and Intersite, which had issues on usefulness of information criteria.  Entities such as RMTC had an issue on the reliability of information, as there was not enough evidence to support what they said they had achieved. AGSA normally had regular audit committee and steering committee meetings with DoT, and regular one-on-one meetings with the Director General of DoT.  AGSA also conducted a regular interim audit through the interim audit process, and was always able to identify and point out to the DoT areas it needed to work on before the year ended.

The Chairperson referred to the question asked by Mr Krumbock about value for money, noting that the issue was at the centre of the Committee’s oversight role. The Committee’s approach in looking at expenditure was not only about whether money had been spent, but what had been achieved. In considering any financial report, the Committee normally considered the problem and the programme which informed the objectives to address the problem. This would now have financial implications to implement the programme, in order to solve the problem. The Committee therefore considered how problems had been tackled or solved, and whether there was congruency between the problem and programme, and this informed Mr Krumbock’s question of whether the country was getting value for money. The Chairperson asked if AGSA was looking at whether programmes put in place to address problems were actually solving such problems.

Mr Dibisli replied that the audit that was been done was not the appropriate audit to measure whether the nation was getting value for money on expenditure. Financial statements were considered by AGSA solely to make a judgment about whether the financial statements were fairly presented. AGSA did not test or address the outcomes, as the framework for the financial statement was input based. The best audit that would give a sense of outcomes was a value for money audit, and the present audit process did not do that.

The Chairperson asked whether there was a meeting point between the Department of Performance Monitoring and Evaluation (DPME) and AGSA. She remarked that there was only one government, and the 2010 World Cup had provided a learning experience on collaboration among departments and entities. There should be a correlation between the work done by the DPME and AGSA. There was supposed to be a meeting point between the DPME and AGSA, to answer the question of whether the nation was getting value for money.

Mr Dibisli replied that the issue of collaboration with DPME was a crucial one, as there was less correlation between AGSA’s and DPME’s reports. There was no clear demarcation as to who was responsible for what between the National Treasury, DPME, the Department of Public Service and Administration (DPSA) and AGSA, and the roles of these organisations ought to be clearly spelt out.

The Chairperson responded that there ought not to be confusion among the entities, as they were supposed to complement each other. She asked if there had been meetings and collaboration between the DPME and AGSA, because AGSA would be presenting only on financial reports if both were not collaborating together.

Mr Dlibisi replied that after the non-alignment noted in the reports of both DPME and AGSA, there had been some work done currently between the two entities. Memorandums of Understanding (MOUs) were also currently being developed to enhance the collaboration between DPME and AGSA. AGSA would, however, have to get back to the on the progress made on the collaboration effort.

The Chairperson responded that AGSA and DPME had in essence not compared notes.

Mr Dibisli confirmed that they had not compared notes.  

The Chairperson said the lack of collaboration between DPME and AGSA was not good enough. She stated that the Committee was working to ensure that the vacant positions in the DoT were filled. The Committee also took a cue from what AGSA had raised the previous year on E-Natis and would raise the issue again.

The Chairperson thanked everyone present. The meeting was adjourned.