Department of Defence & Military Veterans & entities: Audit outcomes 2012/13: Auditor General briefing

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Defence and Military Veterans

09 October 2013
Chairperson: Mr M Motimele (ANC)
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Meeting Summary

The Auditor General South Africa (AGSA) briefed the Committee on the audit outcomes for 2012/13, for the Department of Defence and Military Veterans (DODMV), which was being reported on as one entity in this year, and its entities. In this year, the DODMV had obtained a qualified audit, with findings. The qualification was based on an incorrect count, and material misstatement of assets, to the tune of R818 million. However, the AGSA said that this must be seen against the fact that the number of qualifications had reduced, showing that DODMV was improving, as also against the fact that in the previous year it had had an exemption from National Treasury in relation to certain categories of asset count, given the severe difficulties in completing it. A former Minister of Defence had commented that numerous assets were overseas. AGSA said that DODMV had already attended to trying to resolve some of the issues. The particular difficulties facing the DODMV on the assets were experienced also by a number of other defence departments across the world. In relation to other findings, DODMV also was not substantially different from other departments so that although its unique circumstances were taken into account (for instance, in determining the basis for accounting) they were not solely responsible for the discrepancies reported. AGSA reiterated several times that although, by the nature of such reports, the outcomes report would be negative, it was not so much reporting on what DODMV had failed to do, but was reflecting upon the complexity of the context.

Members had some difficulty with the report. Firstly, they felt that it did not use the sort of plain language that would enable Members to grasp the issues quickly. Secondly, they questioned why there were findings, if the AGSA met regularly with the DODMV, and why AGSA had not ensured that there was improvement. They questioned the mandate of AGSA and questioned why details of certain transactions could not be provided at the meetings. They were concerned that AGSA had not been able to access reliable information on a force employment programme, because that programme was outside the scrutiny of AGSA and asked what information AGSA had requested, and what was not disclosed. Members also questioned how AGSA had managed to assess the mis-statement on assets, and how it would get access to classified information. Given all the problems cited, they wondered why AGSA expressed the opinion that AGSA was “on the way to an unqualified audit”. Although AGSA tried to explain that this was intended to be an encouragement to the DODMV, a DA Member pointed out that the Committee should not gloss over a number of other findings that did not amount to qualifications, and was particularly concerned that some of the issues raised there had been ongoing for several years. They felt that the way the outcomes report was worded indicated that DODMV was not prepared to assist, although AGSA said during the meeting that DODMV had not challenged the findings and had started to take steps to implement them. However, another Member raised his concern that AGSA itself had not yet provided the Committee with specific information requested over a year ago, and said that the Committee would have to question DODMV, when it appeared, on what action it had taken to Committee recommendations. There was concern about the type of supervision over the Castle Control Board, which had challenged AGSA’s report, and this was also of concern, partially because the problems were repetitive, and partially because they related to failure to implement supply chain management and other procedures that should have been put in place a long time ago, and that were the same as those in the DOD itself.

It was suggested that written responses be provided by AGSA to a number of questions raised.  

Meeting report

Audit Outcomes 2012/13: Department of Defence and Military Veterans, South African National Defence Force, Armscor, Castle of Good Hope
Mr Musa Hlongwa, Senior Manager, Auditor-General South Africa, tabled a briefing note on the audit outcomes of the Department of Defence (DOD or the Department). He noted that from the year financial 2013/14 the Department of Defence would have a separate report of audit outcomes from the Department of Military Veterans (DMV), although they were combined in this year. The Auditor-General South Africa (AGSA) had issued a qualified opinion in respect of the Department of Defence and Military Veterans (DODMV) in this financial year.

Mr Jan Steenkamp Senior Manager, AGSA, set out the audit opinion history (see attached document for full details). He noted that in respect of this year, the capital spent was not listed, and the DODMV
could disclose this as inventory for the year under review.  Similar to the previous year, there was an departure in terms of section 92 of the Public Finance Management Act (PFMA), in respect of the Special Defence Account. Section (104)(4) could apply to Special defence activities.

In regard to the qualifications, Mr Steenkamp noted that the amount of R818 million was under-stated, under movable tangible assets was a significant figure. This was a large figure, but it must be noted that the DODMV had put in a major effort into the disclosure process. He said although this report was qualified, from his perspective he did believe that the DODMV was on its way to getting an unqualified report.

Mr E Mlambo (ANC) interjected to ask what a “material misstatement” was.

Mr Steenkamp replied that this was when a figure was stated in the financial statement at a lesser value than it should have been.

Mr Steenkamp said that the root cause of the first finding, as stated for the DODMV, was mainly due to the fact that the record keeping of the DODMV was not up to standard.

In regard to information technology, Mr Steenkamp said that the DODMV had already developed a draft governance framework, which was evidence of progress, particularly  in comparison to other departments, and, that it only needed signing off by the Department of Public Service and Administration (DPSA), which would be done by March 2014.

Mr Steenkamp showed a table (see attached presentation) in which various imperatives around the audit were highlighted with green, yellow or red. The yellow indicated that performance was not satisfactory, or that this was a warning sign that if not corrected it would lead to future problems. All of the matters so highlighted were detailed also in the main audit report explanation.

DODMV was in the process of capacitating the internal audit unit and once this was done it should alleviate most of the other matters of concern. He said that the internal audit unit was not operational for the entire year under review, in the Castle Control Board (CCB) entity.

The Chairperson wanted to know at what stage he DODMV would be responding to the recommendations of AGSA.

Mr Steenkamp replied that AGSA had requested a steering committee meeting with the Chief Financial Officer (CFO) of DODMV in the very near future, when AGSA would highlight the areas which, in its opinion, required immediate attention.

Mr Hlongwa added that the DODMV was in the process of developing action plans to address AGSA’s concerns.

Ms P Daniels (ANC) said that, looking at the “dashboard report” (with the highlights), she was not sure whether DODMV was going forward or regressing. She wanted to know how the auditing process was completed. She also wanted clarity on the comment on the financial reporting framework as written under the “significant additional matters” paragraph of the audit report.

Ms Daniels asked if AGSA took into account that the DODMV operated in a special environment, when completing an audit, particularly with reference to security concerns that needed to be audited.

Ms Daniels also wanted more clarity and explanation on the recurring challenge around assets and what, between the AGSA and DODMV, had been done to rectify that challenge.

Ms Daniels asked if the management of the DODMV had responded to the outcomes, and what was that response.

Ms Daniels She also enquired what had been the audit findings of the DODMV internal audit.

Ms Daniels wanted more clarity on the R818 million understatement of assets.

Mr Hlongwa replied that the DODMV was responsible for reporting on the activities it had undertaken throughout the year. The DODMV reported on its financial expenditures and receipts for the year by compiling a financial report, which comprised statements on financial performance and the statements of financial positions. The other report would be the report on performance information. The auditors simply audited those reports. Essentially, the audit process was about verifying what the DODMV management had reported. In that process, the auditors required information on each and every figure that appeared on the financial statements. The DODMV then had to supply AGSA with evidence that supported all the figures that appeared on its financial statements. If AGSA was not satisfied with the evidence furnished, then it issued a modified audit opinion, which meant that the opinion could be qualified. For example the R818 million understated was one of the figures that DODMV had not managed to support to the satisfaction of the AGSA.

Mr Hlongwa summarised that AGSA reported on financial information, performance information, compliance with laws and regulations, which were the enabling laws on preferential procurement including the PFMA, and compliance with any entity-specific law, which in the case of DODMV would mean any laws that bound it in its own environment. Supply chain management was another part of compliance.

Mr Hlongwa said that the comment on whether accounts were “fairly presented”, in the context of financial reporting, referred to the fact that AGSA, in terms of the Public Audit Act must report on whether accounts had been drawn in compliance with the generally accepted accounting practice. However, he pointed out that in respect of the DODMV was not the Generally Accepted Accounting Principles (GAAP) because DODMV reported on a modified cash basis.

Mr M Booi (ANC) commented that AGSA needed to find a clearer way of putting this across. He commented that the Secretary for Defence was one of the best that the Committee had come across.  He said that Mr Hlongwa’s statements on the drivers of internal control and issues of leadership did not seem to speak to the organogram. He asked that Mr Hlongwa should talk to that organogram and compare that with what he had just said concerning whether something was ‘fairly presented’ since he was raising issues of leadership, policies and procedures. Mr Booi said he wanted to know what was new about policies.

Mr L Diale (ANC) suggested that AGSA should be given a chance to respond fully to Ms Daniels’ questions, then attend to Mr Booi’s question.

The Chairperson responded that Mr Booi’s question was an intervention that was related to Ms Daniels’ question, and could be useful.

Mr Booi reiterated that he wanted clarity on what exactly was the cause for concern that was highlighted under policies and procedures. If this was a challenge, as identified within AGSA, then he wanted to know how that  translated to a qualified opinion.

Mr Hlongwa replied that what Mr Booi was asking did not relate to what he was saying directly, an he thought that if he could firstly finish his answer on what would be regarded as “fairly presented” then it would be possible to answer Mr Booi as well.

Mr Mlambo commented that Mr Daniel’s questions were not raised for her personal satisfaction but were for the benefit of the whole Committee.

Mr Hlongwa continued that he had been speaking to the term “fairly presented’ within the framework, and that it had nothing to do with policies, but related to the audit report. AGSA had used the term ‘fairly presented’ in the full knowledge that when it was used according to normal audit standards, it meant that the framework of Generally Accepted Accounting Practices (GAAP) had been applied, even though that had actually not been the case with the DODMV. This was a technical issue that he would be happy to take further with Ms Daniels at the conclusion of the meeting, but he wanted to state that this comment on “fairly presented” did not actually affect the opinion.

Mr Hlongwa continued said that the AGSA audit was done according to International Auditing Standards (IAS), but it had indeed taken into account that the DODMV environment was unique. For example, AGSA had acquired the necessary clearance to audit environments that were classified for reasons of national security. In relation to the Special Defence Account (SDA) the Members should see that when there was reference to the IAS,  SDA had a clean audit and that was because of the nature of the environment.

Mr Steenkamp added comment that the AGSA would have to issue a factual finding on the root causes of any qualification, and make recommendations to recurring challenges that AGSA had found in the DODMV. AGSA normally discussed those root causes with the DODMV, by having regular monthly meetings with the DODMV as observers, but when necessary it did make recommendations and suggestions to the DODMV at those meetings.  Mr Steenkamp personally attended meetings on the capital assets challenges and regularly made suggestions and recommendations on what he thought would assist the DODMV. The DODMV then would build up, into its action plans, the recommendations that AGSA had made.

Mr Steenkamp reiterated that DODMV had received a qualified audit in the 2012/13 year, but it had progressed quite a long way from previous years. It must be remembered that there was sheer magnitude of work that had to be done in 2012/13.

Mr Steenkamp referred to the understatement. R37.8 billion was the actual expenditure of the DODMV. The R818 million understated for assets referred to the value at which the assets were disclosed at in the financial statements as DODMV had given a figure that was R818 million less than what it was supposed to be. As such, not all the assets had been recorded and reported accurately.

Mr Steenkamp answered, in relation to the internal audit and Audit Committee, that DODMV was currently capacitating the internal audit component, and once that component had been capacitated he believed that some of those problem areas would disappear because internal audit would be able to perform the overall monitoring function, to ensure that the controls that were in place were actually being complied with. The Audit Committee had only two members in this year, but had since appointed another three members.

Mr Booi suggested that AGSA was being dishonest with the Committee. He questioned how the asset register ended up being wrongly stated, if AGSA was attending meetings regularly with DODMV. He believed that this was where the problems started. It seemed to him that AGSA was co-managing the DODMV, and wanted a comment on this point. There had also been an internal Audit Committee. He wanted clarity on this point, stating that in 2010/11, when there were no leadership and policy challenges, there was no problem with asset management. He wanted to know at what point the asset detail started to go wrong.

Mr Booi said that Mr Hlongwa’s earlier explanation had not satisfied him, and he had not quite understood what he had been talking about. The generality and generics of accountability were not a problem. The Committee wanted to know how much, and to what extent, was AGSA participating in the DODMV management meetings, if there was tension between AGSA and the DODMV, whether DODMV listened to AGSA's suggestions, or what exactly were the issues. The Committee was trying to establish if there was an asset challenge.

Mr Booi also said that the explanation from AGSA gave all the details about how the verification process was supposed to have happened and that was not new because AGSA had said that before, but it was now suggesting that the DODMV had improved. 

He said when it came to the internal drivers organogram, AGSA saw the Secretary of Defence (SD) as an effective leader, but somewhere and somehow, when AGSA was accounting on how the DODMV work had been unbundled, there were weaknesses mentioned. He said that the Committee was not understanding something about the report, and this led it to be sceptical.

The Chairperson said that it was also surprising that AGSA was admitting that the auditing firm responsible for the DODMV was an independent auditor. It would, to his mind, have been logical if the lack of progress had related to new appointments or new auditors, but if AGSA was working with people who had been in position for three or four years, and still AGSA could not assist in resolving the problem, that might indicate that that the problem was actually different from what AGSA may have thought, and might also point to deeper issues. It had been indicated that AGSA had been speaking to the DODMV and its independent auditors, but still, over more than four years, had been unable to address the root cause of the qualification, and he wondered why this was so.

Mr Hlongwa said that the audit report in 2012/13 had been qualified over one matter, and that was the assets. However, in past years there were a number of different issues leading to the qualifications. The fact that these qualifications had been reduced meant that DODMV had indeed made some improvements. The issue of assets was a complex one for the DODMV, and he pointed out that all over the world, many Defence departments ended up with qualifications on this point.

Mr A Mlangeni (ANC) interjected there that if there was a generally accepted norm about qualification on the complexity of auditing Defence assets, then he would have thought that it would have been accepted in South Africa. He knew, from 2011/12, that when DODMV moved from one place to another on foreign programmes, movable assets transport was generally delayed, so the assets audit became a challenge. It would have been useful if the audit report, before reporting on the assets, could have identified the problems. Delays might not have been the problem, but rather the challenge of moving assets from one operation to another. It might not be so simple as saying  that the DODMV was not able to account.

Mr Hlongwa continued that the qualification on the assets of the DODMV was not a unique situation, and the AGSA had tried to convey that the DODMV had already done a lot towards resolving the assets issue. In the 2011/12 year, DODMV had an unqualified opinion on assets, because it had received an exemption from National Treasury (NT)  in that year in relation to accounting for three major categories of assets; those were stationery, immovable assets and transport equipment. However, in 2012/13 that exemption no long applied, so the DODMV was asked to account for all its assets. That created the difficulty. The qualification in the audit opinion was not so much an indication that DODMV had failed to do something, but was rather a reflection on the complexity of the situation besides what the DODMV had done.

The Chairperson asked if that information should not then have appeared on the AGs report.

Mr Hlongwa replied AGSA had a certain mandate, namely to report on what the DODMV had done against its reported figures. AGSA had to report on the shortfall because it existed. AGSA was not saying DODMV management had not done its job; it was merely reporting on what it had found. However, now, the AGSA was emphasising the complexity of the situation and the effort that the DODMV had put in. It had been indicated that the amount of R818 million under-stated on assets was actually quite small in relation to the indications previously on this problem, when DODMV was unable to disclose the assets in its financial statements. This was the first time that DODMV had been able to compile an asset register, and that deserved some commendation, even if the assets were disclosed at the wrong value.

Mr Mlambo said that he understood that the past was being used as a reference point, and Mr Hlongwa seemed to suggest that the DODMV was doing. During the apartheid era this kind of briefing would never have happened and he doubted whether the DODMV would even have been audited. He wondered whether the AGSA had any suggestions on what may have caused the audit outcomes. Even if the DODMV had been given the chance to perform well Mr Hlongwa was suggesting that National Treasury required the AGSA to check everything. He noted that DODMV had its own independent auditors apart from AGSA. He wanted clarity on whether AGSA was independent from the state or not, because there seemed to be some conflict in the statements.

Mr Hlongwa asked if it would be acceptable to the Committee that AGSA come at a later date to explain in detail all the items that had been qualified, to allow the Committee to get a full understanding. Many of the questions until now were dealing with the same subject and there were other issues also in the report.

Mr Booi raised a point of order. The Committee was dealing with what AGSA had raised on paragraph 3.6, the asset register, and had presented certain recommendations. However, he felt that this presentation was actually contrary to the written report. He read out the first recommendation. He asked what “in a timely manner” meant, if the AGSA accepted that the whole DODMV had challenges in fulfilling that recommendation. The Committee needed to understand what AGSA was trying to say. AGSA had not dealt with the controls that needed to be in place to ensure a complete asset register. That information was expected from AGSA, but he did not feel it had been given. Mr Steenkamp had apparently met with the DODMV but the recommendations were still not being implemented, so what was the problem? 

Ms N Mabedla (ANC) said that she was concerned and confused, particularly about statements that despite the understatement of assets, DODMV was well on the way to an unqualified opinion. She felt AGSA had formed the opinion without any intervention. She thought AGSA was supposed to assist the DODMV with interventions, because part of the Minister’s commitments involved approving a schedule of future meetings with AGSA, yet the understatement of figures implied that AGSA had not been prepared to assist DODMV.

Ms Mabedla also wanted to know what the DODMV’s response was to the AGSA report on the DODMV’s repeated failure to implement the AGSA recommendations.

Ms Mabedla added that AGSA had recommended that the DODMV needed to capacitate its internal Audit and Audit Committee but she reminded AGSA that the DODMV budget was being reduced every year so she was not sure how it could do this as it obviously would entail appointing more people. She asked if that particular problem had been considered.

Mr Steenkamp said that the Secretary for Defence had approved a budget for appointments to capacitate the internal audit unit, and although it may not be sufficient, it was still a good start.

Mr D Maynier (DA) commented that the information gap between the Committee and the AGSA could very easily be closed by providing the Committee with AGSA’s management report. That would set out the reported audit findings, and the response of DODMV management. He reminded Members that the AGSA report was furnished to the Minster and Secretary of Defence (SD). It was the Minister’s prerogative to give that to the Committee. He therefore suggested that this Committee ask the Minister of Defence to furnish the Committee with that management report. It was not AGSA’s fault that it had not been given to the Committee. This was his first formal request.

Mr Hlongwa said that this report, as the name implied, was an internal report, furnished by AGSA to the DODMV management. It had been a very detailed document, and the audit outcomes report summary was based upon it.

The Chairperson asked if that report was presented to AGSA during its auditing process.

Mr Hlongwa clarified that AGSA had prepared that report.

Mr Maynier intervened that that document was not a classified document, and that the Committee did not have it because it had never asked for it.

Mr Steenkamp continued DODMV had concurred with the AGSA findings in the management report. It had also indicated that it would compile action plans, get them ready for implementation and monitoring and ensure that they were actually implemented. There possibly would be challenges, as it was already halfway through the current financial year, so DODMV needed to act quickly to sort the matters out.

Mr Maynier said that the basis of the qualified audit opinion was that R818 million of tangible capital assets were understated. He asked what assets AGSA was referring to.

Mr Steenkamp wanted to clarify the point of the understatement once again, both in answer to Mr Maynier and Ms Mabedla. Looking at where DODMV had come from over the past three years, he felt justified in repeating his statement that it was improving. He explained that ground support equipment was typically material that could be found in an airport, equipment like an aircraft ramp which was used to embark or disembark from an aircraft, compressors and computer equipment. The R818 million related to ground support equipment, library materials and, to a lesser extent, other machinery and equipment that had not been fully disclosed. The category of assets was not wide, and in respect of the categories where there were qualifications, DODMV would have to clarify with National Treasury (NT), because some of these were open to interpretation. Given that factor, he was of the opinion that DODMV would probably be able to get an improved audit outcome, as long as proper action plans were put in place as soon as possible, and provided that it addressed those matters urgently.

Mr Hlongwa added that the statement that the DODMV was likely to be able to improve was suggested as a positive statement and encouragement.

Mr Maynier said that he was concerned that AGSA had not been able to access reliable information on the force employment programme, because that programme was also beyond the scrutiny and oversight of the Committee. His biggest concern thus was that the force employment programme seemed to be beyond a proper audit by AGSA. He wanted to know what information AGSA had required specifically to be disclosed, and what information the DODMV was not able to disclose? 

Mr Steenkamp confirmed that there were force employment documents that AGSA could not access, which disclosed the detailed set up to the force, which AGSA believed was a matter of record keeping that needed to be improved.

Mr Booi spoke to this point and noted that an impression was being given that the DODMV did not disclose information. He said he did not have a problem with how AGSA audited, but the Committee wanted to be confident about the confidentiality and the security of the DODMV. Mr Maynier had indicated that there were certain weaknesses and he wanted AGSA to clarify some transparency issues.

Mr Maynier added that there was an amount of R316 reported as irregular expenditure. The majority of this related to one case to the value of R302 million, where there had been deviation from a bidding process. He asked what contract AGSA was talking about, and asked for the name of the company.

The answer to this question was given later.

Mr Maynier also noted that point 27.5 referred to another instance of irregular expenditure under investigation, and one case was mentioned where there had been deviation in a bidding process, where the contract was R850 million. Mr Maynier wanted to know what exactly that referred to, what the company name was, what that contract concerned and other relevant details.

Mr Maynier had found an intriguing reference to a compliance programme where money was being warehoused in a Special Defence Account (SDA), and was being defrayed in line with an agreement between the US Government and the South African Government. He wanted to know what this comment referred to, and why money was being kept in a SDA. He could not imagine that that was a reference to the PEPFAR funding programme.

Mr Maynier had also noticed that there was a claim against the state which amounted to R2.2 billion. He wanted more details on that matter.

Mr Maynier pointed out that AGSA, in its assurance report on the National Conventional Arms Control Committee (NCACC) had confirmed that all the reports from NCACC had been issued in accordance with section 23 of the National Conventional Arms Control Act, 2002 (Act 41 of 2002). He would argue that AGSA was mistaken on this point. The Act had been amended during the period under review, by the National Conventional Arms Control Amendment Act, No 72 of 2008. That amendment had a significantly higher requirement for disclosure, which had not in fact been met by the NCACC in the 2012 Annual Report, or the relevant quarterly report. He would suggest that there was an error and asked for AGSA’s comment on the issue.

Mr Mlangeni added that it would have been prudent for the AG to notify the Committee upfront that the exemption that NT had granted the DODMV had been withdrawn during the year on review, which would have explained why the audit was framed in this way.

Mr Steenkamp followed up on this comment, and said that part of the complexity he had referred to earlier went to the fact that DODMV only disclosed two or three categories of assets, of which some were specialised military assets and some were transport assets. The volume of those assets was a lot more than it was in 2011/12. A huge amount of work had to be put into compiling the other asset registers which had not been disclosed in 2011/12. He wanted to stress, in answer to questions asked by other Members, that the DODMV did in fact implement the recommendations that AGSA had made, it was just that the magnitude of the assets was too large.

Mr Mlangeni said that the Committee did not have problems with that, but it did have problems with the way in which AGSA had presented the information earlier, which had implied something different. For instance, AGSA had said that it was unable to obtain sufficient appropriate audit evidence, and then followed that by saying it was not able to perform alternative audit procedures. That had implied, to the Committee, that the DODMV was not cooperating with AGSA.

Mr Steenkamp answered the question of Mr Maynier on the R350 irregular expenditure by clarifying that it did not relate to only one contract. He would have to supply the details at a later stage.

Mr Maynier then said that this remark clearly showed that AGSA did not have the information he required. The Committee had been in such a situation before. Mr Maynier had obtained a commitment from AGSA that it would furnish information, had waited for that information for over a year and the information was still not brought before the Committee. He was now requesting that he be furnished with the response to all his questions before the Annual Report was brought before the Committee.

Mr Hlongwa said that AGSA did not have an issue with furnishing information, but that DODMV had the correct information still in its possession. AGSA was still getting to the Annual Report issues. He reminded Members that AGSA audited against a sample, and did not look at every transaction.

Mr Steenkamp wondered if written replies should not be furnished to the other questions of Mr Maynier.

Mr Mlangeni commented that AGSA and the Committee were dealing with very important and critical issues. AGSA had found many mistakes, repeatedly, with the DODMV.  It was difficult to understand the apparent contradiction that although AGSA had constantly been in meetings with the DODMV: it was unable to get information and explanations on everything. Why, given the monthly meetings, had AGSA not managed to change the situation? He asked whether DODMV was refusing to disclose the rest of the amounts of the assets. He wanted to know what AGSA was still looking for that it had not been given. In summary, he reiterated that AGSA should have been aware that DODMV assets were scattered across the world, so this would be a massive and difficult exercise.

During the tenure of former Minister of Defence, Jeff Radebe, he had commented that there were a large number of DODMV assets all over the world, overseas especially, which had not been identified precisely although DODMV was making progress on that. He thought that compared to the billions of rands-worth of assets, an inability to identify R818 million was not so serious.

Mr Mlangeni commented that the outcomes report should have been given in plainer language. Members were not accountants.

Mr J Maake (ANC) was very interested on how the amount of R 818 million was approximated. He wanted to know what method AGSA used to audit high security clearance or classified assets, if those assets were not disclosed, and whether that fact alone automatically led to qualifications. He wondered how AGSA would also verify underground bunkers that were not common knowledge.

Mr S Esau (DA) wanted clarity on the key areas, and the budget that was required for the critical posts that were not filled.

Mr Esau asked for AGSA to speak to the Castle Control Boards (CCB) contestation of the AGSA audit findings on irregular and unauthorised expenditure.

Mr Steenkamp said he would have to take that up with another AGSA colleague who was responsible for the CCB.

Mr Esau also noted that AGSA had commented that the DODMV was to provide training to management of the CCB. However, according to National Treasury prescripts, this was long overdue, particularly training on supply chain management (SCM) and on procedures as these were similar to those in the DODMV itself, and had not been complied with. Mr Esau added that the Committee had dealt with that issue during the debate on the last Annual Report, and the fact that it was being repeated was of concern. He asked what had been done over the last twelve months. The Committee had debated matters and had made recommendations for action, and he thought the Committee would have to ask the DODMV what its progress was on the Committee recommendations. The SCM matters were serious, for they involved bidding for amounts of under R300 000, and more than R500 000, which were substantial amounts for which no proper quotations were obtained or proper procedures followed.

Mr Esau did note that AGSA had said there was no indication of fraud and corruption, except that CCB had deviated from policies and procedures.

Mr Esau noted that this was the first time that comment was made on deviation from procedures around transfer of conditional grants. He asked AGSA to give the Committee some idea of what actually happened and what grants and transfer were being actually referred to.

Mr Steenkamp said transfer payments found non-compliant referred to the SASSI account. DODMV, in terms of the National Treasury regulations,  was supposed to ensure that the correct controls were in place before money was transferred.  AGSA could not get conclusive evidence that that had been done and that was why it reported non-compliance.

Mr Esau said that Human Resources (HR) management had been a problem in the DODMV for the past four years, and wanted to know how that was being dealt with. There were funded posts, but they were not being filled. There was a serious question about the HR division. AGSA and the Committee seemed to accept that there was not enough capacity in HR. In fact, AGSA and the Committee sat with the entire Department of Public Service and Administration (DPSA) which had all the policies and procedures in place. He was also sure that if AGSA and the Committee had any problems they could lean on sister Departments to assist in those places. He did not think that there was a reasonable excuse for lack of capacity or employing the people to fill those posts.

Mr Steenkamp said that AGSA was not overly concerned with the critical vacancy rate in the DODMV, which was below the threshold that had been set in Parliament. In regard to the fact that certain appointments were done without the necessary verification, this referred to the process followed which had not been in accordance with the DPSA regulations.

Mr Esau noted that the qualifications were important, although they were mostly based on assets. However, there were other serious issues. The internal audit capacity problems had been ongoing for about four years. Problems with HR management, procurement and contracts management had been ongoing for the last three years. There were other areas around declarations for senior managers. DPSA’s new policy prohibited any state employee from doing business with the state. The issue was whether these prohibitions had filtered down to all levels of state officialdom, or whether employees were still doing this.

Mr Esau wondered how the DODMV had let the tax clearances pass – this was a basic requirement. Instances like these which related to basic procedures could not be overlooked by the Committee. It was essential that DODMV resolve those findings and clear up those matters so it was fully accountable.

Ms Daniels wanted to know, in layman’s terms, what happened during the auditing of the undisclosed high security clearance assets. She also wanted the details from the SD, about the appointments that had been done without following proper processes of verification, which had been mentioned in the findings by AGSA.

The Chairperson interjected to note that the DODMV would have to be put to them later; she should ask questions only related to AGSA.

Mr Hlongwa reiterated some earlier remarks on the DODMV response to AGSAs audit outcomes report, and reminded the Committee that this outcomes report was the final report that AGSA issued at the end of its process. That audit outcomes report was not a document that was telling the Committee about any good or negative deeds of the DODMV; but because it highlighted matters that were not working properly it was negative by its very nature. What AGSA was saying in that report was not a reflection of the entire DODMV but was a pointer towards things that were not happening correctly in the DODMV. There were a lot of other things that AGSA was not saying because it was not its job to do so.

Mr Hlongwa added that the nature of auditing was that it highlighted things that were not going well.

Mr Steenkamp said that tangible capital assets were a major challenge in most state Departments. So what AGSA had found in the DODMV was that the asset register was, currently, not complete and as part of the audit process AGSA had to look for alternative documents or ways to audit a figure. It had proved a challenge to obtain those alternative documents, but DODMV acknowledged the fact that it needed to get supporting documents. In the next outcomes report, this aspect should be improved.

Mr Steenkamp again tried to explain how the AGSA had arrived at the figure of R818 million, in answer to Ms Daniels. The bulk of the value was made up of “hard error”. AGSA had taken the contracts and analysed them and had come up with an estimated figure for the bulk. Some related to library materials, also discovered from the contracts, and others related to machinery and equipment that had not been disclosed.

Mr Hlongwa again suggested that when there was enough time AGSA perhaps needed to elaborate more on the matters covered by the audit outcomes report, to give Members a better understanding of what the audit report contained.

Mr Diale wanted to know from AGSA how the DODMV was supposed to account for the heavy weapons like missiles, and other weapons.

Mr Steenkamp replied that the National Treasury reporting framework did stipulate the different categories of assets. The missiles that Mr Diale was referring to were part of the category that was not subject to auditing. AGSA could get information on the assets that were deployed, and perform certain processes to verify that those assets did exist. AGSA had not picked up any significant numbers that warrants any special report. Assets that were classified but disclosed would have to be verified by AGSA and here DODMV had made sure the necessary clearance was obtained for AGSA. Where clearance for AGSA could not be obtained, AGSA asked someone with the necessary security clearance to verify on its behalf.

The Chairperson thanked AGSA, but said that the Committee members seemed to share an opinion that the audit outcomes report was very rigid, but had noted the improvements in DODMV, although this did not come out of the report. He understood what AGSA was trying to say in its dashboard presentation, but that was not enough. It was important to note the past exemptions from National Treasury It was not unique in its failure to furnish AGSA with the necessary documentation on time for the audit to be completed, nor that there were issues with the internal audit. Those deviations would have to be interrogated by the Committee.

The meeting was then adjourned.


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