The Auditor General of South Africa (AGSA) briefed the Portfolio Committee on audit opinions for the Department of Labour (DoL); the Unemployment Insurance Fund (UIF); the Compensation Fund (CF); Sheltered Employment Factories (SEF); the Commission for Conciliation, Mediation and Arbitration (CCMA); Productivity South Africa (SA), and The National Economic Development and Labour Council (NEDLAC). 57% of the DoL’s performance indicators were not well defined. The Department had not furnished enough information to establish reliability of information regarding predetermined objectives. The Department and some other entities had procured goods valued at more than R500 000 without inviting competitive bids. The Department of Labour had not filled funded vacant posts in 12 months, and had not come up with a business continuity plan to minimise information technology risks.
In discussion, there was skepticism about the stated goal of clean audits by 2014. Members were not convinced that it looked possible. The Chairperson found the situation to be depressing. Basic errors had been committed, especially regarding procurement of goods valued above R500 000, without inviting competitive bids. The same mistakes were being repeated, without responding to recommendations from the Auditor General. There was concern about lack of financial stability due to vacant finance posts not being filled. The Chairperson remarked that it was getting difficult to support budgets under current circumstances. The Department had made commitments and was not keeping to them. Unrealistic targets were being set. The Auditor General emphasised the need for daily, weekly and monthly finance reconciliation, and all round accountability. The DoL Director General (DG) stated that there had been movement, in spite of mistakes made. There had been interventions, like better training, but their effect was not yet visible. He conceded that there were problems with the way in which the Department set targets. Members remarked on deficiencies of internal controls, and leadership responsibilities not assumed. The Chairperson concluded that the Department and some of the entities had failed to live up to standards they themselves had set.
Briefing by the Auditor-General South Africa on Public Finance Management Act audit outcomes of the 2012-13 financial year, Department of Labour
Mr Joshua Baganzi, Senior Audit Manager, AGSA, reported on audit opinions for the Department of Labour (DoL); the Unemployment Insurance Fund (UIF); the Compensation Fund (CF); Sheltered Employment Factories (SEF); the Commission for Conciliation, Mediation and Arbitration (CCMA); Productivity South Africa (SA), and The National Economic Development and Labour Council (NEDLAC).
The DoL had not filled funded vacant posts within 12 months. With regard to information technology controls, the DoL had not come up with a business continuity plan to minimise risk, after information technology (IT) had been outsourced until November 2012. Under financial health status, the only material finding applied to the SEF. The current liabilities of the entity exceeded assets by R10.9 million. AGSA noted that it might cast doubt on the trading entity’s ability to operate as a long term concern.
No unauthorised expenditure had been incurred during the current financial year. Irregular expenditure of R41.58 million was incurred in 2012/13. Fruitless and wasteful expenditure of R880 000 was incurred in 2012/13. Irregular expenditure of R658 million for the current year was incurred by the Compensation Fund. An independent consulting firm had conducted an investigation into the Compensation Fund, on request of the audit committee. The investigation was completed and it was recommended that the entity institute disciplinary action against certain employees. An independent forensic consulting firm conducted an investigation into NEDLAC, based on allegations of financial, compliance and governance misconduct. A number of individuals were implicated, and possible legal steps were under consideration by the Executive and Accounting Authority against those individuals.
The Chairperson remarked that the situation looked depressing. Supply chain management and the Compensation Fund seemed to be at the centre of problems. Everybody knew that with amounts over R500 000 due process had to be followed. The same people were making the same mistakes, and were not responding to recommendations. The question was what had changed. People from internal audit were central to the process, yet they were not present at the meeting.
Mr D Kganare (COPE) asked if the heads of the entities really had a feeling that they could make a clean audit by 2014. The findings on predetermined objectives indicated that people neglected to do certain things. He asked if there was light at the end of the tunnel.
Mr S Motau (DA) commented that the Compensation Fund and the Sheltered Employment Factories would pull the process down. There probably would not be a clean audit by 2014. The AGSA had said that there were recurring issues, and that root causes had not been addressed. He asked what the root causes were.
Ms Nkau replied that there was a lack of monetary evaluation and a lack of consequences. The question was how to instill discipline. People were not held accountable. It would not be impossible to achieve clean outcomes for the portfolios by 2014. Each entity had to be aware of dangers. The Director General (DG) and the Minister had to make recommendations for holding management accountable.
Mr A Van der Westhuizen (DA) noted the lack of core finance staff to provide stability. He asked about positions to be filled.
The Chairperson remarked that things were continuing as they had been, in spite of commitments made. He asked what caused that. The people responsible were well educated and knew the Public Finances Management Act (PFMA). The question was how the Portfolio Committee could approve a budget that was not going to be well spent. It was becoming difficult to support the budget.
Ms Nkau replied that there had been detailed instructions to financial managers about areas that had to be cleaned up. Human resources and supply chain management were high risk areas in the public sector. If material adjustments were not addressed, there would be further qualification. AGSA recommended, and then it was up to management to say how things could be corrected. The human resources process was at the bottom of the pyramid shown on p19. There had to be accountability through daily performance discipline. Information had to be complete for every day. Everybody had to account to somebody. The portfolios had to get back to basics. All reporting functions had to be performed on a daily, weekly and monthly basis.
The Chairperson remarked that there were positive signs, but the same mistakes were made, and the bad overshadowed the good. He asked the Director General of the Department to comment.
Mr Nkosinathi Nhleko, Director General, Department of Labour, said that clean audits by 2014 were possible. There had been movement in spite of mistakes. The audit on compliance and predetermined objectives did not reflect interventions. There had been qualification on predetermined objectives, and the services of the Treasury had been called in. The Department could possibly be evaluated again for improvements. Performance in relation to targets was related to the way in which targets had been set. There had been qualification on supply chain management issues, but they had decreased. There was constant intervention through training, for instance. There were positive areas and clean audits by 2014 were possible. Accountability and consequences were issues for debate at the policy level.
The Chairperson noted that the DG appeared to differ from the Auditor-General. The question remained what was being done to get clean audits.
Mr Nhleko responded that he had not implied that he differed with the Auditor General. What he had referred to was a lack of contextualisation. When the Department was qualified on predetermined objectives and compliance, it meant that interventions had not come through. The DoL did not dispute the AGSA findings. An action plan was being put together on the basis of site findings. Current action plans would be evaluated further. The question was how the Department was still failing on supply chain management and predetermined objectives.
The Chairperson asked how it happened that predetermined objectives were set that could not be met. The Department was not performing to their own standards. It was not the Portfolio Committee that had set them. The question was why the Department had to be supported when they could not meet their own objectives.
Ms Nkau replied that if management did not agree about the root causes of the findings, there could not be growth. Management had to be guided by AGSA recommendations. Management had to develop an action plan over six months. Previous findings had to be reduced. Delayed implementation was delayed success. Findings had to be translated into positive outcomes. If not, there was no indication that management was working on them. Positive outcomes would only become visible in the last phase. The Director General had mentioned the intervention by the Treasury, but those were on findings previously made. Interventions could not be recognised if they were not effective. There had to be management through monitoring and evaluation. Daily reconciliation was essential.
Mr Kganare commented that there were significant deficiencies of internal controls. It was a leadership responsibility. Things were not being done. He asked why others could not do right as the Unemployment Insurance Fund was doing. It could be fruitful to ask them about the reasons for their success.
The Chairperson adjourned the meeting.
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