Presentation on the 2013/14 Quarterly Financial Statements for the period ended 31 December 2013 (Quarter 3)
The Department of Corporate Development and Traditional Affairs presented a report on its performance for the period up to the end of the third quarter of the financial year.
After providing details of departmental expenditure, and explanations for over- and under-expenditure (see document), it was disclosed that irregular expenditure to date was R339m, compared to R264m during the same period the previous year. The irregular expenditure incurred related mainly to cases of non-compliance with procurement policies. All these incidents were being investigated to determine liability. The bulk of the irregular expenditure related to payments involving Community Work Programme (CWP) contracts, identified as irregular in the previous financial year, amounting to R216 million in 2012/13 and R276 million in 2013/14, as well as payments relating to the lease of office space, where the Department of Public Works had not renewed lease agreements with landlords, amounting to R16 million in 2012/13 and R27 million in 2013/14. A letter had been sent to National Treasury for consideration of possible condonement of the two cases of irregular expenditure. The Department had also developed and implemented a Post Audit Action Plan on the 2012/13 audit outcome, which was assisting to mitigate the control weaknesses identified by the AG.
The Committee paid particular attention to the irregular expenditure, specifically that which related to the absence of a lease agreement for the offices the Department was renting, and the contractual irregularities with regard to service providers. The Committee also focussed on monitoring systems that would address the irregular expenditure, as well as the Community Work Programme (CWP), including the monitoring of the allocation of funds and the participants in the programme. Members questioned why the Department needed a ‘miscellaneous’ or ‘interim’ account before certain funds were distributed, and how the Disaster Management Fund was managed and prioritised in terms of disaster assistance.
The Legacy Report was adopted, with amendments.
The Chairperson welcomed the Department of Cooperative Governance and Traditional Affairs (COGTA) delegation to the meeting. COGTA Director-General: Cooperative Governance, Mr Vusimuzi Madonsela, expressed the Department’s gratitude for the Committee’s support and guidance during this term and said he hoped the good working relationship would continue with the next administration. COGTA Director-General: Traditional Affairs, Prof Charles Nwaila, repeated the sentiments, and said the Department would go from strength to strength.
2013/14 Quarter Financial Statements for the period ended 31 December 2013 (Quarter 3)
COGTA Chief Director: Finance, Ms Dorothy Snyman, said that as a result of the large numbers of audit findings on material misstatements and/or corrections to the annual financial statements of government institutions over the past few years, the Auditor-General (AG) had recommended to Parliament that departments should compile monthly interim financial statements for review by management and the internal audit units, to prevent similar findings.
Note 6.3 of the Interim Financial Statements (IFS) dealt with consultants, contractors and outsourced services. The expenditure related to business and advisory services (R388 million), with R303 million of that amount related to disbursements to Community Works Programme (CWP) service providers. Contractors cost R902 million, and R897 million of this amount related to disbursements to CWP participants.
Note 14 related to prepayments and advances, which increased from R165 million in 2012/13, to R182 million in 2013/14. This increase related to the advances paid to the CWP lead agents to pay wages to the participants, and the number of participants had also increased, compared to the previous financial year. Note 15.5 dealt with other debtors (disallowance miscellaneous) and decreased from R17 million in 2012/13, to R8 million in the 2013/14 financial year.
Note 25 referred to contingent liabilities, and the R170 000 reflected in the 3rd quarter financial statements for the 2013/14 financial year related to a court case where the service provider claimed relief for additional services rendered. Note 26 showed that commitments decreased from R116 million in 2012/13, to R61 million in the 2013/14 financial year, mainly as a result of orders and contracts that were committed and services rendered. Commitments to an amount of approximately R47 million of the R61 million reflected in the 2013/14 financial year, could be carried over. Note 27 showed accruals substantially decreased from R24 million in the 2012/13 financial year, to R3 million in the 2013/14 financial year -- the decrease showed an improvement in paying suppliers within the prescribed time frame of 30 days. Note 29 related to lease commitments for the current financial year and related to parking space outside the departmental premises, cellular phones, photocopying machines and motor vehicles.
Irregular expenditure of R264 million was incurred up to the same period in the 2012/13 financial year compared to the R339 million reflected in the third quarter financial statements for the 2013/14 financial year. The irregular expenditure incurred related mainly to cases of non-compliance to procurement policies. All these incidents were being investigated to determine liability. The bulk of the irregular expenditure related to payments involving the Community Work Programme (CWP) contracts, identified as irregular in the previous financial year, amounting to R216 million in 2012/13 and R276 million in 2013/14, as well as payments relating to the lease of office space, where the Department of Public Works had not renewed lease agreements with landlords, amounting to R16 million in 2012/13 and R27 million in 2013/14. A letter was sent to National Treasury for consideration of the possible condonement of the two cases of irregular expenditure. The Department had also developed and implemented a Post Audit Action Plan on the 2012/13 audit outcome, which was assisting to mitigate the control weaknesses identified by the AG.
The Chairperson asked that the miscellaneous account be clarified.
Ms Snyman said money was moved into the miscellaneous account until such time that the money was to be utilised.
The Chairperson asked if it was an expense account, because ‘miscellaneous’ meant ‘mixed’ or ‘various’ expenses.
Ms W Nelson (ANC) asked why it was necessary for the money to be moved into an account before it was paid over, since the Department budgeted for expenses.
Mr Madonsela said the funds were moved to the account, because the Department understood that money should be paid for services rendered, but those services needed to be invoiced first. The money in the miscellaneous account could be paid out immediately once invoiced.
COGTA Chief Financial Officer, Mr Obed Aphane, said National Treasury required that the Department reported to the AG at the end of each month on the miscellaneous account, because there were certain connotations and rules on how money was paid out from this account and what the balance of that account should be. It was a temporary account, which allowed the Department to get all the supporting documentation to substantiate pay-outs.
Mr J Steenhuizen (DA) asked if the irregular expenditure included the Mvula Trust, and what the Department was doing to recover any money. What mechanisms had been put in place by the Department to curb irregular expenditure and to prevent another Mvula Trust issue?
Ms M Segale-Desai (ANC) asked how this miscellaneous account was controlled and if the control of such an account was prescribed and properly managed, because the term ‘miscellaneous’ was very vague. Irregular expenditure had increased, from R264 million to R339 million in the third quarters of the previous and present financial year, and she asked what the overall irregular expenditure would be at the end of the fourth quarter.
Ms Nelson asked how sure the Department was, and what mechanisms were in place, that the funds allocated to the different areas were being efficiently used, especially funds allocated to the Disaster Management Fund.
Mr Madonsela said the irregular expenditure was incurred through contracts that were classified as ‘irregular,’ and those contracts could expire in three years’ time. The Department had incurred no new or additional instances of irregular expenditure, but was still obligated to continue with those contracts. The Department had very little to do with the Mvula Trust, but rather with the procurement processes that were employed over the Medium Term Expenditure Framework (MTEF). No Government department procured office space on their own, because the DPW entered into lease agreements on behalf of all Government departments. The rent paid monthly by the Department was labelled as ‘irregular’ because there was no lease agreement in place. Those that were in charge of the Disaster Management Fund were not present at the meeting, but the information would be forwarded to the Committee. The principle was that not all disasters were addressed by the Fund. Municipalities and provinces had the resources to deal with disasters and access to the Fund was granted only if the magnitude of the disaster required it. At this point in time, there were no outstanding allocations, and there was a projection of under-expenditure.
Ms Snyman said the miscellaneous account was a control account that was quite tightly structured by National Treasury, and which was monitored monthly in terms of reconciliation. This account also funded overseas travel and departmental transfers. There was a big improvement in the payment of invoices within the 30-day timeframe.
Mr Aphane said the interim accounts enabled the Department to reconcile payments at the end of each month, because they were clearly supported by documentation. The AG, in terms of the Department’s accruals, determined whether timeous payments were being made. The Department was not able to project irregular expenditure, because the AG would determine additional irregular expenditure within its own audit processes.
Mr D Mavunda (ANC) asked what the total expenditure of the Department amounted to.
Mr Aphane replied that the expenditure analysis of the Department showed that approximately R38 billion had been spent, which constituted 68% of the allocated budget.
Ms C Mosimane (COPE) asked for clarification on the lease agreements and the building occupied by the Department.
Mr Steenhuizen said that surely the Department could be relieved of their legal obligations to adhere to a contract if aspects of that contract were labelled as ‘irregular.’ He asked for clarification on the funds allocated to the participants of the CWP, as well the reports that participants rarely worked.
Mr Nwaila said the lease agreements of the four buildings the Department occupied had expired in March 2013. The Department was continuing to pay the rent without a contract, and that was why the expenditure was labelled ‘irregular’. There had been discussions with the DPW to expedite the signing of the lease agreements, but they were not able to do so, because of their own backlogs.
Ms Snyman said the Department had revised all its procurement policies and training had been provided to officials on Supply Chain Management (SCM), to ensure compliance.
COGTA Executive Manager: CWP, Dr Simphiwe Mngadi, said the Department worked closely with non-governmental organisations (NGOs) in the CWP. The CWP had expanded significantly since the 2011/12 financial year and the participants, contracts and service providers had increased significantly. The expenditure included wage expenditure and non-wage expenditure, such as the training of participants and project management. The NGOs submitted invoices for funding to the Department, but there were challenges, with many NGOs not spending their allocated budgets, and this had been discussed with National Treasury.
Mr Madonsela said the CWP programme guaranteed work for maximum of 100 days a year, and this translated into two days a week, with some exceptions of extra days per week. The Department had developed a management information system that tracked expenditure, but the system could not specify where expenditure was irregular or not. National Treasury had allocated R10 million to capacitate the Department for the next financial year to monitor and track irregular expenditure.
Mr Mavunda asked to whom the Department was paying the rent, if there was no agreement in place.
Mr Steenhuizen asked for clarity on whether the Mvula Trust was included in the irregular expenditure.
Mr G Boinamo (DA) asked who was receiving the money the Department paid towards rent, and how that money was recorded, because that could also assist the Department when reporting to the AG.
Mr Madonsela said the Department paid the rent to the landlord, and the lease had expired while the Department occupied the four buildings. The Department was obligated, although not by contract, to continue paying for the office space. There was no wasteful or irregular expenditure, because the rent was the same as before the lease expired. The Mvula Trust was included in the irregular expenditure, because it was also a contract management issue that was labelled ‘irregular’, solely because of irregular aspects in the contract. The person formerly in charge of the CWP had raised an issue with Mvula Trust with regard to their relationship with another organisation in terms of the rules and regulations of their contract with the Department. By the time it was to be investigated, Mvula Trust had terminated their association with the organisation.
Ms D Boshigo (ANC) asked how CWP participants were monitored on site.
The Department identified this as a problem area, and was working on a biometric identification system that would allow participants to identify themselves on site at time intervals.
Mr J Matshoba (ANC) said there had been a bad disaster in the Northern Cape area, and some municipalities in other areas needed assistance, especially in the Eastern Cape.
Mr Madonsela said the Department did not have sufficient information to address this issue raised by Mr Matshoba involving the Disaster Management Fund, but would provide the Committee with a response in writing.
The Chairperson said there were certain issues that needed to be included in the Legacy Report and the Department needed to see if there were any outstanding issues or investigations, as well as the issue raised by Mr Matshoba.
Mr Nwaila said disaster management needed to be strengthened at municipal, provincial and national level, and recommendations to that effect should be included.
The Chairperson said the Department should take care to send the documents for a presentation well in advance of a meeting. At the last oversight visit, the Department hadnot made any preparations for the Committee’s visit, and this needed to be addressed, especially in terms of adjustments the Department needed to make before the next administration.
Adoption of the Legacy Report
Mr Steenhuizen asked for an addition of regulations for the appointment of managers and the rigorous applications of those regulations, to be added in the report.
Ms Nelson said it should be included that the DPW should commit in writing to address the lease agreement issue, and the priorities from the Department should also be clearly spelled out. The R10 million allocated toward the monitoring of irregular expenditure should be added, because this needed to be closely monitored.
The Committee agreed, and the Legacy Report was adopted with amendments.
The meeting was adjourned.
- State of Expenditure for 2013/14 Financial Year as at 31 December 2013
- Presentation on the 2013/14 Quarter Financial Statements for Period Ended 31 December 2013 (Quarter 3)
- Statement of Changes in Net Assets for the year ended 31 March 2014
- Interim Financial Statements at the End of December 2013 for the 2013/14 Financial Year
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