Audit Reports as oversight tools: Office of the Auditor-General briefing

Meeting report

The Chairperson said the Committee’s initial programme was to receive a briefing on the first quarterly review of the Department of Water and Sanitation (DWS) by the Auditor General (AGSA). The Management Committee (MANCO) had then been informed that the AGSA had not even started on the review, and had just concluded the annual report (AR) financials for the DWS. The MANCO had maintained that the Committee still needed to deal with other issues related to the entire budget cycle. The DWS would therefore present its perspective on the budget cycle, in terms of its framework, the strategic plans (SPs) and the Annual Performance Plans (APPs). The Parliamentary Budget Office (PBO) would also give inputs on its role in the value chain of the whole budget cycle, after which the AGSA would present on how it regulated whether monies had been spent wisely and responsibly. Those presentations would also assist in responding to the question of where the Budgetary Review and Recommendations Report (BRRR) belonged in the scheme of things, what its purpose was, and what eventually happened to its recommendations. One would want to have a sense of how things fitted together when looking at the bigger picture, and that informed the purpose of the meeting that day.

The Chairperson then noted the apologies and said that, even though some of the presenters would remain for the entire duration of the meeting, this did not mean the Committee had to be lengthy in its engagement, as the intention was to end by 12h30.  He asked that each presentation be limited to 15 minutes.

Mr L Basson (DA) apologised for Ms N Balindlela (DA), who would be coming late to the meeting.

Planning and monitoring approach/ framework for the Department and its entities

Mr Trevor Balzer, Acting Director General (ADG), DWS, said that the DWS had tried to respond to the key elements in the Committees’s brief to the Department, so he would have to speak to specific slides in the presentation, as it was quite long.

The Chairperson interjected that the Committee was free to interject if there were specific areas that they wanted clarity on, in terms of the Treasury regulations already mentioned.

Mr Balzer said the DWS was boxed in where costing of the APPs was concerned, because the National Treasury (NT) had indicated clearly to the Department that it should not expect any additional funds above the baseline indicators which the DWS already had. Therefore any new priorities that DWS would want to fund would have to be funded through a reprioritisation process. That process would first start internally within the DWS, and if there remained unfunded priorities, then those would be submitted to the NT.  The NT would then look at whether there were any cross-sectoral engagements, to see whether reprioritisation from other Departments could meet those DWS priorities.

The DWS was anticipating that with the new function -- sanitation -- that was being transferred from the Department of Human Settlements (DHS), it would also have to review its budget structure. The programme structure of the DWS would also have to be reworked to reflect the sanitation function and the interventionist activities at local government level effectively.

Water and Sanitation value chain

Mr Balzer said that the DWS was solely responsible for the country’s water resources infrastructure.

The Chairperson asked Mr Balzer to start from the beginning, in terms of the DWS slogan of “from source to tap.”

Mr M Mpontshane (IFP) asked if the ADG could explain the water and sanitation value chain.

Mr Balzer replied that the DWS spoke of a value chain when using its slogan “from source to tap and then back again to source”.  This meant it was looking at water from the river, in its natural state, through to its use for domestic, industrial and other purposes, and thereafter the return of the effluent water to the stream.

The DWS tried to maintain a river as close to its natural form as humanly possible.  This was regulated under the National Water Act, even though that depended on rainfall as well.   Moreover there was a baseflow from the rain and some water inflow from underground aquifers, which was water from particular soil types below ground level. That water would be extracted through boreholes. Water was mostly managed by building man-made structures on those sources to ensure its storage and availability. The dams normally built by the DWS would have a 2 Mean Annual Run-off (MAR) capacity, which was a scientific measurement.

Mr Basson asked what percentage of water the DWS would expect to return back into the system if it took 60 mega litres of water out of the system.

Mr Balzer said that that depended on who the users were because, in a municipal sense, where there were waterborne sewerage systems, up to 60% of the water that went into the municipal water system could return back into the system as effluent.

From the dams, the DWS would draw water and take it into a water treatment facility for purification to utility quality standards. From there, the water would be pumped into service reservoirs.  These had a capacity to hold enough water to last for 48 hours, if there happened to be a breakdown between the system and the service reservoirs. The responsibility for supplying water to business and residential areas was shared between the DWS and local government, because of the operation of water boards which did bulk supply.  Currently most metros did their own bulk water supply.  With the new DWS configuration, the Department expected to be playing a much more significant role in waste water treatment.

Mr T Makondo (ANC) said that considering that sanitation would become a function of the DWS, what specific role would the DWS be playing if it was saying that waste treatment was in a municipal area, which was under local government.

Mr Balzer said the DWS would deal with the eradication of the bucket system within urban areas, and the Rural Household Infrastructure Grant (RHIG) was part of the transferred function from the DHS to the DWS.  Therefore the DWS, through the RHIG, would be dealing with rural household sanitation, whereas in the peri-urban and urban areas local government, with the DHS, would still be jointly responsible for sanitation in those areas. The DWS would only regulate waste water treatment works and its funding for the refurbishment and expansion of the treatment capacity therein.  In terms of the transfer of the function by the end of September, that would mainly include the bucket eradication programme (BEP) and the RHIG for on-site sanitation to rural households.

Ms N Balindlela (DA) noted that considering that the DWS and DHS had not set up the sanitation structure together, how would the country move forward in the interim?

Mr Balzer said that in terms of a request by the Department of Public Service and Administration (DPSA) for the DWS to determine how sanitation would fit and be serviced within its programmes. the DWS had submitted a proposal to DPSA on how sanitation would be handled as it moved from the DHS to the DWS. The way that sanitation was being run currently by the DHS would simply be excised from the DHS and transferred to the DWS.  From 2015 onwards, the DWS wanted to play a much larger role in sanitation, apart from the transfer from the DHS to the DWS.  Currently the DWS was regulating and expanding capacity in terms of the Regional Bulk Infrastructure Grant (RBIG) in some waste water treatment works, through the municipalities.

Mr M Shelembe (NFP) said that in terms of powers and functions and considering that there was the DWS, the water boards and the district authorities, was there any role for the district when water was moving from the dam to the reservoir, in cases where there was no water board? 

Mr D Mnguni (ANC) asked what the roles and responsibilities were between the DWS and the municipalities, right from the distribution infrastructure.  As he saw the diagram, he understood that from the distribution reservoir to the internal pipe network was the responsibility of the municipality. Then in the internal pipe network, there were commercial users trading in urban areas. There were sometimes acid waste spillages from that internal pipe network, going into the rivers. Who was responsible for that?

Mr Balzer replied that in South Africa (SA) there was a differentiated approach to the appointment of the local government as a water services authority.  In some areas of the country there would be a district municipality appointed as a water services authority in terms of the powers and functions of the Municipal Systems Act, or there could be a local authority appointed as a water services authority. All the metros had a water services authority function, meaning that those that had that function would take responsibility for water from that point onwards and right through the cycle, to the point of discharge. Where there was a district municipality with a water services authority function, it could contract the water board to do that work for it.  It could also contract the local municipality, in terms of the section 78 process of the Municipal Systems Act, to also perform that function on its behalf.

The Chairperson interjected that he had consciously led the meeting in that direction to provoke discussion, because that area of water provision in the presentation was very complex. The Committee would have to do two things going forward. First, it would physically have to go and see a water value chain system as part of its oversight programme. Secondly, since the Committee schedule had been that it would spend two days with the other entities under the DWS, the Chairperson was then requesting the Committee to allow the DWS to present the whole water and sanitation value chain first, so that there could be better understanding. There obviously would not be enough time for the Committee to understand the system thoroughly.  Moreover could the Committee let the DWS finish its presentation and allow the other presenters to present so that there could be one discussion after all the presentations had been delivered.

Parliamentary Budget Office (PBO)

(See document)

Dr Dumisani Jantjies, Finance Analyst (PBO) introduced himself, his colleagues and then read from the introduction of his presentation, right through to the end.

The Chairperson said he concerned about the flouting of value for money, as illustrated by the PBO’s presentation, and asked what recourse there was for Parliament in that regard.  This referred to previous delivery performance versus expenditure, seeing that the DWS was understood to be spending 93% of its budget, whereas the targets outlined in the APP had not been met as expected.

Auditor-General: Fifth Parliament capacity building presentation

(See document and video)

Mr Tshepo Shabangu, Senior Audit Manager: Water and Sanitation Portfolio, AGSA, said that he would be talking to service delivery and tracking the money concept, as alluded to by the Chairperson. He then played a video of a summary of the work of the AGSA.

Mr Basson asked if the video would be available to everyone.

Mr Shabangu said the clip was on YouTube and was a generic video being used by most AGs across the world.

The Chairperson said that what Mr Shabangu was saying was that the AGSA would provide either flashdrives or compact discs containing that video.

Mr Shabangu said he would summarise the key slides in the AGSA presentation.  He then took the Committee through those key slides, and asked the Committee to pay close attention to the presentation, as it would answer some of the questions concerning what the Members were required to do from the AGSA’s assessment.  Some of the slides were to enable the Committee to understand how the AGSA followed the money.

Mr Shabangu said that the water boards had not been included in the audit of DWS for 2012/13 financial year outcomes, since their financial year had not been in line with the Public Finance Management Act (PFMA).

The Chairperson thanked all the entities which had presented and allowed the Committee to engage the presentations.

Discussion
Mr Makondo asked whether there was any intention on the part of the DWS to amend the Water Services Authority Act so as to empower itself to do more monitoring when it was contracting municipalities to fulfil that function on its behalf.   More monitoring was needed, because most of the funding for water services functions was spent irregularly at local government level and Departments were sometimes unable to monitor such occurrences because of such pieces of legislation. 

The Chairperson asked Mr Balzer that as he was responding to Mr Makondo, it would be helpful if he could indicate when the DWS would be bringing those amendments to Parliament.

Mr Shelembe said that as there were deputy director vacancies at the PBO, how was it expecting to run efficiently unless, of course, there was no need for those positions? For how long had the PBO been running with those vacancies?

Mr Mpontshane said that the space occupied by various stakeholders at the district level had instances were individuals had private water rights, and were trading in there as well.  What right did he have, as a Committee Member, to hold that individual accountable, because in certain instances those individuals played a major role in the delivery, or non-delivery, of water?   If a municipality was repeatedly receiving a disclaimer or a qualified opinion, what powers did AGSA have if there were no consequences for that municipality as far as the Departments were concerned?  Was it just a case of recommending, and that was it?

Mr Mnguni said he always heard about irregular expenditure and misappropriation of funds.  Could the presenters differentiate those two for the Committee?  Who was accountable when a Department allocated funds to a municipality, and the municipality would be found to have not been keeping good records of its spending, while the Department would have been keeping its own records efficiently?  The PBO needed to help the Committee on a monthly basis to understand the technical aspects of the language used and to track the expenditure trends of the DWS.  Would that be possible? Why did the AGSA wait till the end of the year to check whether there were irregularities in spending and not do that quarterly, so that whatever challenges arose could be dealt with promptly?

Ms S Khawula (EFF) said that a dam had been built in Sekhukhune which was standing with no water inside it. What was happening there?  There had been wasteful expenditure in certain areas of Durban where individuals had been awarded tenders to supply water to households, but it had been found that the work had not been completed. What powers did the Committee have to hold those individuals accountable?

The AGSA replied that it was guided by the reporting guidelines in terms of the Public Audit Act and the PFMA, but it certainly did interim audits for the DWS and its entities.  The AGSA presentation showed there were three levels of assurance, from senior management to independent assurances, from the DWS, which spoke to the issue of not needing to wait until the year end to respond to Departmental challenges.

Regarding the powers of the AGSA, because it was a Chapter Nine institution, it could only recommend and try to influence, and nothing more.

Mr Alfred Monnakgotla, Office Manager, PBO, said that the PBO had been established through the Money Bills Amendment Procedure Act No. 9 of 2009.  However, the appointment of the director, Prof Mohammed Jahed, had been effected on 4 June 2013. The rest of the staff of the PBO had started work on 1 October 2013. and the recruitment and selection process around the filling of posts for the three clusters of deputy director posts had started some time between October and November in 2013. Unfortunately the panel for that process had not been able to find suitably qualified candidates in the first session of interviews.  The panel consisted of external experts from the Financial and Fiscal Commission, the Chairperson and the Commissioner respectively. Earlier in 2014, the PBO had opened another session of advertising for the posts in the print and electronic media. There had been submissions, selections and interviews, but still the PBO could not find suitable candidates to fill the posts.  Although the organisational structure was designed to achieve certain objectives of the PBO, it could not fill the structure just for the sake of completing it, without being satisfied that the candidates were the best fit for purpose. The PBO was currently headhunting through a specialist headhunting company, where a list of candidates had been submitted to the office. It was hoping that by 1 November it would have filled those posts.  The pool from which the PBO was recruiting was the same as where the NT, the Reserve Bank, the Department of Monitoring and Performance (DPME), Statistics South Africa (Stats SA) and research organisations within SA, were recruiting. The six analysts with Professor Jahed had ensured that the PBO stayed open and was efficient.

Dr Jantjies said that the PBO functions had not been affected adversely by the unfilled posts anyhow, as the PBO had only recently been established.

The simplest explanation for irregular expenditure was that it was expenditure which was not in line with the law -- for instance, if one was supposed to pay a supplier within 30 days and it was done only after the 30^th day, which automatically made the payment irregular.

Regarding whether the PBO could assist all the Committees on a monthly basis, he said the office was currently trying to stick to its mandate, as per its establishing Act.  However, through the Director of the office, the PBO could assist with very specific challenges facing the Committee, but it certainly could not do this continuously, like the Committee’s research function.  Moreover, the PBO tried to avoid duplicating work that the research unit and the content advisors were required to do for the Committee, which spoke to the limitation of the PBO’s mandate as established in the Money Bill.

Irregular expenditure related to procurement processes that were not followed.  It could be where a tender was supposed to have been advertised for a month, but instead was advertised for only one week. It could also be where one was supposed to source three quotations, but only one was sourced.  Alternatively, it could be where there had been suppliers who had been awarded a contract without having tax clearance certificates.  All of that constituted irregular expenditure.  However, there were financial misconducts over and above supply chain issues which could contravene the PFMA, where people were not necessarily following the rules.  An example was where an accounting officer delegated a financial responsibility and that person did not comply with the delegation.   Financial misconduct could result in mismanagement in the execution of functions. 

Mr Balzer said that in terms of transfer of functions from the DHS to the DWS and the legislative mandate, the DWS would indeed consider the lessons learnt over the last few years in terms of water management, where legislative changes were concerned.  The DWS would also be amending the policy documents to include the white paper on sanitation, which had been partially completed by the DHS.

The DWS had scheduled the legislation the Chairperson had been referring to, to be brought to Parliament during the 2015 Parliamentary session.  This was because, in terms of taking the policy forward into the General Water Laws Amendment Bill -- which would be consolidating the three Acts -- that process still had to be subjected to the Strategic Environmental Assessment (SEAs) process.  Thereafter it had to go to Cabinet, and then still needed to be brought to the Committee as well. Looking at the DWS timeframe to do all of that, early 2015 was the date the DWS had given to the leader of government business.  

In terms of the current Act, the DWS did not recognise water rights, but water entitlements.   Those entitlements were given to an individual, organisation or a municipality in terms of the relevant sections of the Act where a licence was given. That licence would contain conditions, and it was through those conditions that the DWS would hold the user accountable. Possibly in the future, a licence could be brought to the Committee to illustrate what conditions were inserted into a licence when dealing with the licensing process, just to determine how those conditions were arrived at and how compliance with them was monitored.

The dam to which Ms Khawula was referring would possibly be the De Hoop Dam in Sekhukhune.  The DWS was currently engaged with the construction of the bulk distribution system, which was scheduled for completion in 2016. The reason behind the sectional completion of that pipeline from De Hoop to the Flag Boshielo dam and beyond was because the DWS would also deal with connections to individual communities along that pipeline.

Regarding the wasteful expenditure on contractors in the eThekwini municipality and incomplete sanitation, Mr Balzer said he was unable to answer those questions.

Ms Balindlela said that the PBO was telling a painful tale when it said it had trouble filling vacancies. That office needed to be honest, because Members of Parliament had taken a long time to get the PBO established. It was unacceptable that the PBO was saying it was a challenge to get candidates for those vacancies, seeing that each interview was so expensive. What were the real reasons?

Mr Mpontshane said that the individual entitlements to which the DWS was referring, was a very serious matter in communities, and could lead to undesirable actions from those communities,  What happened was that one would find that one commercial farmer would be entitled to all the water in a community.  That person would just switch off the water to the community, and there would be no water for the people -- but there would be water for the sugar plantation.  He was pleading with the DWS to look into that issue very seriously, and if there was a need, the MPs could supply the details to the DWS outside of the meeting.

The Chairperson said he had heard the DWS saying it would be following the National Development Plan (NDP), which was in effect the country’s vision for 2030.  What was the DWS’s vision?  At what point would it be able to say it was now one department now that sanitation was moving across? Visions were concepts which society in general had to share in, and such that visions across all three spheres of government could be aligned by 2030.

The interdepartmental programmes mentioned by the DWS seemed to be quite limited, even though everyone was dependent on water and sanitation --from education, health, trade and industry, agriculture, right through to local government -- and therefore coordination between the departments responsible for those sectors became very important.

The Chairperson asked if the PBO or AGSA could assist in establishing who had recourse when value for money had been flouted in state processes.  For example, one could have a department that had been receiving qualified opinions for a few years on both its departmental and trading accounts, but business would be carrying on as usual. The only changes that would be effected would be for the Minister and the Portfolio Committee to change, but the officials remained. That simply could not be allowed to continue -- at least after five years, the Committee had to be able to say that those trends would have stopped.  All the Committee was interested in was that at the end of the day, when 93% of the DWS budget had been spent, there had to be tangible improvements in the lives of SA citizens.

The Chairperson was concerned about the non-alignment of water boards with the DWS and its other trading entities, as this meant that the Committee would miss dealing with the annual reports of the water boards. The AGSA would have to assist to see that alignment was achieved, because eventually what the Committee wanted to do was to exercise its own oversight.  Pooling all those entities together would make the work of the Committee that much simpler.  

Mr Shelembe said that there was a provision under section 32 of the Municipal Financial Management Act (MFMA) which was confusing, especially when one found national department funding allocations to municipalities had not been sent for tender, the reason being that the municipality would be applying the provisions of section 32.  Could AGSA clarify that in terms of the procurement processes and interpreting the application of section 32, where funds from the national DWS were being used? He concurred with the Chairperson on questioning how a department could balance a qualified opinion with tangible service delivery on the ground -- there was an anomaly there.  Could the presenters respond to that?

The DWS said that the Chairperson’s question regarding the sharing of its vision with everyone was quite challenging, as the DWS would ideally love to provide ‘safe water for all’ immediately.  Some of the issues the DWS was dealing with in providing safe water for all did require a budget input, particularly within the municipal sphere. The DWS ,when going through the process of finalising its five year strategic plan with the Minister, who would give a view in terms of an aligned common vision. This would, of course, not only be for water.  It had to be amended to include sanitation as well, since the vision in the presentation was only for water.

The interdepartmental programmes, as noted in the presentation, were simply to show the Committee the inter-linkages that the DWS had with other key departments, but indeed there was no work that any department could do without access to water and sanitation.

The alignment of water boards was an issue that the DWS was looking into with the legislative review process, to bring them into line with the DWS’s reporting framework, because currently the water boards, as reflected in the Water Services Act, reported as part of the municipalities’ framework.     

Mr Shabangu replied that he was unfortunately not familiar with section 32 of the MFMA since he was responsible for the national DWS, which used the PFMA.  He would certainly submit a written response to that question, if the Chairperson allowed it.

The PBO said that it shared Ms Balindlela’s sentiments.  It was just as concerned and frustrated with the challenge of filling the posts. It was important, though, that the Committee understood that in certain instances, candidates had been identified and offers made, but for various reasons some of them had received counter offers from other institutions and others had familial issues where relocation was concerned. Those issues were beyond the PBO’s control, but as stated before, the office had embarked on an open supply chain recruitment drive, and the panel would be meeting soon to shortlist the candidates supplied by the service provider.   It was hoped that by the beginning of November, those candidates would have commenced with work.

Dr Jantjies said that it boiled down to the legislature, as the powers still lay with it where oversight was concerned -- from councils at local government level, right through to Parliament -- in terms of what those spheres of government were doing when departments or entities were continuously receiving unfavourable opinions.  As the AGSA had said, it did not have the capacity to impose any sanctions or commission any other punitive measures.

The issue around value for money was that it needed to be defined and contextualised first, but the Department of Monitoring and Evaluation (DPME) was working with other departments to detail how to model a measure of value for money. There were basic processes that the Committee could use as a benchmark for value for money.  For instance, if the DWS had spent a certain amount of money to deliver water, how long that had taken for a particular year; then the following year, the DWS could not spend the same or a lesser amount to deliver the same water within the same timeframe for the same demand, because if that happened, then the reasons for that would need to be interrogated. Other factors for consideration would be whether the DWS was efficient, effective and what measures were in place to ensure water delivery. 

The Chairperson said that that session was more of a training session, as a well as a discursive exercise into real issues so that the discussion was not only conceptual.  Since the Committee would be dealing with the DWS annual report sometime after the recess in October, where all conceptual issues would be put to real tests, Members needed to have read the previous annual reports so that the performance trends of the DWS could be understood better.  Additionally the previous strategic plans and APPs needed perusal as well, just to empower the Committee for the exercise.

Ms Khawula asked where the DWSs vision was, seeing that the presentation noted that it would be the first thing to be done before the strategic plan was developed.

Ms J Maluleke (ANC) asked that the video that AGSA had used in explaining its mandate to be made available across all spheres of government.   She added that she felt affronted by Mr Shelembe’s party T-shirt, which had the party logo, while other Members were not allowed to wear party regalia with logos. 

The Committee responded that Mr Shelembe’s apparel was not offensive, seeing that he had a jacket on.

Mr Balzer said that the current vision for the DWS was that of ‘safe water for all forever,’ which needed amending through the DWSs strategic plan to include sanitation. He had also read the mission, which did not include sanitation.

The Chairperson said it would be interesting to get a sense and knowledge of what a vision was. By what time would a vision be realised?  Sometimes one had visions that were exceptionally open-ended, where there were neither timelines nor programmes to achieve the said visions.  Could the DWS include that kind of thinking in formulating its vision, which would be useful going forward?  He said that as an accounting officer, that individual was in charge for the administration of a particular department.  He felt the Committee needed to have a role to play in saying that when the DWS came to the Committee, qualified opinions were not going to be allowed until the DWS had a resolution of how to avoid qualified audit reports.  This spoke seriously to issues concerning governance, and why the Committee was there -- because the citizens of SA were looking upon MPs as their elected representatives, to respond to their cries where service delivery was concerned.

Committee programme

In the next session, the Committee could deal with constituency-related issues and those that had been forwarded by Members to the DWS.  The MANCO was busy with the logistics for the oversight tour to Madibeng, and a joint workshop with the Committees on Rural Development and Land Reform, and that of Agriculture, Forestry and Fisheries. The intention was to align how the three Committees would be working together. The Committee’s strategic plan would also be developed during the recess.

The Committee secretary added that MANCO was finalising whether the joint policy workshop would take place in Johannesburg or Cape Town, and which Members would be attending.  The oversight tour would be confirmed the week before 22 September 2014, as that was the date anticipated for departure.

Mr Basson asked if the oversight visit would allow a short session to get inputs from local councillors, as that was where a lot of information could be gleaned, which would not be given by the departmental or municipal officials. 

The Chairperson explained the procedure for organising an oversight visit between chairpersons. He suggested that members should give the MANCO the contact details of their various party officials in charge of water and sanitation in the province where oversight visits would be taking place.

The meeting was adjourned.