Hearing on the report by the Auditor General on the Department of Public Works

Meeting report

STANDING COMMITTEE ON PUBLIC ACCOUNTS
28 August 2002
HEARING ON ANNUAL REPORT BY THE AUDITOR GENERAL ON THE DEPARTMENT OF PUBLIC WORKS

Chairperson: Mr F Beukman (NNP)

Documents handed out:
None

SUMMARY
The hearing focused on systems and management, unauthorised expenditures and under spending by the Department of Public Works. This was based on the Annual Report of 1999/2000. The Committee felt that the Department lacked managerial capacity in terms of taking responsibility for the smooth running of the Department. The Department acknowledged its limitations but defended itself as having inherited a bad system and being in the process of overhauling it. The Department was represented chiefly by the outgoing Director General: Mr Thami Sokutu and the acting Director General: Ms L Bici.

MINUTES
Systems and Management
Mr D Gumede (ANC) led the questions on systems and management.
Mr Gumede asked if he was correct to assume that during the period covered by the Annual Report there were managerial vacancies.

The Director General: Mr Thami Sokutu, stated that the assumption was not correct. He explained that at the time of the report there were some managerial vacancies in the process of being filled and others had already been filled. One major reason for unfilled vacancies was due to lack of people who had the skills for the job. He further stated that the process of recruitment, employment and training of incumbents was very long and impacted on the capacity of management to properly do the job during the time of the report.

Mr Gumede (ANC) then asked if this problem was the reason for the lack of supporting documents for accounting purposes.

Mr Sokutu regarded the lack of supporting documents as an allegation and not a fact. Ms Bici: Acting Director General, lengthily explained that the problem was not the lack of supporting documents but that the office of the Auditor General had no sufficient knowledge of the business systems and filing of the Department of Public Works. She made examples such as follows: the auditors asked the wrong people for information; auditors not understanding the difference between project files and contract files. She concluded by adding that some of the documents had already been destroyed as they had expired according to National Treasury regulations.

A Member (ANC) asked the Director General why he signed a letter acknowledging the Auditor-General's report if he disagreed with it.

Mr Sokutu said that he did not recall signing the letter but agreed with the report.

Mr Vincent Smith (ANC) suggested that the issue of lack of documents and misunderstanding about systems should be dropped and set aside for a special meeting because it seemed fruitless to argue using one person's word against another.

Mr Kannemeyer (ANC) agreed with Mr Smith. However, he questioned the Department's internal control and putting systems into place. He argued that even though there might be a misunderstanding between the Department and the office of the Auditor General, the Department should have had mechanisms in place to detect and resolve the problems while the auditors were compiling data. For him, it was too late and very ineffective for the Department to recognise the problem only after the publication of the report by the Auditor-General.

A Member (ANC) asked if the Director General's defence meant that the Department's systems were "talking to each other".

Mr Sokutu said that there was a difference between systems talking to each other and the systems reconciling with each other. He reckoned that there was no adequate reconciliation between the systems of the Department and those of the Auditor-General's office.

The Chairperson asked why there was no reconciliation between the systems of the Department and those of the Auditor-General's office.

Mr Sokutu said that one of the goals of the restructuring process was trying to reconcile the systems. Ms Bici added that at present FMS and PMS systems were interfaced and individualised but not integrated.

The Auditor-General was not convinced by the Department's argument about systems. He reckoned that other Departments had their sub-systems but were expected to interface with FMS. He asked the representative of the National Treasury if his argument was correct. Mr Maree agreed with the Auditor-General.

Mr Gumede (ANC) asked if it was true that six months elapsed without the Department giving the Auditor-General the supporting documents.

Mr Sokutu repeated his point about the misunderstanding of systems between the auditors and his Department.

Mr Gumede reiterated his question and demanded a yes or no answer.
The Director-General then agreed that six months had elapsed without the Department producing supporting documents for accounting purposes.

Mr Gumede asked if the Department did a monthly reconciliation of transactions and if not what were their plans.

The Director-General said that not all transactions were reconciled on a monthly basis. He did not elaborate on the plans to reconcile transactions on a monthly basis.

Mr Gumede asked if the disclosure by the Department was in line with the intent of the legislation.

The Director-General said that it was in line with the National Treasury regulations.

Mr Gumede asked if the National Treasury agreed with the Director-General. Mr Maree from the National Treasury said that the annual report of the Department should have disclosed more that it had.

Mr Chiba (ANC) said that there was little disclosure in the balance sheet of the annual report and wanted to know the reasons for this.

The Director-General said that there was nothing to hide and only regretted that the report did not elaborate sufficiently.

Still on the subject of disclosure, Mr Kannemeyer agreed that there was little disclosure and he particularly wanted disclosure on criminal cases.

Mr Nair (ANC) noted that all of the issues had arisen because of the Department's inefficiency and their not taking proactive responsibility.

Mr Sokutu pointed out that the issues that were raised in the meeting were changing for the better because the report was two years late and the Department had been looking into those problems. He promised the Committee that the aim of his office was to run the Department like a business. He acknowledged the limitations that faced the Department.

Unauthorised Expenditure
During this session Mr Chiba (ANC) was given an opportunity to ask the Team from the Department of Public Works questions on two issues: unauthorised expenditure and over expenditure/ under expenditure. Mr Chiba pointed out that certain individuals in the Department of Public Works were involved in unauthorised expenditure of about R30, 573 million during the period 1999-2001.

He firstly wanted to know what gave rise to the Department not complying with regulations and why the systems were bypassed. Secondly, he questioned whether the Department took appropriate disciplinary actions against those involved in bypassing the system, and what these steps entailed.

Mr Sokutu stated that management has taken strong disciplinary action against all those officials in question. Some were no longer with the Department of Public Works.

Mr Chiba stated that the DG's answer was unsatisfactory. He wanted reasons why officials are bypassing the system, and who those officials were who had become involved.

The DG then stated again that many of the officials who committed these violations were no longer employed in the Department. There were further violations. A Department representative cited an example. The Department of Public Works often leases out buildings to other Departments. Often the Department has already paid for the lease of a building, and then the client Department will not need to lease the building for any amount of time thereafter. This results in a loss of money on the side of the Public Works Department.

Or, secondly, the client Department refuses to vacate the building once their lease expires. It could be up to five or six months before the Public Works Department makes a move to either warn them to renew their lease, or move out. This problem is due the transformation occurring within these Departments. The money then paid into these leases by the Public Works Department is noted down as 'unauthorised expenditure'.

Mr Sokutu added that the Department also leased buildings to private companies and individuals and as a result the Department could not control these clients as they would be internal clients. Certain officials from the Department used that confusion to enrich themselves.

Mr Chiba asked what happened to the cases of five individuals who were charged with misconduct for unauthorised transactions.

Mr Sokutu responded that his Department had employed people as consultants and there are instances where some people failed to comply with Department policies by either bypassing the system, or purely disregarding it. As a result, the perpetrators have been severely dealt with by the Department. On the other hand, the Department has felt that these cases of non-compliance are highly irregular.

Mr Chiba then moved on to his second point concerning over-expenditure. He asked the DG if their management information is supposed provide indicators to warn them when it comes to exceeding the budget. He noted that the Department overspent by R5, 4 million in the year 99/01.

Mr Sokutu's response was that over expenditure was the result of recurring expenditure by the Department's administration.

Mr Chiba asked why they had not taken notice of the problem and taken care of it beforehand if they saw it as recurring.

Mr Sokutu said that one really only becomes wiser after the event has occurred.

Mr Bruce then asked the DG what could be done to protect junior officials from the pressure of prestige clients who want the system bypassed because of the time consuming nature of the system. Secondly, he asked how the non-compliance by other Departments could be stopped. Lastly, on behalf of the client Departments, Mr Bruce asked whether engagement at Director-General level can be employed to combat this apathy in other Departments, because it reflects badly on the Department of Public Works.

The DG said that an awareness must be created about the system, and that advanced planning on the part of the client Departments must be completed for the DG to know what the needs of the client Departments are in advance. As far as the second question was concerned, the DG said that accounting officers are in place who have to sign all needs assessments that come from other Departments.

A Member stated that it is vital to ensure that spending of the taxpayer's money is under control. He noted the under-spending in one particular programme but all money allocated should have been spent on that specific program.

Another Member noted that under-spending is shown in two programs - land and buildings. She said that this type of under spending shows a defect in the budget allocation.

The Member then reiterated his previous point - stating that the taxpayer's money has been set aside to spend, and it was not as though they would be able to get a refund. In terms of documentation on 2001, pg 57 bullet 6 - why were those requirements not being correctly met?

The Department panel said that many other requirements have also not been met, and that this requirement did not have to be met. They stated that management records all the funding that goes in and out of municipalities. District municipalities have to comply with regulations - requirements that the DG gets written confirmation concerning funding. If this does not occur, it will be followed up.

A Member asked to what extent the Department relied on IT.

Mr Sokutu said that the situation as it now stands, is entirely different to what it has been. People have been trained to fill those positions within IT.

A Member asked if there was a Disaster Recovery Plan in place, in case an event like September 11 were to occur in South Africa, affecting the government data base and destroying it.

A Department representative stated that there was a plan in place.

A Member asked about the destruction of certain documentation - why were Treasury documents of 1984 specifically, destroyed?

The DG's panel answered that in terms of existing regulations, certain documents are destroyed after a particular period.

Mr Gerber then posed questions about the selling and leasing of real estate. He asked why the government is selling off primary real estate.

The DG answered that the government is trying to get the best value for money, and that it is this factor, which forms the basis of decision making.

Mr Gerber asked about some properties being sold at their exact market value. He asked what the criteria were for selling property at market value.

The DG said that this specific question should be submitted in writing to the Department, and it will answered in due time.

A Member asked how the Department understood their relationship with the Auditor Gernal and the independence of the Director General from the Auditor General.

Mr Sokutu replied that the Department had no intention of impeding the independence of the AG.

The Director General was asked if the person who would succeed him would have to start again or are there measures in check to allow greater continuity.

The DG answered that his predecessor has done many things on his own, so that when he left office, there was some restructuring which needed to be done. If someone left today, it would not lead to the demise of the Department. A team has provided for greater continuity.

The meeting was adjourned.