Auditor-General of South Africa on audit outcomes of Department of Public Works

Meeting report

Office of Auditor General SA (AGSA)
The AGSA delegation, comprised of Mr Lourens van Vuuren, Business Executive, Ms Dipallo Shea, Senior Manager, and Ms Ilze Slabbert, Senior Manager, presented the briefing on the audit outcomes of the Ministry of Public Works.

Mr Van Vuuren led the presentation and started off by saying that the Office of the Auditor General had a constitutional mandate as the supreme audit institution to strengthen the country’s democracy by enabling oversight, accountability and governance in the public sector through auditing. The Department had set itself five strategic goals -- transformation and regulation of the construction and property sectors to ensure economic growth and development, efficient and strategic asset management, job creation (fundamentally through the Expanded Public Works Programme), the consolidation of DPW’s relationship with sector entities and stake holders, as well as strengthening the role of the Department with the other spheres of government and Parliament.

The Department was funded mainly through allocations in terms of the annual Appropriation Act, and had received an unqualified audit for the period under review. In the same period, the Property Management Trading Entity (PMTE), which was responsible for property management activities, had received a qualified audit opinion due to irregular expenditure. He defined irregular expenditure as expenditure that was done without following general accounting principles, as specified. The entity did not provide sufficient information for the AG to determine whether the irregular expenditure was fairly stated, given that they did not have an adequate system to identify it.

The audit outcome was caused by non-compliance to supply chain management prescripts as a result of poor procurement planning. The Independent Development Trust (IDT) also had a qualified audit opinion, due to being unable to provide sufficient appropriate audit evidence that management had properly charged and accounted for all tender deposits. The root cause was the fact that the IDT had been qualified on other income, as it did not have adequate systems to identify and record all tender deposits. AGSA also had an issue with leave pay accrual, where the system of control could not ensure the accuracy of employee leave records at the IDT.

He summarised the key focus areas on the Departments’ side as being supply chain management, predetermined objectives, human resource (HR) management, information technology (IT) controls, the quality of annual financial statements (AFSs) submitted for audit, which were all reported to have shown no improvement. The PMTE also had the same outcomes, with their financial health having a net current liability position. The IDT had no improvement in its supply chain management or in the quality of AFSs submitted for audit. There had been a regression in HR management and IT controls, with the financial health having a positive streak of concerns being resolved. The Council for the Built Environment and the Construction Industry Development Board both had a regression in supply chain management, with their predetermined objectives, IT controls and HR management having no matters. The quality of AFSs submitted for audit had no improvements and their financial health had no matters.

He said that the previous Portfolio Committee had committed itself to monitoring the progress of the turnaround strategy at the Department and the PMTE. This included finalisation of the PMTE business case, implementation of E-works, and an accrual accounting system for PMTE as well as overall issues concerning the PMTE and the IDT. The Department and the PMTE had ongoing investigations in relation to the transgressions in supply chain management, potential fraud and financial misconduct. The most prominent case in regard to this Department was the Nkandla case related to the President’s private residence, which the Public Protector had investigated and released a report on 19 March 2014.

The Construction Industry Development Board had instituted an investigation into the registration of the contractors. This was still in progress at the date of the report. The IDT also had investigations pertaining to fraud by an independent accounting firm, as well as another by the Public Protector. He concluded by saying that a performance audit was being concluded on the Department pertaining to its readiness to fulfil its performance oversight roles and responsibilities, and this would be tabled in due course.

Minister on Department’s annual report
The Chairperson welcomed the Minister and the delegation from the Department, and asked them to proceed with their presentation.

The Minister of Public Works, Mr Thulas Nxesi, said Public Works took their engagements with Parliament very seriously. Accountability for public funds was very important. He was proud to report on the findings for 2013/14. He had foreseen tangible progress over this period, but more needed to be done in relation to property management. Contrary to media headlines, the Department had not lost R35 billion, and the financial report needed to be properly understood. The loss of money in the Department could be attributed solely to fraud and corruption. Had the Department not been serious about its financial health, it would not have received an improved audit. It had fully declared all irregular expenditure. He used a theological analogy to explain the manner in which the Department had tried to rehabilitate itself, saying that before God could forgive anyone, they had to admit all their sins – they were not forgiven automatically. This was what the Department had done, as it was trying to fix its problems at all costs. There were a number of fraud cases that they were dealing with, and the Department was working towards having a fraud-free environment. He also emphasised the importance of coordination with respect to the three spheres of government, so that the Department could carry out its functions properly.

Mr Mziwonke Dlabantu, Director General of the Department, presented the annual report. This included the 2013/14 non-financial and financial performance of the Department, providing an opportunity for the Portfolio Committee to give advice on improving their performance. The DPW had recorded their key achievements for the year, which mainly involved “operation project overhaul.” which was a response to the slow rate of delivery and the recurring problem of under-expenditure. They also had an asset register enhancement programme as an initiative to improve the State immovable asset register. They were increasing the reach of ICT into all facets of the business areas, given that it was a critical enabler for the core business of the Department. They had also looked into the lease review process, which was a major challenge facing the Department. This was designed to address lease backlogs, imminent expiring leases, business processes as well as the Department's lease contracts.

The Department had also looked into property and facilities management prescripts which encompassed policy strategy, specifications guidelines and contract documents for facilities management, with a policy on leasing in relation to energy efficiency initiatives. They also sought to establish governance, risk and compliance branches in a bid to improve management practices, governance structures, and introduce processes to improve efficiencies so as to ensure optimum use of resources and promote compliance. The anti-corruption policy had been revised in the year under review, where a whistle blowing policy had been developed to encourage reporting on corruption indicators.

The Department had initiated five programmes. The first dealt with administration, which was to provide strategic leadership and support services, including accommodation and overall management of the Department. The second project was to manage the government's immovable property portfolio in support of social, economic, functional and political objectives. The third project was the Expanded Public Works Programme (EPWP), which had been developed to ensure the creation of work opportunities, as well as training for unskilled, marginalized and unemployed people. The DPW had also initiated a property and construction industry policy regulation, to regulate and promote growth and transformation in the property industries. The fifth programme encompassed auxiliary and other associated services aimed at providing various services, including compensation for losses on the Government-assisted housing scheme and assistance to organisations for the preservation of national memorials.

The achievement of targets had been affected by both internal and external challenges. These included capacity and budgetary constraints, delays in procurement, lack of integrated ICT systems, corruption, mismanagement and maladministration, inadequate risk planning, risk management, service delivery improvement, monitoring and evaluation, general dissatisfaction by clients as well as slow delivery of infrastructure. The Department had then put strategies into place to alleviate the problems they had encountered. In 2011/12 the Department had initiated the “Turn Around Programme” which encompassed three phases -- stabilisation, efficiency enhancement and sustainability and growth.

The Department had 7 043 posts, of which 5 710 were filled. Of the 1 333 vacant posts, 187 were critical positions, and they were working towards filling them with their improved HR plan.

Discussion

The Chairperson applauded the unqualified audit, compared to the previous year, but emphasised that there was still more work to be done. The Committee had also made commitments with regard to its oversight function. This included visiting departments and entities in various provinces, making sure that everything was working out well

Mr K Mubu (DA) said that the findings did not inspire confidence. The Department had been reckless, according to the findings. He emphasised that irregular expenditure amounted to R34 billion, and that was an alarming and worrying number. There seemed to be a lack of accountability or coordination with the Department’s leave system, given the fact that the organisation could run without having knowledge of who was on leave at what time, and that raised a serious concern. With the Expanded Public Works Programme, there was a lack of oversight to ensure that payments were made to valid beneficiaries. Was the department able to establish who was paid for what, and whether they were supposed to be paid, as there were invalid beneficiaries? With regard to fraud and corruption in the Department as a whole, the issue seemed to be a lack of effective disciplinary steps and timeous disciplinary action against transgressors needed to be taken. This all pointed to a department that was not functioning, yet it was handling a lot of money.

Mr K Sithole (IFP) said that the presentation was an eye opener for them as a Portfolio Committee, and he thanked the Auditor General's office for their insightful report. He asked what steps had been taken by the Department based on the findings, and also wanted to know if their findings were final, or whether there was a second opinion.

The Chairperson responded by saying that the work of the office of the Auditor General was to look at the financial health of departments and that they, as a Committee, had to carry out issues identified by the previous Committee. They should monitor spending on infrastructure by the Department on a quarterly basis.

Mr F Adams (ANC) remarked that there was too much focus on getting the Department right, which had resulted in a lack of oversight on entities.

Ms D Mathebe (ANC) raised her concern on the regression in supply chain management. Appropriate steps to stop irregular expenditure, and oversight and disciplinary action against officials, needed to be a priority. She asked who was responsible for the assets of the Department. The Department should be aware that its role in society was not only about Nkandla, and they should focus on their real mandate.

Ms N Sonti (EFF) said that the focus of the Department should be strictly on the EPWP so as to create job opportunities. Each and every item of expenditure should be linked to invoices. The registration of contractors must be investigated.

The Chairperson thanked the members for their input and asked for a response from the Auditor General’s office.

Mr Van Vuuren thanked the Members for their valuable inputs, and noted that the Member had correctly identified the risks associated with leave management, which therefore needed to be monitored and fixed. The DPW needed significant resources to deal with cases of fraud and corruption, which needed to be dealt with as soon as possible so that normal business could resume.
The outcomes of the IDT had regressed, and the Minister could give more information in that regard. Assets were difficult to figure out at the provincial level, as they were sometimes owned privately.

Ms Slabbert said that AGSA had been unable to determine whether payments were made to the right entities as they had not received proper documentation for verification. The annual report indicated that there was lack of oversight in ensuring that the people who received payment were actual beneficiaries, due to the lack of supporting documentation.

Mr S Jafta (AIC) referred to the pressure imposed on officials of the Department, and asked who was responsible for this particular pressure and if that justified the supply chain management procedure not being followed

Mr Van Vuuren responded by saying that sometimes, when there was no proper planning, the supply chain management system was put under strain, and that someone should pick it up from the strategic plan so that tenders are able to go out in time. In the case where there was an urgent requirement, emergency procurement measures were in place, but these needed to be used appropriately and only when it was necessary to do so. He emphasized the importance of proper planning.

The Chairperson thanked AGSA, and said that they would engage the Department and its entities throughout the year – not just engaging them once a year when doing a post mortem. He also thanked them for reminding the Portfolio Committee of their duties. They were committed to carrying out their oversight function.

Ms Mathebe said that the Department needed to realise its core mandate and understand that its function was not merely the Nkandla saga, but that it had to fulfil its role of being a facilitator of g\job creation in South Africa. She also said that they needed to report more on what they were doing, and how far they had assisted in reducing unemployment in South Africa, as this was not reflected sufficiently in their report. The people of South Africa needed to know what the Department was doing to better their lives. Their work needed to be felt by ordinary South Africans, even in the deep rural areas

Mr Mubu said that it had to be a very difficult time in the Department for a communist (referring to the Minister) to be speaking of God and theology. He once more raised his concern on the over-expenditure in the DPW, and wanted to know to what extent they were assisting the South African populace, which was highly unemployed.

Mr Dlabantu responded by saying that they understood the challenges they faced as a Department. Their mandate was indeed to change the lives of ordinary South Africans. The DPW was working towards cleansing itself of fraud and corruption, as this is what was hindering its growth. With the strategies they had put into place, they were going to present an improved annual report in the next financial year. They had inherited a Department with tremendous backlogs and corruption, and were working towards fixing this so that they could focus on their mandate. They appreciated the engagements with the Portfolio Committee, and were open to the constructive criticism.

The Chairperson thanked the Department for their informative report and assured them that they would be in touch with them regularly so as to improve their oversight role. While he welcomed the Department, they should be wary of sending delegations where the majority were male. The gender struggle should never be made secondary. Next time he expected to see a gender balanced delegation.

The meeting was adjourned.