Auditor-General on audit outcomes of the Department of Transport for 2013/14

Meeting report

Chairperson’s opening remarks

The Chairperson welcomed everyone to the Committee meeting and said that the purpose of the meeting was to hear a briefing from by the Auditor-General of South Africa (AGSA) on the audit outcomes of the Department of Transport (DoT) for 2013/14, and from the Department on its annual report and financial statements for 2013/14. Transport played a crucial role in the economy of the country and needed to be maintained in order to ensure that there was sustainable and inclusive economic growth. It was important to take into consideration that transport required skilled people in order to drive development meaningfully, not only in major cities but also in rural areas. The Chairperson emphasised that the Department needed to create job opportunities in every other institution that was aligned to the DoT, as this was the mandate of the government.     

Briefing by Auditor-General of South Africa (AGSA)

Mr Vinay Ramballi, Senior Manager: AGSA, said the presentation would focus on the financial statement of the Department and its entities in order to check whether there were any qualifications. The Road Traffic Management Corporation (RTMC) was the only entity that was qualified, on asset management. There were eight entities in compliance with laws and regulations, and the Department and four entities were non-compliant. Under the performance report, the focus was on four entities, including the DoT, where there were concerns around the usefulness and reliability of the performance information. There were no such concerns with eight other entities. The five-year reflection showed that the Department had maintained its status of receiving an unqualified audit on predetermined objectives, or compliance with laws and regulations.

In the 2013/14 financial year, the South African National Road Agency Limited (SANRAL) received an unqualified audit, with findings on compliance with laws and regulations. The Railway Safety Regulator (RSR) maintained its status of being unqualified, with findings, and the South African Civil Aviation Authority (SACAA) received a clean audit, and was unqualified with no findings on compliance and performance reporting. The South African Maritime Safety Authority (SAMSA) received an unqualified audit and the RTMC received a qualified audit -- the area of qualification was on asset management. The Ports Regulator (PR) was unqualified, with findings, and the Road Traffic Infringement Agency (RTIA) was regarded as one that recorded an improvement, as it had moved from an unqualified audit with findings, to a clean audit. The Road Accident Fund (RAF) maintained its clean status, while the Cross Border Road Transport Agency (C-BRTA) and PRASA also received unqualified audits, with findings. (See Page 4 of presentation for details)

Mr Ramballi said AGSA often covers the findings, the root causes of financial irregularities and the recommendations on action the management can take to improve the financial statement. The assurance level assesses the assurance provided by the senior management, the accounting officers and the executive authority (minister), then looks at the internal audit unit and audit committee, and finally the Portfolio Committee. The reflection of the assurance provided relates directly to the audit outcomes, as AGSA needs to provide assurance around the areas of senior management accounting authority. AGSA also looks at the key drivers of internal controls and how these would influence the audit outcomes with a major focus on financial statements, performance reporting and compliance with legislation.

AGSA takes into consideration leadership effectiveness, especially looking at whether action had been taken on prior audit findings, ensuring that the entity or the Department had the required skills and competency and whether action was being taken against transgressions. In financial and performance management, the focus was on whether there was the daily discipline of reconciliation, ensuring that records are kept for all matters that are in the financial statements or performance report. In performance reporting, the major problem with most entities was with documentation, providing sufficient evidence to support the achievements. There should be daily and monthly controls focussing directly on misstatements in financial statements, asset management, and reviewing and monitoring compliance with legislation.               

Mr Ramballi said AGSA had focused on the following six key risk areas:

- The quality of financial statements. There were concerns with seven of the entities, including the DoT.

- The quality of the submitted performance report. There were concerns with four of the entities.

- Supply chain management. There were concerns with three of the entities, intervention was required for four of the entities, and there were no significant findings on five of the entities.

- Financial health. This focused on the ability of an entity to continue operations going forward, and there were concerns with five of the entities.

- Human resources. There were concerns with five of the entities, and a significant problem in the Department itself. 

- Information technology (IT). This focused on ensuring that the data provided by the entities meets the requirements for audit purposes, and there were concerns with seven of the entities, as well as the Department.

The Chairperson thanked AGSA for the presentation and said the audit outcomes painted a dire need for critical skills to prevent financial irregularities and fruitless expenditure. She then handed over to the Members to seek clarity and suggestions on the areas that required emphasis.

Discussion    

Mr T Mulaudzi (EFF) asked for further clarification about the general situation of the internal audit of the Department and its entities. Did AGSA get involved in the investigations?

Mr Ramballi responded that the internal auditors played a crucial role in ensuring that the Department kept the recordings as evidence to support the key achievements. They also identify key risk areas that need to be rectified by the Department or entities in order to prevent unauthorised, irregular and fruitless expenditure. The AGSA does not get involved in any investigations performed by external parties.   

Mr G Radebe (ANC) asked if there was monitoring of the finances given to the municipalities in order to ensure that there was compliance.  What strategy was in place to ensure that the Department and the entities managed to keep records to support the achievements? What was the plan to retain the critical skills required by the Department and its entities? He also asked whether the DoT had taken any steps to deal with the issue of pending litigation cases on a number of entities. Did the DoT provide value for money?

Mr Ramballi responded that the only way to evaluate the value for money depended on the performance audit on a specific focus area, and the AGSA always found it hard to conclude whether or not there was value for money. The allocation of finances to the municipalities was done in terms of the Division of Revenue Act (DORA), and the monitoring was done within the Department through the various branches. AGSA only assessed whether the municipalities reported in accordance with the requirements that had been set. The issue of record keeping was critically important, and was generally performed by the internal auditors. Vacancies and lack of stability in leadership were two of the three root causes that gave rise to negative audit outcomes.      

Ms D Carter (COPE) said that the concerns around lack of competencies, slow response by management and the instability of vacancies in critical positions, had been occurring year after year, and suggested that the Committee needed to follow up on a continuous basis. What actions had been taken by the AGSA to solve the issue of non-compliance? How could processes be standardised?

Mr Ramballi responded that it was part of the recommendations of the AGSA to conduct follow-ups and report to the Portfolio Committee.  It was the responsibility of the Department and other role players like the Office of Accountant General and the National Treasure (NT) to engage with matters of non-compliance. There were various role players in terms of standardising processes, including the Accountant General, NT and the Department of Public Service and Administration (DPSA).

He said that the action to be taken depended entirely on the root cause of the irregular expenditure, and added that there had not been consequence management by the Department.      

Mr C Hunsinger (DA) wanted to know the reason for the decision made in the current financial year, to allow the RTMC to withhold transaction fees as a category of revenue within the entity, as this had major audit implications. 

Mr Ramballi responded that the issue of transaction fees with the RTMC was dealt with in terms of legal opinions and consultation with the NT. AGSA did not have a role to play in the decision that was taken.   

Mr M de Freitas (DA) wanted to know whether there was a difference between the 2013/14 financial report, compared to the previous financial reports. He asked AGSA to provide copies of the presentation prior to the meeting, as Members needed to have adequate time to engage with the presentation. What was the reason for the extension of the eNaTIS contract? How did AGSA report on the slowness of response? 

Mr Ramballi responded that there were no implications to the previous years’ audits, as the transaction fees in the prior year were paid over from the RTMC to the Department. It was only after a year and half that the Department had stopped paying the transaction fees, and this had given rise to the unauthorised expenditure. AGSA would ensure that the Members received the presentation in advance in order to have enough time to go through the presentation. The slowness of the report would be linked directly to the root causes that had been identified. The compliance of the eNaTIS was tested in accordance with the Public Finance Management Act (PFMA) and the NT prescripts.  

Ms S Boshielo (ANC) asked whether there were measures in place to assist the departments in asset management, as this had been an on-going problem. The qualified auditors in AGSA needed to be spread to the departments, as they were mostly concentrated within AGSA. She questioned the effectiveness of the internal auditors in dealing with the problems identified by AGSA. There were concerns with the under-spending in respect of some objectives, and she asked if it was possible for AGSA to assist the Department to finish their procurement within the current financial year. What was the time-frame for auditing the actual delivery of services, rather than process issues? It was concerning that AGSA was more interested in whether the financial regulations were followed, rather than the impact of service delivery on the people. She asked whether the AGSA was able to allow the Department and entities to use finance to deal with the issue of disaster management.

Mr Ramballi responded that the internal audits had been providing assurance levels, and were spread across the Department and the entities. The internal auditors played a crucial role and were often referred to as the second level of “defence” in terms of the combined assurance level, as they had the potential to test whether there were sufficient documents to support the achievements of the Department, and whether the achievements reflected what was in the financial statement. AGSA recommended that in order to assist the Department on asset management, it was important to perform regular reconciliations (mid-year, full year and quarterly reconciliations) and interim audits to test asset management.

The AGSA was not allowed to do the seconding of staff, as entities needed to maintain independence. The procurement process could be done per year, and AGSA could not influence that process. The AGSA had started looking at reliability criteria to ensure that there was a shift from focusing entirely on financial regulations, and more emphasis on the impact of service delivery. The Treasury Practice Notes make provision that where a disaster occurs, it is possible to deviate from the required procurement processes.       

Mr L Ramatlakane (ANC) asked if there was a way to deal with the impact of the courts’ decisions on expenditure, as the AGSA had declared this as an over-expenditure. He was worried that the key problem in most cases of over-expenditure was related to supply chain management. Was the AGSA conducting quarterly reports for the Department? Was the issue of unauthorised, irregular and fruitless expenditure related to leadership, or just an “I don’t care” attitude?  

Mr Ramballi said the issue of unauthorised, irregular and fruitless expenditure was related to leadership effectiveness and competence to execute key mandates. The effectiveness of good leadership could be tested by the action taken against transgressions. The issue of courts’ decisions neede to be taken into consideration, as it had an impact on the audit outcomes.

The Chairperson asked about the factors that contributed to a lack of movement in terms of an action plan within the Department. What were the other key factors that the AGSA had noticed as contributing to financial irregularities in the Department?

Mr Ramballi responded that a slow response by management contributed to financial irregularities and was likely to influence future audit outcomes, as if action is not taken, the situation could worsen. Lack of critical skills and competencies could be attributed to lack of movement in terms of the action plan, including consequence management. 

Ms S Xego-Sovita (ANC) asked whether lack of oversight referred to the management or the executive, as it was clear from the AGSA recommendations that oversight referred mostly to the management. What was the time-frame for auditing a single branch or department? This question was linked to concern by AGSA on the slow response by management. Who was auditing the AGSA as an institution?

Mr Ramballi responded that the reference was to different levels of oversight, including the accounting authority, executive authority, audit committees and internal audit units. The time-frame for auditing a department or an entity depended entirely on the nature and complexities of the audit and the actual time spent with the department or entity. The AGSA was also audited and had been receiving a clean audit for many years. 

The Chairperson thanked the AGSA for its comprehensive presentation, and highlighted the challenges of cutting down unauthorised, irregular and fruitless expenditure.

The Chairperson expressed concern that the Director-General, Mr Mawethu Vilana was not present yet to make a presentation on the annual report for 2013/14. The Members felt that this showed that the Department undermined the Portfolio Committee, and this embarrassment needed to be avoided in the future. The Department’s delegation indicated that the DG was running late, but promised he would be present to make the presentation.      

Department of Transport on Annual Report 2013/14

Mr Mawethu Vilana, Acting Director General (ADG), apologised for arriving late. He said the report focused on the progress made with the implementation of programmes and projects in 2013/14, and the optimal performance of deliverables in terms of the Medium Term Strategic Framework (MTSF) and Medium Term Expenditure Framework (MTEF). The implementation of programmes was directed by the National Development Plan (NDP), the National Group Programme (NGP) and the Presidential Infrastructure Coordinating Council (PICC). The Department had a total of 329 targets and had managed to achieve 216 targets (66%), but had failed to achieve 113 targets (34%).

The breakdown on non-achievements showed that 76 targets (23%) were partially achieved, and this carried-over to the next performance cycle. The key performance factors included over-planning, with too many targets within a financial year and unrealistic timeframes for planned targets. Some planned targets were not within the control of the Department and the deliverables were dependent on the actions of provinces and public entities. The common reasons for deviation included financial and human resource constraints, changes of programme, reprioritization and dependence on external sources.

Mr Vilana said that on Integrated Transport Planning (ITP) there was a total of 41 targets, with 18 achieved (44%) and 23 failed to achieve (56%). The key notable achievements for the ITP comprised of the completion of the National Household Travel Survey (NHTS) 2013 and Statistical Bulletin 2011, and the study on the status of regional infrastructure. The Rural Accessibility/Multi-deprivation index pilot survey and the study on harmonisation of transport standards within the Southern African Development Community (SADC) had also been completed. The breakdown of non-achievements on ITP showed that 11 targets (27%) were partially achieved and there had been no reasonable movement with 12 (29%).

Rail transport had a total of ten targets, and had managed to achieve six (60%). The key notable achievements for rail transport included the 598 railway coaches overhauled and upgraded. The objective was to minimise train crashes and reduce risks to the lives of commuters. The Green Paper on rail transport had been concluded and presented to the Cabinet and once approved, the policy would address areas of infrastructure investment and regulations in the rail transport sector. The Bridge City extension and the infill of bricks and ancillary works in the Gauteng Train Control Nerve Centre had been completed. The breakdown of non-achievements showed that there were four targets (40%) that were partially achieved and carried-over to the next performance cycle.

Road transport had a total of 49 targets and was able to achieve 30 (61%) and failed to achieve 19 (39%). The key notable achievements for road transport included the S’hambaSonke Programme, which focuses on the rehabilitation and maintenance of roads, re-sealing and patching of surfaced roads, and blading and re-graveling of gravel surfaces, to ensure continued improvement of road infrastructure and conditions. Full time employment for 33 365 people had been created and the Road Infrastructure Safety Framework had been developed. The Department was proud to have produced and distributed 2 422 268 driving licence cards, and the Road Incident Management System had been developed to regulate accident investigations and incident management. The road transport breakdown of non-achievement showed that 14 (29%) were partially achieved and carried over to the next performance cycle.

Civil aviation had a total of 47 targets and had achieved 25 (53%) and failed to achieve 22 (47%). The key notable achievements included South Africa being re-elected to the International Civil Organisation (ICAO) at the 38^th Assembly. The ICAO conference was successfully hosted in Durban in 2013. 542 schools were visited across nine provinces to promote aviation awareness, and 33 945 learners were reached. The civil aviation breakdown of non-achievements showed that 13 targets (28%) were partially achieved, carrying-over to the next performance cycle and nine targets (19 %) had no reasonable movement.

Maritime transport had a total of 42 targets and had achieved 22 (52%) and failed to achieve 20 (48%). The key notable achievement was on the maritime transport shipping study that had been conducted. The position paper on status quo global trends regarding port efficiency, operations and management, had been completed. The Civil Liability Convention (CLC) and International Oil Pollution Compensation (IOPC) fund had been approved by the National Assembly (NA), a port facility security audit had been conducted, and an inland waterway strategy was also completed. The maritime transport breakdown of non-achievements shows that 12 targets (29%) had been partially achieved and carried-over to next performance cycle.  It was also indicated that there was no reasonable movement on eight targets.

Public transport had a total of 24 targets and had achieved 15 (62.5%), and nine were not achieved. The key notable achievements encompassed the finalisation and the submission of the Draft National Land Transport Amendment Bill and the amendment and consolidation of the National Land Transport Act (NLTA). There were also workshops aimed at empowering small bus operators that had been conducted in all provinces. 12 municipalities had completed operational, business and financial plans for Integrated Public Transport Network (IPTNs), and the network operations had started in three municipalities -- Nelson Mandela Bay, Cape Town and Johannesburg. On an average week-day, the Bus Rapid Transit (BRT) system was taking about 35 000 passengers a day in Cape Town and 35 000-40 000 in Johannesburg. The breakdown of non-achievements for public transport showed that six targets (25%) had been partially achieved and carried-over to the next performance cycle and three targets (12.5%) had no reasonable movement.  

Mr Vilana said that 119 positions had been filled during 2013/14, decreasing the vacancy rate from 27.7% to 25.4%. The target was to reach 19%. The target was not met due to 49 additional posts being added to the establishment, and terminations. In terms of capacity development, the Department had registered 876 students in different transport-related disciplines in 13 universities, and the Transport Research Activity Centre (TRAC) had reached out to 462 984 learners through 29 laboratories. 1 145 learners were registered at various tertiary institutions, 47 interns had been recruited in the DoT, 1 037 learners were currently registered in FET colleges and six out of 13 students who studied in the Prague International Scholarship Programme had completed their studies and were successfully placed in the Department, the Passenger Railway Agency of South Africa (PRASA) and Metrorail for internship.

The employment equity statistics showed that 89.4% of employees were African (target 79.5%), 2.12% were coloureds (target 9%), 2.28% were Indian (target 2.5%) and 6.2% were white (target was to increase to 9%). In terms of gender representation, the department had 273 males (45%) and the target was 48%. There were 340 females (55%), and the target was to reach 52%. The Department was optimistic about reaching the target of having 2% of the employees who were disabled, as it was already sitting at 1.8%.

The lessons learnt going forward included ensuring a realistic number of indicators and targets were set, and defining indicators as required by the Treasury framework. The Department also needed to revise targets to meet Specific Measureable Attainable Relevant Time-bound (SMART) criteria, and also institutionalise production of admissible evidence on all reported performance information.

The original budget for 2013/14 was R42 billion, and R104.762 million had been rolled over for the refurbishment of the Mthatha Airport. The declared unspent funds showed that an amount of R20 million in unspent funds had been declared on the taxi recapitalisation project, as fewer than expected had been scrapped. An additional R41.565 million had been allocated to the Provincial Roads Maintenance Grant for disaster relief, to repair flood damage in Kwa-Zulu Natal, Limpopo, Mpumalanga and the Western Cape. The over-expenditure for road transport of R768.4 million was declared as unauthorised expenditure.

Significant over or under-expenditure occurred in Programme 1 (Administration), which under-spent R10 million on marketing and advertising, and saved R5.8 million on accommodation; Programme 4 (Road Transport), which over-spent R852.2 million on eNaTIS and under-spent by R83.5 million because transfer payments were not paid to the Road Traffic Management Corporation (RTMC); and Programme 5 (Civil Aviation), which saved R96.6 million that was over-budgeted for the Mthatha airport refurbishment.

The Chairperson thanked the Department for its presentation, but expressed concern around the issue of unauthorised, irregular and fruitless expenditure, as this showed a lack of effective leadership within the Department.   

Discussion

Mr de Freitas said that it was a disappointing presentation by the Department, as most of the achievements had been only partially achieved. What were the reasons for the delays in Tshwane and Green View?  What were the reasons for the delays in the Memorandum of Understanding (MOU) between the Department of Public Enterprise and the Interim Rail Economic Regulator? What were the reasons for the failure to establish regional search and rescue working groups? What was the cause of the delays in the amendment of the Civil Aviation Act and the establishment of the investigation body? Why was the Department still pumping more money in the eNaTIS system considering that there was an over expenditure of R852.2 million? He asked whether the South African Search and Rescue Organisation was a new entity under the Department. Was it possible to amalgamate PRASA and Transnet in order to solve the disjuncture and disunity between the two entities?

Mr Vilana responded that the least performing programme was performing at 75%, and said that there was a commitment from the Department to tackle the concerns raised by the AGSA and the Members. The presentation had focused on the state of the organisation from 2013/14 and it was only helpful to present the true picture. The Department had progressed gradually and there was a huge improvement in terms of executing its key mandate and objectives. The eNaTIS contract had been extended for five years in 2010, and the expenditure had been accumulating for the past five-year period. There were investigations in place to deal with the matter. He promised the Committee that the problem of eNaTIS was about to be history, as the contract was ending in 2015. The eNaTIS expenditure was the result of a court order.

The Department was providing financial support to the South African Search and Rescue Organisation, which was not the new entity. He suggested that Members needed to engage the Department regarding the suggestion to amalgamate PRASA and Transnet.             

Mr Hunsinger wanted to know directly from the Department the reason for the decision that was made in the current financial year to allow the RTMC to withhold the transaction fees as a category of revenue within the entity, as this had major audit implications. This question focused on the mandate of any regulatory body that decided to withhold fees. He expressed his concern that out of 43 municipalities that had received the grant, 70% had used 40% of it, and he asked if there were control measures in place to regulate the expenditure of municipalities, as this was harmful to people who should be getting the service. 

Mr Vilana responded that the Department had already had discussions with the decision by the RTMC to withhold the transaction fees as a category of revenue within the entity, as this had major audit implications.    

Ms Carter was concerned about the fact that most of the goals were partially achieved, and this was throughout the presentation. There was a need to focus on the goals that were not achieved, and ensure that the Department followed the AGSA recommendations in order to improve the financial statement. The Department needed to shift its priorities to avoid unauthorised, irregular and fruitless expenditure. She asked whether action had been taken against the officials who were implicated in transgressions. What was the strategy in place to deal with challenges of lack of capacity to deal adequately with public entities? What was the absenteeism rate in the Department, as the healthy absenteeism rate was 0.02%? It was not always good to over-perform, as the Department was likely to have neglected other priorities. She expressed concern over the focus on FET colleges, as there was a pile of complaints from students who had been waiting for five years to get their certificates. It was important for the Department to appoint capable people with qualifications, while also taking into consideration Employment Equity (EE).

Mr Vilana responded that the Department had put in place a procurement plan to deal with the issue of transgressions and the accumulation of irregular expenditure. There were stringent measures in place to deal decisively with any form of transgression of officials within the Department. Action had been taken against the officials who were implicated in transgressions and some were fired, suspended or charged. The Department was still under-represented by white people, and there was a strategy in place to increase participation of whites from 6.2% to 9%. The Department was aware that the priority should be to hire qualified and capable people to be able to contribute to the vision and mission of the organisation.               

Mr Mulaudzi also expressed concern that most of the goals were partially achieved, and asked whether there was a strategy in place to turnaround the situation. The Department needed to devise plans to deal with the over-expenditure on eNaTis, as this had been an on-going problem.

Mr Ramatlakane asked whether the Department had a strategy in place to deal with the issue of over-expenditure. There was also concern around the lack of effective leadership to curb unauthorised, irregular and fruitless expenditure in the Department. It was concerning that the Department had incurred irregular expenditure of R1.2 billion in respect of the bus subsidy.

Mr Vilana responded that the Department was following the AGSA recommendations in order to curb irregular and fruitless expenditure. It would discuss the matter of R1.2 billion irregular expenditure accumulated in the bus subsidy with the Standing Committee on Public Accountants.

Mr Radebe also expressed his disappointment that most of the goals were partially achieved and asked whether there was a strategy in place to turnaround the current situation. He was concerned about the late payment of suppliers, and suggested that the Department needed to deal urgently with this matter as it had audit implications. Were there any problems in the management of projects?

Mr Vilana said the Department had improved in supply chain management, but was still battling with the issue of late payment of suppliers. He had already instructed heads of programmes to deal with the matter. There were project management problems, but the Department was already dealing with the matter.

Ms Boshielo said it was concerning that the Department relied on consultancy, and asked whether there was a strategy in place to develop skills within the Department. Had the department considered the National Household Travel Survey (NHTS) of 2013 when making the decision to prioritise public transport? 

Mr Vilana said that since 2012/13, the Department had been cutting the expenditure on consultancy, but the cuts had not been big enough as the government did not have necessarily skills internally, and it was sometimes necessary to rely on consultancy. The NHTS was reviewed every five years and was often considered when making the decision to invest more funds in public transport.

The Chairperson said it was clear that a lot work still needed to be done by the Department to ensure that there were control measures to cut down on unauthorised, irregular and fruitless expenditure, as this had an impact on the service that needed to be delivered to the people. The Department needed to create jobs, alleviate poverty and reduce growing inequalities, as this was mandated by the National Development Plan (NDP) and particularly emphasised in the State of the Nation Address (SONA).

The meeting was adjourned.