Financial and Fiscal Commission on its 2013/14 Annual Report

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Finance Standing Committee

21 October 2014
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The Standing Committee on Finance received a briefing by the Financial and Fiscal Commission (FFC) on its Annual Report. The FFC spoke on its achievements, the challenges it faced, its recommendations to Treasury on the 2014/2015 Division of Revenue and their responses, and provided information on its performance and finances.

The challenge for the FFC was the position of Chairperson/Chief Executive, which had been vacant for some time. A member of the board said there had been a systematic rationing of the FFC’s role regarding the Medium Term Budget Policy Statement (MTBPS) and the Division of Revenue (DOR), and its interaction with the Treasury. Initially the FFC had played a definitive role, but this had been diminished over time because of the incumbent Ministers, because of Treasury’s administration, and because of the distinctive nature of the secretariat and the Commission, with the roles of chairperson and CEO being in one currently. There was a need to look at having a number of full time and part time commissioners, because the FFC was heading for trouble if it remained on the same current trajectory.

Other challenges were the skills shortage and turnover of research staff, the gender imbalance and the recruitment of female staff, out-dated ICT infrastructure and movable assets.

Members were concerned rabout irregular expenditure and the FFC's response to it. The

FFC needed to develop a systematic approach to resolve issues. How did they deal with the issues raised by the AG? Members asked if they had approached the State Information Technology Agency (SITA) to assist with IT issues.  The FFC’s role was to advise government on the Division of Revenue. If the FFC had challenges, how could it advise government? There was not enough accounting skills and research capacity, and the CEO was doubling as the Chairperson. What remedies did the FFC have for the irregular expenditure?

Members questioned the spending of money on the 20-year conference when the FFC was cash strapped. The Committee Chairperson needed to follow up on the fact that the CEO was still in an acting capacity. The Parliamentary Budget Office (PBO) was doing the same work as the FFC -- what were the prospects for collaboration between the two of them? How did the FFC assess the performance of commissioners?

Members said they were concerned about the professional fees the FFC had to pay, given the size of their budget. Who were the current researchers, and what were their profiles? How was the impact of the Local Government Equitable Share measured? What was their proposed funding model? The gender equity situation needed to be addressed. Why could the IT infrastructure not be updated? The FFC had said it did not have enough money, yet it had under-spent. Members asked what the arguments against the FFC were, and if it was a question of merging the FFC, then with what bodies?

Meeting report

Briefing
Ms Bridgette Diutlwileng, a Parliamentary Researcher, wanted greater clarification of the Financial and Fiscal Commission’s (FFI’s) performance targets. The employee cost budget was overspent, while only 45% of the targets had been attained, raising questions of value for money.
The AG had expressed concern over inadequate accounting oversight, with mechanisms and controls not functioning well. Another issue was the continued vacancy of the CEO post. What plans were in place to meet equity targets?

Mr Bongani Khumalo, CEO, said the Commission was given an unqualified audit opinion with one matter
relating to irregular expenditure of R1 290 200 incurred in the previous year. This was for procurement of services without following the prescribed procurement process in 2012, by not inviting competitive bids. Disciplinary measures were taken against the responsible employees. Corrective action and the monitoring of Supply Chain Management (SCM) was taking place, but the Commission did not have funds to employ the right support people.

The vacant Chairperson positionm and the conflation of Chairperson and Chief Executive Officer, was a heavy load and remained a challenge for the organisation. The legislation was being amended, but the matter was beyond the control of the Commission.

The skills shortage and the gender balance of the FFC remained challenges. The FFC had appealed for extra funds. He said the FFC lost female staff within three years.  Accounting for out-dated assets dating back to 1994, which it had inherited, was a challenge too and this had led to misstatements in the financial statements. Budget constraints did not allow for the modernisation of information communication technology (ICT) and movable assets. The FFC tried to make provision for the latest software, but could not even hold teleconferencing. He spoke to the FFC’s recommendations and the responses from Treasury to them. He said professional fees to the Auditor General (AG) amounted to R1m, which was a big amount for a small entity.

The Commission was engaging with Minister of Finance regarding Government’s response to the Commission’s recommendations.

The Commission had received an adjustment  of  R5 million for the 20th anniversary conference of the FFC.

Prof Nicolaas Steytler, a member of the Commission, said that it was untenable that the CEO/Chairperson matter should still be continuing, as there was little argument that it could not be done.  The argument that one had to wait for the restructuring of the FFC first did not hold water, as this situation had been existing since 2009.

Mr Khumalo said the Commission had a zero tolerance to non-compliance with laws and regulations. The
Commission had made significant strides in delivering on its mandate and also ensuring that it was responsive to the needs of all its stakeholders.

Discussion
Ms P Kekana (ANC) was concerned about irregular expenditure and the FFC's response to it. The
FFC needed to develop a systematic approach to resolve issues. How did they deal with the issues raised by the AG? She asked if they had approached the State Information Technology Agency (SITA) to assist with IT issues.

Ms T Tobias (ANC) said the FFC’s role was to advise government on the Division of Revenue. If the FFC had challenges, how could it advise government? There was not enough accounting skills and research capacity, and the CEO was doubling as the Chairperson. The Chairperson of the Committee should speed up the process for the filling of the posts. What remedies did the FFC have for the irregular expenditure? She questioned spending money on the 20-year conference when the FFC was cash strapped. Regarding irregular expenditure, she asked whether they used the set templates of the Parliamentary Finance Management Act (PFMA).

Mr  D van Rooyen (ANC) said the Committee Chairperson needed to follow up on the fact that the CEO was still in an acting capacity. Regarding the funding model, he said that grant funding was not suitable and an alternative funding model was required. The Parliamentary Budget Office (PBO) was doing the same work as the FFC. What were the prospects for collaboration between the two of them? There was an issue of value for money regarding performance management. How did the FFC assess the performance of commissioners?

Dr M Khoza (ANC) said she was concerned about the professional fees the FFC had to pay, given the size of its budget. Smaller entities were affected more by audit fees. Regarding the research programme, she said that if the research unit was not up to scratch, their relevance was defined and affected, especially if the research unit was not capacitated. Who were the current researchers and what were their profiles? How was the impact of the Local Government Equitable Share measured? What was their proposed funding model?

The Chairperson welcomed the unqualified audit report. He could not follow the complexity the Ministry claimed in dealing with the FFC’s acting CEO position, and it undermined the basic principles of corporate governance. A deadline should be set for the position to be filled by 1 January, even while the Bill was being amended. Parliament would be expecting a reply. He could feel the need for the FFC, but was unhappy about what its role should be. He had heard talk of the FFC not being taken seriously.  Gender equity needed to be addressed. Why could out-dated IT infrastructure not be updated? The FFC had said it did not have enough money, yet it had under-spent. The issue of the AG fees should be raised with the Minister and the AG’s office.

Mr Van Rooyen wanted clarity on the leaner structure. Would there be job losses? What action plan did the FFC have regarding the AG’s issues?

Ms Diutlwileng wanted clarity on the irregular expenditure which was related to procurement without competitive bids.

The Chairperson asked what the arguments against the FFC were, and if it was a question of merging the FFC, then with what bodies?

Prof Daniel Plaatjies, FFC Commissioner, said it was not a question of amalgamation, but was a systematic rationing of the FFC’s role regarding the Medium Term Budget Policy Statement (MTBPS) and Division of Revenue (DOR), and its interaction with the Treasury. Initially the FFC had played a definitive role, but this had been diminished over time because of the incumbent Minister at the time, because of Treasury’s administration and because of the distinctive nature of the secretariat and the Commission, with the roles of chairperson and CEO currently being one. There was a need to look at having a number of full time and part time commissioners, because the FFC was heading for trouble if it remained on the same current trajectory.

The PBO and the FFC had distinct and different responsibilities, with one reporting to Parliament and the other a chapter 9 institution of the constitution.

The issue of capacity in FFC was not only funding. Adequate funding solidified the FFC, but if it was having difficulties getting funding for IT, how much more difficult would it be to get human resources? Resourcing the  FFC through the Department of Science and Technology (DST) was not feasible, because of a conflict of interest. It was about capacitating the Commission and the secretariat at organisation level, so that it brought independent advice to all levels of government.

Mr Khumalo said the FFC had engaged a service provider to look at its operational side but had had no money to engage the service provider to complete the task. The service provider had identified issues and made a presentation to the Commission in 2013. At the time of the audit, R490m had been spent. There had not been three quotes, or a deviation note. The FFC had written a report to the AG.

Mr Mavuso Vokwana, CFO, said the matter related to one issue, not two. It had occurred in a year and was carried over into the following year. The AG looked only at processes and procedures, not the case in totality. The FFC had put in place an action plan, in conjunction with the internal auditors.

Mr Krish Kumar, a board member, wanted to reassure the Committee that they had looked at the controls of the current process, and were satisfied on the issue.

Ms Tobias said it was not a matter of value for money or corruption -- it was about consultation and seeking approval.

Mr Khumalo said the FFC had zero tolerance in the area of SCM.

Regarding SITA, he said the FFC had approached them, but they could not assist as they had their own challenges.

Regarding the achievements listed, he said the term ‘briefed’ as used in the presentation meant that the FFC had provided a report that Parliament had requested on the matter.

The research capacity was not at a level that the FFC wanted, but he was proud of the people and their work. The FFC had access to the best research units in the country and leveraged with research institutions and their capacity. The FFC also collaborated with other chapter 9 institutions. It had been integral in the staffing of the PBO, and skilled people were hard to get and retain. The FFC had very qualified people -- the lowest qualification was a Masters degree -- but the workload heavy, so it needed capacity.

Regarding the 20th anniversary spending, it was an international intergovernmental conference reviewing the role of the FFC over the last 20 years, what challenges it had faced and what lessons it had learnt.

The FFC had under- spent because it had gone on a fiscal austerity drive as it had a legacy of debt to clear, so not much should be read into the under-spending.

The FFC was having discussions on issues with the AG. The FFC had increased the scope and therefore the cost of audits. The AG’s costs would have been higher, but the FFC had engaged with the AG, who had been approachable on the matter.

Mr Vokwana  said there had been a surplus of R1.4m, but the FFC had had to deal with a deficit of R1.5m in the previous years. This had been brought down to R181 000.

Ms Kekana asked what software the FFC used.

Mr Vokwana  said the FFC was using pastel software.

Prof Steytler said the FFC did quality research, most of which was done in-house. The FFC would strive to give fewer, but better, recommendations.

The FFC was, in the words of Trevor Manuel, a partner and conscience of government , and had to say what might not want to be heard, especially as the country was entering serious financial times, so the role of the FFC would become even more important.

The meeting was adjourned.
 

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