Local Government Sector Education & Training Authority & Services SETA on their 2013/14 Annual Reports

Meeting report

Chairperson’s opening remarks

The Chairperson opened the meeting by saying the Committee should take ownership of the meeting and focus on the issues at hand to be able to find solutions. She said the Sector Education and Training Authorities (SETA’s) have a huge role to play in developing the country and increasing the skills levels of both the employed and unemployed. However, the National Development Plan (NDP) cited problems in the SETAs such as poor governance, administration, financial management, monitoring and evaluation. These problems had caused some SETAs to be placed under administration, including the Service SETA and the Local Government SETA, the latter which is still under administration until March 2015. These problems still exist and hopefully the SETA executives have plans to steer the SETAs in the right direction.

The Chairperson said in the State of the Nation Address, the President had emphasised that the time has now come for a radical socio-economic transformation phase. She said the problems experienced in the past twenty years have been a learning phase. Radical interventions and plans are now needed so that the nation can move forward from a developing to a developed country and can earn the respect of other nations. Organisational interests have to be put before self-interests.

Local Government Sector Education and Training Authority (LGSETA) Presentation

Mr Nquaba Nqandela, Administrator of the LGSETA, introduced the presentation with some background remarks. He said the LGSETA had been in administration since the 20^th of March 2013. The Annual Report was therefore on the first full year of the SETA under administration. A large amount of energy and resources was therefore spent on the issues that had led the SETA to be under administration, which could be seen in the Presentation and Annual Report.

He said one of the main issues leading to problems was that a SETA should be a partnership between the employers (South African Local Government Association (SALGA)), labour, communities and government, however, the SETA had become disconnected from its stakeholders, whom it should have been serving. In the initial engagements between the LGSETA and its stakeholders, the stakeholders had said they would not notice if the SETA disappeared, as it had become irrelevant to them.

Mr Nqandela said in order to serve the vision of the organisation (LGSETA), it would have to learn from the stakeholders how they ought to serve them better so that the SETA could move forward in the correct way. There had been road-shows to seven of the provinces. The SETA had hoped to visit all provinces but had collected enough information from these seven provinces. The transformation plan of the SETA as covered in the presentation was based on feedback from stakeholders.

The strategic focus areas of the LGSETA were:

• Infrastructure and Service Delivery
• Financial Viability
• Community-based Participation & Planning
• Management & Leadership
• Adult Education and Training (AET) and Foundational Learning
• Workplace Committee Training

Stakeholder engagements included:

• Increase its visibility in the Provinces through the establishment of offices in each Province and in addition, offices in each district;
• Lobby SALGA and COGTA that Work Skills Plans (WSPs) be an integral part of the IDP and that the SDF participates in the IDP processes to ensure that broader community skills development needs are addressed;
• Strengthen relationships with the clients it services (Metros, Local and District Municipalities);
• LGSETA should also intensify strategic partnerships with other stakeholders and role players such as traditional leadership institutions, other SETAs, government departments, MISA, etc
• Ensure the availability of information on learning programmes and marketing material at all structures of government as well as providing career guides;
• Support capacity building of municipal officials to strengthen LED/IDP Units for the effective implementation of the rural development strategy;
• Eliminate delays in approving funding and prioritize funding rural development projects;
• Increase funding for learnerships;
• Review the turnaround times with respect to municipalities preparing to implement projects – with a suggestion to move from 90 days to 120 days
• Ensure open lines of communication regarding DG applications as well as provide explanations for why application was not successful;
• Review the scarce and critical skills list as it is too long and broad;
• Automate the WSP submission process;
• Develop an appropriate monitoring system that will support the monitoring and reporting of project implementation;
• Establish a PMU to support municipalities with project implementation;
• Support induction workshops for training Committees in municipalities; and
• Ensure funded interventions facilitate access to further qualifications (articulation)

Financial Performance

Mr Omega Shelembe, Chief Financial Officer (CFO) of the LGSETA presented the 2013/ 14 Financial Year financial performance of the SETA. Of note was that out of a total budget of R434 574 million for discretionary grants, only R161 041 million was spent in 2013/ 14. Many projects that were intended for engagement did not materialise as supply chain management processes were not completed in time.

However R297 million was committed.

Surplus funds of R127 689 million were reported for the 2013/ 14 financial year. These surplus funds were swept to the discretionary fund reserve.

Accumulated Reserves for the period of the 2011 to 2014 financial years now amount to just under R500 million.

In the 2013/ 2014 financial year, LGSETA received a qualified audit opinion from the Auditor General.

The findings were:

• The LGSETA did not maintain complete and adequate records and reconciliations for Discretionary Grant Reserve Commitment
• Irregular Expenditure had been entered into during the financial year
• Management did not appropriately address identified internal control deficiencies reported in the prior year

The LGSETA had put in place interventions to prevent these findings from occurring again.

Other Emphasis of Matters included the restatement of figures in the annual financial statements and an error which was discovered in the prior year figures which necessitated the restatement of figures

The report on other legal and regulatory requirements included:

• Predetermined performance objectives were not in line with Framework for Managing Programme Performance Information (FMPPI) and were found to be inconsistent, not specific, not verifiable, not well defined and unreliable
• The LGSETA has submitted a request to the Minister to refine its strategic objectives
• Internal Audit have reviewed the performance information to ensure that it is in line with the requirements of the FMPPI

Ms Neo Lesela, Acting Chief Operations Officer (COO) of the LGSETA presented the Non-Financial performance of the LGSETA for the 2013/ 14 financial year.

Twelve strategic objectives had been set for the 2013/ 14 financial year for the Sector Skills Planning (SSP) Department (as in the attached presentation). None of the targets set for 2013/ 14 had been met, many due to ‘capacity’ constraints within LGSETA. The finding in the Auditor General’s Report was “No adequate reasons for variances between planned and actual achievements reported in the annual performance report were given for 67% of the targets not achieved”. Interventions have been put in place by SSP to ensure that these findings do not occur again.

Ms Lesela said the findings are a poor reflection on the department and do not accurately reflect the level of work that has been done by the SSP. The findings were due to insufficient supporting documentation as required by the Auditor General to prove that targets were met. This has been addressed by SSP.

The Education, Training and Quality Assurance (ETQA) Unit had 10 strategic objectives for the 2013/14 financial year (as per the attached presentation). Two out of ten targets set for the year were met. The Auditor General’s finding was that “no adequate reasons for variances between planned and actual achievements reported in the annual performance report were given for 100% of the targets not achieved”. Interventions have been put in place to ensure that this does not happen again.

The Learning Programmes Department had five strategic objectives for the 2013/ 14 financial year (as per the attached presentation).  One of the eight targets set for the year was met. The Auditor General’s finding was that “no adequate reasons for the variances between planned and actual achievements reported in the annual performance report were given for 86% of the targets not achieved”. Interventions have been put in place to ensure that this does not happen again.

Ms Nesela said one of the reasons for non-compliance was that municipalities often submitted incomplete or incorrect and late documentation for training programmes, resulting in the department wasting time on following up on this. This has a negative impact on payments being made to the municipalities for training programmes.

The newly formed Project Management Unit (PMU) was set up in November 2013. A private service provider was appointed so that the unit is operational. It now has a structure, governance document and strategy in place.

The PMU strives for continuous improvement of the LGSETA strategy through the:

• guidance, facilitation and support of the Governance Framework (PMUGF)
• compliance by which the projects are administered
• processes and procedures involved in the execution of projects

All current projects were now being run by PMU, which is working closely with the various departments and specifically with the Learning Programmes department. The PMU will centralise the reporting, monitoring, evaluation, implementation and documentation between the various departments and stakeholders. There are still four vacancies within the department.

Mr Nqandela concluded with the presentation on the Human Resources situation within the LGSETA. Challenges in this area include:

• Inherited structure with positions that were not evaluated properly & employees not appointed in accordance to approved grades & salary Bands  
• Top calibre candidates came with hefty price tag
• Continuous resistance to change & inability to shift mind-sets
• Lack of skills – Older employees assuming roles where they do not have requisite skills
• New organisational Structure headcount of 130: Triples salary bill of LGSETA
• Increased turnover – amongst good calibre candidates
• Low staff moral manifesting in high absenteeism amongst others

A new organisational structure has been put in place resulting in a new organogram. Job profiling and performance management systems were also implemented. It has taken time to find the right people for positions which have been filled and vacancies still remain. The new structure is being phased in, and Mr Nqandela said he believed that this was the optimal headcount needed for the LGSETA to perform its duties. Many managers have left for various reasons after the LGSETA was placed under administration, dealing a serious blow to capacity. There was an on-going turnaround strategy in place for the human resources challenges.

The findings of the Auditor General for the Human Resources Department were:

• Performance Management not implemented
• Key positions remain vacant

Interventions put in place were that employees have now signed performance contracts and recruitment is currently taking place.

Mr Nqandela next spoke about the challenges of the Information, Communication and Technology (ICT) department. The LGSETA is behind in its approach as things which could be computerised or automated are still being done manually. ICT is needed to modernise the SETA and make it more efficient, interact with service providers and stakeholders and to enable proper records to be kept.

The ICT findings by the Auditor General were:

• Security Management: ICT Policies not formally approved and other policies, standards as well as procedures related to antivirus, firewall and patch management not developed.
• Programme Change Management: No adequate change management controls.
• User Access Control: User account management standards and procedures not formally documented and approved for the network, Great Plains, VIP and Datanet Systems.
• IT Service Continuity: No formally documented and approved Business Continuity Plan (BCP), IT Disaster Recovery Plan (DRP) and backup procedures.

In line with the Department of Public Service and Administration (DPSA) Corporate Governance of ICT (CGICT) Policy Framework Implementation Guidelines, a three phase plan has been designed to drive the required remedial actions. Phase one of this plan is currently underway. An ICT Environmental

Assessment was completed on the 15th of October 2014. Additionally, the reactivations of additional modules within the current LGSETA Management Information System (MIS) as well as the Website redesign were currently underway.

Discussion

The Chairperson opened the discussion by asking the Committee members to please keep their comments short and to the point and to give possible solutions to the issues raised. Members should limit themselves to a maximum of three questions, and a second round of questions could take place if there was enough time.

Ms J Kilian (ANC) said it would be a huge task to come up with solutions. She asked the LGSETA what is their relevance? If it is closed and the money is transferred to NSFAS to assist with the education of graduates who can take up positions in local government, what would the impact be? Would it not have a significant effect on the performance of local government if adequately qualified people are in place?

She said local government was in dire straits. Mr Pravhin Gordan had announced a back to basics programme which will have to inform the SETAs strategy plan going forward. It appears that the LGSETA is not focused and has unachievable targets in terms of numbers. What was the impact of not reaching those targets? There was no indication in the report of the impact on changed management in local government.

Ms Kilian referred to the Auditor-General’s findings on the discretionary grant reserves. While the LGSETA gave reasons for non-performance the Auditor-General questioned whether those reasons were adequate.

Ms Kilian said the LGSETA needed to come up with a simplistic and focussed strategy plan. It had admitted that it did not have the necessary capacity and it needs to find a way work with what it has. Tripling the salary bill is a concern. She was also concerned about possible duplication by the LGSETA of functions of other bodies in the education sector. While unemployed youth and skills transfer is a concern, should the LGSETA not focus on building capacity within local government by training employees within the sector who do not have the necessary qualifications to do their jobs properly?

Ms Kilian asked about the forensic investigations which indicated a lack of leadership and accountability. The executive is not reporting to the accounting officer resulting in investigations. She asked about the scope and progress of ongoing investigations and if they indicated irregular or possible fraudulent activity.

Mr E Siwela (ANC) said the LGSETA admitted that many of the targets which it had set for itself were not met. He questioned why the management could not see at the outset that these targets could not be reached. Very little appears to have happened in the SETA since they were placed in administration, other than that they moved from a disclaimer to a qualified audit opinion. In all other aspects of the organisation they seemed to have failed. The Auditor-General had to point out that adequate records have to be kept when management should have realised this themselves. He too questioned if there was a reason for the LGSETAs existence, if they are living up to their own vision which they set out to achieve and how many municipalities as per their mandate they have supported in the past year.

Ms S Mchunu (ANC) noted the contribution made by the entity to NSFAS, to infrastructure development and skills development in local government (I detected a note of cynicism here). She also noted that the NDP states that the SETAs should play a role in developing the required skills needed by employers. Most of the targets in the programmes presented were not achieved. This underachievement is a serious matter. She asked the Administrator to explain this poor performance and to share his plan to change the status of the entity. She also questioned the impact on the budget of the overachievement of the target of bursaries to unemployed people by 122 bursaries given over and above the set target. She also questioned if there was performance assessment done to determine if the Administrator had delivered according to the terms of reference of his appointment before the Administration contract was extended, and if so, what was the outcome. If not, what were the deciding factors in extending the Administrator’s contract for a further twelve months?

The Chairperson said Ms Mchunu had brought up the issue of whether the Administrator had a turnaround strategy as his mandate was to turn around the SETA.  

Mr M Mbatha (EFF) said the Administrator was previously a Chief of Staff of the Minister and he must have known the political stress surrounding the issues of this SETA. The Administrators role can be equated with that of a curator. He should quickly eradicate all the curses of the organisation. He should come in and have a ten point plan to deal with the issues placing the organisation in a bad light. There seems to be a relationship between the annual report presented last year and this year in consistent failure of the SETA. The Administrator should quickly find solutions to the issues facing the SETA. Critical skills cannot be replaced in local government and yet the SETA could not find candidates to give bursaries for an environmental officer qualification as per their mandate. He asked if the funds could not be handed over to NSFAS to be given to universities of technology with the necessary programs and a speedy handover done. He asked what the percentage is of rural or densely rural municipalities that have contributed to the SETAs fiscal and how many of the rural municipalities claimed from the SETA for purposes of their own development? He mentioned the example of the OR Tambo municipality as the largest rural municipality in the country he would like to get a sense of what occurred there.

He also asked the CFO how open ended contracts have been dealt with and the matter resolved. He also asked what the items were under irregular expenditure, as it was a very serious offence. He said the CFO seemed to have a “romantic” view of this and that it seemed to be taken for granted.

Mr Y Cassim (DA) said the Administrator had been appointed over a year and a half ago and not much progress had been made. The funds given to the LGSETA, which was just under R500 billion, would be able to fund all the students at the University of Fort Hare for all their needs and you would be able to channel specific skills into municipalities.

Mr Cassim said some of the targets are not relevant and they are very vague, furthermore most of the targets had not been achieved. For twenty of them nothing at all had been done. He questioned why and how over R5 million had been spent on travel and subsistence but only 121 visits had been made when the target was 541 visits to municipalities. This money was supposed be for developing skills in local government. In relation to the results the expenditure should have been much less.

Mr Cassim said he did not agree with the reasons given for non-compliance with reaching targets, similarly to the Auditor-General who also did not agree that the reasons were sufficient.

Regarding the qualified opinion of the Auditor-General, there were material misstatements made which were not corrected. There was a process for this and the LGSETA would have had a chance to correct these misstatements. Why was this not done?

The Administrator did not have to report to a Board and he had the flexibility to appoint suitable people to get the job done, considering the urgency of the situation. Why was this not done and why was there a lack of skills to deal with such matters, when this situation was supposed to be turned around? Underperformance had to be monitored on a continuous basis through the appraisal of employees. There had been huge underperformance but there were only four suspensions and one dismissal. He asked about the reasons for the fifteen resignations. Critical posts remained vacant which should have been filled.

Mr B Bhanga (DA) said it was problematic and wrong that it was said because SETAs were underperforming, the money for them should go to the NSFAS. The SETAs have a specific task to perform as per legislation and the money was allocated by Treasury to them for their objectives to be achieved. Maybe instead of this happening every year there should be a broader discussion as a country of closing the SETAs completely.

He said he sees from the Auditor-Generals report that there was a lack of leadership and the Administrator was not supported by his executive management. The action plan and the recommendations from the Administrator were not implemented.

In the Annual Financial Statements the Auditor-General mentioned that there were no internal controls. Mr Bhanga had raised the issue the previous year of an internal audit unit or even an external company to conduct an audit, was this not implemented? He asked about the role of the CFO. He said it may be harsh but it seems that there is no CFO in the LGSETA. What action will be taken in relation to the inability of the CFO to implement controls?

Lastly, when is the conclusion of the forensic investigation taking place and when will the Committee receive a report on this investigation.

Ms M Nkadimeng said the Administrator should submit monthly progress reports on the effective functioning of the LGSETA. The Auditor-General found that the Administrator did not comply with this. Was the reason for this non-compliance the incapacity of the Administrator or was there some other reason?

The main reason for non-achievement of targets was reported as being due to capacity constraints as a result of resignations. At what level were those resignations and what was the cause of those resignations?

The Auditor-General found that the staff members did not understand the Financial Reporting Framework and performance information requirements. Were those staff trained and qualified in financial reporting, and if so, why did these problems occur?

Mr C Kekana (ANC) said it is correct that Mr Bhanga said the SETA is not using the money allocated to it by Treasury. However cross-subsidisation is known to occur worldwide where money is transferred by departments who do not need or cannot use their allocated money to those who do, and this is not an irregularity.

He asked if exit forms were used to determine the reasons for people leaving the LGSETA. It is a simple, straightforward and standard tool used by a lot of companies.

He said many artisans and engineers need to be trained for local government. The money is there for that purpose but is not being used. The LGSETA needs to train people with the necessary skills for local government and the public sector.

He asked from which country the system of SETAs is derived as it does not seem to be working in South Africa. Does it work successfully elsewhere? Must one have patience that it will eventually work in South Africa or should it be scrapped her?

The Chairperson said the Administrator was deployed to respond to the crisis in the LGSETA, this crisis intervention is now eighteen months underway. It does not seem as if the Administrator took steps to deal with the crisis in a way that would turnaround the LGSETA quickly.

She said the LGSETA planned to have offices in all the provinces, now only 6 provinces have offices, using up all the resources and three provinces have been left out.

She said fourteen percent of the targets were met, leaving eighty six targets unmet. Salaries should be earned and it appears that no value for money for received by government as there was no impact made on the LGSETA from an outcomes based approach. The Administrator already knew of the programmes in the SETA, he was required to come up with plans to turn the situation around.

Referring to the organogram, she said the structure is ambitious, as the Administrator himself had said. Does it make sense to come up with an ambitious structure that would triple the salary bill of the LGSETA? There is a contradiction in that there is a fiscal policy in place to reduce the budget for administration in favour of service delivery, and the results placed before the Committee do not warrant increasing the salary bill of the LGSETA. People are complaining of poor performance by local municipalities and the LGSETA is to blame as it has not risen to the challenge of increasing the capacity of the people within municipalities, so that they can run them effectively and efficiently.

Mr Shelembe replied that the essence of the questions to him derive from the basis of the qualified audit report which gave the Committee members the impression of a total breakdown in record keeping. This is not a true reflection of the situation in the organisation. The finding by the Auditor-General that “that the LGSETA did not maintain complete and adequate records and reconciliations for Discretionary Grant Reserve Commitment” pertains to the commitment schedule which is a record all the contracts and agreements that the entity entered into from its inception. This schedule was captured manually using an excel spreadsheet and errors crept in. Over 700 contracts were recorded in this schedule and some of the contracts were not entered. At the final audit there were still a handful of contracts that were not entered resulting in the finding. Payments were still being made on open-ended contracts, with no assigned value, that were concluded prior to the 2013/ 14 year. This resulted in an imbalance in the Commitment Schedule. These open-ended contracts have all been cancelled so this imbalance will be eliminated in the future.

Prior to administration the LGSETA was a completely dysfunctional entity and all policies, processes and systems had to be developed from scratch for all departments including finance, operations and HR. These were finalised and put in place at the end of the 2013/ 14 financial year and in the current financial year problems such as the finding of no internal controls will not happen again.  In the past there was no functioning internal audit unit, this function has now been outsourced to an external company and the system is working properly.

Mr Nqandala replied that the LGSETA has a very important role to play, given the dire situation in which local government is. He said in the past it had failed to play its designated role and he admitted that it was taking longer than it should have to restore the organisation. He said once the SETA has been restored to the organisation that it should be it will make a meaningful difference.

 If the funding for the LGSETA was given to the NSFAS it would make a good contribution to ensuring that graduates with the necessary qualifications were produced. However, these graduates would not necessarily choose to work in the public sector and means to ensure this would have to be devised, which was unlikely. It was omitted in the report that it had funded NSFAS by R50 million providing bursaries for 191 students. In addition many other aspects of capacity building for which LGSETA was responsible, such as traditional leadership, would be missed. Even though the LGSETA faces challenges, it should not be scrapped.

Mr Nqandela said the topic of forensic investigations and resignations was linked. The first investigation started was on the topic of supply chain irregularities. Once it was started, it kept on growing. The investigation exposed the shortcomings in supply chain management. People often resigned before they could be charged and made to account for their actions. Disciplinary proceedings were instituted against one person after he had resigned but the legal process halted the proceedings and it was found that there was nothing the entity could do once a person had resigned.

The six provincial offices are serving the whole country as three provincial offices are clustered namely: Gauteng and North West provinces, Mpumulanga and Limpopo provinces, and Free State and Northern Cape provinces. The mandate of the LGSETA is to ensure its visibility. Satellite offices are now opening in Limpopo, Eastern Cape as well as in KwaZulu-Natal. By the end of the current financial year the capacity of the LGSETA will have expanded.

The second forensic audit was into discretionary grant funded projects. Issues were picked up during a tracer survey conducted to find the learners trained by the SETA funds to find out how the training had assisted them. There were problems tracing these learners. Irregularities were found when looking at the documentation. For example Identity Numbers did not correctly reflect the sex of the person supposedly trained. A tender process will be completed at the end of November for an entity to look into this issue and report on it.

Due to the almost total collapse of the LGSETA prior to administration, the structure of the entity was not as it should have been.  As an example, in the SSP Unit, at management level there were no practitioners who could do the required work and no leadership. The managers mostly left once the administration process started. Most of the junior employees did not have the required qualifications or skills to do their jobs, through no fault of their own. The average qualification was matric or less. Mr. Nqandela said it would have been wrong to terminate the contracts of these young people as it would have destroyed them instead of building them up. As a training institution, he felt it was their duty to upskill these people and work with them as most of them were not corrupt. They were not purposely hiding things as they simply knew no better.

The administrator did not have unlimited powers to fire people as he had to work within the framework of the law and deal fairly with people. He tried to get the buy in of the employees and only if that approach did not work could he take further ‘drastic’ measures. He now had a fairly good idea which employees were able to be rehabilitated and which would never change their attitudes.

Mr Nqandela said he accepted the criticism that the turnaround process was taking longer than hoped and what he had planned. The approach that he took was debatable, but he took a sustainable approach as he did not believe in cutting corners to achieve results which would not last and would ultimately result in the entity returning to administration in a few years. He said he was not sure if a different approach would have taken less time and been sustainable. A lot of work had been done even though this was not reflected in the performance of the entity. They had started late in the year to implement projects. It would not have been prudent to spend money on projects with similar processes as in the past, as this would have resulted in similar findings as in previous years.

Mistakes had been made in the financial management of the entity, but due to the audit findings a reputable, experienced service provider with a proven track record has been appointed on a short term basis to ensure that the work which was still not completed, including technical aspects and internal controls, was done before the upcoming internal audit takes place.

While the CFO and the Administrator have a wealth of experience, capacity challenges do exist as neither the CFO nor the Administrator had previously worked in a SETA, dealing with the technical aspects and its own specific challenges. They recognised the challenges and their own weaknesses and did something about it. He said more details on this could be provided in the next round if required.

They take the task at hand very seriously and share the deep concern at the poor performance of the entity. The Committee is welcome to visit the LGSETA, which has recently moved to new premises as this might be helpful to them. It was inevitable that a lot of time and resources would be spent to fix the problems which existed, which would not necessarily be reflected in its performance.

The entity was being rebranded, which it had done with its own roadshows and with the help of an external service provider. The travelling budget that was higher than previously was due to the SETA travelling in order to engage with their stakeholders. It was unfortunate that the actual number of visits to the provincial offices and municipalities was not accurately supported with documentation, as the actual number of visits was much higher than reflected in the performance results. The SETA has now learned its lesson in this regard.

Mr Nqandela said he unsure what Mr Mbatha meant by his question on his, Mr Nqandela’s, link to the Ministry. He said he did understand the challenges facing the SETA and had an appreciation of the importance of its work. He did not want to appear reckless therefore he did not believe it would have been the correct approach to go in with “guns blazing” as there are hardworking people in the SETA who were not correctly led and guided through no fault if their own.

He said he could not give the exact number of municipalities that they have been supported, but this information can be furnished. Grant funding was approved for just about all the municipalities for the last year. He did not want to appear to be passing the buck, but there was a historical challenge which was still present in the issuing of discretionary grants to municipalities. They proposed to change the model of how discretionary grants are managed. Municipalities are unable to take up grants due to their own challenges, which is not the issue for the Services SETA as they deal mostly with private businesses, which are more organised. Sometimes there is a need to appoint an accredited service provider to do the training. More often than not municipalities are unable to find the right learners and provide basic documentation required, such as the Identity Numbers of learners. The SETA wanted to make an impact in the OR Tambo municipality, but there were problems on the side of the municipality. R10 million was approved last year for the OR Tambo district as it was a ministerial project, but this project was only getting now getting off the ground. The LGSETA is not the only one to face problems with the municipalities. The LGSETA exists in order to support the municipalities though skills development. They went on roadshows to regain the confidence of the sector and explain to them that the municipalities need to do their part for the system to work. If that does not happen then the LGSETA needs to manage and run projects which is the approach that it increasingly has to take.

He said for rural municipalities, actually all of the 278 municipalities, even the smallest, most rural ones pay levies to the LGSETA, contributing to their income. They do have challenges with some municipal entities which are supposed to be paying levies to the SETA but do not.

On the point of leadership and not getting support from the executives, he said executives and young employees in the LGSETA are working hard and to the best of their abilities to make things right. Challenges do remain but are being addressed through difficult conversations amongst other measures.

Mr Nqandela said previously the structure of the SETA was “flimsy” and the required capacity was not in place. The adoption of the new structure and organogram is ambitious in that he believes that it is what must be in place for the effective functioning of the SETA. It is big as it is what is needed for the challenges facing it. The SETA will not immediately fill all positions and triple the salary bill as the new structure will be phased in. By the time that the administration period is over, all the required positions will be filled.

Mr Nqandela said the Administrator’s monthly progress reports are on the administrator’s interventions. The normal performance reports of SETAs are the quarterly monitoring reports that are submitted to the Department. He said at first, targets were not met due to the demands of administration. After the close of the financial year there was a shift towards achieving the targets and projects were started, so there is now progress.

Due to time constraints, the Chairperson suggested that any further questions to the LGSETA be forwarded to them in writing, to which they could then respond in writing. In that way any vagueness in

the replies could be cleared up. Some of the questions had not been adequately answered.

Ms Kilian agreed with the proposal and suggested that the questions could be sent from the Committee as a whole. The Committee members agreed.

The Chairperson asked whether the SETA was living up to its own vision. Irregular expenditures including overspending needed to stop. Performance, compliance and governance needs to be balanced and improved. The Auditor-Generals recommendations need to be implemented. She did not agree with the Administrator that his mandate was to avert a “disclaimer” audit, the result should be an unqualified audit. She asked for accelerated plan from the Administrator, whose contract had been extended for a further twelve months.

Services SETA Presentation

The Chairperson asked why the position of CEO was not yet filled to which Mr Themba Mhambi, Chairperson of the Accounting Authority of the Services Seta replied that the SETAs CEO had left in May 2014 due to personal reasons. The former CEO was an engineer and he was still being used for the artisan development programme on a consulting basis. The position of CEO will be advertised in January 2015 with the aim of filling the position at the start of the new financial year. Meanwhile the Acting CEO has been doing a sterling job.

The SETA was previously under Administration. Mr Mhambi said the previous audit outcome in 2012/13 was a qualified audit opinion (more details are in the attached presentation). The essence of the Auditor-General’s finding was the SETA was had not been SMART (specific, measurable, assignable, realistic, time-related) in terms of its performance planning or delivery.

The following measures were implemented to address the previous audit outcomes and organizational performance:

• Revamped the Finance Department- The finance department was previously not properly constituted and had to be restructured.
• Instituted a process of holding management accountable for irregular expenditure- As a consequence two senior members in the Supply Chain Management Unit left the SETA.
• Implemented and entrenched risk management throughout the organization- A risk register was opened and all managers and departments attended a risk management workshop.
• Appointed a new Audit Committee- The previous audit Committee did not perform satisfactorily as could be seen by the many findings in the 2012/ 13 audit. Mr Mhambi is satisfied with the performance of the new Audit Committee.
• Accounting Authority exercised greater and regular oversight, and a focused approach to crisis issues- They held regular meetings with the CEO every Tuesday as part of being their efforts to be more available to the organization.
• Introduced Organizational Development focusing on relevant skills transfer
• Strengthened processes, and due diligence, in awarding discretionary grants- It was identified that a major weakness was that grants had been awarded to entities which did not have the requisite capacity, resulting in those entities collapsing or not being able to complete the projects awarded to them and the SETA losing a lot of money. The legal department is following up on those cases to get the money back.

For the 2013/14 period the Auditor-General gave an unqualified audit opinion. There were no material findings in the financial statements. In terms of performance information, 10,622 learners enrolled compared to 2,299 in 2012/2013. There was an improvement in usefulness and reliability of performance information as there was only one finding relating to qualifications and quality management because the relevant indicators were not verifiable.

Steps were being taken towards a clean audit and improvement in organizational performance as outlined in the presentation.

The organizational performance status and future plans of the SETA were outlined.

Ms Liesel Kostlich, Acting Chief Executive Officer (CEO) of the Services SETA presented the key areas or highlights of the performance of the SETA to the Committee. The presentation had been circulated to the Committee Members prior to the meeting and there were time constraints.

The following issues were noted:

• The rolled over targets of 2011/ 12/ 13 /14 that were not met have been already been allocated.
• Though a change in the contract management process 55 percent of the Phase one learner documentation has been verified and those commitments will be completed by the end of the current financial year.
• The allocations and commitments for 2015/16 will have been made prior to the start of the financial year so that expenditure can continuously improve.
• Outstanding certification performance had improved and reduced by 56 percent and will be on track by the end of the current financial year through improved processes.
• Performance had improved significantly since the 2013/14 financial year with 56 percent of total performance indicators achieved or partially achieved for the 2013/14 financial year.

Financial Performance

Mr. Andile Nongogo, Chief Financial Officer (CFO) of the Services SETA gave a summary of the financial performance for the 2013/ 14 financial year. The financial highlights included:

• Revenue from skills development levy R 1.2 billion
• Surplus of R469.5  million
• Forfeited R185.3  million of surplus to National Skills Fund in terms of  Grant Regulations  (already paid)
• Transfers to public institutions  R311.4 million
• NSFAS bursary support R148.7 million
• NSF: Public FET infrastructure support R162.7 million

In a statement of financial position, the following was presented to the Committee:

• Cash balance of R2.3 billion
• Commitments of R274.4 million
• Reserves of R1.73 billion being allocated as follows:
• Discretionary grants  R1.04 billion
• EOI process R511 million – already allocated
• R227 million priority budget awaiting Minister’s approval
• R300 million to be allocated as top-up of discretionary grants and remedial projects
• Priority projects R692 million
• R523 million already allocated
• R169 million still to be allocated

Irregular expenditure decreased from R141.4 million (2013) to R63.9 million in 2013/ 14 and management had been held accountable.

Mr. Nongogo, in giving reasons for the irregular expenditure said R27.2 million was spent on expired contracts which had to be paid out as the service provider had delivered on the work.

More that the allowed 10% had been spent on administration costs, this was not money which could not be accounted for but the Auditor-General would have preferred a process of systematically allocating money between discretionary grants and administration costs.

Any possible irregular expenditure was now being monitored on a monthly basis.

Mr Nongogo presented the status of action plans to address the AG findings:

• The action plans are being monitored by management on a monthly basis
• Audit steering Committee reviews the  status of implementation
• The unresolved findings are attributable to:
• Implementation of systems (currently in progress)
• Awaiting outcomes of the forensic audit
• Submission and approval of revised APP
• Others have  not reached the action deadlines  as per the action plan

Discussion
Ms Killian asked about the on-going forensic investigations, and the fact mentioned in the report that employees often leave before action can be taken against them. She asked if financial misconduct charges should be laid with the police or what other possible action could be taken to stop this from happening in the public sector. Repeat offenders move from one institution to another where they continue with their bad practices. How can this situation be turned around?

She said it is good that there is consequence management in the Services Seta and that management is held accountable. She said section 51 of the Public Finance Management Act (PMFA) makes provision for steps to be taken, does the Board as an Accounting Authority comply with that Act?

She was concerned with the high vacancy rate in senior management. She asked what will be done about that so that the organisation can be a stable and well run SETA, able to execute its mandate. She asked for clarification on whether the termination of employees as indicated in the annual report (p59) meant that those employees’ contracts had been terminated or if they had resigned. She asked for an explanation of the loss of office compensation amount paid out of R1,2 million if those employees contracts had been terminated.

Ms Mchunu said she was concerned about the huge number of targets which were not achieved, and she hoped that this would be corrected in the future. She asked whether the targets are aligned with the critical skills plan as stated in the SETAs skills plan.

She said she believed that the idea behind the SETAs is really good but the SETAs are failing the department and the people of South Africa, especially the disadvantaged people who really need opportunities. The failure of the SETA has a negative impact on the image of the ANC government, as the people perceive the government to be failing it when the reality is that it is the SETA which is not performing in terms of implementing the government’s skills development plans. The SETA needs to take its task seriously and improve its performance.

Mr Cassim said the presentation was a very positive one and had caused him to question whether he had received the right document as the positivity of the presentation did not match either the document or the annual report he had received. The core business of the Services SETA was to reach its targets of learning interventions, the other bureaucratic targets were meaningless. Of forty planned targets only five had been achieved.

He said the fact that bonuses had been paid but that core targets had not been met was outrageous. Society must get its money’s worth. The target was for 34 440 learners to be assisted, 10 622 learners had actually been assisted with the available budget. There was no value for money and no benefit in terms of transforming society.

He said there needs to be real consequences, which need to be legislated for, when reasonable targets are not achieved. A serious study must be done on how to correct the problems in the SETAs.

He asked for clarification on the issue of outstanding certification for the 2013/14 period and the progress on this matter, was this linked to the issue of service providers which were not properly accredited? Was the Seta helping those people who had been trained by these unaccredited service providers to get their certification? He asked if the intervention program for these people was advertised as it seemed that many people were not aware of those programs.

He also asked how long was the average period of traineeship that the learners who were assisted had to go through as it was not indicated in the documentation.

Regarding the R2 billion cash reserves in the balance sheet (Statement of Financial Position), he asked how this had come about and what did the SETA plan to do in the future with these cash reserves or investments.

He made a point that it was problematic that people could resign from SETAs once it became clear that they had acted fraudulently and then there were no consequences for these people, as this perpetuated the problem. The SETAs should make an example of some of these people so that it would send the message that wrongdoers would be found and made to pay so that others would be deterred from doing the same.

Lastly he said he agreed with the CEO that the current approach would not be able to solve all the problems. The SETA should strive to be as efficient as possible with the available funds to ensure value for money and help the most people. Public perception of the SETAs including the Services SETA is very low and communities need assurance that they have avenues for assistance. It starts with the SETA taking responsibility and making decisions such as not paying thirteenth cheques going forward.

Mr Mbatha asked the Chairperson of the SETA about the practice of leave selling, which the Chairperson he had stated he had stopped within by the SETA. This practice was banned by the Treasury two and a half to three years ago in State institutions, therefore this could not be stated as an achievement.

He said there are good action plans and strategies in place to reduce the Auditor-Generals findings. Was there resistance to these plans as the organisation was on 44%, which showed that convincing progress was not made?

He asked about the special projects for which the Board has an allowance. He has a problem if the Board is involved in the agenda of the SETA, as that would cause them to lose their oversight of the organisation.

Ms Nkadimeng asked what disciplinary steps were taken to hold management accountable for irregular expenditure in terms of the PFMA, and if not, why not?

Mr Bhanga said all possible means should be used to litigate against the culprits who undermined public institutions by stealing from government. These people belonged in jail, which was not allowed by our Constitution. Enough is enough!

The Chairperson said the SETA did not meet the targets for bursaries for unemployed people but there was R185 million in uncommitted funds which were transferred to the NSF last year. She asked if the department could redirect this amount to universities and colleges through NSFAS to address the problem of students rioting at the beginning of the year as they could not afford the fees at these institutions. The SETAs performance last year was disappointing as targets were not met.

She said the huge surplus of R469.5 milllion amounts to under expenditure and this is an offense in terms of the PFMA as this money should be used as planned for skills development. The people think that the government does not care when it does care. It is the implementing agency which is letting the government down. Whatever is done with the surplus funds needs to be authorised by the Department or else this will be unauthorised expenditure that could lead to the SETAs having a qualified opinion for the next audit. The Committee needs to follow up on the uncommitted funds.

She asked the board what it is doing about the SETAs problem with contract management. The Board must exercise its oversight role over the SETA.  

Mr Mhambi replied that as soon as disciplinary processes are started against employees implicated in irregular expenditure, those employees resign. Legal Services has been asked to determine how those people may be pursued for civil claims. It preferred to pursue civil cases as criminal cases were very difficult to prove. The SETA had to weigh the cost of pursuing these individuals for such claims as the costs of pursuing them would often exceed the amounts that the SETA could get from them. Where the SETA is able to deduct money from these people they had done so, and if not at least they at least benefitted by knowing that an individual who had posed a risk to the organisation no longer worked there. He said in one case where an employee who was facing disciplinary proceedings was suspended, he had moved to another public institution while still suspended and hid this from the SETA.  He had then resigned when disciplinary proceedings were about to start. Fortunately the SETA had learned about this and was able to deduct the money he owed from what had been due to him.

He said special projects are projects of national interest. The Board is involved as it has a duty to respond to national imperatives. The Board specifically asked management what it is doing for these projects, for example the SIPS project.

He said on the question of the 44%, there seems to be a misunderstanding as it does not relate to the core business performance of the SETA. The CFO could elaborate on this.

He said he considers the issue of stopping the practice of selling leave to be a big achievement as the SETA was still doing this when the Board arrived. It had to explain to the employees why this could not happen. Money that was spent on this practice was now being used for its intended purpose.

Mr Mhambi said the bonuses that were paid out were basically thirteenth cheques, not included in the cost to company package of employees. The Board has announced to the Unions that these can no longer be continued, employees have to make their own provision for thirteenth cheques. Employees can only get more money based on their performance.

With regard to the number of learning interventions not being what they should be, as indicated, during Administration there were no allocations made. Since the Board was put in place 74 909 training opportunities were given to learners, as was the objective of the SETA. The Board wanted to deconstruct the notion of the SETA, it was an entity which must provide these training opportunities for learners, so that these learners can one day be employed or even provide employment opportunities to others. It is on track if you look at the numbers.

Mr Mhambi said based on the previous situation in which the SETA was, a lot has been done to turn it around. It was a real achievement to have an unqualified audit opinion from the Auditor-General in 2013/ 14.There was reason to be positive as in February 2014 the Committee had questioned whether the board would be able to turn around the situation in the SETA based on the magnitude of challenges facing it. The performance of the SETA had improved and it would continue to improve.

He said the he shares the concern that targets were not achieved, as targets must be achieved. The targets are set strictly on the basis of the APP, which encapsulates the critical skills plan.

He said in real terms the high vacancy rate was not really high when one considered that when the Board came in the whole organisation had to be restructured. Only one more position was added to the structure to bring the total number of employees to 344. People had to be moved within the organisation to positions that suited their skills, qualifications, knowledge and experience. The vacancy rate of six percent was an achievement, though ideally the SETA should be one hundred percent staffed.
He noted the advice from the Committee members about pursuing wrongdoers as a preventative measure, even though the cost would be high as it would prevent losses in the future.

He explained that most of the surplus funds were now committed. A portion was going to the NSF which was doing similar work to the Services SETA. 

He said the average short course was six weeks, and these would no longer be allocated to unemployed people as he found were did not help them in the long term. They would rather be allocated to employed people who maybe ran the risk of losing their jobs as they did not have a specific skill, for example IT skills.

The SETA went to the service providers to ask them what certification was owed to people. There was a lot of work involved which was underway and this would be completed by the end of the 2014/15 financial year. A big problem was that the intervention program was outsourced but this did not help to clear the backlog. Internal positions were created to clear the backlog.

On the issues of the terminations he said only one person was dismissed, the COO, and the rest voluntarily resigned.

Ms Killian asked if the dismissal was due to a financial misconduct as the COO was paid a performance bonus of R109 000.

Mr Mhambi replied that the COO was dismissed for two reasons: The COO admitted that she publicly misrepresented the SETA and she had been paid a salary for a period when she was not the COO and she should not have taken the money. The SETA was trying to claim that money back from her through its legal department.

The commitment of R274 million was not made at the end of the financial year as it was in the commitment schedule. R148 million was given to the NSFAS which has not yet used all these funds. The SETA has committed to giving the NSFAS more funds as it knows that at the start of the next year there will be learners looking for fund to pay fees. The SETA will no longer grant bursaries as this will be done through the NSFAS.

Contract management has been handed over to the legal department. Previously contracts were drawn up by people with limited legal knowledge. This problem will no longer occur as it is now under control.

10 652 people have been supported in the 2013/ 14 year. There was a weakness in running the artisan development programme as the SETA was not run by people with the requisite technical knowledge. The numbers have been improving as a consult (the ex CEO) was now assisting to drive the program. A strategy is in place to deal with the complex problems.

He could not commit to giving surplus funds to NSFAS in the meeting as the management would first have to present the issue to the board. He confirmed that the surplus funds will go toward skills development and committed to giving more funds to NSFAS.

Mr Nongogo replied that slide seventeen in the presentation served to compare the number of findings that occurred in the last financial year when a qualified audit was received with the number of findings for the 2013/ 14 year when an unqualified audit was received. The forty four percent was the percentage of significant findings for 2012/ 13, and this should be compared with seventeen percentage of significant findings for 2013/ 14. The next slide shows that of these significant findings for 2013/ 14, 12,71 of these have been resolved and 5,29 are in the process of being resolved but targets and deadlines have been set for the implementation of plans to correct the outstanding significant findings.

He said the SETA was looking at about committing funds to NSFAS but has to be cautious as it did not want to make commitments that it could not honour. He noted the Committees’ comments on the matter and said they would take them into consideration.

Ms Kostlich replied that as the SETA matures management is moving away from compliance to and planning. This entails looking at outcomes and impacts, and management is engaging with the board to ensure the alignment of outcomes with demand in the labour market to ensure the highest impact in the labour market.  

The core business of the SETA cannot be limited to funded intervention due to the high demand in the sector. To make the highest impact the objective of the SETA should be to leverage investments beyond discretionary grants, for example employers can be encouraged to use tax incentives and tax rebates to train their employees and so invest in them.

She said there were contracts amounting to R148 million concluded with NSFAS in January 2014. These could not be included in the 2013/ 14 annual report because the supporting evidence was not yet available, but there was a note in the report reflecting this. This points to the relationship that has been developed between the LGSETA and the NSFAS. R101 million was granted outside the target specifically for the learners of Walter Sisulu University. They had not yet used all these funds but it will assist a large amount of learners at the university. R47 million was also granted. These funds will be used to assist unemployed learners with bursaries to assist a target of 1350 bursaries for learners. This number will be carried over to the 2014/ 15 year and will help to achieve or exceed the target for that year. The Auditor-General will assist the Services SETA and NSFAS to ensure there is no duplication of audit costs. The 2015/ 16 allocations to NSFAS are provisionally made for an amount of 2015/ 16.

On the topic of the surplus she said amounts were not allocated at the last minute. The allocation of R511 million to assist 23 000 learners was the result of a sixteen month process. The board relooked at the processes in place due to previous contract management challenges and the outcome is that the SETA is now assured that the service providers will deliver as promised. There is now verified learner documentation given to the SETA before the SETA contracts with service providers which ensures that the implementation of contracts is expedited.

Consideration of minutes of the meeting held on 29 October 

Ms Killian asked for clarification on whether joint minutes would be adopted by the Committee and the Appropriations Department as it was a joint meeting. The Chairperson said she would have to find out about the correct way of doing things, but it should be that the Committee adopts the same minutes that were adopted by the other department. Due to time constraints the Committee did not consider the adoption of the minutes and the topic was held over to the next meeting.

Chairpersons closing remarks

The Chairperson said the Committee worked very hard and at the next meeting with the SETAs the discussion will be at a higher level. She hoped that the SETAs had made observations and notes during the meeting and would come to the next meeting well prepared.

She noted that she was impressed with the level of engagement from the Chairperson of the Accounting Authority of the Services SETA. The Board has to account to the Committee and she appreciated his hand on approach.

She thanked the Committee Members for their focus on the issues, their engagement and vigorous debate.

The meeting was adjourned.