Legal Aid Board 2001 Annual Report: briefing

Meeting report

PUBLIC ACCOUNTS STANDING COMMITTEE
15 May 2002
BRIEFING ON LEGAL AID BOARD 2001 ANNUAL REPORT

[This is a transcript of the meeting, produced by the Public Accounts Committee Secretariat.]

PRESENT

ANC

Gumede, Mr. D
Kannemeyer, Mr B
Nair, Mr. B
Nobunga, Mr BJ
Smith, Mr V

DP

Lowe, Mr M

NNP

Beukman, Mr. F (Chairperson)

UDM

Koornhof, Mr G

APOLOGIES

Chiba, Mr L
Gerber, Mr P
Mothoagae, Ms P
Ndou, Mr R S
Woods, Dr. G
Hlangwana, Ms N L
Dudley, Ms C
Lowe, Mr C

In attendance

Auditor-General’s Office

Mr T Nombembe
Mr. K Botes

National Treasury

Mr N Marais

Legal Aid Board

Judge M Navsa, Chairperson for Legal Aid Board;
Mr K Naidoo, Chief Director: Finance and IT for Legal Board;
Mr A Ally, Chief Executive Officer for Legal Board

Formalities

The Chairperson welcomed members of the Committee, the Auditor-Generals Office, National Treasury and the Legal Aid Board. He confirmed the agenda and it was adopted as circulated.
 
Judge M Navsa, Chairperson for Legal Aid Board; Mr K Naidoo, Chief Director: Finance and IT for Legal Board; Mr A Ally, Chief Executive Officer for Legal Board

[Mr M Lowe] There are a number of controls that are lacking. What is of most concern to us, it is not the first time that they have been identified. It is something that has come up not just last year, but in previous years. While, as I have indicated, there are some sympathies around, perhaps many of your people within the organization are more directed to provide a legal service and not having a chief concern about the kinds of things that follow, that your job is to make sure it has happened. With respect, it does appear to have happened. In fact, in many areas it has not even improved. Perhaps I could just kick up by asking you - what accounting controls, particularly internal controls, do you have in place? Why specifically did they not seem to improve since last year? I am talking about basic segregation of duties; reconciliation of items and bank reconciliation is a big one. There is millions of rand on hands. There is a huge income of R254 million grant per year. Surely to me, with those kind of money there is a basic control which should be made upfront, no questions asked.
[Judge M Navsa] I think an important thing to look at is the date of the Audit Report. We had no management in place at all up until January 2001. It was two years before the end of that financial year that this arose. I do not want to pre-empt the following Audit Report, but it seem to be quite clear. We certainly are confident that most of the issues that were identified ……………… that is out of control will be in place at the time that we are talking about, and also checking that we now do bank reconciliation’s on a daily basis. If you turn to page 21 of the Report of the Auditor-General, one of the problems, and we have come to SCOPA and we have presented our position repeatedly, and even up until now we are largely at the mercy of plus minus 400 Legal Aid officers who are now employed by the Department of Justice. There is no way that we are going to meet the salary bill of employing 400 of our own people. We put people on terms. We have now ……….. So as far as that is concerned the Legal Aid guide might not be complied with. Really, we are at the mercy of the Department of Justice, but that too is including.

[Mr A Ally] Judge Navsa sketched the context within which we set out to operate in the year 2001. Let me just broaden that context. The new management team was basically faced with the audit task of completing financial statements for four years which we did within three months and submitted them to the previous SCOPA session. We did quite a thorough detailed risk assessment. We looked at all the weaknesses within the organization and developed a business plan for the year 2001/2002 that I think adequately dealt with all of those issues of materiality itemed in the Audit Report. You are certainly correct, Mr Lowe. The internal control environment was a very weak one. It was absolutely bogus. The business plan that we put together dealt with, as Judge Navsa said, with all those issues. We have dealt with issues of reconciliation and segregation of duty. As of the 1 May 2002 we have now implemented a very rigorous control in quality management system that now ties in with all of the agent legal aid officers, but also the individual magistrate courts, because a lot of control …… existed in the outlying areas of the Legal Aid Board. Head Office, as it were, then has to try and reconcile all of those weaknesses outside to the agents which is an impossibility in the absence of any kind of control within the system. We have implemented a circular, Circular 3, as of 1 March 2002 that tracks each and every transaction and application of legal aid that is made to the Board. It is tracked and approved by the Legal Aid Board. The accountability and responsibility issues are in that sense taken care of, I think, very adequately. We are still experiencing a considerable amount of resistance to that. One has to bear in mind that this environment has been fairly unregulated. Some of these controls measures are resistant, because what is does is that it now begins to place liability and responsibility on those people who actually incur unauthorized expenditure. I recorded that to all the people involved in this process. There is a bit of resistance. I think most people do understand the need to do that. I explain to quite a few magistrates and legal aid officers that in terms of the PFMA we simply have to have that control environment.

[Mr K Naidoo] With regard to the process of how we handle the issue of the control environment within the Legal Aid Board - firstly, we undertook to finalize all the financial statements. Essentially that was historical. It was only three years in that particular financial year which this Report is based on that we were in Office. We finished that. Essentially there were no controls. If there was, it was not documented. The staff did not understand the controls. What we did was we had a number of workshops. You have to start to begin to understand what those control measures should be; what the …….. responsibilities are? We have all that documented. After we had it documented, we continued to have workshops. It takes a long time before people get out of an environment in the moment that they have been before and the way they operate it. We still have the problem. I think essentially right now, the issue of compliance and the skills are huge challenges. We put the systems in place. We have documented it. We have got our internal audit department up and running that can check for compliance. That, I think, on the skills level is the biggest issue at the Board. We are monitoring that quite closely. I think at senior management it become very operational for those very reasons, because of the skills level. We need to monitor that these controls are in place. We have essentially cleared out all the issues on reconciliations. There were essentially no reconciliations. All of those have been cleared out. I am hoping that the Audit Report for the past financial year will probably be 100% of what it is right now. That is where we are right now.

[Judge M Navsa] There are a couple of issues that I think infringe on the internal controls and what is expected in the Audit Report. If you go to page 24 of the Annual Report particularly sub paragraph (e), (f)(i) and (f)(ii), which I think we will be dealing with in the TBVC states, but, essentially, for as long as we have those archives full of all of those incomplete records we will always be in trouble. The good news is that everything that is due and payable by the end of the financial year 1998 has now been cut off. We have cut off from practitioners. We have give notice and put people on terms. That is ……………. perhaps and we had some issues and we dealt with those. The fact of the matter is that the contingent liability ……………………….   Remember when I first came here, we were owing up until 1989. We have now sort of progressed almost nine to ten years. Whatever is left between 1998 and perhaps 2001 or at least the middle of 2001 will still be a continued ….The fact of the matter is, I think, that once you look at our controls now, and I take it that you had sighted all of the business plans and all the steps that have been taken and been implemented, I certainly feel that those will be………………, and again, what do you do with an opening balance that exists simply because all of ………….? What do you when Transkei, Ciskei and Bophuthatswana dump boxes and boxes on you? You will see on some of the Reports we cannot even get identify ………… of the stuff. There are no trial balances, nothing. In a very real sense I agree with Mr Naidoo, the Auditor-General should not be bound to what is going to become if they start finalizing the Report.  I have no doubt that most of these in terms of fundamental controls certainly the concerns that you have raised will be dealt with.
[Chairperson] I just want to put in one issue with regard to the adherence to the Legal Aid guides. That is a problem usually at the regional level where in this case it is applied by default and at the end it is a huge financial complication to the State. Could you indicate what is the situation now?

[Mr A Ally] The Circular 3 that I referred to earlier on, I think on a very comprehensive way it deals with all of the …………… We have over and above that rationalized our business process. We have substantially created a one payment process where any application made for legal aid goes into a system where upfront we have a pre-checking process that ensures that basically ……. no incomplete applications, documentation or where there has been no means …….. All of those things get checked upfront. So anything going into the system for processing and payment is of the highest integrity. That process alone has routed out about 30% to 40% of unnecessary administration which translates into wasteful expenditure. Over and above that, that has allowed us to get a handle on devious activity within the system. Through that we have made a savings of probably up to about 30% in terms of administration costs and in terms of your accounts that we would have paid previously, because we just did not have our systems and our business processes properly constituted. Those processes coupled with Circular 3, which also in a very comprehensive way manages the judicare component of our business. I think that we have successfully closed most of those books and weaknesses.

[Mr M Lowe] It is very good to hear those assurances and I share your optimism about the future. Could I just return to the past being audited. I note that the management team was only appointed in January 2001 and I will take Mr Naidoo ……………… next to your name, but I would assume that it was January 2001 as well. It is a point that I did not make. I am aware that you covered it as being problems of the past. Perhaps here you could also help me. I am new to this Committee and I am looking at this years Audit Report 2001. It seems that the problems go back some years and you quite correctly put your finger on a lot the reasons that really are beyond the fault of the Board. I note that many Members of the Board itself, including yourself Judge Navsa, it says here that you were reappointed in October 1999. I am not quite sure when you were first appointed to the Board, but other Board Members were there. It appears on the Auditor-General’s Report that there have been numerous Reports in the past that have indicated these problems. Now this is where I need your help. I am not aware of when these Reports have been done by the Auditor-General and they have all been done at one point in time with some help. If it not the case, I still remain concerned that there were these issues, but it appears that very little has been done about it. If it was past people responsible, I think of Mr Britz who was appointed until January 2001, I do not want to name the other people. What was the problem? Why was this not attended to some time before?

[Judge M Navsa] I was appointed in August or September in 1998, I think. My predecessor was Judge Kruger. Judge Kruger had enough of the imploding Legal Aid Board at that stage. There were Sunday Times reports and media reports about how badly the Legal Aid Board was doing and they were not paying their accounts. What then happened was that I arrived and on the very first day that I arrived, we had no in-house CFO. We had the management systems, the logistics had broken down, physical files were missing, there was no IT system, there were no closing and opening balances and lots of files went missing. Judge Chaskalson was also at that stage on the Board. The CFO at that stage had, I think, not conveyed to the Board enough the kind of logistical mess they were in. When I arrived 6 out of 10 files were missing. 6 out 10 physical files were missing. Never mind what is on your computer system you could not trace those. We were, I think, receiving something between 20 and 30 and perhaps even more summonses per day. We had not nothing else to  ……………….. our system. We suspended our CEO in, I think, April or May 1999. There was no one to mind the shop. I was asked to take off 3 or 4 months …….. We then had to fire consultants who had not given us value for money. We had no books worth speaking off. There was just no data on which anyone could rely on. By December 1999 we fired our CEO. There was an industrial court process. I was trying to pay accounts. I could not find the files and then had to reconstruct and on a part time basis, a couple of months at a time on the bench. I think, at that stage Mr Ken Andrew was the Chair of this Committee. We then had to recruit people. We did not have anybody. Essentially, I was doing everything with a few people. Skills levels were terrible. There were transformation issues that we could not deal with. We had an accounting system, ACCPAC at the time, which just could not cope with the problems. We kept getting accounts by IT people that they could fix it, but it could not be fixed. We had to make a quick choice and a decision to buy a new system. At that state, instead of engaging the Auditor-General promptly, there was a massive amount of antagonism between our CEO and our resident consultant and the Auditor-General’s Office. I had to go and see Mr Kruger and say I do not want to fight you, but help us get this right. Mr Woods then arrived as Chairperson of this Committee. This Committee was incredibly helpful. Every session that we have been here, whatever whipping we had to take has been whipping with a benefit. We then got clearance after a year to see Mr Manuel, which I think was ………………..We then got approval for ……………… So largely of the three years we had two years and some odd. We had no management in place, no financial officers, nothing. It was just a makeshift and patchwork. I think, if you want the proof of the pudding, when I arrived at my very first meeting I was told that the Annual Management Statements may be over R500 million, but no one can tell me that is so or not. When all the estimates were at that time between the Auditor-General and Deloitte and Touche, I think 1999, that are contingent liability would have been anything between R800 million to R8 billion. Well, at the end of this financial year you will see a reduced R200 million from R300 million. Our estimates are that that will come down now on a more reliable base, because you have cut off everything before 1998 to R100 million. The good news is that the controls that have been instituted, the fraudulent, we were dealing with fraud as well, both internally and externally. The Legal Aid Board with a budget this year of about R470 million is more solid financially than it has ever been. It will cover contingent and prospective liability. It does not have to come with a ……………………… Let me say something else. In the last financial year we have reached a quarter of a million people and people across the breadth of the country, where as before we were only doing third party cases which 95% of the cases we took on and we lost, because we were giving Legal Aid to everybody at sundry. We now have a situation where are helping the landless, the rural and the poor. We are helping everybody ……………as far as the Constitution is concerned. We are also able to engage the profession now with increases and we are giving legal aid at a price that we could not afford.  All things being equal, most of the qualifications here in the Auditor-General’s Report is something about which we could do nothing. What we are in a position now is to say to you is, and it is with the help of this Committee and the Justice Portfolio Sub-Committee that never in the history, certainly in the one history, certainly in the post 1994 history of the Board, that we have been as strong financially as we are and as focused as we are. I understand your misgivings, but do I believe that we will get two to a different scenario eventually.

[Mr K Naidoo] Could I just add to what the Judge has said? We have furnished three financial statements : 1998, 1999 and 2000 only by March 2001. There is no way that the Judge and the Board Members will have a sense of what the control is. They knew the problems of the control environment, but exactly to pinpoint what the weaknesses were in the control environment, because the Audit was only finished after the financial statements were finished last year. This set of financial statements were finished, I think, in the first week in June. So it is very close to address the address the concerns that were raised in the previous Audit Reports.

[Mr M Lowe] I certainly do not have misgivings. I am very happy to hear what you have said and may I also just thank you for your indulgence, and perhaps sketching some of the history that I was not aware of. I have, however, read the transcript of last year’s Hearings with Dr Woods. I would imagine that today’s Hearing is also recorded? That would also be very helpful. I am very glad to hear the kind of assurances that you have made. In fact, you have covered a lot of the work that I had to do this morning, because it really leaves me with very little work to do except to go through some of the other problems that you have highlighted and just ask for your assurances that there steps are taken to address the problems. Perhaps with a bit of luck during next year we might not even need to have a Hearing with the Board. It might be a good or bad thing, because it is always good to hear of the work that you are doing. Could I just ask some clarity please? I note that in the accounts that we are looking at, the professional and accounting fees are R1.4 million and the Internal Audits consultant’s fees are R412 000. I would assume therefore, that is the kind of money that has been spent on a ……….., getting processes in place, controls and funding. Could I then just briefly move onto the other areas that I wanted to probe?  ………..recognize these questions …………..seeking assurances that the problems have been taken note of and that steps have been taken to address them. If I could just look immediately at the question of accounts receivable. If you look at the Audit Reports on page 22 where the Auditor-General lists the amount of unsatisfactory aspects of accounts receivable -  I am just seeking assurances that accounts receivable that need to be written off, that there is no absolute chance of recovery and have in fact been done and those that can be recovered or have been recovered or in the process of being recovered, and then an assurance that there are now controls in place to manage that? I have heard comments to that effect already. I do not want to go into further detail as to what I would like to see.

[Mr A Ally] I must just add to what Mr Naidoo and Judge Navsa have said. When I started my job in January I can assure you that I did not sleep for a number of weeks. The Auditor-General reported on a number of those weaknesses. When we as Management went in and did an in-depth analysis of what, in actual fact, the scope of the problems were, I was absolutely horrified. I always seem to judge myself, but I think there was some higher power that looked over the Legal Aid Board. We then put a number of focused projects in place aimed at actually dealing with all of those weaknesses. One of them was the project that actually dealt with the accounts receivable issues. We have cleared all of those out. We have gone to lengths to reconcile each and every amount possible or reconcile all of the outstanding issues over a period of three to four months. I think we have achieved that. All of the civil work prior to 1999 - I can safely say have been worked out of the system. We are basically very currently. We are not dealing with historical issues anymore. We are completely up to date in terms of our bookkeeping and reconciliations.  We have daily reconciliations happening. It is  …………….the control in place. One thing to add possibly is that the environment within which the Legal Aid Board operates is still an extremely high risk environment, because there is a very high resistance to Management at control issues. At this point in time if one does not manage the affairs of the Legal Aid Board with a very hand- on operational fashion it will not be three or four months before one is back to where the Legal Aid Board was a couple of months ago. It still is a very high-risk environment. It is culture, I think, that one would have to develop over a period of time.

[Mr M Lowe] I am well aware that this is a high-risk area. I can imagine there is certainly a different focus of your workload. But, could I just say that that is the challenge, with respect, which  falls to you …………………… That is why you have been employed to make sure that the high-risk is minimized. Your job is to ensure that the people who provide legal advice also make sure that they retain those source documents; that they account for everything that they spend and that they send out invoices and whatever they have to do. Could I just ask about the accounts receivable - in the Auditor-General’s Report there is an amount of R642 000. He indicates that he was not able to identify what the account was for. Has that amount now been identified or have you done something to …………………?

[Mr K Naidoo] Yes, we have been through an extensive process of identifying what that amount was. When the reconciliation balances took place and they changed accounting systems, we got an agreement with the Auditor-General’s Office. We have cleared out about R150 000 of that, but the balance is written back to income. Because, essentially what had happened was, the money you paid out of your sub system, but not transferred to the general ledger. We corrected that difficult aspect in the current financial statements that we have produced.

[Mr M Lowe] And you now have controls in place and staff to make sure that sort of thing does not happen again?

[Mr K Naidoo] In respect of all our balance sheet items, we have got nothing in reconciliation. Monthly reconciliations are done and checked by somebody at a senior level.

[Mr M Lowe] Could I just move briefly to fixed assets? I think the main problem is that it was not possible to resolve the fixed asset register and where exactly the fixed assets were located? I am not talking about vacant land and property. I am talking about equipment, furniture, computers and motor vehicles. Has that problem been rectified? Can you tell us today where every fixed asset that you have is actually got …….?

[Mr K Naidoo] What we have is that we have gone through an extensive exercise with the fixed asset register. What we established was that one of the items on the fixed asset register which should have, in fact, been expense and we have done that by the Audit Committee and the Board this past financial year. We have also identified,  ……exercises, identifying the location of the assets and the updating of the fixed asset register. I think that is now up to date.

[Mr M Lowe] With regard to Value Added Tax (VAT), again the problem that …………….. was identified in the past. It seems from my reading that there was some error made, or something along those lines, that ……………. Expenditure of some million rand. Has that problem been rectified? Are you correctly filling in the VAT forms along the lines of the VAT Act? Can you give us the assurance that is being done?

[Mr K Naidoo] Just a bit of background in respect of that ……………in the Audit Report. What had happened was that the Board was claiming for VAT on every single payment that was made, whether it was ………………….or the payment of salaries, because we were overpaying for that. When that problem had been rectified and the Auditor had given us to the Receiver of Revenue and they charged us interest for the amount that we have overpaid. We have that system corrected. We do monthly reconciliations and a spot check to see what problems the system is having.
 
[Mr A Ally] The issue of financial management in general was probably one of the major weaknesses and the culture of negligence and non-compliance is more recent in the Board. We are hard at work at rectifying that. We have had to dismiss the Financial Director shortly after we took office. The level of competence for a senior person was completely intolerable and those are the kinds of people-issues that we are now dealing with.

[Mr M Lowe]  It appears that on page 26 of the Auditor-General’s Report, the non-compliance with the Legal Aid Act  - and I just note that for many years there has been a report that Section 8 of the Act was not complied with and …………..what is going on here. ………….was requesting appointment from the Minister and currently that has been pursued. Could you just explain to me what that means and the problems at hand now?

[Judge M Navsa] Basically, the Minister at one stage ………………as Minister of Justice was concerned not to give delegations to the CEO to make appointments on conditions as it ……………………… simply because it had become intolerable. So generally, there is hesitation to become involved in anything that would affect the transformation process that Parliament, and I think this Body, as well as the Justice Portfolio Sub Committe  ………….No one was going to make any move until all of those problems had been resolved. That is just to give you some further background. When I arrived we were three year in arrears with financial statements and you will notice that we have got a sort of slap on the wrist about not complying with the PFMA, because we did it a month or two after it was due. We were one week late last year. Let me say to you that this year we have not been late at all and the Report is in the process of being finalized. We have the Minister’s approval for appointments. So in a sense those problems will now disappear and the Minister, I think, has faith in the Management team of the Board. So that will …………..There was a stage when we, before this financial report, it became three years in a row which was an immeasurable situation. ………………………

[Mr M Lowe] Thank you very much indeed for your responses and we wish you well for the future. I really wish you success.

[Chairperson] Maybe just a question to the Judge with regard to an answer given to Mr Lowe - in terms of Section 49 of the PFMA Act, the accounting authority of your Board is the Board of Directors. In terms of accountability and corporate governance - how do you see that? Where does the buck stop? We know that in terms of the PFMA if there is big ………………..Mr Ally ……………., but Mr Lowe referred to the three-year period the Board had now an opportunity to deal with these matters. We have got also a debate in South Africa and in other countries of corporate governance. To what extent do you see your work as taking responsibility for the financial management as foreseen in the PFMA?

[Judge M Navsa] I think it is a very relevant and pertinent question. We welcome the obligations that the PFMA presses on us, as well as ……….in a very real way. We have started working towards…….. It seems to me that given the corporate governance issues …….this country for a number of years. You have got to be in a position where no Board of Directors or any …………. I do not know. I was not aware. I could not tell. We have within the Board now an Audit Committee staffed by the most incredibly skilled and intelligent people. We have people on the Board who are especially dedicated to dealing with specific issues of control and we intend on ensuring that they comply with our obligations. There is a problem, this Board was instituted as a transformation Board. It is unbelievable. It has got eighteen people. You cannot work with a Board like that. Believe me I can get an urgent decision out of people. I am now the Executive Chair. I sit in Bloemfontein. I travel home probably once every fortnight. It becomes an incredibly onerous logistical problem to get people together to decide things. We then again ………Justice Portfolio Sub-Committee, In fact, we are engage in correspondence with the Minister that we cannot have it like this. There may be some benefit in ensuring half of the Executive Board and half not of the  Executive Board. There are also questions about whether or not rotating the Chairperson of the Board, besides being extended in terms of other duties. But, be that as it may, I welcome the added responsibilities that …………….. and rightly so, because the Board certainly will not be in a position to say short of maybe in keeping things away from us. I do not know that one can do anything about that here in this particular forum. There is no way that I can check every voucher. I get the assurance from Management that this is so.  I will have to accept it at face value, unless until I get explanations that do not satisfy me. I think that everyone in our position should be intend to improve.

[Chairperson] May be you will agree with me now that the contention is that the Board in its current form, it is going to be very difficult to implement the PFMA to its fullest extent. If you take the accounting authority as a given with the current situation and executive ………. That the Board is on.

[Judge M Navsa] There is absolutely no doubt in my mind that before the CFO was the CAO, so it would be easy for me not to sign the financial statements other than as a sort of a rubber stamp. It is less easy to do so now. What we do have to develop is relying on the Audit Committee. And again, there is no Executive. We cannot go behind what the Auditor may be tells you and what Management tells them. I think that it is very difficult in the current framework to hold people as liable as you would like.

[Chairperson] I think it is an important question and that SCOPA can do also work in a discussion later. Are there any Members from this side who want to interact with the draft of section 1?  Now we will deal with the second issue, Mr B J Nobunga, TBVC states; Pension Fund and the PFMA.

[Mr B J Nobunga] May be I should start by saying one notes the fact that it has been difficult for the former TBVC states to keep records and that might have contributed to the Board having so many problems. One must also say that when one looks at the Transkei and Ciskei, in particular, it is interesting that the administration of those two former TBVC states was under the former …………………… That, therefore, is saying to us the importance of record keeping might not hold to the extent that it is really difficult to, whatever it cost, that they are on file in order to see the ………………… of some of the issues that are raised in the Audit Report itself. But ………………… proper explanation that were given as to why has it been difficult …………………… as opposed to those areas where …………………….. …………………records. Why were these records not transferred to the Board in particular Ciskei and Transkei? If they had been transferred, what is still outstanding? On the hand is the Board ………………….. ?

[Judge M Navsa] I will give you a short explanation and then the other gentleman can answer. I think that you are being too kind to some parts of the administration authority of the former TBVC states. Speaking for myself, I think it is a disgrace of what we have inherited. Certainly we inherited ……………. Let me say at one stage I had walked into the Legal Aid Board and one of these big delivery trucks delivered hundreds of boxes. Everyone was too scared to open it and rightly so, because the documentation was incomplete. We cannot do trial balances with it. How do you start an accounting process? There is no data. I think, the Auditor-General will agree that the best we can do is to write it off. We were certainly not responsible and the Legal Aid Board ……………..with incomplete records that is even in more shambles than ours.  With the best intent in the world no one is going to be able to make any sense of the files, records, and data. I think it is a dead loss.
[Mr A Ally] We have had discussions with the Auditor-General. We have gone to National Treasury and the discussions were then around this issue. We discussed it with the Portfolio Committee and with SCOPA last year. ………….deals with this particular ………………,because we have physically gone there and taken everything that we could get our hands on in these former TBVC states. Up until about six months ago we went up to …………….to go and fetch boxes of files that ……….had reported. We physically went there and found residual boxes ……………… We worked through them. We processed those that we could not process. We actually paid accounts that were due ……………………..I think all of the stakeholders are of the view that we need to get that off our books. We will probably never in our lifetime reconcile some of those things that happened in these TBVC states. As Judge Navsa said earlier, that the administration and the financial management was a complete disgrace to say the least. I would urge the Committee to support what we have put forward both in terms of bringing that chapter to a close, but also in reconciling our books and moving forward from here and actually write off those liabilities may have risen. We do not even know that and that is the problem.

[Mr K Naidoo] I think the CEO and the Judge have covered what I was going to say, but suffice to say that I think we now applied to prescription also as of the end of 1998. So ……………… liabilities they are obviously prescribed …………..

[Mr B J Nobunga] The second question that I would like to ask is, if according to the Board the best thing would be to write off whatever liabilities that are there, how then do you then start writing off the liabilities …………………?

[Mr K Naidoo] I think maybe the wrong terminology was used “write off.” I think what we need to say is to accept the balances that we took and essentially those that were bank balances that we …………………… I did indicate that we have prescribed as of 1998, so anybody who submit any account is obviously prescribed. So we can come with …………………..We do not have any liabilities in our books that we need to write off.

[Judge M Navsa] I supposed …………….to this. We do not know what transpired in the books. We did the best we could with the documentation that ……………… Other than that it should be historical. It  ……………………it should be ……………………….

[Mr M Lowe] Perhaps I could just ask a final question. I think the best thing to do is to write it off and start with a clean slate. I would agree that it was a disgrace. If it is possible, could you ascertain whether what was going on? Was it simply negligence or legal practitioners, like you have experienced with your Board, who perhaps tried to offer their services and not being too concerned about accounting controls? Or has it been perhaps even worse than negligence on the part of the people employed to do a job and have not done it? I am looking to try and direct some liability for what has happened. Was there any intention on the part of the people given the responsibility of running those Board in those states, from your perspective, I only ask that you will give your point of view, you might not be able to give it, that will indicate that they were not doing their job? Is it possible? It is too much time ………………………..

[Judge M Navsa] I feel almost guilty about this, because when we use our own deputies, especially with questionable transactions and ………………………. ……………….. Those that we could prosecute legally and ……………………… time in court, it is forensic expertise and time and it all cost money. I give you my assurance that as far as we have got stuff that we can successfully prosecute in ……………………, we will do so. I just think in a way …………………. It is getting there. Let us get on with it. If there is anything that comes up we will identify it …………………….. We just have so many other pressing problems, particularly the needs of our people.

[Mr B J Nobunga] ……………………………………. Is on the issue of assets.  I think one should note that there ……………………….. I presume that it is the same ……………………….. Legal Aid Board ………………………… service. What …………….. processes did the Board implement in ensuring that you, at least, establish some assets, …………………………… fixed assets that might have been ……………………………… Legal Aid Board? So that at the end of the day ………………………………. ………………………..

[Mr A Ally] We did a similar process with the fixed assets. Most of these independent Legal Aid Boards that were run by the TBVC states were Housing, people of the Justice infrastructure. If you look at the Ciskei as well, we were not even there. Even after 1994 we did not take those people onto our payrolls. They were paid by the Department of Justice. So from that point of view there are assets that we could identify. There are no records of assets. In a similar fashion, I would propose that we include the asset issue with the other liability issue and close that chapter, because we have not identified assets. What we have received is some liability and boxes of files.

[Mr B J Nobunga] I want to move to the next issue of the pension fund. There also is the uncertainty of ………………………… the pension fund. And also there might be some ………………… …………………… why was the evaluations ……………………….

[Mr B J Nobunga] That is one issue that is of great concern to us. Since we have walked in there and we did our risk assessment, that issue was on our list of critical issues. It basically deals with people’s futures. We have consistently requested the Pension Fund Management to provide us with those certificates and financial statements. We were led to believe that financial statements for the Pension Fund must be done in the year 2000. I have taken the decision, as the Accounting Officer, to report that to the Financial Services Board (FSB) and to report it in our Annual Report as a serious issue as far as we are concerned. Because in the event of any liability rising out of mismanagement or under funding, we would be liable to cover that liability as the Legal Aid Board. We have taken steps. It is a very serious concern to us. We also had discussions with the Auditor-General around that, because it ……………….. example within the next two weeks. We have, however, received ac…………….. Reports up until 2000 that the Pension Fund is not under funded. But as I say, up until 2002 we cannot substantiate or verify that. We did not ………….. know that, but up until 2000 those Reports have been done.

[Judge M Navsa] Mr Nobunga has …………….. on something that should perhaps be a matter of …………………………  risk, simply because there is no verification of the position of any governmental or state institution. The other institution we are concerned about and it should be a disclaimer in respect of heavy …………. Financial statements ……………….., as Mr Ally points out, is then liable. We do not know. I can …………………………

[Mr B J Nobunga] Maybe one could follow-up and says that if the Board is not ………………………… I would assume that there is some action that are given to check to ensure that that situation is corrected. What corrective measures did you installed to ensure that you are …………………..

[Mr ………………….] We have taken all the necessary steps to engage the Pension Fund around non-compliance in terms of issuing us or even employees are entitled to monthly certificates or quarterly at least that they are receiving. We have now reached a stage as I said earlier on where we are going go to go …………route so that we can deal with that component of non compliance. But, at the same time from a risk management point of view we have made provision and, I think, adequate provision for an eventuality where there would be a shortfall. As I said earlier on the up until 2002 there has been no shortfall. There has been no under funding of the Pension Fund.

[Mr B Kannemeyer] In terms of my experience of having dealt with Pension Fund too, a management team administers the Pension Fund or it has its own Board of Directors. On that Board there is supposed to be equal representation in terms of the Pension Fund Declaration of both the employer component and the employee. In terms of that would that not mean that the some of the Board Members should be serving on that Pension Fund Board? If so, who are those Members and what are they doing to redress the fact that there seems to be information not available?

[Mr A Ally] Yes, that is a good question. The action being taken by ourselves is a result of the fact that we serve on that structure. Our Director of Human Resources actually heads up that component of representation from our side. Bearing in mind that we have taken up the issue immediately when we came into Office. There seems to be an inability from a management point of view of the Pension Fund to provide us what we require. Because, we directly manage that Fund we would have to resort to actions that we ensure that we get what we require and we put those steps in motion. We have taken those steps.

[Mr B Kannemeyer] Would those steps include considering replacements of those Board Members? Because ……………..the Board would be made up of employer representatives and employees. The people representing you is not ensuring to get the required results certainly you should consider doing that. I have asked …………….,because I do not get the background I am just picking up on how Pension Funds operate. I think it is something not totally beyond the…………….of influence of the Board or the Employer component.

[Mr A Ally] I think we are talking at cross-purposes we are a member of a Pension Fund as administered outside of the realm of the Legal Aid Board. It is a state Pension Fund. It is not our Pension Fund. Our …………….public service or …………..public entity members belong to a state run Pension Fund. You would typically find that 30, 40 or 50 other state Departments or even Public Entities would be affected in a similar way to what we are affected. We are saying that we are not in control of the management of that Pension Fund. We are basically beneficiaries and our Director of Human Resources acts on behalf of the employees technically ……………Legal Aid Board and we do not have direct access to the management as it were.

[Mr B Kannemeyer] I just want to …………….GEPF that the government employees Pension Fund.

[Mr B J Nobunga] ………………….issue of PFMA. I think that the Board notes that the name for ordinary government institutions ……..the provisions of the PFMA. What measures have you put in place as regards to supplying the Department of sections 38 ……..of the PFMA………relating to effective and efficient risk management?

[Judge M Navsa] I ……………………..that the Auditor-General, Mr Fakie, himself expressing some doubt whether or want we as a country have any …………..PFMA. Honestly, I think, I would have misgivings sometime ……………simply because my skills level is within the …………..I think, that this Committee has had all of the business plans that we put into place to deal with issues that Mr Lowe identified. Certainly, the Board itself is taking steps to acquaint itself more intimately with issues of control and accountability. ……….all things being equal I think the process implemented …………………

[Mr A Ally] We did note earlier on that we submitted our audit financial statements one week later last year, which, I think, was quite an achievement. In that sense last year we just about complied in terms of provision. We are completely on track in terms of our program and our scheduling this year. The final audit ………Auditor-General is basically completed. They would be most probably issuing us with a report next week after which we will then ………………our Annual Report and, in fact, it ……………….I must add that the PFMA is a very good and challenging framework to comply with. If all of the stakeholders and different components of the system work well one should not have a problem complying with the PFMA. I think we are at the point where we have reached all of the necessary agreements and we have put all of the approval systems in place to comply with what is required. …………………..

[Mr K Naidoo] I think I mentioned this earlier when I spoke about internal controls. I think………………………environment comply with the PFMA. I think …………………………to bring the staff up to speed and to skill the staff to be able to comply with those policies; procedures; systems and controls that we have been dealing with the past year.

[Mr B Nobunga] What measures ……………………have you put in place to ensure that ……………………………..?

[Mr A Ally] ………………..some of the measures that were put in place including ………………….set in which I think finally places a very comprehensive management system …………………..that was set in place when you can control not only the internal environment, but I think a good handle on the internal environment after the controls that we have put into place are very tight controls and we have to manage these with the necessary training and skills development that would function. Circular 3 now puts similar type of control measures and quality management measures in place for the external environment, because the Legal Aid Board interacts with a wide variety of stakeholders externally and I did mention earlier on that that is where our biggest risk lies. That is where our greatest problems exist still. There is still a lot of resistance to issues of accountability; to issues of corporate governance; to issues of financial management; to issues of control and also quality management. We have put those systems in place to regulate and manage that external environment and I think that in the next couple of months will most definitely see the fruits of that process. In fact, we have already seen the fruits of this in terms of financial savings; in terms of financial losses; in terms of ……………reconcile each and every instruction ……………………and so forth. That is why we are for the first time in a position to confidently say that we have adequately provided for our contingent liability and that we as management can confidently say that we have got the financial management of the Legal Aid Board under control. We can safely say that, because we have taken total control of the management of the expenditure of the Legal Aid Board. Previously, it was not so 60% or even 70% of the expenditure incurred and which the Legal Aid Board had to basically cover it was out of this control. …………………so in a sense you had hundreds of thousands of blank cheques being written out then in the form of instruction forms………………………..process.

[Judge M Navsa] There may be something else that you will be interested to both you and to Mr Lowe relative to what Mr Ally has just said. Right at the beginning when the first process hit the Legal Aid Board was, because we worked as private practitioners. It is a little bit like the problems you hear about medical aids at the moment……………..insistence, I think, of this Committee and………..Justice Portfolio Committee and on the insistence of Minister Omar as well as Mr Maduna we moved away from the ……….Where as before we were ………………….. people outside it was very difficult to trace and monitor. We are ……………with moving away and ……………………our people skill ………………quality control and the monitoring now is to ensure that the salaries we pay them are earned …………………..both in terms of the Act and to population in general. In the sense the extensive controls covered ………when the need for controlling people outside of our …………..environment is reduced.

[Mr K Naidoo] …………………What we have done up to now is we have looked at the manual controls within our organization and we have done as much as possible to be able to reduce the risk of the organization……………………we did from …………..on is looking at our IT systems and …………………..IT systems to be able to implement this controls so that outside manual controls and the full manual controls are …………………risk of probably non implementing those control so we are currently looking at …………..IT systems.

[Mr B Nobunga] The ………………..relate to the Audit Committee as to whether the Audit Committee ………………….have complies to the provisions of Section 76 ……………………….?

[Judge M Navsa]  Yes we do……………………we …………..accountants …………………………………..so have absolutely …………………………..

[Mr B Nobunga] The issue of the information systems that the ……………to institute ………………….?

[Mr K Naidoo] What we have done ……………..we………..systems and believe that obviously …………………..We have now put a project in place …………………..the …………..analysis of the organization …………………………..you cannot buy off the shelf an IT system you have got to combine a custom written ……………interface to of the shelf package. Implementation for that is 1 April 2003.

[Mr A Ally] There is a considerable amount of IT infrastructure and different platforms within the Board. The challenge now is to create one IT platform and integrate the accounting package to a central database; to a central asset register …………………….so that all of the information is integrated and can be managed in a proper manner.

[Mr B Nobunga] …………………raise some thoughts on the fact that ………..Board is in a state of fluidity  and ………………..liquid cash…………………………..issues that have been raised?

[Judge M Navsa] If I may just put something on the table, because ……….engage your colleagues with and other committee leaders as will as the Parliament and I have raised it with the Deputy Minister of Justice so it is not as if I am speaking out of house as it where. You may recall that there were some constitutional court decisions dealing with the legitimacy of appeal procedures from the magistrate court. The Department of Justice then had time in which to institute or to provide the legislation with …………………and there was no registration to replace. What it has left us with is a potential for a crisis in the future and it is this that we are finding appeals, at the moment ………………lack of appeal ………………….which is going to place a considerable financial ……………resources. So I would urge that the legislation ………….put on the table and find out as soon as possible, because if it does not ……………..financially sound now it is something the breadth of which we identify …………..would quantify prospectively. …………….it may place in a position in the future when we have problems.

[Chairperson] Thank you for that Judge. I think, it is a very important issue and ,I think, may be a question we can deal with in our resolution later in our proceedings ………………….in that regard. Then we move on to the third part of the Hearing and that we will ask the senior member of our Committee, Mr B Nair to …… that.

[Mr B Nair]    Just to follow up ……….the setting up of the computer systems………………………computer services. ……………..set up the ……………..for the ………………….?

[Mr A Ally] That is historical. Those are basically consultants, the Legal Aid Board did not have and because of the salary framework that was in place and talking about Section 8 earlier on. It was impossible to track any meaningful skills into the executive, in terms of IT skills. We are at this point in time dealing with that, because most of the maintenance functions should be performed internally. The specialist expertise that one would require on an ad hoc basis, for instance, to modify software or to implement additional hardware system or integrate systems that kind of specialist expertise. One should not maintain within the Legal Aid Board, one should actually ……..basics, but yes we are now dealing with ……………..where we are developing internal capacity to do the day to day management of ………….system. That still reflects a total outsource of the IT function.

[Mr B Nair] I want to join my colleagues in congratulating the Legal Aid Board, the Board itself the staff…………………………………………………………and this arises from the response that was given just now to the employment of consultants ……………………………………………………also want consultants to do the accounting ……………………..and this was the position by the year 2001…………………………………………………..approximately …………………….on the staff of the Legal Aid Board. ……………………because if you want Internal Audit and this is given to external auditors  or systems of cheques and balances within the Legal Aid Board ……………………………………but …………………with issues such as ………………………….legal controls are given irrespective. Let me get down to the question itself just to illustrate the point that I am trying to make. Already we have got the assurance that you are ………………your ……is done on a financial basis……………….are these being handled ………………..external auditors ………………..you take accounts payable the monies that are paid out cheques made are not properly recorded. Is this done sufficiently……………..stale cheques …………..cheques are issued, I think, ………………we these cheques were actually defrauded cheques made lying around or ……..between staff and outsiders when these cheques are actually produced …………….and the Board itself. What mechanisms …………….do they require external assistance for that? ………….possibility of ………….papers. Payments made not ………..and payments made again to settle the same account……………….let me not go into lengths about this to the Auditor-General’s Office. ……………………………question and answer session. To highlight some of the problem relating to this issue of the lack of a properly trained staff ………………….last year………….with the …………………Minister Omar earlier and …………with Minister Maduna and the Deputy Minister………………….compete with the private sector and ………..But, the problem areas so as to avoid problems that are arising will ultimately have to be verified by the Auditor-General …….the year 2000 this will obviously …………………but I do not think …………..we should ……………….requirements of the PFMA ………………………………What should ……………contractual agreement with the attorney or advocate or whoever? You are actually asking ………………or with staff or with Members of the Board………and who it would appear …………………that these are simple issues we do not require the PFMA to prompt you into action. Now you take the issue of internal control ……………………according to the …………………Those ………..structures of which ………………is a guide that ……………that ………………work through, by the Ministry of …………I do not want to go into all the details of segregation………..because if you have a computer system and you have free access ……………………cheques paid twice………………..by the Board ………………….issue of accounts receivable ……………..accounts payable in terms of that. Let me take the simple issue ………………….that those supporting schedules or documents for accounts payable …………….Auditor-General. For instance, provision for personal bonuses which has currently at
R752 000 has that actually not been brought into account and the result is that trade ……………..are not …………………………or …………………….What I am bringing your attention to and which we must focus on is when you do not have a properly trained staff like a business ………………even a person who is ……………general dealer or Pick ‘n Pay……………..unless you have staff well trained …………within that staff……………………………….internal and off course you will require people who are highly qualified to manage to become ……………………negotiation that require discussion………..both and the Department of Justice. We can support ………………….although we ………………..oversight ………..but we can ……………………Minister Maduna and Deputy to say that something must be done………………………………..with any system ………………in place and ……………………..the custodians …………………………………

[Judge M Navsa] I think, we must deal with a couple of issues some of the points that you made and, I think, we would probably not have anything more to say, because we would have covered most of the issues. The issues in respect of accounts payable, I think, on page 23 we have dealt with most of those and if you look at the last two bullets under C, I think, Mr Lowe will agree that although it is not desirable there is no indication that none of it was earned or was payable in accordance of what was owing. So, in a sense it is undesirable, but it does not mean that the money leaked. It is not as if the Auditor-General says he did not get value for it or, in fact did not pay bonuses that were due. That………………….In respect of salaries which …………………., I think we are going to deal with later on in any event I must tell you that the Chief of  Human Resources I find an incredibly forceful person ……………………….also only started in January 2001 or perhaps even a month before that. In a way if you go to the next page which is page 23 ……………..again was a historical fact, but I have no doubt that since she took Office you will find those problems do not arise. In respect of ……………….Mr Nair, I think, you will probably understand better than most that there are very few true guru’s in the world, I think, we do the best we can with what our job is and they say that whoever has a …………is a fool for a lawyer or the other way around. So, advising ourselves is not exactly the smartest thing to do. We agree with you that staffing is a major problem and skill people are an incredible. As far as IT is concerned, I think, we can equip ourselves to some degree with people who might be able to do a relative amount of programming. Some people are able to assess and process data ……………, but, I think, in terms of our art skills; maintenance of the system; the networking system expand. I think, it is just a sad fact that Public Entities are never going to be able to match what is offered in the market. Much of that is true; true for financial people you might be able to attract financial people for a while, but essentially you in a difficult situation. Mr Nair, you will recall four of the previous situations where we were completely at the mercy of consultants where the entire Finance Department is in the hands of the consultants where in fact, R5 million may see a lot. Certainly, the Internal Auditors are not employed, in fact, to do the books ………………specialists in parts of dealing with control and may be consulted with specific issues of advising us on effectiveness on our own fraud and corruption prevention plan. Although it may seem a lot the fact of the matter is that relative speaking we have come a long way in ………………….ourselves with consultants. We take your point absolutely that we have to up our skills level and we are trying very hard to do so. Some people you can teach things others you cannot then it is just too difficult. As far as litigation is gone I can tell you ……………………..I am sorry that Vusi is not here today, but he will tell you that as will Lappies Labuschagne that before everyday they had mountains of mountains of queries that related to litigation. We used to make a joke that the sheriff could might has well have taken quarters in our office, because he was there everyday serving so many ………of litigation. That does not apply anymore. Let me say this finally that and I say this as a collective effort and I mean it sincerely, I think, we have reached a point where the Legal Aid has achieved absolute financial stability, because of the controls that you have insisted on. I think, if you look at the Auditor-General’s Report when he talks and perhaps this is an indicator for ……………if you look at page 27 at the bottom of 3.4 the last sentence. In the lights of recent control changes implemented by the Board, the assumptions, and these are the assumptions of contingent liabilities are deemed to be conservative. In a sense we have never held here financially, we do not need any money, we do not need any ………………we do not have more than a three-year backlog of any kind. It is not a three-year backlog, but nobody can take ……………………………..

[Judge M Navsa] At the bottom of 3.4, the last sentence “in the light of recent control changes implemented by the Board, the assumptions used are deemed to be conservative”. So in a sense we never …………………… financially. We do not need anybody, do not need ………………… We do not have more than a three-year backlog of any kind ……………….. ………………………… three years anymore ………………….. There are other concerns. If you go to 3.5 of the Auditor-General’s Report, the computer audit. The audit was completed during June 2001 and the findings were brought to the attention of the CFO. All issues identified are of medium risk and are currently being addressed by a project plan. ………………….. When I first arrive here everybody had access to all the ……………. There was no safety and security. Everybody had access to the computer room and the computer room had not only problems with fraud and corruptions, but a real physical danger of replacing …………., because ………………………. All of those concerned. I understand your concern. We are trying desperately to skill our people. I think some of the constraints are such that some of the staff will always be sourced out. We obviously had to keep that in a limited ………………………

[Mr A Ally] The Judge is absolutely correct. Mr Nair has ………………… on probably the most critical component of the future of the Legal Aid Board and its future is ………………… You raised issues of skills, human resources and skills development which is ……………………. In the Board. I must add that that was probably one of the most horrific discoveries for me to discover the extremely low skills base. Much of what you are talking about now, Mr Nair, is still directly being done by the most senior management within the Legal Aid Board. I did say earlier on that there is at this point in time still a very hands-on approach. The skills development process has started. We have a very ambitious human resources platform that we have put in place. The entire Human Resource’s function was in a complete state of shambles. You could not find records of anything. People who were appointed, and the Audit Report reflects that, ………………………… contracts. I sometimes thought it was a deliberate tempt not to develop the capacity within the Board. We have started to address that. The issue of consultants – the PFMA requires that we put accountability and responsibility frameworks in place. And even …………………………….. reliable for the financial loss and so forth. It is difficult to do that in the absence of proper management structures within the Board. Even if you have consultants properly managed and managed even more closely and timely than if you ………………….. the whole staff in those positions. We are also addressing those issues quite consciously. I mentioned that we have got an aggressive skills development programme. The key issue in the Board up until recently until our old Board approved adjustment of salaries just to come into line with the lower end of the Public Service. You must bear in mind that the Legal Aid Board in certain job categories was up to 80% to 100% below the Public Service. So there is no ways that we are ever going to attract anybody who has any kind of skill to the Board. That is the …………………….. that we had to deal with. You also raised the issue of the corporate governance. That is something that we are also ……………….. Judge and that is ……………………….. the restructuring of the Board is getting smaller, getting a better spread of expertise onto the Board. …………………………… develop people, human resources people onto the Board. Getting more independent people, people who have nothing to gain from serving on the Board as required by the PFMA and by you too. Those are very serious and challenging issues that you have raised. I am absolutely certain that that is going to either ensure that what we put in place now is sustainable for the or will we unravel over a very short period of time.

[Chairperson] The final section is salaries and contingent liabilities.

[Mr V Smith] I think the question that I was going to raise have been touched on one way or the other. If you look at the salary portion to staff – looking at the income statement on page 37- 63% of the total operating costs are salaries. That is quite a high percentage. If you then go back to page 24 and look at the shortcomings, they might have been historic. You have now indicated that they are historic. But I am saying when we have a situation where people are being paid even after they have resigned ………………….. ….. available or people that have been employed etc, then it does present a problem. I would imagine that if that was the single highest expense light …………………. That focus proportionately ………………………….. I think, from outside we need to, first of all, get from you, and you have given it to Mr ……………….. the assurance that that ………………… I must remind you that in May 2001 …………………., you indicated to this Committee that there is an aggressive Human Resource’s drive from your side to get people to do these basic things. We hold that to you. Again, we certainly in the next set of records we will look at it. Maybe, for me, it will suffice if you, just for the record, so that we could use it for our own recommendations, talk a little bit about the salaries, bearing in mind that 63% of your budget is there, and based on your input we will then formulate our resolution.

[Judge M Navsa] A year ago ………. That proportion …………………. I tell you why I ……………….. this, because the greater part of that salary vote is now being directed towards in-house queries. Certainly, in essence, what we would have paid for, let me tell you what the good news is. We are just waiting for the final audit of our statistics and we will make a list of …………………… …………………… before we give you a briefing on this issue. Let me tantalize you with what I think is going to come out of it. It is this, that the statistics you have at the moment show a significant  …………………………………………., a significant saving ……………………….. of our own people as an institute. So the bill that you see now has reduced proportionately with a saving ……………………  Hopefully in the next few days I believe the Minister will consent to ………………………………… on the issue that will be ………………… I can understand your misgiving about the administration portfolio which is not set up separately. We recently moved to Johannesburg. It is much more intense for us in Johannesburg. With that is coming savings of people who have not worked with us and whose principle position we have not filled. I can give you the assurance that it is not de…………….. planning and administrative cost. The administrative …………….. will decrease. I think the statistics that we have given to you during the course of this year is that during the last financial year we have employed 250 lawyers. Most of them are from disadvantaged backgrounds, with training, to deal with most of our people’s legal problems. Yes, it is here. I would ………………………………….. is here. It is a good point you made. The point is that this is not an administrative cost ………………, it is the cost of public defenders.

[Mr A Ally] We talked about the services that we have …………………….. The combination of direct service delivery in terms of ………………… where we have Justice Centers, we have attorneys and advocates employed in the hierarchy to service all of the regional courts. We are in a process of establishing high court units. Those savings are significant in terms of the cost benefit of input output ratios. They are huge savings. Those areas, in turn, would then go into establishing additional Justice Centers, particularly in rural areas, which would then also require public defenders, attorneys and advocates. So these savings that is 63% is set to increase, but the reach to poor people has already doubled and is it set to probably double once again once we have extended our Justice Center reach to all of the rural areas. The perspective and the context as …………….  We are a service delivery institution. People ……………….. service delivery is our core business. So it is seen in that context.

[Mr V Smith] I want to ask the auditor-General’s Office, certainly for the next Report, to, by way of a note or otherwise, indicate to us some of that 63% …………….. cost between legal ………………………… I take your point, but clearly there the cost of legal work will come below the line. Just something else that might not be salary related, is the ……………… legal preparation. Again, on your income statement, the very last line, under other, 8.7 – it is about R10.5 million. Now if you look at the notes of the balance sheet it grades it down to computers, stationary, etc, but even there you still have a R5 million “other”. Now clearly, for me, that is going to be a problem. I am going to ask you what is the hierarchy that we are going to accept that there is R5 million that we cannot categorise ………………. in later ……………………… we are paying for salaries or ……………………..  Could you explain about the other R5 million is ………………………. Comes that in.

[Mr K Naidoo] If I may make enquiries …………………. Auditor-General ………………………., Those items will take care of water, electricity and rental. ………………… every single Justice Center …………………. At that time we had about 59 Justice Centers. There were …………………… It is basically water, rental and all the salary expenses over here. In fact, of that R5 million you are probably looking at R1 million or R2 million just on rentals. Then there needs to be water ………………………… ………………… So R2 million …………………….. salary expenses. If the Committee so wishes I can …………….. ………….

[Judge M Navsa] I think this is incorrect. I a sense I hear what is getting out in retrospect, but perhaps we should clarify this. It is not acceptable ………………….. It becomes a substantial problem …………………. I agree with Mr Smith …………….. as much as we can. Perhaps if we …………….. summary ……………………………. I accept that …………………

[Mr V Smith] For the record, could we have that within the next three weeks committed to this Committee, so that we can have a record of what the “other” is? Thank you very much. I think on the salary side of it I am quite happy. I want to deal with the contingent liability. As I walked in it was being dealt with through the various inputs by my colleagues. One of the questions that I wanted to ask, and it is just for record purposes that we have it, is the age analysis of that contingent liabilities? I think I understand that you have said that it would be from 1999 onwards ……………….. contingent liabilities. For the record ……………. Uncomfortable. The Auditor-General, and again I take the point this has been a rather ………………… two of you here prior to this, talks about the fact that the figure of R200 million could not be substantiated or you never had any supporting documents to that. He spoke about trends may have been comfortable that that figure is conservative. I think ………………… somewhere. Again, without necessarily putting you through something that might be impossible to do, for the record, the contingent liability, I just need to understand the process of making sure - (1) that we have it under control and the Report is as accurate as possible and; (2) is this going to be in future our balance sheet and so we close Legal Aid because of the nature of …………….. business? I think for the benefit of this Committee you must give us that type of assurance.

[Judge M Navsa] The problem of the past, because of the incomplete data is more in the way of “accurate” calculation of the contingent liability. It was at one stage taking us back by two or three years ……………………………… What I do recall is that the Auditor-General said ………………………………. What we did is we went down to the archives and we do pattern of files………………….., but they did a pattern source of what was being paid what the historical data showed in particular years. And the best we could came up, I think at that time, was the ………….. figure as a comparative to the 2000 year. I think probably the same formula that it had for the next year. Since then we have done provisioning. At the moment every time we issue an instruction we sort of, in book keeping terms, provide for what may materialise ………………….. for provision. That is accurate, because it cannot be more than what the ……………… of that cost will be. I have no doubt, and again I say this because I think it is correct, we have shown a downtrend of hundreds of billions rands over the last three or four years. I think that you will see that halved. At least the R200 million will come down to half. With our new allocation we will have R470 million. We are as solid as you can get at this moment. I think you would be very hard pressed to find a situation like ours that could give you that kind of scenario. You are absolutely right about the contingent liability being with us forever and a day, simply because of the nature of the business we are in. That is part of the problem as we had to close the door in past. It will be more accurately calculated in the future, so you are not sitting with never-never land.

[Mr A Ally] With the actual business process that we implemented, it  ties back to the ……………… control environment and the rationalization of our business processes. The actual business process is that we have implemented a pre-numbered ……………. System where there is a face value attached to each type of service or matter that we take on. So we have basically included legal services into our normal ……………… process with the face value attached. And at an instance where there is a need to increase that face value, then there have to be approvals for the increase. So in a sense we are, as the Judge have said, we have now control over what the total output in the expenditure is going to be. We can only ……….. to that. That gives us that comfort that we have the contingent under control in terms of the ……………………, because previously every instruction form was a blank cheque. A blank cheque would be issued and some petitioner …………………………… will come and charge us over R5 million or R10 000 for the finance matter. That kind of management of contingent liabilities is part of ……………………..  ………………………………….. serious financial problems. The Judge also mentioned that we basically operate like any medical aid company. The contingent liability issue will always be with us. I think we have developed a management system that is going to allow us to maintain that control over expenditure. In fact, we would be in a position to do budget focusing now for the contingent liability based on ……………………………, because we now have some of the data. We have a functional database that …………… do this ………………… which we could plan and should be budget focusing. I am …………………… ………………………………in the future that there should not be a problem of insolvency.

[Mr K Naidoo] Obviously there is control measures put in in the last financial year. The impact of that will be seen in the future, because we still have to work out all the instruction forms and blank cheques previously. But, again, the contingent liability and the legal payments that we make is very much within the ………………..from this Parliament.

[Mr V Smith] Let me ask the last question on this one and whoever answers this must say it very slow, so that we can have it on record. We are talking about the contingent liability 2000/2001. Now I know it is going to be difficult for you to give us an accurate figure. That is why I am saying that you must say it slow, because I am going to hold you to it. Your …………… of that R200 million – how much of that relates to …………………. Instruction that were issued in 1999? How much of the instruction issued in 2000 …………….. a type of analysis.? Is that possible or not? I am asking that question, because it is a way of us monitoring the backlog that you have. If it is impossible to answer then do not answer it, because we are going to hold you to that.

[Judge M Navsa] I would like to answer it a little differently. I disagree with you on the ………………………. I think what we can give over the last few years which …………….. with a degree of fallibility for the era before the control measures is the following. You will be able to tell a little more accurately in 1998 what is, in fact, been paid enclosed. You will be able to tell what sort of programme would ………………………. I cannot give you, off the cuff, and I do not think they will be able to give you either, of what was spend by the year to year from the past. What we can tell you of that year, is that the contingent liability calculations in the last …………………. In the following financial year the Report will be of ……………………..

[Mr A Ally] Maybe just to differentiate a little bit in terms of those years, I will try and answer your question in a manner that would indicate a trend that maybe would suffice for now. The Judge is correct, when I close the chapter up until 1999, so it is not very …………………, what the ……………means is that and what caused the collapse of the Legal Aid Board was the burden of the civil matters that the Legal Aid Board had. I would go so far as to say, judging from trends now, that 99% of those also ………………………. system. We are seeing a trend where 90% to 95% of all matters that we are paying are very “other” matters. In fact, we are now paying almost exclusively 2001/2002 matters. There is the odd matter that started in 1999. When we get in there, we were paying matters that were outstanding for up to 15 years. Just from that type of perspective, I would say that almost 90 to 95% of matters are “other” matters. Those “other” matters are being captured in the ………………….. system, so we have a very good grasp of what our liabilities and responsibilities are in terms of the contingent liability. It is a very small percentage that is historical. We are basically completely up to date with the “other” matters that are currently ……………….. The …………………….. for matters being finalised has improved remarkably. That also points to the fact that our control measures are now bearing fruits, because what used to happen previously is that that one matter was postponed for 10 or 15 times and we had to pay for those postponements while the accused languishes in prison. Because of our control measures we are seeing a radical decrease in that type of ………………..

[Mr V Smith] Let me give my closing argument. If I was the prosecuting authority and the department was in the dock, I would not sleep easy, because I think you have done a very good job defending your case. However, the proof of the pudding is in the eating. I think as I have listened to your contributions throughout the morning that, for us and when we were preparing for it, it was clear that we wanted to get a feel that things are improving. We know that it is not going to come right overnight. We know that. It will be wishful thinking to say that. Your words were words of comfort, but certainly we would want to see that translated into what we always ……………….. Clearly, we will also share those views of the Auditor-General, so that when you come back you will be able to give us something that we then can take and say it is dependable. I am sure that it will be dependable, but that you are not some smooth talking department to fool us.

[Chairperson] With regard to your Internal Audit Plan for 2001/2002 – what is your focus?

[Mr A Ally] Our Audit Coverage Plan for the past year was a very detailed Audit Coverage Plan where we did not apply the modern audit approach simply because we just had to establish fact and to establish warranty issues at our main administration office, but also with the judicate system at our Justice Centers. The approach that we adopted this year, we had just appointed an Audit Executive, a very competent ………………… that we managed to attract …………………… We will deal with those risks in a kind of hierarchy order manner rather than have a total compliance audit approach. It is going to be more of a hybrid of compliance and strategic auditing. That is going to be our approach. We have moved one decisive step towards the modern audit approach.

[Mr M Lowe] With regard to the issue of the Justice Centers - you were just talking now in response to Mr Smith about the provision of Justice across the country, particularly about what happen in rural areas and areas which are less urbanized. I noticed on the balance sheet that you have a property of vacant land in Mitchells Plain purchased in 1996 for the amount of plus minus R87 000. The amount is certainly not material. What I am interested is to read is that there is condition on that title. It appears that the City of Cape Town says that you can only erect a Region Justice Center in that area. I also notice in the accounts that you already have a Justice Center in Mitchells Plain. What is the proposal of the Board with regard to that land? Do you intend to give it back to the City Council? Could I ask you whether the conditions imposed by the City of Cape Town are legal and entitled to be there? For example, would it not be better now to sell that property and provide the Justice Center somewhere else where there is not adequate access to justice. Perhaps there is an explanation and also given the fact that you have got money in the bank, why are you not looking at building that facility there if it is indeed required?

[Mr A Ally] The property in Mitchells Plain was purchased in 1996 for reasons I am not able to furnish you with at this point in time. We have a Justice Center in Mitchells Plain. We have been discussing it, because we are required in terms of the PFMA to put forward an Investment Plan. We do spend R1 million on rent every year. The institution is going to be there, hopefully, for ever. We will have to look at an investment plan. The condition on the title deed is a legal condition. It was a condition of sale. We are obliged to sell that property back to the City Council if we dispose of it or at least give the difference right of refusal in terms of that title. Shooting from the hip, I would say that we are not in the business of property development. I think our core business is challenging enough. We have as a principle taken the view that we would focus on our core business. I have the intention of engaging Judge M Navsa and the Board around the disposing of that property. If we do in terms of the investment plan purchase property, it would be property that we can move into and can be managed by a property agent rather than asking any other property developer to manage it.

[Chairperson] From our side we thank you for coming. In the Chairman’s Report the Judge wrote that legal aid is not a privilege, but a right. We agree with that. We also agree that the finances of the Board should be in good shape. Hopefully we do not see you for many years to come into this forum.

[Judge M Navsa] I am a little concerned about Mr Smith’s observations at the end. I think I should respond to it. I agree with you that the proof of the pudding is in the eating. Let me say that I think there has been one part of the pudding that we have already consumed and that is that by now our contingent liability remains unchecked. Without your intervention it would have been R1 billion. I think that at the moment we think it will come down to R100 million. You work out the savings for yourself and all of that. The second part of the pudding that I think we have already consumed is that our people who are at the cutting edge of preset circumstances and exploitation are getting at a reduced cost legal aid. What you are correct about is our control mechanisms, the management and operation issues that we have to address. Let me also say my term comes to an end in September 2002. It has been a long, hard session. We have identified a successor. We are engaged in discussions with the Ministry. Let me say, again, thank you very much to you Chairperson, the people before you and the act of this Committee for keeping us on the right track. It has been a privilege interacting with you. I really think that together we are starting to achieve what our people are entitled to.

[Chairperson] Thank you. The meeting is adjourned.