The meeting revolved around discussing and interrogating the qualified annual report for the Department of Water and Sanitation and its Water Trading Entity for 2013/2014.
This Department had received a qualified opinion for five years running, and the Committee was greatly concerned and frustrated with the same story being told by the new Director General (DG), who had been in the seat for just over eight months. “Back to Basics” was the motto from the Members to the Department, with a request to get their basics right. The Committee ran through a number of issues identified by the Auditor General (AG) as lacking, including the lack of internal audit controls, financial mismanagement, fruitless and wasteful expenditure, procurement issues, and failure to reflect the correct revenue, incapacity, and vacancies in the Department.
There were a number of issues raised with the CFO and her ability to manage the Department correctly. The Department had ten vacancies within the internal audit team that required urgent filling, and the Committee stressed that this must be a priority. Some members wanted a resolution and others asked for the DG to resign for not employing enough people.
The DG responded that they had established two new senior positions -- one was an executive Chief Financial Officer (CFO) position that would deal with the issues of the AG and work with the other CFOs, while the other position was the appointment of a Chief Risk Director that would manage the internal audit unit. Once these two positions were settled in, the vacancies in internal audit would be filled. On the revenue front, the DG stressed that they had rectified the revenue loop and would have caught up with the backlog by June for all the outstanding licences. The procurement issues were being addressed by using a special investigation unit to probe areas of personal conflict of interest. The annual performance plans (APPs) had been changed by executives, which had led to irregularities, and this has been addressed with verbal warnings and workshops. The issue of the CFO had been addressed with a monthly performance review and six-month turnaround time.
The DG promised to provide the Committee with an action plan and action list that had a timeline and dealt with each issue raised by the AG. The DG highlighted that they were working hard to turn the ship around and provide an unqualified audit opinion by meeting with the AG monthly.
Discussion on 2013/2014 financial performance of DWS
The Chairperson welcomed the Committee and offered a special welcome to the Minister.
Mr M Hlengwa (IFP) said that there had been an absence of consequences following the Chief Financial Officer’s (CFO’s) dereliction of duty, as identified by the Auditor General (AG). What should SCOPA say if the AG’s recommendations had been ignored? What was the latest information on the previous Director General (DG) who had been suspended in 2013? On Pg 188 of the report, which referred to accruals, there had been no satisfactory control and intervention by the CFO. This again went to the issue of consequences. What was the Minister and DG doing about this? This was consistently a root problem. Why were there deviations in the predetermined objectives? What were the consequences for changing the APP by these executives? How did one deal with the capacity of these executives? How many people had received verbal warnings? Why were there internal audit vacancies -- 10 positions was excessive? This was why there were recurring issues. Even restructuring was an issue. This was the tip of the iceberg. The basics were not being done. The “Back to Basics” concept must be instilled into the Department. There were continuous problems being raised. The new employees were not being allowed time to settle in before there were changes. The Department must come back with answers. Eight Deputy Directors General (DDGs) had flouted Treasury regulations. He asked for a report from human resources (HR) on how each employee had been employed. The Department did not have the correct systems in place to deal with its own inadequacies in implementing infrastructure projects, and the Member queried with the DG why these systems were not in place?
Mr T Brauteseth (DA) queried why the Department, with eight DDGs, had not appointed internal auditors with ten positions vacant. There should be a Committee resolution mandating the appointment of these auditors. He felt that the DG should resign now, based on the last eight months’ performance. If the DWS were a private company, it would be out of business by now. The DWS was lucky to be sponsored by the government.
Mr E Kekana (ANC) said there was a serious problem with the supply chain management of the Department. The CFO was not even coming close to answering these questions. The Department must look at the AG’s report and come up with a clear action plan, with time frames.
Ms N Khunou (ANC) said that a verbal warning would not suffice. The Department should look at salary reductions for non-performance. The Department should meet with the AG to discuss the issues that had been raised. The Department must give the Committee an asset register.
The Chairperson said that the controversial numbers for this year were higher than the previous year’s in terms of outstanding accruals, etc. Why was that? Why were the root problems not being dealt with? Why had the internal audit vacancies not been filled? He stressed that the Committee was moving forward and were looking to save the Department. He asked the DG to send through an action plan by the end of the week and the Committee would look at it.
Mr M Booi (ANC) commentated that the Department’s story had been repeated again and again in this Committee. They had heard all of this before. The DG was responsible for the Department. The progressive discipline spoken about did not have any rules. What rules was the Department following? The Department should come back in a month’s time with a report on all these queries.
Mr R Lees (DA) said it seemed like 2014/2015 would be another year for a qualifying audit. Would the DG resign if there was a qualified audit for 2015/2016? What did progressive discipline mean? What would happen to the CFO after this six-month report? Who was managing the assets, and who was taking responsibility to make sure the infrastructure was maintained? Who was responsible for the dams? There had been a number of roll-overs -- what were they for? Did service delivery take a back seat when people were being progressively capacitated? Where was the CFO for the Water Trading Entity?
Ms Margaret-Ann Diedricks, DG, DWS, said that she had taken over the Department “warts and all” and needed to accept all the issues that came with it. There needed to be correct controls in place to make sure the expenditure and costs were managed properly. This had not been done by the Department, which had led to qualified reports from the AG. For a Department like this, methodology and a controlled environment were required. Under the Regional Basic Infrastructure Grant (RBIG) programme, which started in 2007, there was a specific programme currently run by the regional offices. They had workshopped this programme to make sure everyone had been up-skilled and understood the process. There was a clearing house at head office that overviewed these transactions. A process flow system had been established for all RBIG transactions. There had been a strong action plan for the reconciliation of historical accounts. She had initiated a set of disciplinary action for underperformance through a process of progressive discipline.
She said she had met with the AG to mitigate the issues of the qualified report with the CFO. The root causes had been discussed, especially with the CFO, regarding the lack of controls. There had been specific time frames set in place for rectifying this, regarding commitments. In January this year, the CFO had been given six months to rectify the issues and deal with the commitments. This had not lapsed yet. The DG was preparing a report on the CFO to share with executives, and would release it to the Committee. The accruals would be dealt with, using specific accounting standards. When it came to disciplining the CFO, a month-to-month report was being compiled, but after six months it would be summarised for the Committee.
On immovable tangible assets, the issues revolved around the lack of controls and accounting standards in place. There had been a lapse in the transfer of assets from the municipality and the Department, which had led to a misstatement for assets. They had now moved to rectify this, and this included the progressive discipline spoken about. The issue of assets was being addressed, with letters to all accounting officers.
Once an annual performance plan (APP) had been approved, it should not be changed. Unfortunately, the executives had unilaterally changed the APP, which had tarnished the report. Verbal warnings had been issued for this transgression to all branch heads, and the APP had been locked in now. Workshops had been held to re-enforce this. All eight of the DDGs had received warnings. The internal controls were working reasonably well now. They worked with the audit chairperson.
On the vacancies, the structure needed to be correct. The Department could not just employ people without putting in senior management first. Once the senior positions were filled, the lower ones would follow. They had established two new senior positions. One was an executive CFO position that would deal with the issues of the AG, and work with the other CFOs. The other position was the appointment of a Chief Risk Director, who would manage the internal audit. Once these two positions were settled in, the vacancies in internal audit would be filled. The DG could not say that the situation would change in one year, as the past five years had been qualified. The commitment was to deal with it in a progressive way. There was an action plan and the Department would go through it with the Committee in a presentation. The Department did meet with the AG on a monthly basis. To go through each employee’s contract would be time consuming and an extraneous exercise. The asset register would be sent to the Committee. The DG was committed to making changes as quickly as possible within the parameters of the law.
Ms Nomvula Mokonyane, Minister of Water and Sanitation, said that the suspension of the previous DG had led to potential disciplinary action. After much discussion, the disciplinary action and suspension had then been lifted. There had been negotiations with the previous DG, and an agreement had been reached to place the previous DG in another position. The previous DG was still at work.
The Minister left the meeting early.
Ms Nthabiseng Fundakubi, CFO, DWS, said that the internal audit was functioning well. The audit issues were mainly an issue of capacity. The internal audit unit of the Department was still under-capacitated. The scope of these auditors was extremely large. The internal audit was less effective than it should be. The transfers made to municipalities were under budget, and therefore not significant.
Mr Siphiwe Mahlangu, DDG: Corporate Services, DWS, responded that a manager had to identify incapacity, which would first be dealt with via training. Secondly, the performance was then reviewed and the person was either capacitated, or was asked to move on. On discipline, there was a verbal warning, final warning and then dismissal. Each CV was checked before hiring and qualifications were verified. The suspended DG had not signed the performance agreements.
Ms Zandile Mathe, DDG: Infrastructure, replied that they had regular meetings with Eskom, and were supporting the infrastructure drive.
Discussion on Water Trading Entity (WTE)
Mr Booi referred to Page 283, and asked the Department to explain the revenue that had not been recognised. He wanted to know why there were a number of lawsuits that had not been accounted for as a liability. There were a number of issues on contract irregularities and audit irregularities. What was the DG doing about it?
Ms Khunou (ANC) asked what the WTE’s main task was. How many dams did SA have and who owned them? The Committee needed an organogram for this organisation.
Ms T Chiloahe (ANC) referred to the loss of revenue that cost the Department R100 million, and asked what was the Department going to do about it?
Mr E Kekana (ANC) asked why customers were not paying within 30 days.
Mr Mpho Mofokeng, CFO, WTE, responded that there were licences that had been approved by the DG and which had not been captured into the system. They had rectified the process. They had closed this loop. The audit committee could vouch for this. They shared the internal audit committee with the Department. Previously, they did not have the tools to check whether a person was part of another entity or not, but this had been rectified. They had since appointed four chief directors to plug the gap. The entity looked after the construction and maintenance of dams/water services. There were over 300 dams. The revenue was not lost -- customers would still pay the bills. They had been issued with invoices. The business process had been rectified. The entity had a unit to follow up with non-paying customers. Before the end of June, all 739 outstanding licences would be captured. The payment interval had moved to 24 days. More than 98% were paid on time. The detail of creditors could be provided.
Mr Mahlangu said that employees were sly by not declaring their interests. The Government provided a report with the names of all companies and shareholding and vested interests. The Department got this report and the people cited were sent to be investigated by the special investigating unit within the Department. Senior management must sign a declaration of all interests and it was airtight, he queried whether all public servants should sign these disclosures about other interests. The DDG would provide the names of those involved in the procurement issues, and what had happened to them.
Ms Diedricks said that the WTE dealt largely with the revenue, which was why the finding was in relation to water licensing. The gap had been closed. The backlog for the old licences would be finalised by June. The bills were huge, relating to industry and farmers. The CFO was going on a road trip to explain to them why there was a sudden bill. The AG had not been happy with the percentages used by the Department, and this had been amended. Project managers were reporting on a monthly basis which could be tracked with physical evidence and pictures. Management did look at the exposure of the Department. The capacity of the internal audit unit was understood to be lacking. The audit committee, however, was in good shape. Where there had been acts of financial mismanagement, these had been dealt with accordingly, with suspension or dismissal. Where there had been process issues, there had been verbal warnings initially and workshops. The action plan would highlight this in an action list.
The meeting was adjourned.
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