Public Service SETA and Local Government SETA: Interrogation of 2013/14 Annual Reports

Meeting report

Chairperson's opening remarks

The Chairperson noted, by way of introduction, that everyone should be cognisant of the National Development Plan (NDP) goals and ambitions in order to build a capable state. Building capacity, capability and technical skills was vital for the whole country and particularly the public service sector. Both the Sector Education and Training Authorities (SETAs) had a major part to play in reaching that goal. The fact that this Committee was so busy was testimony to the fact that there was still a very serious skills deficit and lack of ability of departments and entities to operate within the framework of the law, Public Finance Management Act (PFMA), National Treasury Regulations and other legislation that impacted on the management of public resources. The Committee would be looking at various aspects, such as the programmes, targets and how these were quickly closing the skills gap that the country had, and whether the SETAs were in a position to cope, given the defects and shortcomings raised by the Auditor-General (AG). Essentially, this “post-mortem” would focus on “what killed the patient”. He urged that short and pointed answers were required.

Public Service Sector Education and Training Authority (PSETA): 2013/14 Annual Reports & Financial Statements
Ms N Khunou (ANC) said that PSETA had been in existence for 15 years, but still faced many problems, and she urged it to be open during the examination of its Annual Report, to clarify problems with a view to fixing them. In 2009/10 and 2010/2011 financial years the PSETA had disclaimers but had improved a little to now being qualified. However, there were still a lot of “teething problems” which no entity that was 15 years old should still have. She asked what the problems were and why the entity could not comply with the rules and regulations of Parliament.

Ms Shamira Huluman, Chief Executive Officer, PSETA, said that it would be important to locate the discussion around the history. She conceded that PSETA was established in 2000 but the problem PSETA had, unlike other government entities, was that it did not have a funding model as the legislation that created PSETA was based on a Levy Grant System. The Skills Development Act (SDA) did not make it mandatory for public service / government departments to pay1% of their payroll to the Levy Grant System. As a result the PSETA, in 2001, was located deep within the Department of Public Services and Administration (DPSA) as a Chief Directorate with a treasury allocation from the fiscus, via the DPSA, to fund its operations, getting around R20 million. Later, in 2007, it was registered as a Schedule 3A Independent Public Entity, but still relied on the DPSA for operational services and functioning, and the budget was controlled by the DPSA. PSETA had been put under administration in 2010, and on 1 April 2011, after consultations between the Minister of Public Services and Administration, Minister of Higher Education and Minister of Finance, PSETA became operationally independent.

She noted that the disclaimer was the result of a National Skills Fund (NSF) grant that was issued to the DPSA (for PSETA) in 2005/6 of around R103 million, to roll out public management skills and a learnership across five different provinces. Unfortunately, in 2007, the Project Manager appointed to run the project committed fraud to the tune of R1.4 Million. DPSA then intervened, relevant law enforcement agencies became involved and the Project Manager was convicted and was currently serving a sentence. The Special Investigating Unit (SIU) was then involved to try to locate some of the supporting documentation around the learnership irregularities committed in that particular period. The disclaimer resulted from those irregularities.

She added that there were also allegations of misuse of funds by the Board in place at the time, from 2007 to 2009. Subsequent to that a forensic audit was conducted with PriceWaterhouseCoopers (PWC), but because of their restricted powers to search and seize there was a recommendation that the investigation rather be done by the SIU. There was an original liability to the NSF of about 30Million.
 

The Chairperson interrupted and said that the question was about non-compliance. He asked why there was still non-compliance now, irrespective of what happened in the past.

Ms Khunou suggested that Ms Huluman comment on the regulations and the specific compliance to those.

Ms Huluman responded that in the year 2013/14 there were issues with the usefulness of reported information, and she had to concede that there were issues with poor capacity within the organisation itself. Compliance was closely related to having the right people with the right kind of skills to ensure that there would be compliance. In respect of comments by the AG on the usefulness or information, PSETA had come a long way to try to address those kinds of issues.

The Chairperson responded that in essence, what was being said was that there was a lack of capacity.

Ms Huluman confirmed that it was a lack of capacity that gave rise to the problems.

Ms Khunou asked why targets were set which the institution knew it would not reach, and what the problems in reaching targets had been.

Ms Huluman responded that in 2013/14 the targets were set high in the hope that a funding model would be given, such as a DPSA directive to compel government departments to pay 30% of the 1% levy to the PSETA so that it could carry out tangible skills interventions in the sector. In 2013/14, PSETA had to review its Annual Performance Plan (APP) midyear, because National Treasury(NT) had issued a circular, contrary to the DPSA directive, saying that departments could not pay levies to the PSETA. That affected how it could reach targets, but it did manage to achieve 65% of amended APP targets, with the money coming in in the last quarter of 2014.

The Chairperson asked why the targets were still not achieved after the APP had been amended.

Ms Huluman responded that SETA’s worked on the basis of getting levies, then deciding on strategic projects, but PSETA had no discretionary allocation.

The Chairperson asked if she was saying that the organisation did not have money.

Ms Huluman responded that this was correct.

Ms Khunou said that the financial statements did not comply with Generally Accepted Accounting Principles (GAAP) because there was no proper system of record-keeping, and asked what the problem was there. She also wanted to know what happened to the R4.6million that was not been accounted for. This was not a problem that had come up recently, but SCOPA had previously recommended that something be done about the record keeping, and nothing had been done.

Ms Kolo Mashigo, PSETA Chairperson, responded that there was a problem with record-keeping and the R4.6 million formed part of the allocation given to PSETA. The issue was that PSETA did not have a systematic filing system.

The Chairperson asked why this was so.

Ms Mashigo responded that it was because of inconsistencies in the system, due to high rate of turnover and capacity in the unit.

Ms Khunou asked what was being done to ensure that there was no capacity problem.

Ms Mashigo responded that this had been addressed, as the Supply Chain Management (SCM) unit had been upscaled. A SCM Manager had been employed, the unit strengthened, and a systematic filing and record management system was introduced that would ensure documents needed for audit were easily traceable.

Ms Khunou said that the Committee had an organogram of PSETA. She wondered why it was said that there was a capacity problem, for the organogram seemed to show clearly who was supposed to be doing what. She suggested that the PSETA should not feel defensive; the Committee was trying to ensure that PSETA would not need to appear before the Committee again. She asked what the real problem was; whether it was because staff were not motivated, or because there was no plan. The root cause needed to be found.

Ms Mashigo responded that the issue of capacity still existed. She said that the organogram showed that 14 positions were not filled because of lack of funding, and another issue was high turnover. The PSETA had had three Chief Financial Officers (CFOs) recently, and there was instability in the finance division as a whole. Poor performance had been acknowledged. PSETA had reviewed its system and was ensuring that the performance agreements now were clearly showing tangible results on which performance appraisals would be based.

Ms Khunou asked if the real reason was that PSETA was unable to keep proper records.

Ms Mashigo explained that she had been trying to say that the problem at one stage were that records were not held by PSETA as an independent entity, but still with DPSA. When it became an autonomous independent entity, it capacitated itself with its own systems, by installing a systematic record keeping system that allowed for easy tracing of contracts and documents. That was why she had been said that the R4.6 million formed part of the history where sufficient evidence could not be produced to back up the expenditure.

Ms Khunou said that it was good to hear that there was proper record keeping now.

Ms Khunou then went on to ask questions about the Supply Chain. She said that the regulations were clear, and for certain expenditure, three quotations were needed. The AG had pointed out that this was not done.

Ms Huluman responded that the problems around the procurement management and the SCM were due to problems of insufficient capacity, and lack of the right skills, but the SCM Manager's post was filled in the previous year. Last year there were focused training sessions and capacity building for SCM staff around procurement management and contract management, ensuring that standards were attained for full compliance with regulations and SCM prescripts.

Ms Khunou asked if the Committee could request a skills audit of PSETA and be told what the qualifications of top management were, to root out issues around capacity and staff numbers. She noted that in Parliament, secretaries were exceedingly hard working. Another issue in the PSETA was that contracts were being awarded to companies and suppliers who did not declare their tax matters to SARS, which was not in compliance with requirements.

Ms Mashigo responded that the issue around the tax clearance certificates not being available at that time was because of a lack of internal procedures to check that tax clearance certificates were still valid before awarding contracts.

Ms Khunou added that other contracts were awarded to bidders who did not submit a declaration on whether they were employed by or connected with any person employed by the state. She asked whether this was due to the same lack of processes.

Ms Mashigo confirmed that it was. However, she pointed out that at the time when the contracts were awarded, the tax clearances were in place. However, as the project matured, the PSETA processes failed to check if they expired. In relation to giving contracts to anyone linked to government, the PSETA processes were not robust enough, although adequate processes to ensure compliance had now been put in place.

Ms Khunou suggested that the entity seek help from the Public Service Commission (PSC). She acknowledged and appreciated that some of the commitments had been implemented and met, but there were two commitments key to the job description of PSETA that were still "in progress", and she asked why, as this indicated that the PSETA was not taking the commitments seriously. These included installing a new filing system, in terms of the record management policy, and training of the Finance Division to enhance financial reporting, in order to ensure accuracy of information to stakeholders. It was a problem if these were still in the progress of being implemented.

The Chairperson also asked if those targets were being implemented.

Ms Khunou said that some of the commitments had been met. She agreed that these were lagging behind. The AG had described these as "in progress", and the PSETA must be absolutely open with the Committee on that point.

Ms Mashigo said that capacity constraints were central to the PSETA. That had now been addressed insofar as there was now an in-house Internal Audit, which would raise red flags before the full audit. Processes were in place, including appointment of a Compliance and Risk Manager. The current CFO had been in position for a year, although prior to that there had been three CFOs in succession. Quality Management was also in place. She believed it was possible, and was committed to, have better results for 2014/15.

Ms Khunou asked whether the PSETA was likely to get an unqualified report in this year.

Ms Mashigo answered that once the liability had been cleared, she could promise that an unqualified report would be given.

Mr V Smith(ANC) said he had been listening to the inputs. This was all in relation to the 2013/14 financial year. The audit was finalised around July 2014. All the responses were dealing with things that were now in place, and the PSETA was apparently dealing with the issues. In one year, PSETA had been able to resolve what could not be resolved in the past - and the question was why this was so? He said that perhaps the Chairperson should have cautioned that no person appearing before Parliament should make unsubstantiated statements, nor try to give answers where these were not certain, for they would be likely to trip up the entity later. He commented again that it seemed strange that such long-standing issues could have been resolved within eleven months, and wanted to know why. He commented that the PSETA could not say that it had a problem with skills - and then substantiate that the problem was in filing. Skills shortages were not linked to filing, or if they were, he wanted that explained. The AG had picked up the lack of three quotations, and the PSETA had again ascribed that to lack of skills - but again, he wanted that explained. These were not technical but rather administrative issues, the types of things that matriculants could be expected to do, so no skills audit was needed on that. Finally, he commented that it was not good to suggest to Parliament that the issue of the R4.6 million was historic and the slate should be wiped clean. He was not sure whether the implication was that this was linked to the criminal matter, or historic in the sense that PSETA no longer had the staff responsible. He commented that all too often, in the public service, people would move from entity to entity, repeating the same problems and this Committee wanted to know who that person was, to ensure that he would not again try to enter the public service. There must be consequences for people who were found to be negligent and/or guilty of fraud. He also commented that PSETA was supposed to be the service provider for skills development in the public sector - in other words, training people to do well in the public sector, and he wondered how it could possibly be doing that if, in its own entity, it was not even doing the filing properly. This raised the question of whether there should be PSETA in the first place, and why it was being funded? This was a serious indictment of PSETA that it was trying to train others when it could not do the tasks itself, and Parliament would be lacking in its responsibilities if it was giving PSETA any budget and funding. He said that the Committee would be following up to determine whether commitments made now were being met, or whether this was empty promises.

Ms Mashigo responded that what was being said was that the PSETA’s skills deficit had been acknowledged.

The Chairperson interrupted and said that the question was what skills were needed to file documents and get three quotations.

Ms Mashigo responded that one did not need any particular skill to file a document.

The Chairperson said that in this case, the problem was not one of skills. In relation to awards of contract, he had checked page 89 of the Annual Report, which noted that people were awarded contracts without following the prescripts. He asked what happened to the people responsible for both discrepancies. The list of labour relations, misconduct and disciplinary actions noted that only seven people were subjected to disciplinary actions. Two people received verbal warnings, two received written warnings, three had final written warnings but there were no dismissals. This Committee would have expected that those not compliant with regulations would have been sanctioned. He said that this could not be justified by saying that there was a skills problem.

Ms Huluman responded that management had definitely tried to implement consequence management. The former Finance Manager of PSETA had been taken through a disciplinary hearing, but she had approached the High Court, and PSETA was interdicted from taking any action against her pending further litigation but recently a settlement was reached and this person was re-deployed, away from the Finance Division. Clearly, people with the right skills and competencies were needed to manage people with tasks such as basic record management.

Ms T Brauteseth (DA) commented that he always raised the same issue, that of Internal Audit. He asked what the state of PSETA's Internal Audit was. He would like a detailed response which mentioned how many staff there were, who was running which functions, whether reconciliations were being done monthly, or only at the end of the year. He also asked if the Internal Audit functions were being shared with other SETAs or whether the entity had its own unit. The answer given would show the Committee, next year, whether there had been progress. If there were problems in Internal Audit, in all probability there would be problems next year.

Ms Pumla Mzizi, PSETA Audit Committee Chairperson, responded that there was an Internal Audit unit and it was not shared. It was made up of the Chair of Internal Audit and two staff members. At this point it was adequate to cover the PSETA, as PSETA was a small entity. The reports did refer to capacity. If one member was unable to perform his/her duty then PSETA really did not have the luxury of asking someone else to do it - and that was a continuing challenge for PSETA. Internal audits were being done, as mentioned in the audit committee report last year, and this had identified several internal control challenges. The way management worked was that internal audit would do the audit, in a similar way to the AG's audit, then take the whole year to fix those internal controls.

The Chairperson asked why that should take a year to do that.

Ms Mzizi responded that PSETA would only know of the problems when the AG did the audit.

The Chairperson asked if what she was saying that was that the Internal Audit reported to the Audit Committee Chair, and then management, and would only know after a year whether the issues raised had been fixed or not.

Ms Mzizi responded that the Internal Audit unit did audits on a quarterly basis but the AG would do a yearly audit. Management was the first line of assurance, then internal audit as the second, then lastly the AG was the last in the line of assurance. In that line of combined assurance, there was a full cycle of combined assurance in a year.

Mr Smith said that the answer received was not acceptable. The Audit Committee should be able to say to SCOPA that in the first quarter significant progress was seen. It could not suggest that this would only be seen after a year. The accounts were supposed to be reconciled on at least a quarterly basis. The question was whether, after the first quarter, there was any progress. If not, was it raised with management, and did management implement those recommendations?

Ms Mzizi responded that she heard what the Member was saying, and realised that perhaps she was not explaining herself clearly enough. Internal Audit (IA) worked on a three year rolling plan and operational annual plan. Audits would not be checked every month, but annually. After the financial year end, IA would be able to check all the internal audits done over the year. There were some internal audit deficiencies that had been reported by IA and management was working on those internal control deficiencies.

Mr Smith asked whether the Audit Committee gave internal audit recommendations to management. He felt that a full year was not required. Reconciliations must be done monthly, and it was not appropriate to say that the accounts were checked monthly but recommendations made only annually - unless she wanted to clarify that point. This was an opportunity for PSETA to influence SCOPA’s recommendations. He asked what happened in regard to the monthly reconciliations - were they given to management? Did management act on them? He commented that IA should be "the independent conscience of PSETA, and if it was not doing that, then he questioned the reason for its existence. He repeated that his simple question was - were there monthly reconciliations being done?

Ms Mzizi responded that there was a misunderstanding of what IA did.

The Chairperson interrupted this line of comment.

Mr M Hlengwa (IFP) said that it would be in the interest of the IA not to try to be referee and player. The bottom line was that must be monthly and quarterly auditing, instead of waiting the full year. He posed the hypothetical example of the AG not being able to audit at year end, in which case nothing would be picked up, as it seemed that the IA was at the moment entirely reliant on interventions by the AG, which could not be correct. He referred to page 96, item 34, of the AR which stated that “management did not perform monthly reconciliations on PSETA business". In addition, item 33 said that “management did not implement review systems in accordance with the national framework and no sufficient documents were available to support the finances". He asked why the AG should have to pick this anomaly up at the end of the year, when the IA should have done so much earlier. There was a question around the state of functionally of the Audit Committee, and whether it was fit for purpose.

Ms Mzizi asked if the Committee wanted her to try to respond.

The Chairperson said that he would like to hear a definite response, not an effort to respond.

Mr R Lees (DA) said that SCOPA was getting an inkling that the Audit Committee was not effective, despite the fact that the AG had said that it seemed to be functioning. There was clearly some sort of communication problem. The Internal Audit was cited as a matter of concern by the AG, but he thought that if this was so, the Audit Committee should have raised the issues and reported this to management and taken every effort to have these things fixed externally.

The Chairperson pointed out that the Audit Committee report, on page 82, did not refer to the quality of the IA and its findings.

Ms T Chiloane (ANC) said that she wanted to speak to the issue of inter-governmental relations. A statement was made earlier that records were not kept with PSETA, but with DPSA, although new systems had now been set up. She said that surely management could not simply start afresh; the entity had been in existence for some time and there was a problem around the R4.6 million. She asked what happened to the information held with DPSA.

She then referred to page 96 of the AR (which she referred to as a “bible book”), on procurement management, and linked that to compliance issues. In relation to items 26, 27 and 28, it was said that there was a skills challenge. Legislation had to be followed; if this was not being done, then PSETA must comment on the value of that legislation. In relation to point 30, on expenditure management, the AG had said that the “accounting authority did not take reasonable steps to manage expenditure" as required by the PFMA. SCOPA had a problem if an entity failed to take the required steps to avoid irregular expenditure. If this had indeed happened, steps may need to be taken to repay the irregular expenditure.

Ms Mashigo responded that the failure to take reasonable steps to avoid irregular expenditure was a legacy matter, dating back to 2010, when the accounting officer then in place did not follow procurement procedures to procure the building that had been occupied. Since 2011, the SIU had been engaged. The PSETA had since moved out of the building and had achieved a saving of about R12 million since this had been rectified.

Ms Chiloane said that she appreciated the response that the entity had since moved. However, she wanted to know about the consequences taken against the person responsible, who it was, and what might have been recovered.

Ms Mashigo responded that this was linked to the whole SIU investigation and only part of the report had been received to date. The rest was still to be tabled to the President. The matter had been referred to the National Prosecuting Authority for prosecution.

Ms Chiloane said that the Committee did not like the fact that it was said that the matter was still with the President, which seemed to indicate an attempt to avoid the issue. This dated back to 2010.

Ms Mashigo responded that the matter was concluded in March 2014, but PSETA had a letter that the matter was still to go to the President.

Mr Joshua Baganzi, Official, Auditor-General South Africa (AGSA), responded on the question of why the AG had assessed the Audit Committee as satisfactory, but the Internal Audit as needing work. The Audit Committee performed its oversight responsibility in terms of evaluating and monitoring the responses to risk assessment, which included financial management, performance management as well as compliance with laws and regulations. It had held meetings and evaluated the work of Internal Audit, and gave recommendations to management to implement. It had done what it was supposed to do over the course of the year. However, the Internal Audit assessment was based on a comparison of what it said it would do, and what it actually did; it had not achieved in full.

Mr Lees said that the Audit Committee issues seemed to be somewhat fraught. He suggested that the Committee move on. Although he did not know when the CEO had come into the organisation, Ms Mashigo joined in 2011. These issues now raised related to the 2013/14 year. He asked why, if it was being said that skills were poor, nothing had been done between 2011 and 2014 to address the issues. He too questioned why apparently everything had been sorted out in the last eleven months only. He wondered if the CEO and Audit Committee Chair should still be in their respective posts.

Ms Mashigo said that from the Audit Committee would like to believe that management had put mechanisms in place to address the weaknesses identified. In 2011/12 a CFO had left, and after his departure many of the problems surfaced and that was why action was taken against the Financial Manager in 2012/13, although that had ended up in the High Court. Processes were not in place previously to address other weaknesses but this was now done in the last financial year, when the Internal Audit had also been enhanced.

The Chairperson said that he thought she was going to comment on taking responsibility. Some things had been done right, but the Committee was also concerned about things going awry under her watch.

Mr E Kekana (ANC) had a follow up question on the issue on capacity. He asked who was responsible for the up scaling of employees. Page 87 of the Annual Report revealed that only one person had been trained. He wondered why provision was not made to address this issue seriously. The second issue was seen on page 86, which clearly indicated that management had received bonuses, despite the issues raised today - and he asked why, since bonuses were normally rewards for good performance and there were no signs of that.

The Chairperson was shocked to only see that one person was trained.

Ms Khunou said that she would like a background on the CEO and CFO, and what sorts of skills were being sought when PSETA was recruiting.

Mr Hlengwa repeated that he still had an issue - as confirmed by Mr Smith and the responses by the CEO - that this was really not a matter of skills, but of dereliction of duty and a total disregard for due process, either because this was state money, or because the staff had skills but simply did not care. This was not, to his mind, anything to do with lack of skills, and believed that PSETA was taking Parliament for a ride. It appeared to him that although there were "warm bodies" in place, they lacked any sense of consequence management. The CEO and accounting authority must detail precisely what disciplinary steps were taken, lest this keep being raised as an issue. He also wanted to know the background of both the CEO and accounting authority. The CFO had said that it was a skills issue - and must then detail exactly what corrective steps were taken to rectify that, and to address the funding problems. He commented that on the previous day, SCOPA had dealt with the Local Government SETA, and it seemed that many of the issues were common to them, and funding models would have to be seriously addressed.

Ms Chiloane reminded the PSETA that she still needed an answer also on compliance with legislation.

Ms Huluman said she held a B Soc Sci in industrial sociology and psychology, and an Advanced Diploma in Labour Law and had a labour resources and labour relations background. She started off with the Bargaining Council in the public service in 1999, until 2010, and throughout that time that council had clean audits. The Chief Financial Officer, who held a B Comm degree, and Honours in Accounting, with other relevant qualifications, had had 14 years’ experience as the CFO for the National Gambling Board before she started in January 2014. The two of them had been attempting to "clean up" the PSETA since 2011, but had not had sufficient capacity or budget. An organogram that was put in by the Administrator in 2010, but having received only R20 million from NT, the PSETA had to freeze the filling of several critical posts. Over the last four years she had attempted to put in place the right policies, systems and people, and had a performance management system where the SETA would enter into performance agreements within a month of a person being employed, and conduct performance assessments against those Key Performance Indicators. Where there were issues of poor performance, particularly because of her labour relations background, she was conscious of the need to follow due process. The law provided that if there was poor performance then those people need to be counselled and retrained. On the issue of training, only one person had been trained because of lack of funding. The PSETA was trying to balance recruitment of new staff against existing staff, some inherited from the Administrator, some from the DPSA, who did not have the necessary skills and had to be put through proper training programmes and retraining. PSETA was trying to get the right balance for its money, had needed to be innovative with the training of staff and had created a budget from the 1% and used it fully. Across the whole entity, all staff had been taken through record, contract and projects management training. The ETDP SETA had even been approached, with a request for money and training to offer to the PSETA staff. There was insufficient money to manage the organisation and sustain it properly. She assured the Committee that proper systems, processes and policies had now been put in place around performance and consequence management. Problems in the finance unit were the result of the number of turnovers of CFOs. She reiterated that PSETA had attempted to rectify mismatch of skills, and used disciplinary measures, and the Financial Manager was transferred out of her position and PSETA had to source skills . She explained that PSETA operated under a hybrid system. The CFO was an employee of PSETA, and so were junior staff. Other skills had been brought in from Deloitte, in the person of the Manager and Financial Accountant. Financial reporting for SETAs was very specialised.

The Chairperson asked for answers to the questions on three quotations, the tax clearance certificates and the issue of non-compliance with legislation.

Ms Huluman responded that people have been disciplined and, whilst coming short of dismissal, PSETA had redeployed two people - the Financial Accountant and Finance Manager. PSETA was a small entity and the finance unit only consists of nine people out of 46 people in the entire staff complement. They were disciplined with final written warnings and were moved out of the Finance Department.

Mr Kekana queried this, asking if they had been dismissed.

Mr Huluman responded that they were not dismissed; they were redeployed.

Ms Chiloane noted the time constraints that prevented more engagement. SCOPA had constantly raised the problem of people, who had failed in one public entity, being redeployed in another. This did not help the country. Even though it was a small entity of 46 people, the best was still expected. Much larger entities had managed to show improvements and she was worried that this Committee did not appear to be taken seriously.

Mr Kekana asked whether the two people that were redeployed had been monitored and were performing.

Ms Khunou said that the real problems need to be dealt with. The IT system was a problem and she did not believe that the number of 46 staff members was a problem. One of the root causes of the IT system was that the Information Security role was not formally delegated, nor was there backup, due to a lack of awareness by the CEO and the Corporate Services Executive. Management did not have a baseline server and was not aware of the best practices. These were the issues that need to be tackled without being defensive, and she reminded the PSETA that Members of this Committee had a duty to serve the voters.

Ms S Mchunu (ANC)(Portfolio Committee on Higher Education and Training) commented that some of the responses had been contradictory, such as the capacity and skills shortage. The Annual Report showed that over half of the budget was spent on compensation of employees, rather than key learning programmes. Parliament was concerned about the lack of output and impact from SETAs, as many remained unemployed. She suggested that the Committee should also look at compensation of staff and the achievement of targets.

The Chairperson said that SETA had to be monitoring, checking and ensuring that targets were met.

Mr Smith agreed with the Chairperson that this would be a way forward. The AG's report indicated that even simple things were not done. In particular, on financial management, the AG commented that “ management did not implement proper review functions ” and that was why he focused on the Audit Committee, which must come in and help. Other statements included "financial statements were not prepared in accordance with what had been expected” and "management did not implement controls over preparation of monthly reconciliations”. He repeated that all these, unless fixed now, would return to haunt PSETA. PSETA had given an undertaking that the issues were fixed. It must now commit to give SCOPA its latest quarterly reports so that SCOPA would check the commitments were carried out. SCOPA should see improvements. Comments must also be given by the Audit Committee on a quarterly basis. The Committee was not happy with the 2013/14 AR and was hoping that the quarterly reports showed improvements so that more meaningful engagement could be held.

The Chairperson said that the CEO would receive a letter from the Committee Secretary confirming the request for the quarterly report.

Mr Mashwahle Diphofa, Director General, Department of Public Service and Administration, responded to the question posed as to what his Department was doing about the SETA’s situation. He said that in the 2011/2012 financial year there were numerous discussions as to how to get funding from government sources for PSETA, finally reaching a decision that 30% of the 1% levy should be quite sufficient in covering the operational and programme costs of SETA. DPSA had issued a directive to that effect. However, NT had held a different view on an appropriate funding mechanism. Funds had been allocated to PSETA for the current financial year, so that programmes and funding streams would become sustainable.

The Chairperson asked for figures.

Mr Diphofa responded that funds to the tune of R93 million had been allocated to PSETA from NT.

The Chairperson asked what the funds were relative to other SETAs, and to its task.

Mr Diphofa responded that it was still the smallest of the allocations of all other SETAs.

The Chairperson asked what it was to cover.

Mr Diphofa responded that that would be determined by PSETA presenting, on an on-going basis, how much it needed to cover the full scope of work. However, NT had taken that as a starting point, depending on the financial systems and capacity to roll out programmes would pan out.

 

The Chairperson said that the momentum be taken forward so that the PSETA had the capacity to actually deliver on its mandate, and reiterated that it had the mandate to make sure that others in the public sector were compliant and performing. The latest quarterly report would be due by end June, and the Committee wanted to see progress made. The Committee was here to assist, with the mandate not only to isolate the problems, but also suggest solutions to rectify situations, and that would be made clear to the House, whose decision would be communicated to PSETA via the Minister.

Local Government SETA (LG SETA) Annual Reports and financial statements interrogation

Mr Lees wanted to emphasise that anything said was not to be seen as a personal attack. He noted that LG SETA was under administration but he had heard that a new CEO had been appointed. Mr Nqaba Nqandela had been the Administrator for a full year now, and there should not be inherited issues for the current year.

Mr Lees commented that the Annual Report for 2013/14 noted that the Audit Committee and Internal Audit were functional, but management was not responsive, and the issues raised had led to the qualifications. The Annual Report, on page 6, said that just about all members of the previous management team had left the organisation during the period under review, some through voluntary resignations and others as a result of disciplinary process. This seemed to indicate lack of control throughout the year. He asked if the Administrator was in fact in control.

Mr Nqaba Nqandela, Administrator, LG SETA, said that he did believe that he was in control of the situation. As in any organisation, work was done through a team of executives and other managers, relying on regular interaction and reporting which would help the organisation to understand where matters were going. To some extent he had been assured that things were happening, but started to pick up some matters later confirmed by the AG. Where there was clearly inability to do things and or lack of intention to do things, then actions were taken.

Mr Lees said that if the Administration had been in control and the AC and IA were doing their jobs, then this situation would not have arisen. This implied that either the AG was wrong and the AC and IA were not functioning properly, and the Administrator not aware of that or of things that should have been brought to his attention, or that the AG was right and management was not responsive.

Mr Nqandela responded that context was important. In this financial year, LG SETA was under administration having come from a state of almost complete dysfunction. He said he did not think that the issues arose because he was not aware of or in control of the situation. The Chairperson of the Audit Committee would speak to this separately from the perspective of the Audit Committee. Everyone was keeping an eye on the situation. It was not perfect, but everyone was trying to assess the impact of steps being taken. He wanted to cite an example on the IA, which was, at the time of the administration, still outsourced from one of the big firms. The Administrators were completely unhappy with the service the IA was performing, and the service provider was engaged with the view to terminating their contract. However, an agreement was reached that the team be changed, and this was done, and although it was a low base, it was at least one concrete step to move the LG SETA forward. There were still gaps apparent in the IA work, but it was moving. The same could be said for management. As reflected in the Administrator's Report, some of the managers of LG SETA were still there, but most of them left after a few months with more leaving towards the end. In some instances there was still non-cooperation or slow cooperation, and this would be reported to himself. Even now, the picture was not altogether good, but he wanted to point out that the LG SETA had moved from a point of a complete disclaimer with no way to account, to at least now being able to package some things in a statement, albeit with weaknesses. There was some control, and he asked that the Committee understand from where the SETA was coming.

Mr Lees said that he had some difficulty reconciling the AG’s report on Internal Audit and the statement made by the Administrator, but would not pursue it at this point. One of the main reasons for the qualification was that the LG SETA did not maintain adequate records and reconciliations for the discretionary grants. As seen from the earlier interviews, the keeping of records was quite a basic thing. He questioned that surely even the IA unit with which the Administrator was unhappy should have picked up on that point, and brought to the Administrator's attention very early in his term. He then asked if the IA did so, and if so, what the Administrator had done about the issue. If this was not done, then the Committee would challenge the AG.

Mr Nqandela responded that when the Administrator team arrived, the LG SETA had received a disclaimer for the previous financial year. There were many things to deal with, and virtually nobody on whom the Administrator could rely to provide certain information. The Administrator started on that path, whilst also overseeing the audit of the previous financial year, and fixing the issues. The IA was dysfunctional, teams were changing, and the Administrator had first wanted to focus on fixing the financial side. This took the better part of the year, during which performance information was not even being audited, until near the end of the year. The new team took time to assist the Administrator in looking at performance information, and it was at that stage that some of the weaknesses, including record keeping, were picked up.

Mr Lees commented that R552 000 had to be paid in penalties and interest to SARS. The AG had said that the PAYE returns were submitted late and the consequence was an automatic 10% penalty plus interest. He asked how that happened, and why no timeous action was taken. The AG, when briefing the Committee, had indicated that this was happening each month in the year under review, under the Administrator's watch, and he asked who was responsible.

Mr Nqandela responded that he took full responsibility for everything that happened in the year under review. Indeed, late submissions were made every month and he confronted it whenever it happened, and make it clear to the CFOs that it was unacceptable that these basic things were still not being done - it also included management of invoices. When it became clear that despite his interventions, nothing would change, he decided to terminate the employment of those responsible, including the CFO.

Mr Lees appreciated that the Administrator took responsibility and had terminated the bad performance. He asked whether any steps were made to recover any of the penalties incurred as a result of gross negligence.

Mr Nqandela responded that no steps were taken. After analysing the situation it was believed that it would cost a lot of time and money. Whilst it was accepted that loss of any amount of public funds was significant, it was also noted that it would cost a lot of effort, time and money to recover, and the focus of the Administrator was rather to stop this happening again, then move on and fix other matters also. This was the call that was made, whether right or not.

Mr Lees again thanked Mr Nqandela for his directness and honesty. He commented that the Administrator had instituted an investigation into the supply chain, and asked if the final report was through, and what the outcomes of the investigation were.

Mr Nqandela responded that indeed about three months after the Administrators were appointed, they had initiated an investigation., which was concluded by November/December of 2013, taking around six to eight months. Several disciplinary cases were initiated. Others would have been also had it not been for those people resigning. It was found that there were serious supply chain irregularities which dated back a few years. The LG SETA had the report, which was quite conclusive on most instances, and urged that further investigations be done into instances that were not so conclusive. Those at the heart of the irregularities had either left voluntarily were dismissed - there were four dismissals as a result of the investigations.

Mr Lees commented that the guilty employees had left, but there was usually a third party in supply chain irregularities and asked whether the investigation uncovered any collusion with third parties, and, if so, asked if criminal investigations were initiated.

Mr Nqandela said there were a few instances that pointed to possible collusion with third parties. This was an investigation done internally by SETA, with a confined scope, so it could not reach conclusive evidence of the part played by other service providers. Several of the instances related to past matters where the service providers were concentrated in one unit, as well as training providers in the core business of the LG SETA. Everything was concentrated in one unit, and he confirmed that at this point there was no attempt to even try to solicit any business from the organisation. In two or three cases, criminal action was instituted against former LG SETA employees. That was now outside the scope of SETA. Very few instances, either as a result of the investigation and even outside the investigation were picked up by the SETA or the AG where it was believed that there was wrong doing by service providers. Where there was a finding, the Administrator successfully terminated their agreements and did not make any further payments after the findings.

Mr Lees said that he was concerned that one of the major issues that resulted in the qualified audit was the failure of a computer which was used by the then-CEO. He said he found it astounding that an entity such as this could have such high risk with IT that one computer failing caused such problems. He asked what the current status was in regard to IT.

Mr Nqandela responded he was also astounded, as it was completely inconceivable to him that something like that could happen. When he came into the organisation, the IT services were completely outsourced and there were no IT management personnel, although the then-provider did give desktop support on infrastructure and assisted in connectivity and the upkeep of the financial management systems that were used. He was unhappy with their services from day 1, as it seemed, like other services, that the provider was "on auto-pilot... doing as they pleased". He had engaged with them to try and understand how this service provider worked. Something serious happened under the service provider's watch and the contract was terminated. That left a gap in matters where the Administrator was not picking up on matters, but the LG SETA anyway needed a different plan for the financial management IT systems that were in place. Another resource was brought in, and since then the SETA had started building. A new organogram was adopted, which showed that there was now building of IT capacity and resources were brought in. One achievement was that the LG SETA now had online submission of workplace plans, which had never been the case before.

He reiterated that he did not know how the then-CEO could have allowed this situation to arise. Even for personal use, most people were keeping backups. This was shocking, but would not happen in the future, as the IT area was being fixed.

Mr Lees said that the Committee was supplied with an executive summary drafted by Mr Mkhize, the new CFO. This detailed the issues raised by the AG, and the current status, and showed that most matters had been completed. That was very encouraging, particularly when compared with other SETAs where nothing had happened for four or five years, and also refreshing that terminations of employment had been taken seriously. However, he would hope that this was the last time that this LG SETA was interviewed in the next few years. The AG seemed to be happy with the current audit position.

Mr Lees asked when Mr Mkhize was appointed.

Mr Mkhize responded that he joined the LG SETA towards the end of November 2013. He was seconded from Deloitte Consulting.

Mr Lees asked whether Mr Mkhize was an employee.

Mr Mkhize responded that he was currently not an employee.

Mr Lees said that he hoped that there would be a plan to fix that; whilst use of consultants was sometimes necessary, it should not be a long term solution. He asked what the solution was.

Mr Nqandela noted that the consultants were initially appointed to come and assist the Administrators, because they had realised that despite efforts to fix the situation, things were still moving slowly. Consultants were called in. Initially, their contract was supposed to run until end-May, and as well as that being insufficient for the clean up, it was also realised that they would be needed for the submission of the financial statements to the AG, and the audit process. The landscape for the SETAs was not clear. They were awaiting directives from the Department. In addition, the SETAs battled to attract people of the calibre required at this level. The Administrators accepted that in the next few months, clearer directions would come from the DPSA, and the Minister would make a decision on what was happening with the NSD4, and the whole SETA landscape. There had already been discussions with the incoming CEO, and the Administrators would be part of the handover to the new board. At that stage, discussions would be held on recruiting a permanent CFO for the LG SETA, assuming that the SETAs would exist beyond March 2016. Mr Mkhize would then hand over to that person. Again, it would happen when the landscape was more clear, and then the phasing-out would start.

Mr Lees thanked Mr Nqandela and Mr Mkhize .

Ms Khunou said that the President, in the 2015 State of the Nation Address, had commented that use of consultants should be done away with. The Administrator suggested that there was a need still for consultants, with open-ended contracts, and would account to Parliament on money they were given. She asked whether these consultants, such as Deloitte, had been transferring skills, or if anybody was being trained. The IA in the SETA was apparently dysfunctional.

Mr Hlengwa said that he appreciated the efforts of the administrator. Before referring to page 46 and 47, he asked for comments on page 38, which related to the accounting authority and executive meetings. The Administrator was the accounting authority of the LG SETA at the moment. There had been no executive meetings during the period of administration. He asked why, whether it was that there was no executive committee, or whether it was simply that the Administrator did not deem it necessary. His other questions were then linked to that point. Page 47, item 34, related to leadership, and the AG said that “despite numerous interventions by the Administrator and the External Audit's efforts to improve the internal control environment and enhance the audit outcome, management did not adequately execute recommendations to implement internal control, objectives, processes and responsibilities relating to numerous areas of financial administration and performance management". This also included a lack of implementation of an action plan to endorse internal control deficiencies, while the plan did not cover all recommendations. He said he was raising this because there was an incoming CEO, and he imagined that the Administrator was getting ready to leave. He had the impression that in the period under review, this was effectively a "one-man show" and he was worried about continuity, if the effectiveness of the administration was dependent on the effectiveness of the Administrator alone and if there was a risk that the SETA would fall back to where it was previously once that Administrator left. The CFO was seconded only. He was not in favour, generally, of using consultants.

He then referred to item 35 which said that management did not implement daily and monthly reconciling of transactions which resulted in considerable effort at year end to get a financial statement, which still did not yield the desired result of a clean audit outcome, although the AG had also commented that there had been a slight improvement in the environment as a result of the intervention by the Administrator, compared to the prior year's numerous findings. However, control deficiencies that existed in the prior year were again identified, and this pointed to inadequate implementation of the Action Plan to address audit recommendations. This was further aggravated by personnel not being accountable to skills and competencies in their areas of their responsibility. He worried that the entire exercise with the Administrator could potentially be futile exercise. He was not attempting to down play the Administrator's interventions but was rather looking at the far reaching effects after the exit of the Administrator, and continuity issues.

Mr Smith referred to a statement made by the Administrator that the employment of some employees was terminated when they were found guilty, but that others had foreseen the disciplinary hearings, resigned and left. He asked whether those who had resigned were currently employed elsewhere in the public service. If so, they should be blacklisted and removed from the system. Unless the hard questions were asked and the problem rooted out, Parliament would be taken for granted. He asked for the names of the people that saw their termination coming and had left, in order for the Committee to be able to determine if they were in state service.

Mr Smith secondly referred to page 60 of the AR, which noted some worrying trends. Expenses for advertising had doubled from R4 million to R million, and the expenses for workshops trebled from R1 million to R3 million. Consultancy fees went up by nearly 800% from R2 million to R9 million. Legal fees went up from R100 000 to R3 million. He particularly wanted to know what the reason was for the rise in legal fees, and how many of the legal battles taken on by the SETA were won. He said that too often, entities would go to court and defend, losing government funds, and another issue was that contingent fees were charged. Yet another question was how many of the legal practitioners used were white and how many black; he was sorry to be so blunt, but transformation was a major issue and if the legal costs were rising so steeply and only white lawyers were benefiting, then that was "double-whammy". He appreciated that the SETA may not have all the information here but would like a written response.

Mr Nqandela responded that he continued to be worried about the money being spent on consultants. He had decided that if the work was to be done within a reasonable time, particularly given that the SETA was first placed under administration for 12 months, then it was impossible to avoid seeking external assistance. At that time, the LG SETA had very little capacity. It continued to have capacity challenges around skills. There were very few people there to do the work. When he arrived as Administrator, there was a Finance Officer and two or three other administrative people, so that it was impossible to avoid seeking assistance from consultants to move LG SETA from a disclaimer to a normal position. The same happened with legal fees. There had been a lot of "cleaning up" needing to be done, around legal contracts with service providers and in terms of labour relations - he could expand on that later. The LG SETA did not plan to rely on the consultants permanently and, since February 2015, there had been a full executive team to help the CEO lead the organisation, with consultancy roles to be filled by permanent employees. After July, the only consultants remaining would be the Deloitte secondments in the Finance Unit, and their posts would be phased out a few months later.

The Chairperson asked who would be left after July.

Mr Nqandela responded that there would be some seconded staff from Deloitte and the CFO. He stressed that he was making the point that consultants were in this case necessary, but the SETA would not necessarily rely on them into the future. He fully agreed with the President;s comment about reliance on consultants. At the South African Local Government Association (SALGA) Members' Assembly, that point was emphasised again.

Mr Nqandela commented on the executive meetings, and said that he might have been wrong in putting together the presentation. This should refer to the Accounting Authority Board and the Executive Committee of the Board specifically. As there was no Board at present, the Administrator was the accounting authority, working with a team of people and executives of a sort. The paragraph referred to by the Member referred to the Executive Committee of the Board, but some people formed part of the Executive team. It was not a one-man show. There had been some instances where there were few LG SETA employees who could do their work, so the Administrator had needed over two years to start from scratch and build the capacity, by employing and recruiting people. The Finance Unit was used as an example. Here, there were always SETA employees (albeit on a low level) when the Administrators arrived, and more had, over time, been recruited. When a decision had to be taken on whether to bring in Deloitte, employees of the SETA would be paired with Deloitte secondments, who then assisted in identifying the roles and how the Finance Unit was structured, and each Deloitte consultant would systematically be transferring skills to the LG SETA employees. That was the reason why, even beyond the extension, there would not be so many consultants as had been deployed initially to do the tasks. Many things had been done and to a large extent there was capacitation of LG SETA staff. Some of the CFO’s "lieutenants" would already be phased out over the coming months.

Ms Gugu Dlamini, the new CEO, would have had at least two to three months working with the Administrator before he left, to ensure that she was fully au fait with issues before he left. The same would happen with other executives that had now joined.

Mr Nqandela said that he could not give a conclusive answer to Mr Smith on where the employees resigning were now, but thought that they were not in the State's employ, although there might be one or two who were again deployed in State positions. He would like to respond fully in writing, to ensure the accuracy of information.

Mr Nqandela commented on the expenses, on page 60 of the AR, and said that although LG SETA had not done some of the basic things right, he was trying to ensure that it was trying to do so. One example was advertising for positions. LG SETA was recruiting to try and build the capacity within the organisation, because one of the major reasons why it was put under administration was that there was little recruitment, coupled with low numbers and skills, and no CFO for three years. Tenders, in particular, required advertising, and he could give more detail, but this was the kind of thing that was needed to normalise the SETA. For workshops, there were two major cost drivers. The first was stakeholder engagement and the Administrators, on coming in to the SETA, had held consultations with people internal to the organisation as well as stakeholders. SALGA was the employer body at the SETA, but it had a view, as did many others, that the LG SETA was useless and irrelevant. It was thus very important to bring the SETA back to its stakeholders and constituencies. Rightly or wrongly, that was a decision that he took, and a lot of time and money was expended on going to provinces, doing road shows and speaking to and selling the vision to stakeholders. The system worked largely because the stakeholders need to apply for grants to ensure compliance. The message to them was always that the Adminstrators could fix the organisation to become spick and span, to have good processes, and to work; although municipality stakeholders still needed core training. In addition, the LG SETA had six provincial offices. Prior to the Administrators coming in, the provincial managers had already approached the Ministry complaining that the LG SETA should be put under administration, because they were not then part of the organisation. In conjunction with planning, and selling the vision, the Administrators had brought together provincial managers for regular three monthly staff meetings, which had not been happening previously.

He confirmed that black firms were used for consultancy and legal matters. Several cases were against service providers to the organisation. Most did not end up going to court although some summons were received, but matters not proceeded with. On two, summons had been served but there was no further movement. There was one tripartite issue, involving a service provider and university which was a consortium. LG SETA funded the programme, and the University still had to prove that it was still a consortium, in order to effect payments. It had been unable to do that. Both parties were claiming payment. Most of the work related to labour relations. The LG SETA had not lost any of these cases, which were taken through the organisation's own processes and the CCMA. Another issue was referred to the Labour Court for review, and the LG SETA was confident of success. All cases fought represented value for public money.

Ms Chiloane added to comments about contingent liability, pointing to page 75, where notes were included from the accounting officer in relation to claims, litigation and guarantee. No reasons were given for the Murray and Roberts matter, and here it was said that it was not clear, after consultation with legal representatives, whether the liability would be incurred.

Ms Chiloane was also concerned about point 29, which noted that amounts of leave overpayment to employees who had either left the LG SETA, or as a result of changes to the system made by the service provider, were still under investigation, as to how to recover the overpaid amounts. This was really not convincing.

Ms Khunou asked for the Administrator to make available to the Committee the action and implementation plans, and to indicate who would do what. She commented that the Administrator was to train the incoming CEO. However, there was a comment, on compliance with legislation, financial statements and the annual performance report, that some misstatements were not corrected, and she hoped that this would be done before any training.

Mr Hlengwa noted that there was a team in place. Comments had been made on page 47, in particular item 35, of the Annual Report, to the effect that management did not implement controls on daily and monthly reconciling of transactions, which had resulted in considerable efforts at year end to correct financial statements, and even then they did not yield the desired result of a clean audit outcome. This seemed to indicate a rushed effort at the end of the year. He thus took cold comfort in the statement that a team was in place, seeing that its efforts had not yielded the right results. This raised questions on sustainability and, if the due processes were only going to be followed at the end of the year, it also raised questions as to what was happening during the year. The AG had said that there were no daily and monthly reconciliations implemented.

Ms Mchunu said that the Committee's concern lay largely with the skilling and training of the people. The whole public sector was in dire need of strong personnel with scarce and critical artisan skills. To be honest the LG SETA was unable to execute its mandate specifically on the training and development in this sector. A look at the targets would reveal under-achievement in all programmes. When the Administrator was appointed there was a belief that there was going to be an improvement in terms of achievement and functioning of the LG SETA. She asked the Administrator what the turnaround strategy was. Some of the things done were still not working and the achievement was still low.

Mr Smith referred to a statement made on the “leave asset” on page 75. The balance sheet after events indicated that the service provider was willing to pay 50% of the losses, and he noted that the Administration had commented, in note 30, that it would in likelihood be accepted. This amounted to R12 300 of the R23  000 after balance sheet, as a gesture of goodwill. This paragraph stated that "the fault was due to the Service Provider”. The next paragraph indicated that although there was a fault, the service provider had offered only 50%, and he wondered why the LG SETA should accept that, unless it was suggesting that perhaps fault was not entirely with the service provider.

Ms Khunou said that the consultancy fees were increased by nearly 800% and there were “warm bodies” in LG SETA that were getting paid to do what the consultants were now coming to do in the entity. She asked whether this was value for money, and she wondered if any bonuses would be paid, given that others were doing what these people were paid to do.

The Chairperson asked what Ms Gugu Dlamini’s position in the entity was.

Mr Nqandela responded that she was the new CEO, and would be taking the entity forward. He wanted to highlight that he had not said that he was "training" her; she was highly competent and experienced and had been CEO previously in larger organisations. He was happy that the LG SETA would be in good hands.

The Chairperson asked when Ms Dlamini joined the LG SETA.

Mr Nqandela responded that she joined on 4 May.

The Chairperson asked how she was appointed in May, when a CFO had not been appointed.

Mr Nqandela responded that the SETA had been lucky that at the time she was free to move, having been working for herself.

Mr Nqandela addressed the question of misstatement and the Action Plan. He believed that all issues had been corrected, including the leave, by working with Deloitte. Transfer of skills would not regress under Ms Dlamini. All the indications given showed how far the LG SETA had come. With regard to the issues raised on management not responding on page 44, he wanted to reiterate his earlier comment that he took full responsibility, after lots of interaction and trying to support and assist, although he was not a finance person, but had to oversee.

He wanted to speak to the issues of weekly reconciliations, which had featured prominently in a slide presentation. The AG could not understand why this was not being done, nor could he get from the team exactly why it was not being done, as several excuses were proffered, including blaming the system. It was now implemented, through competent people, and the failure to address these issues earlier were amongst the reasons why some people were dismissed. He did not want to try to shift any blame, but it was his engagements that shifted the entity to where it was today, where the right things were being done and the right skills were being transferred.

He commented that all SETAs were important and so was all skills development, and local government was particularly in dire need of skills, so it was "completely inconceivable, untenable and inexcusable" that the SETA had not been doing what it was supposed to be doing, prior to being put under administration. Now, some of the outstanding issues had been addressed. There were some weaknesses still, but by and large the Administrators had turned the SETA around. He did not want to speak too early, but believed that performance audits for the 2014/15 financial year were far better than in the previous one. Much time had been spent on putting plans and systems in place for the current financial year, to avoid not being able to account. The turnaround strategy was based around the building of capacity, bringing in the people with the right levels of skills, putting processes and systems in place, and attending to issues of governance and policies, ensuring various controls including the performance management and the IT aspects. Consultancy fees had to increase, as had been explained earlier, because there were not enough people and there was limited time. In some areas, consultants had to do the work as there was no one else to do it, where the structure was not populated. In other areas where the LG SETA employees and consultants worked together, there was a transfer of skills.

The Chairperson said that the cost of employment increased by almost R10 million.

Mr Nqandela responded that the cost of employment would rise as the organogram was populated, and recruitment had started in this year, over and above the consultants. Part of the normalisation process was to ensure that recruitment was kept high, to ensure that consultants were not running the organisation without building capacity.

Mr Mkhize responded to the issue raised on the post balance sheet events relating to an undertaking made by a service provider. A follow up was conducted, and it was found that there was no such undertaking. This issue was abandoned. The focus shifted to fix the leave module system.

The Chairperson asked who put the undertaking in the AR.

Mr Nqandela said he was hoping that the CFO would speak to the accuracy of the numbers. Ultimately, he would have to take responsibility for the full content of the AR, although managers heading certain sections would have compiled the information. Everybody contributed different sections. It was unfortunate if it was not accurate.

The Chairperson reiterated Mr Smith's question on why it had been decided to accept the offer of 50%.

Mr Mkhize responded that the Administrators had followed up as to whether there was such an undertaking, as the intention was to recover the full amount. He agreed that it would have been foolish to accept 50% if the error was not with the SETA. However, nothing was found in writing. The SETA then moved to .trying to fix the leave module system, in order to ensure that these kinds of errors would not recur.

Mr Smith commented that in essence, in this financial year, there was a staff debt write-off of R24 000. He asked whether, if there had been an overpayment, money could still be recovered, or whether it was not worth pursuing and he asked for a full answer. The money should be recovered from somewhere, and he asked if there was any possibility of recovery.

Mr Mkhize responded that at the end of the financial year the write off had essentially already happened, because the LG SETA had not taken steps to pursue the recovery.

The Chairperson said that debt was already incurred; the money was not there.

Ms Khunou said that Deloitte had problems and could not keep track. She wondered where the Administrator would move to, after this assignment

Mr Nqandela responded that he was not expecting that question, and had not finalised exactly what he was intending to do.

Ms Chiloane said that her follow up question was on the leave over-payment. She was not convinced with the answer given. Item 29 reported that management was still exploring ways of getting this, although responses now seemed to indicate that this was regarded as a past issue. In relation to all consultants, they would be paid to do a job and a halfway response should result in a halfway payment. She asked who the service provider was. Mr Smith had commented that people could still be traced and asked to pay - salary deductions were possible, and she could not understand why it was so difficult to recover. She again asked why there was an issue with contingent liability on Murray and Roberts.

 

Mr Nqandela responded that he would need to report on this in writing as he could not recall all the details offhand. Some service providers were already in place when the Administrators arrived, and the AG had identified problems with the way they were contracted, and contracts had been terminated, as mentioned earlier.

The Chairperson asked whether the numbers were then inaccurate.

Mr Nqandela responded that they were accurate, presented from 31 March. The finding by the AG was that there were difficulties with the financial statements, which were not prepared according to the right standards, which was undesirable as it was the service of Deloitte was sought. In some respects, the Administrators had not been able to do the numbers right.

The Chairperson said that there were two amounts involved - one relating to leave days, and the second relating to the correct value and either the leave days were wrong, or the value attached to them.

Mr Nqandela responded that he misunderstood the Committee to be saying that some of the numbers were wrong, which was not the case as he was talking about the commitment.

The Chairperson asked for an explanation on the Murray and Roberts issue. He said that he was surprised that this was able to go through the LG SETA systems without anyone being able to detect it.

Mr Mkhize responded that, in line with what the Administrator had said, full details would be provided. However, briefly, this related to a past transaction between the LG SETA and Murray and Roberts, and although he did not have all the details now, the transaction required a guarantee from LG SETA, which had been subsequently released because at the end of the current financial year the bank confirmation did not have a guarantee from that firm.

The Chairperson noted that he should get that information as it should be put in the AR.

Ms Khunou said the Administrator was going to send reports to Parliament, but wanted to know who the service providers were, and commented that this was another word for consultants. She wanted a proper report on the reasons for increased legal fees.

The Chairperson reminded her that there was a response given on the legal fees, and who was being paid.

Ms Chiloane commented that the AG’s report said that “all the legislation had been complied with”.

The Chairperson commented that the DPSA had responsibility of ensuring the effectiveness of the SETAs.

Mr Diphofa agreed and said that DPSA's responsibility extended beyond the duration of the Administration for the LG SETA, and he emphasised that this related to the 2013/14 financial year. Members had, quite correctly, pointed out the high proportion of consultants in the entity, and it was important also to note that in an environment of that sort, sustainability was an issue, and to consider what measures had been put in place in order to mitigate that. The DPSA was aware of indications that there were still huge challenges, but was working, as a Department, to ensure they would be addressed. In relation to External Audit, DPSA had seconded additional capacity to work in that area full time in LG SETA to try to consolidate. The new CEO would be needing to do rigorous work to take the LG SETA to the next level. There were numerous gaps which needed a concerted focus. Resource would have to be deployed, and the challenges borne in mind. The DPSA was not shying away from responsibility and would gladly account. There were challenges but it would do its level best to ensure that it accounted to the Committee, Parliament and the public at large.

The meeting was adjourned.