Department of Basic Education on its 2014/5 Annual Report with Minister; Audit outcomes: Auditor-General briefing

Meeting report

Auditor-General South Africa (AGSA) on the Department of Basic Education 2014/15 Audit
Mr Godfrey Diale, AGSA Senior Manager, noted the aim of his presentation was to help the Committee with its oversight role.

In regards to the findings, the audit outcomes showed that the DBE had accruals and payables exceeding 30 days as required by Treasury regulation 8.2.3 amounted to R329 million. Unauthorized expenditure was R6 844 million, meaning expenditure not in accordance with the voted budget. Irregular expenditure of R727 654 000 million, meaning expenditure incurred in contravention of key legislation. AGSA identified that the main reason for these outcomes is the slow response by management in addressing the poor audit outcomes of previous years. AGSA recommended monitoring and evaluation processes particularly with regard to the implementation of the action plan as well as strengthening and appointing dedicated staff that can detect or prevent slow responses. DBE must hold people accountable as the outcomes reflect the lack of consequences in the department. 

In addition, AGSA found that DBE submitted financial statements which contained material misstatements in the areas of immovable tangible capital assets, accruals and payables, commitments and accrued departmental revenue. AGSA identified the root cause being that the monthly financial accounts prepared were not complete as the monthly reconciliations were not in respect of all financial statement line terms (in particular disclosure notes). Some of the AGSA recommendations to address this issue include that DBE should implement monthly disciplines of record keeping, reconciling and review of transactions to ensure the credibility of the completeness of monthly and quarterly financial reporting. Also DBE should enhance the skills and resources in the infrastructure and internal audit units to address capacity challenges in record-keeping and financial reporting. This will also limit dependency on the implementing agents appointed.

Mr Diale said that it was worth noting that AGSA has had interactions to help improve financial outcomes of DBE. Workshops were held with various oversight committees of DBE such as the Council of Education Ministers and the HEDCOM sub-committees on planning, finance and internal audit to discuss audit outcomes for the prior years. Root causes that led to the findings were discussed and recommendations were made. As a result, although the audit outcome for DBE remained the same, there was a notable improvement in the extent of the findings reported when compared to the prior years.

Moving onto DBE's predetermined objectives, AGSA found that programmes targets were not reliable when compared to source evidence provided. The root cause identified was that not any relevant information was provided to support achievements reported against the predetermined objectives by the respective branches. Oversight of information that resided at provincial level remained a challenge mainly as a result of the lack of resources at the department to perform this function. As a result, the controls were inadequate to prevent and detect errors. AGSA recommended that reported performance results should be reconciled to documentary evidence on a monthly basis against the technical indicator descriptions to provide assurance in the credibility of performance reporting. Actions plans should be developed to address challenges for complete and accurate performance reporting.

In terms of DBE's compliance with legislation, AGSA found that the expenditure management made by the accounting officer did not include effective steps to prevent irregular and unauthorized expenditure as required by section 38(1)(c)(ii) of the PFMA and Treasury regulation 9.1.1. The root cause for was noncompliance in supply chain management performed by implementing agents due to ineffective oversight by the department over SCM compliance. AGSA recommends putting controls in place such as attendance of bid adjudication committee meetings should be more effective in detecting noncompliance with SCM requirements by implementing agents before contracts are signed. Also, clauses per agreements with implementing agents should be enforced where there is noncompliance with SCM requirements, thereby enforcing consequence management processes.

Mr Diale proceeded to explain DBE's financial health and found that the department has problems with accruals. The department might be exposed to further unauthorized expenditure during the upcoming financial years as a result of a significant portion of the 2015/16 budget being used to pay for expenditure incurred during 2014/15 that is presently disclosed as accruals. AGSA recommends improving the controls in place to enhance cash flow management in line with the approved budget requirements.

Another finding by AGSA was the unauthorized expenditure of R6 844 000 million that was a result of a weak control during the processing of payments and the verification of budget availability. DBE should improve controls in record keeping to prevent unauthorized expenditure before payments are made. Secondly, irregular expenditure of R727 654 000 million was due to instances of noncompliance in the supply chain management. As an explanation, AGSA found that 95% of irregular expenditure incurred by DBE was a result of noncompliance with supply chain management requirements when appointing agents to manage the infrastructure programme of the department. The remaining 5% was a result of noncompliance with SCM policies during the competitive bidding process when acquiring goods and services. Contracts were awarded to bidders based on preference points that were not allocated according to the requirements of the Preferential Procurement Policy Framework Act and its regulations. AGSA recommends recruiting personnel that will perform the oversight and monitoring functions, particularly of appointed implementing agents' adherence to the agreed terms and conditions.

The Minister of Basic Education had committed to making progress based on the audit outcomes of past years. Such commitments are still in progress and other new commitments have been made in the current year. No commitment to an action plan has been fully and successfully implemented yet. DBE needs to address more optimal internal controls so that the audit can improve in the upcoming years.

Discussion
The Chairperson thanked Mr Diale for the detailed presentation. She commented on the last slide of the presentation referring to sector audit outcomes and showed concern about the critical situation in Limpopo and the Eastern Cape. She asked for his recommendations to address the persistent problem in the two provinces. What is the exact problem with these provinces? Where is the challenge?

Mr Diale explained that the problem, particularly in Limpopo, is that most times the province fails to provide documentation. This is the reason it has received a disclaimer in its audit for two consecutive years (2013-14 and 2014-15). In order to make a change, it is necessary to set the tone at the top to establish an ethical climate promoted by senior management – providing internal financial controls. Such business ethics would help prevent fraud and other unethical practices. Following on, it is important to start holding people accountable. In the case of the Eastern Cape there has also been a history of disclaimers, however the problem with this province is the involvement of too many parties in the process. Thus, in order to seek a change, the same recommendations of setting the tone at the top and holding people accountable would apply.

Mr D Mnguni (ANC) congratulated the AGSA team for the great presentation. He referred to the Limpopo disclaimer and asked if there is a way to know when a specific person or department is not implementing what was agreed. Is supply chain management the problem? What about the price quotations? Are they perhaps too high?

Ms D van der Walt (DA) commented on Limpopo and mentioned that despite the national intervention in the province over the past three to four years, the situation is still the same. What are the challenges when it comes to supply chain management? How does one explain the irregular expenditure?

Mr G Davis (DA) noted from the audit outcomes that the Department of Basic Education is the worst performing entity. He asked what kind of interventions are required to alleviate the situation. What is the explanation for the R727 million of irregular expenditure by DBE? What should be the next step, an internal investigation, perhaps? What is the Western Cape province doing differently from the other provinces to obtain its clean audit? What lessons can be learned from the Western Cape clean audit?

Ms J Basson (ANC) showed concern about DBE’s performance and asked about the challenges and the unauthorised expenditure incurred by the department. How does one balance compliance versus service delivery?

Ms N Mokoto (ANC) requested the performance details per province instead of the overall DBE performance. Why do most provinces get an unqualified audit opinion with findings? What can be done to hold people accountable? How does AGSA assist the provinces? Does AGSA offer workshops during the auditing?

Ms H Boshoff (DA) asked what measures need to be taken to fix things.

Mr D Khosa (ANC) asked about the relationship between AGSA and the internal audit - is it an assisting relationship? What about the unauthorized expenditure of R6 844 million by DBE? How does AGSA elaborate on their recommendations?

Mr Diale explained that in order to assure compliance and service delivery, the legislation is very clear, all laws and regulations must be implemented accordingly. In the case of Limpopo, and in addition to the previous recommendations, senior management / the leaders must encourage an individual responsibility ethic. This ethic would reduce the errors in quotations for programmes, meaning that there would not be money left for unauthorized and irregular expenditure. All the findings in the audit report cause concern. Irregular expenditure of R727 million is not acceptable. All departments and agents involved should stick to the recommendations made by AGSA to ensure a clean audit. As an example, we have the Western Cape; what they are doing right is precisely taking seriously the recommendations made by AGSA in the audit reports to ensure the proper development of the programmes as well as holding people accountable. It is relatively easy to change course once the root causes have been identified. The audit report is very clear on the recommendations and on what should be executed. Transparency should be the top priority. Further, we are always available to the provinces and departments, if they need our assistance. We are always more than happy to guide and help them. Of course, AGSA’s way of assisting is precisely to assure compliance and service delivery.

Mr Diale said the terminology “unqualified with findings” means that the financial statements contain no material misstatements. Unless we express a clean audit outcome, findings have been raised on either reporting on predetermined objectives or non-compliance with legislation, or both these aspects. On the contrary a “qualified” audit opinion means the financial statements contain material misstatements in specific amounts, or there is insufficient evidence for us to conclude that specific amounts included in the financial statements are not materially misstated. An “adverse” audit opinion means the financial statements contain material misstatements that are not confined to specific amounts, or the misstatements represent a substantial portion of the financial statements. And lastly a “disclaimer” of an audit opinion means the audit provided insufficient evidence in the form of documentation on which to base an audit opinion. The lack of sufficient evidence is not confined to specific amounts, or represents a substantial portion of the information contained in the financial statements.

However, besides these circumstances, progress has been made over the last couple of years in the provinces. Things are slowly improving with the exception of Limpopo. AGSA is confident that soon all provinces and departments will start moving in the right way.

The Chairperson agreed with Mr Diale that not everything about the provinces and their audited departments is wrong. There has been some improvement, and the great recommendations made by AGSA would help address the current issues sooner rather than later.

Department of Basic Education (DBE) 2014/15 Annual Report briefing
The DBE, presented its Annual Report for 2014/15 including the performance of the current programmes and the annual financial statements; noting that DBE's statutory role is to formulate policy, norms and standards as well and monitoring and evaluating policy implementation and impact. The DBE aims to provide:
- School Infrastructure Development
- Curriculum and Assessment Policy Statement (CAPS)
- Data and information challenges
- Expansion of Early Childhood Development (ECD)
- National Senior Certificate Results (NSC)
- Annual National Assessment (ANA)
- Improve the number of young teachers entering the teaching services
- Aims for the learners’ well-being, meaning that there has been implementation to ensure the provision of nutritious meals on every school day. Also, DBE has improved the access to primary health care for learners in primary and secondary schools.
- Budget monitoring and proper administration of Post Provisioning Norms to provinces to ensure that budget and systems controls are in place.

In terms of programme performance, a total of 22 annual targets have been set and 95% were achieved.

The targets, accomplishments as well the reasons for deviation were provided for DBE’s five programmes:

1. Improvements in Administration programme: DBE undertook research/analysis on underperforming schools (pass rate of 40% and below). All DBE planning and reports for this programme have been successful and completed on time.

2. Improvements in Curriculum Policy, Support and Monitoring programme: DBE has shown improvements in learners’ performance and prompt distribution of materials such as workbooks. DBE has developed a math workbook specially designed for Grade 9 in order to help learners improve their marks. 98% of the workbooks have been printed and distributed. Other programmes such as reading promotion have been implemented and identified as one of the priority programmes for 2014/15, hence the development of the Early Grade Reading Assessment (EGRA) project that focuses on four key reading components, namely phonemic awareness, phonics, word recognition and oral comprehension. Also, during the period under review, DBE managed to implement the South African Sign Language (SASL) CAPS in the foundation phase and Grade 9 in schools for the deaf in all provinces. Further, DBE developed and launched the "1+4 Model" during the quarter under review as a Math Strategy to improve the Grade 9 ANA results. A new math, science and technology conditional grant has been introduced. 82 out of 277 schools started offering mathematics in Grade 10 for the first time in January 2015.

3. Improvement in Teachers, Education Human Resources Development and Institutional Development programme: 10 788 young and qualified educators (30 years and below) entered the system, this was 2 788 above the annual target of 8 000. On the other hand, 1 321 young and qualified educators left the system. In addition to teacher training, there have been technological improvements. 60 teacher centres have been upgraded by Vodacom. The expansion of an extra 20 teacher centres has begun.

4. Improvement in Planning, Information and Assessment programme: DBE’s plan for collection of data has been successful and completed in most areas. Of the 81 districts, school profiles in 68 have been analyzed. DBE dedicated the beginning of the fourth quarter as a period of monitoring the reopening of schools for the new academic year and a total of 885 schools countrywide were visited.

5. Improvement in Educational Enrichment Services programme: DBE has increased the number of schools that provide learners with nutritious meals. The 2014/15 target was 19 800 and the actual output was 20 727. Also DBE has increased the number of learners participating in organized activities on citizenship, human rights and responsibilities and constitutional values; from a target of 2 500 DBE was able to accomplish an output of 8 305. Other achievements are the inclusion of the de-worming programme in January 2015. There has been a linkage of schools to local police stations and the establishment of safe school committees in all provinces. A total of 15 769 schools are linked to the local police and have established safe school committees.

In terms of governance, DBE has ensured covering areas such as:
- Risk management
- Fraud and corruption
- Minimizing conflict of interest
- Code of conduct
- Healthy, safety and environmental issues
- Attendance at Portfolio Committee meetings
- Prior modifications to audit reports
- Internal audit and audit committee
- Audit committee responsibility
- Effectiveness in internal control
- Management of monthly and quarterly reports
- Evaluation of financial statements.

DBE has made sure to make progress on the recommendations given in the audit outcomes of previous years to ensure the proper conduct of programmes and distribution of funds.

Moving onto human resources DBE has accomplished:
- Total number of posts in DBE: 796
- Total number of posts filled: 748 (Female: 418; Male: 330)
- Vacancy rate: 6.03%
- Turnover rate in DBE: 8.29%
- Professional development opportunities offered: 452.

The reasons for deviations per programme were:
Programme 1: Administration (Unspent R2.780 million)
Underspending is a result of delays in the submission of invoices for the department's server that resulted in the inability to finalize the processing of payments before the end of the financial year, as well as saving in respect of office accommodation due to fluctuation of the unitary fee.

Programme 2: Curriculum policy, support and monitoring (Unspent R142.542 million)
The under-expenditure is mainly due to funds withheld for the Dinaledi Schools Conditional Grant to the Limpopo province due to low spending. Further, there were delays on verification of learners registered in the Kha Ri Gude campaign; this also resulted in under-expenditure for payments to volunteer educators.

Programme 3: Teacher & education human resources development & management (Overspent R6.448m)
Overspending is due to the National Teacher Awards expenditure that was higher than available funds.

Programme 4: Planning, quality assessment and monitoring evaluation (Underspent R802 000)
There were no material variances on this programme.

Programme 5: Educational enrichment services (Underspent R21.344 million)
Underspending is due to the transfer of funds withheld for the HIV and Aids Conditional Grant to the Limpopo province due to low spending.

DBE acknowledged the outcomes of the audit report and is making sure it considers and applies the recommendations made by AGSA in order to have a clean audit.

Discussion
The Chairperson showed concern about the constant issues and slow progress in Limpopo and the Eastern Cape. What are the exact challenges and improvements in these two provinces?

Ms D van der Walt (DA) referred to the Limpopo and Eastern Cape intervention and the ineffectiveness of Section 100(1)(b) intervention. The national department continues to provide special guidance and monitor service delivery but at what cost? The situation is still the same as it was three to four years ago and is clear that something different needs to be done to improve the situation in these provinces. It is not only about the money and the irregular expenditure but the learners are the ones that are losing out. Perhaps if we consider the actual situation of violence and unemployment in these provinces, and if you add the basic education challenges, then what are the actual opportunities that these children have? What are their opportunities for succeeding? What can be done differently besides assuring the distribution of books? How is it possible that there are three or four unfinished schools that had the same start and end dates for construction? What’s the plan for these unfinished schools? What is the problem with ensuring the payment of invoices within 30 days? Why are people not getting paid promptly? How do you explain R705 million irregular expenditure for 2013/14 and now for 2014/15 R727 million of irregular expenditure? Why is the number getting higher instead of going down?

Mr D Mnguni (ANC) referred to the unspent funds. What is the exact problem with the under-expenditure of grants? There should be more pressure on monitoring such things. Why is it that most of the times the targets are not met? How do you measure the percentage of construction at schools? How is the relationship between DBE’s internal audit and AGSA? How do you deal with legislation compliance?

Ms J Basson (ANC) asked what can be done to finish projects that are being abandoned, such as school buildings and furniture. What is DBE’s plan for that? How are we doing with the “1+4 Model”? Is it still in the pilot stage? Is it producing good results? What is the update on the Early Childhood Programme and on ANA? What does one do with provinces like Limpopo and the Eastern Cape that refuse to be assisted although they are performing so badly?

Mr G Davis (DA) commented on the performance of DBE. Why is DBE not complying with the legislation? How does one explain the irregular expenditure? What efforts has the department implemented to comply with legislation? What is DBE doing to address the poor performance? Are officials being held accountable? In Programme 3, it says that a total of 10,788 qualified teachers aged 30 years and below entered the profession for the first time during the financial year, but at the same time it shows almost 10% of all qualified teachers aged 30 or below exiting the system. Why are they leaving? Is the government protecting its investment in the training of teachers? Why are so many teachers leaving their profession to take their pension? How does one explain the gap between teachers arriving and the ones leaving? Can you expand on the ANA results?

Ms N Mokoto (ANC) commented on the performance of DBE and asked for the department’s strategy to avoid carrying over the same issues year after year? Is DBE following up with the recommendations made by AGSA? Who is doing the oversight on the supply chain?

Ms H Boshoff (DA) indicated that there is a big difference between what was supposed to be accomplished and what is being reported in the Annual Report. Where is the commitment to ensure the achievement of targets? Why is the catering budget so high? What is the current situation on sign language education? What is the current situation for learners with disabilities accessing basic education? Do you receive any feedback about the training the department provides? What is the department’s strategy to reengage learners that have dropped out of school as a result of the department’s internal issues?

Ms Boshoff added that the late payment of salaries to teachers is a matter of concern, not only because these people are dependent on their income but our learners’ performance depends on teacher performance and attendance at school. Some of the payments are almost a year late. What is DBE doing to address such issues? Now in terms of ANA, what happens if a learner cannot go to school on the day of the test?

Mr D Khosa (ANC) asked what to do with the situation in Limpopo? What is the department’s strategy to encourage the province of Mpumalanga to keep moving towards a clean audit and the proper development of the basic education programmes? How is the department addressing the maintenance of school buildings? Is there a designated budget for maintenance?

The Minister of Basic Education, Ms Angie Motshekga, replied that is difficult to differentiate between provincial and the national development as one complements the other. The under-expenditure in some of the programmes is mainly due to delays in the submission of invoices or verification of the same. Now, the reason the catering budget is high is due to the constant visit of guests. There are always people coming, and the least we can provide them is a meal. In terms of the effectiveness of the Section 100(1)(b) intervention, DBE has considered it crucial for monitoring and guiding service delivery to intervene in the Eastern Cape “one” time and “five” times in Limpopo. If it were not for these interventions, things could be significantly worse. There is an action plan by DBE that is about to be implemented to ensure things run better in Limpopo. She has personally visited the province at least four times during 2015 in order to ensure all aspects that need to be addressed get the necessary attention and a concrete plan of action. On infrastructure, it is true that the department has some unfinished projects, but it is worth noting that the department has gone from 36 schools to more than a hundred schools fully functional in less than three years.

Mr Enver Surty, Deputy Minister of Basic Education, answered that for learners with special needs, there have been small but at the same time significant advances, as for example sign language has now been included in the Basic Education curriculum which is a very big step. For now, the number of schools available for learners with special needs remains a challenge because in the past, there were only a few schools in the major cities for white learners. However, it is slowly expanding across the country offering coverage for black people. This is why we can say some progress is being made within this matter. On the maintenance of schools, the department is always making sure that the facilities are in optimal condition for the learners; even technological improvements have been made in some of the schools. 60 teacher centres have been upgraded by Vodacom. The expansion of an extra 20 teacher centres has already begun.

Mr Mathanzima Mweli, DBE Director General, expanded on the Annual National Assessment (ANA, saying that the ANA is a unique assessment of the country because no other country does it on the scale that South Africa does. The programme has encountered many challenges and has been criticized by many outside parties; however progress among the learners has been achieved despite some performance problems that are common to this type of project. As per the mathematics results for 2014, learners have improved their marks in Grade 3 and 6; however, Grade 9 is still struggling meaning that no major improvement has been achieved there. In home languages, there has been a noticeable improvement in Grades 3, 6 and 9. Therefore, generally speaking ANA has served to evaluate and monitor the progress of learners during the past three years. Still some changes in the basic education programme need to take place, but it is something that the department is working on really hard. On how percentage is measured in school construction projects, basically the building itself is broken down into small percentages and depending on the completion of the same, the percentage is obtained. The relationship between the internal audit component and AGSA is excellent. Further, the “1+4 Model” that was developed by DBE to improve mathematics marks in Grade 9 has been fully and successfully implemented; the department has been receiving regular reports on the development of the programme and so far the impact has been positive. With regards to our targets, they are released annually and quarterly in order to address the different challenges and changing circumstances.

Minister Motshekga added that there are still many issues that DBE needs to address; the delay in the payments has been due to delay in the invoices or approval by Treasury. She assured the Committee that there is going to be change in the province of Limpopo and the Eastern Cape although it might not be immediately, positive change is going to take place.

The Chairperson thanked the Minister of Basic Education, the Deputy Minister of Basic Education and AGSA for their comprehensive presentations and noted that the Committee was looking forward to seeing a clean audit.

The meeting was adjourned.