DIRCO & African Renaissance Fund on their 2014/15 Annual Reports; Audit outcomes by Auditor-General

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International Relations

14 October 2015
Chairperson: Mr M Masango (ANC)
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Meeting Summary

The AGSA briefed the Committee on the audit outcomes of the performance and financial reports of the Department of International Relations and Cooperation (DIRCO) and the African Renaissance Fund for the financial year 2014/15.The lack in improvement in the overall audit outcomes was due to the DIRCO receiving a qualified audit opinion on its financial statements for a second consecutive year. The African Renaissance Fund (ARF) remained unqualified with findings on compliance with legislation. The published financial statements of the DIRCO was that tangible capital assets and minor capital assets were materially misstated due to the DIRCO not maintaining an updated asset register. The DIRCO furthermore had not done an assessment of its works of art and paintings, as was required. The financial misstatements submitted for auditing by the DIRCO and the ARF contained material misstatements in the areas of immovable assets, movable tangible capital assets, irregular expenditure, fruitless and wasteful expenditure, related parties, payables, expenditure, commitments and contingent liabilities.

The ARF received an unqualified audit opinion only because they corrected all the misstatements that were identified during the audit process. The DIRCO could not make all the corrections due to the lack of a credible asset register and the failure to perform an assessment of works of art and paintings. Controls needed to be strengthened. All personnel responsible for preparing financial statements needed to be trained. The asset management strategy of the DIRCO, amongst others, should have mandatory asset verification and old/obsolete assets need to be disposed of. The annual performance report submitted for auditing by the ARF contained material misstatements. It had avoided material findings in its audit report only because the material misstatements had been corrected during the auditing process. The AGSA identified material non-compliance with legislation (excluding non compliance with the PFMA due to the submission of financial statements that contained material misstatements) by the DIRCO and the ARF. Some of the issues identified were that the DIRCO had not adequately implemented proper control systems to safeguard and maintain assets. Both the ARF and DIRCO had not followed competitive bidding processes or requested three quotations when procuring goods and services. Neither of them had taken effective steps to prevent irregular and fruitless and wasteful expenditure. This resulted in both of them reporting a combined irregular expenditure of R103.5m. The DIRCO reported R363 000 in fruitless and wasteful expenditure. Both of them had also not taken effective and appropriate disciplinary steps against officials who made or permitted irregular, fruitless and wasteful expenditure, whilst non-compliance with supply chain management prescripts were not investigated.

The AGSA recommended that staff involved in procurement and senior management should be trained on supply chain management legislative requirements and performance management. Consequence management needed to be implemented in respect of employees who continuously failed to comply with legislation. The AGSA requested the Committee to ensure that certain commitments were made by the DIRCO to improve. These included that the DIRCO had to resolve asset issues at missions and at head office. It also had to address repeat audit findings and that consequence management had to take place against officials who failed to act. The status of implementation of the Southern African Development Partnership Agency (SADPA) and the impact on the activities of the ARF had to be monitored.

Members were concerned and disappointed that the funeral expense of ex President Mandela was still reflected as an unauthorised expenditure in the 2014/15 Annual Report of the DIRCO. Members felt that the expense should be condoned. The Committee understood the difficulties that the DIRCO experienced in operating abroad whilst still having to comply with legal requirements that were applicable as if the DIRCO operated in SA. This was especially so regarding supply chain management. Members felt that there seemed to be a contradiction in the Auditor General of SA’s (AGSA’s) audit report. On governance referring specifically to the internal audit committee all seemed to be okay but there were shortcomings in the performance and management of the DIRCO and the ARF. The AGSA was asked for an explanation regarding this. The Committee was concerned that non-verification of assets and non-compliance with legislation were recurring problems of the DIRCO. The AGSA was asked whether the DIRCO had capacity problems in relation to supply chain management. The Information Communication Technology (ICT) problems of the DIRCO were of huge concern to members. Members asked what was being done about the problem of currency fluctuations. Could the DIRCO do hedging legally? Not only should the DIRCO maintain an asset register but it should also maintain its assets. Members asked whether the DIRCO had the capacity to update its asset register. The Chairperson suggested that perhaps a special unit should be tasked with updating the asset register.

The Department of Planning, Monitoring and Evaluation (DPME) briefed the Committee on its evaluation on the performance of the DIRCO. The DPME introduced the Committee to its Management Performance Assessment Tool (MPAT) that it used to monitor management practices within organisations and in the present instance the DIRCO. The MPAT was considered more of a developmental tool rather than an auditing tool. The MPAT focused on management practice in four key performance areas ie Strategic Management, Governance and Accountability, Human Resource Management and Financial Management. It also monitored compliance with key prescripts such as the Public Service Act, the Public Finance Management Act, the Protected Disclosures Act and the Public Access to Information Act. The MPAT Scorecard did not assess the DIRCO’s financial year 2014/15 as the AGSA had. An analysis was done on the state of management practice at the close of the assessment period 10 October 2014. The MPAT 2014 report would be presented to cabinet. The DIRCO seemed to have improved in its performance from 2013 to 2014. From 2012 to 2013 there seemed to be a regression. Regression was sometimes experienced due to complacency. The DIRCO had during the period of assessment performed above the public service average. The reasons behind some of the low scores that the DIRCO obtained during the assessment were explained. An area of concern in governance was professional ethics. Figures showed that 21 assessments were outstanding from Senior Management Assessments (SMS).  On Human Resources Development (HRD) planning there was no proof of submission of the HRD Monitoring Tool on implementation. Much work needed to be done on employee wellness. Evidence of disciplinary cases being captured on PERSAL was not provided. The DIRCO also seemed not to meet the deadline of 90 days to deal with disciplinary cases. There was furthermore no evidence of assessment of the DIRCO’s internal audit committee by stakeholders and any evidence of audit committee reviews on management responses to audit issues and reporting thereof. On organisational design and implementation the evidence document provided did not address all the required areas and not all positions were funded. On demand management there were procurement plans but no demand management plans. On the payment of suppliers within 30 days there were some suppliers who had not been paid in time. The DPME in conclusion recommended that the DIRCO develop improvement plans and that certain government policies applicable to departments needed to be reviewed.

Members had the impression from the DPME’s presentation that the DIRCO seemed to be unethical. The DPME was asked for an explanation. If indeed skills were lacking in supply chain management within the DIRCO, where did the DPME suggest that officials should go for training? Members were under the impression that disposal management went hand in hand with supply chain management. Did the DIRCO have a disposal policy in place? The DPME had also painted a not too rosy picture of human resources in the DIRCO. Could this be the reason why the vacancy rate of the DIRCO was so high? The DPME was asked why it had scored the PMDS 1-12 of the DIRCO low when senior management received a high scoring. Members got the impression from the DPME presentation that perhaps there was a problem with the internal audit function of the DIRCO. Members asked the DPME whether remedial action would be taken by it given its findings. The DPME was asked what was expected of departments regarding professional ethics. The DPME had made a recommendation that policies perhaps needed to be reviewed. Members asked the DPME to explain what it meant by policies needing to be reviewed.  Members asked whether vetting of public service employees took place at all levels of government.

The Department of International Relations and Cooperation (DIRCO) briefed the Committee on its 2014/15 Annual Report. Deputy Minister Landers kicked off proceedings by speaking to some of the highlights of the DIRCO. The African Agenda formed the backbone of SA’s foreign policy. Chairing the G77+ China had enabled SA to position itself as the voice of developing countries on critical development issues facing the global community. On the home front the DIRCO had concluded its organisational review in order to streamline its work for the achievement of its strategic objectives. The DIRCO had obtained two consecutive qualifications from the AGSA on its audit outcomes. The qualifications were for the financial years 2013/14 and 2014/15. The DIRCO however obtained an unqualified audit on its core business. There were thus no qualifications on its finances. The DIRCO felt that it was doing slightly better even though it had received a qualification from the AGSA. The Committee was provided with detail on the performance information of its Programmes ie Administration, International Relations, International Cooperation and Public Diplomacy and State Protocol.

The financial position of the DIRCO as at 31 March 2015 was set out. The DIRCO had spent 98.2% of its allocated funds. Much detail was provided on the expenditures as per Programme. Members were also given insight into the DIRCO’s asset management, procurement management, expenditure management and revenue management. The financial position of the DIRCO was healthy, however it remained exposed to currency fluctuations, which meant that the DIRCO had to contain costs and defer some of the expenditure to avoid unauthorised expenditure. The DIRCO intended to continue to engage National Treasury for a permanent or long-term solution to assist the DIRCO to perform as per its plans. The DIRCO would furthermore continue to put in more effort to address all audit issues. An action plan had been developed and would be monitored by the Office of the Chief Operating Officer of the DIRCO.

Members expressed their appreciation for the sterling work that Mr Matjila did and continued to do as Director General of the DIRCO, notwithstanding the fact that it received a qualified audit outcome. The Chairperson asked whether Mr Matjila had an official that could stand in as a quasi Director General when he was abroad in order for things to be taken care of on the domestic front. The Committee was concerned that the DIRCO had received a qualified audit for two consecutive years ie 2013/14 and 2014/15. Was the trend going to continue to 2015/16? Members implored the DIRCO to sort out the issue of the funeral expense of ex President Mandela. Members also asked what seemed to be the problem regarding financial disclosures by officials. Members felt that perhaps missions abroad were understaffed and hence efforts should be made to find the right staff. Other members even suggested that perhaps the number of missions needed to be rationalised. It was suggested that regional missions would be more feasible. The cost containment measures implemented by the DIRCO were nevertheless appreciated. The DIRCO was asked why it was renting premises as opposed to purchasing them. The Committee expressed its concern over the recurrence of serial issues like supply chain management and asset verification. Members raised a new concern about the credibility of the internal audit committee of the DIRCO. Internal management issues and non-compliance with legislation and policies was a concern. Members felt that there should be consequence management. Concern was furthermore raised over the huge bill that the DIRCO had on international transfers. Overall there seemed to be stagnancy prevalent in the DIRCO that overshadowed the good work that it was doing. 

The Committee was briefed on the ARF’s Annual Report 2014/15. Members were given insight into the ARF meeting policy and strategic objectives of the South African government. The performance of the ARF for the 2014/15 financial year was elaborated upon. Performance was measured in terms of what was actually achieved against targets set. Members were also given insight into the financials of the ARF as well as detail on approved projects. Detail on the governance of the ARF was provided. It was explained that the accounting authority condoned the irregular expenditure incurred in the financial year under review as it related to projects that were long running with contracts that were irregular from previous periods. The ARF was attempting to address the challenge of procurement in remote areas where it was not possible to comply with supply chain management prescripts. The finalisation of agreements with recipient countries was an ongoing challenge that affected the ARF’s ability to disburse funds. The DIRCO was perusing efforts to review the legislative framework in order to consolidate international assistance provided by government, hence the drafting of a bill for the establishment of the South African Development Partnership Agency (SADPA). The objective of the bill was to support SA’s outgoing development cooperation policy by providing funding and technical support for development initiatives.

Minister Landers informed the Committee that the SADPA Bill would not be tabled in Parliament in the current parliamentary quarter but would be tabled in Parliament in the first quarter of 2016.The Committee acknowledged the unqualified audit report that the ARF had received from the AGSA. Members pointed out that there were issues pertaining to the ARF that the process on the establishment of the SADPA had to move along. The DIRCO in the briefing had suggested that the Committee meet biannually with its internal audit committee. The Committee however felt that it should engage with the internal audit committee on a quarterly basis. 

Meeting report

Auditor General South Africa (AGSA)
The AGSA briefed the Committee on the audit outcomes of the performance and financial reports of the Department of International Relations and Cooperation (DIRCO) and the African Renaissance Fund for the financial year 2014/15.The delegation comprised of Ms Kumari Naicker, Senior Manager: AGSA, Mr Solly Segooa, Corporate Executive: AGSA, and Mr Thami Zikode, Business Executive: AGSA.

Ms Naicker undertook the briefing.
The lack of improvement in the overall audit outcomes was due to the DIRCO receiving a qualified audit opinion on its financial statements for a second consecutive year. The African Renaissance Fund (ARF) remained unqualified with findings on compliance with legislation. The published financial statements of the DIRCO were that tangible capital assets and minor capital assets were materially misstated due to the DIRCO not maintaining an updated asset register. The DIRCO furthermore had not done an assessment of its works of art and paintings, as was required. The financial misstatements submitted for auditing by the DIRCO and the ARF contained material misstatements in the areas of immovable assets, movable tangible capital assets, irregular expenditure, fruitless and wasteful expenditure, related parties, payables, expenditure, commitments and contingent liabilities. The ARF received an unqualified audit opinion only because they corrected all the misstatements that had been identified during the audit process. The DIRCO could not make all the corrections due to the lack of a credible asset register and the failure to perform an assessment of works of art and paintings. Controls needed to be strengthened. All personnel responsible for preparing financial statements needed to be trained. The asset management strategy of the DIRCO amongst others should have mandatory asset verification and old/obsolete assets need to be disposed of.

The annual performance report submitted for auditing by the ARF contained material misstatements. It had avoided material findings in its audit report only because the material misstatements had been corrected during the auditing process. The AGSA identified material non-compliance with legislation (excluding non compliance with the PFMA due to the submission of financial statements that contained material misstatements) by the DIRCO and the ARF. Some of the issues identified were that the DIRCO had not adequately implemented proper control systems to safeguard and maintain assets. Both the ARF and the DIRCO had not followed competitive bidding processes or requested three quotations when procuring goods and services. Neither of them had taken effective steps to prevent irregular and fruitless and wasteful expenditure. This resulted in both of them reporting a combined irregular expenditure of R103.5m. The DIRCO reported R363 000 in fruitless and wasteful expenditure. Both of them had also not taken effective and appropriate disciplinary steps against officials who made or permitted irregular, fruitless and wasteful expenditure, whilst non-compliance with supply chain management prescripts were not investigated. The AGSA recommended that staff involved in procurement and senior management should be trained on supply chain management, legislative requirements and performance management. Consequence management needed to be implemented in respect of employees who continuously failed to comply with legislation. The AGSA requested the Committee to ensure that certain commitments were made by the DIRCO to improve. These included that the DIRCO had to resolve asset issues at missions and at head office. It also had to address repeat audit findings and that consequence management had to take place against officials who failed to act.  The status of implementation of the SADPA and the impact on the activities of the ARF had to be monitored.

Discussion
Mr B Radebe (ANC) appreciated the work of the AGSA in alerting the Committee on the manner in which public resources were used by the DIRCO. He referred to page 11 of the presentation, which referred to the unauthorised expenditure by the DIRCO on ex President Mandela’s funeral. The Committee condoned the expenditure because it was unavoidable. He was concerned that it was recurring in the present audit report again. On irregular expenditure by the DIRCO, it had to be appreciated that the DIRCO operated in foreign countries and it was difficult to fulfil legal requirements that all departments had to comply with. For example the obtaining of three quotations when something had to be bought. He asked whether the DIRCO had made applications for exemptions in such instances.
He pointed out that on page 14 of the presentation there seemed to be a contradiction. For both the DIRCO’s and the ARF’s financial and performance management there seemed to be major problems as interventions were required. The contradiction came in when one looked at governance with specific reference to the internal audit committee everything seemed to be okay. He asked for an explanation.

Ms Naicker responded that even though the unauthorised expenditure on ex President Mandela’s funeral had been discussed it still had to be reflected in the Annual Report until such time that it had been resolved. On irregular expenditure, she said the DIRCO was allowed to deviate but the reason for the deviation should be motivated and documented. Proper processes needed to be followed. If processes were not followed then the expenditure would be deemed irregular. The DIRCO was okay on governance because it was an oversight function. The AGSA assessed each structure in terms of its role.

Mr S Mokgalapa (DA) pointed out that there seemed to be serious problem issues raised by the AGSA relating to the DIRCO. The AGSA had noted that the DIRCO had received a qualification due to the non-verification of assets and the non-compliance with legislation. He understood the explanations given for the DIRCO’s unauthorised expenditure due to ex President Mandela’s funeral expenses and the impact of currency fluctuations. He asked what the reason was for the irregular expenditure of R102m, and whether staff lacked capacity on supply chain management. What was the problem? He was hugely concerned about the DIRCO’s problems on Information Communication Technology (ICT). Given the nature of the DIRCO’s work, its ICT had to be safe and secure. What remedial action had been taken on ICT?

Ms Naicker explained that the irregular expenditure of R102m was due to capacity issues of officials. The AGSA had recommended that procurement officials within the DIRCO needed to be trained. 

Mr Zikode stated that the AGSA had looked at the Information Technology Governance Framework of the DIRCO. Controls to protect information had been looked at. A check was done on whether leadership implemented policies and procedures. On fruitless and wasteful expenditure the AGSA assessed and evaluated. A formal debate and discussion had taken place with the DIRCO. 

Ms O Maxon (EFF) asked whether the DIRCO was improving on past financial years. From what she observed there did not seem to be improvement. The issue of currency fluctuations was out of control for the DIRCO. She asked what could be done to avoid it.

Ms Naicker said that the DIRCO overall had been stagnant with no movement.

Mr D Bergman (DA) on the DIRCO’s wasteful and irregular expenditure suggested that it could be useful if figures could be shown as a percentage of its budget. He asked, on currency fluctuations, whether the DIRCO could legally hedge. He referred to page 14 and asked for an explanation, if the DIRCO’s leadership was doing well why was the rest of its performance so bad.

Ms Naicker noted the suggestion that wasteful and irregular expenditure figures could be shown as a percentage of the budget. The DIRCO had requested permission from National Treasury to hedge against currency fluctuations. National Treasury had not given its permission.

Mr Zikode said that the DIRCO did well on effective leadership and culture. The AGSA on the one hand looked at the enabling environment and on the other hand looked at implementation.

Ms D Raphuti (ANC) stated that the Committee had previously raised the issue on the DIRCO’s shortfalls on asset management. The Committee would look at how it could assist the DIRCO on the matter.

Mr L Mpumlwana (ANC) was concerned that the performance of the DIRCO seemed not to have improved from previous financial years. He also questioned why the internal audit committee was given a good rating whereas the rest of the DIRCO was doing badly. Was it not expected of the internal audit committee to prevent the DIRCO from doing badly? He felt it a difficult task for the DIRCO to do supply chain management overseas, as it was a different environment. The AGSA was asked what percentage of missions they sampled. The audit report could have been more specific on what the fruitless expenditure of the DIRCO was.

Ms Naicker responded that the internal audit committee was given a green okay rating because it was an oversight body. It was the accounting authority, the accounting officer and senior management of the DIRCO that was responsible for the actual work and in this instance performance was bad. The internal audit committee of the DIRCO had done what was expected of them. The DIRCO’s missions were representing SA abroad and hence had to comply with SA’s laws. Deviations were allowed but processes needed to be followed.

Mr Zikode, on supply chain management, said that deviations were allowed abroad but procedures needed to be followed.

Ms Raphuti asked what the process would be in order to deviate, and what were the steps?

Mr Zikode said that if there was a need to deviate then there were steps that needed to be followed. The Public Finance Management Act (PFMA) set out the steps. The reason for the deviation needed to be stated. The value of the service to be procured also needed to be stated. All the information needed to be compiled in a document.

Mr Radebe was concerned that the issue of ex President Mandela’s funeral expense would once again come up. The Committee would, as in the past, impress upon the DIRCO to maintain its asset register. The AGSA had not said much about the DIRCO’s maintenance of assets. The value of the DIRCO’s assets abroad needed to be preserved. If assets were not maintained then its value would drop.

Mr Mpumlwana said there seemed to be a difference in opinion between National Treasury and the DIRCO on what it actually experienced on the ground. He asked which viewpoint the AGSA agreed with. The picture that the AGSA provided of the DIRCO seemed quite bad. The Committee however needed greater detail. He also felt that the issue of ex President Mandela’s funeral expense needed to be closed.

Mr Zikode explained that the AGSA looked at the standards that were set by National Treasury. When compliance was checked the AGSA gave its opinion. There was a guide to what constituted unauthorised expenditure. He understood the feelings of the Committee that the funeral expense of ex President Mandela needed to be condoned. It was a matter that needed to be addressed by the chairperson of chairpersons of the Standing Committee on Public Accounts (SCOPA). He said that National Treasury defined unauthorised expenditure. 

The Chairperson stated that the Committee welcomed the recommendations that the AGSA made to it. He pointed out that the DIRCO had received a qualification on its asset register in both financial years 2013/14 and 2014/15. Did the AGSA believe that the DIRCO had the capacity to send a staff member to each and every mission to update asset registers? He suggested that the DIRCO should perhaps task a special unit with updating the asset registers of missions as a once off or else the matter would forever remain not done. Regarding officials of the DIRCO two things were needed. The first was decisive management and the second was consequential management. The training that the DIRCO’s officials needed should be explicitly stated.

Ms C Dudley (ACDP) commented that it was clear that matters of the past had not been dealt with by the DIRCO. Had the situation worsened? She asked whether the DIRCO was performing better in other areas. 

Mr Zikode said that the overall audit outcome was that there was a lack of improvement in the performance of the DIRCO. The DIRCO needed to spend its budgets whilst at the same time complying. 

Department of Planning, Monitoring and Evaluation (DPME)
The DPME briefed the Committee on its evaluation of the performance of the DIRCO. The delegation comprised of Mr Henk Serfontein, Chief Director: Management, Performance, Monitoring and Support, DPME and Mr Joy Rathebe, Outcomes Facilitator: DPME.

Mr Serfontein undertook the briefing.
The DPME introduced the Committee to its Management Performance Assessment Tool (MPAT), which it used to monitor management practices within organisations and in the present instance the DIRCO. The MPAT was considered more of a developmental tool rather than an auditing tool. The MPAT focused on management practice in four key performance areas ie Strategic Management, Governance and Accountability, Human Resource Management and Financial Management. It also monitored compliance with key prescripts such as the Public Service Act, the Public Finance Management Act, the Protected Disclosures Act and the Public Access to Information Act. The MPAT Scorecard did not assess the DIRCO’s financial year 2014/15 as the AGSA had. An analysis had been done on the state of management practice at the close of the assessment period 10 October 2014. The MPAT 2014 report would be presented to cabinet. The DIRCO seemed to have improved in its performance from 2013 to 2014. From 2012 to 2013 there seemed to be a regression. Regression was sometimes experienced due to complacency. The DIRCO had during the period of assessment performed above the public service average. The reasons behind some of the low scores that the DIRCO obtained during the assessment were explained. An area of concern in governance was professional ethics. Figures showed that 21 assessments were outstanding from Senior Management Assessments (SMS).  On Human Resources Development (HRD) planning there was no proof of submission of the HRD Monitoring Tool on implementation. Much work needed to be done on employee wellness. Evidence of disciplinary cases being captured on PERSAL was not provided. The DIRCO also seemed not to meet the deadline of 90 days to deal with disciplinary cases. There was furthermore no evidence of assessment of the DIRCO’s internal audit committee by stakeholders and any evidence of audit committee reviews on management responses to audit issues and reporting thereof. On organisational design and implementation the evidence document provided did not address all the required areas and not all positions were funded. On demand management there were procurement plans but no demand management plans. On the payment of suppliers within 30 days there were some suppliers who had not been paid in time. The DPME in conclusion recommended that the DIRCO develop improvement plans and that certain government policies applicable to departments needed to be reviewed. 

Discussion
Mr Radebe referred to page 8 of the presentation, which spoke to the professional ethics of the DIRCO and from what was being presented it seemed as if the DIRCO was seen to be unethical. He asked the DPME to explain what it meant by it. It was concerning given that SA was highly respected abroad. The AGSA had observed the DPME to have a lack of skills in supply chain management. Could the DPME recommend a place where the DIRCO staff could be trained? Disposal management went hand in hand with supply chain management. From the presentation it looked as if the DPME gave the DIRCO a high rating. Did the DIRCO have a disposal policy in place?

Mr Serfontein assumed that the DIRCO found it difficult to handle disciplinary cases abroad. There were too many delays in the finalisation of disciplinary cases. All senior managers had to make financial disclosures or else disciplinary action would be taken against them. The DIRCO’s managers had not made financial disclosures. The DPME’s assessment had shown that financial disclosures had not been done on time and that no action had been taken. If financial disclosures were made then the DIRCO was required to do an assessment to check whether there was conflict of interest. Supply chain management was a huge problem. The DPME had come up with case studies. The idea was for departments to learn from each other where there were good practices. On training for supply chain management perhaps the Department of Higher Education could assist. He clarified that disposal management was not asset management. When assets had to be disposed of the highest economic value needs to be attained.

Mr Radebe stated that legislation had been passed to prevent state employees from doing business with the state.

Mr Mokgalapa felt that the discrepancy of the DIRCO’s internal audit committee getting an okay from the AGSA when the DIRCO itself was not performing was a great concern. The DIRCO seemed to score low on human resources. Could it be the reason why the DIRCO’s vacancy rate was so high? He asked why the DPME scored the Performance Management Development System (PMDS) 1-12 of the DIRCO low. It was concerning given that senior management received a high scoring.

Mr Serfontein understood the observation made regarding the scoring on the DIRCO’s performance management system. He stated that each department had to define its own performance management system.

Ms Raphuti commented that there seemed to be a problem with the internal audit of the DIRCO. She asked who undertook the peer review mechanism function in the DIRCO. She asked whether there was no remedial action taken or consequences based on the findings.

Mr Serfontein stressed that the DPME had no legal authority to charge anyone. The DPME published the results of its assessments and engaged with Parliament.

Ms Dudley commented that the DPME’s MPAT system was an interesting tool. She asked what was expected of departments on professional ethics. What should a department be doing? Even though the DIRCO had wellness plans in place it seemed that the plans were perhaps unrealistic.

Mr Serfontein, on wellness, said there needed to be various policies in place. The idea was for the DIRCO to implement these policies.

Ms T Kenye (ANC) asked why the DIRCO’s performance on risk management was bad. She asked whether all types of assets both movable and immovable were audited. Were items that were not in use also audited? She referred to page 10 where it stated that there had been no assessment by stakeholders. Who were the stakeholders that were being referred to? On the payment of suppliers the DIRCO needed to comply. There was no need for an investigation into the payment of suppliers. The DPME was asked whether the State could compel its employees to live better and be healthier.

Mr Serfontein said that in the end the Director General of the DIRCO would be held responsible for the performance of the DIRCO. It was recommended that the Director General needed to delegate downwards. He pointed out that the DIRCO had failed to pay some of its suppliers on time. Systems needed to be put in place to prevent problems from recurring.

Ms Maxon asked what was meant by the recommendation made by the DPME that policies needed to be reviewed.

Mr Serfontein, on policy review, stated that the DIRCO needed to have processes to evaluate its own policies. Even the Public Finance Management Act could be relooked at.

The Chairperson asked whether vetting was applicable at all levels.

Mr Serfontein said that when public servants were appointed they were vetted. Vetting was standard for all appointments.

Department of International Relations and Cooperation (DIRCO)
The DIRCO briefed the Committee on its 2014/15 Annual Report. The delegation comprised of amongst others Mr Jerry Matjila, Director General; Mr Caiphus Ramashau, Chief Financial Officer (CFO); Mr Kgabo Mahoai, Deputy Director General: Human Resources; Ms Nosipho Mxako-Diseko, Head of Multilateral/ Global Agenda; and Mr Seraki Matsebe, Parliamentary Liaison Officer. Deputy Minister Llewellyn Landers also attended the meeting.

Deputy Minister Landers kicked off proceedings by speaking to some of the highlights of the DIRCO. The African Agenda formed the backbone of SA’s foreign policy. Chairing the G77+ China had enabled SA to position itself as the voice of developing countries on critical development issues facing the global community. On the home front the DIRCO had concluded its organisational review in order to streamline its work for the achievement of its strategic objectives.

Mr Matjila undertook the briefing.
The DIRCO obtained two consecutive qualifications from the AGSA on its audit outcomes. The qualifications were for the financial years 2013/14 and 2014/15. The DIRCO however did obtain an unqualified audit on its core business. There were thus no qualifications on its finances. The DIRCO felt that it was doing slightly better even though it had received a qualification from the AGSA. The Committee was provided with detail on the performance information of its Programmes ie Administration, International Relations, International Cooperation and Public Diplomacy and State Protocol.
 
Mr Ramashau continued by setting out the financial position of the DIRCO as at 31 March 2015. The DIRCO spent 98.2% of its allocated funds. Much detail was provided on the expenditures as per Programme. Members were also given insight into the DIRCO’s asset management, procurement management, expenditure management and revenue management. The financial position of the DIRCO was healthy, however it remained exposed to currency fluctuations, which meant that the DIRCO had to contain costs and defer some of the expenditure to avoid unauthorised expenditure. The DIRCO intended to continue to engage National Treasury for a permanent or long-term solution to assist the DIRCO to perform as per its plans. The DIRCO would furthermore continue to put in more effort to address all audit issues. An action plan had been developed and would be monitored by the Office of the Chief Operating Officer of the DIRCO.   

Discussion
Mr Radebe said the DIRCO was strong in the implementation of government’s policies. The concern was that the DIRCO had qualifications for two consecutive years. It was unacceptable for the DIRCO to get a qualification in the next financial year as well. He appealed that steps needed to be taken not to have the funeral expense of ex President Mandela to be reflected on the books of the DIRCO as unauthorised expenditure. The Standing Committee on Public Accounts should be approached so that the funeral expense could be condoned. The DPME had pointed out that the professional ethics of the DIRCO was bad. Financial disclosures by officials were a problem. If asset management was the responsibility of the accounting officer of the DIRCO, he made an appeal that a plan had to be put in place for the maintenance of assets. The budget for asset maintenance had to be ring fenced in the future.

Mr Matjila, on financial disclosures, said the DIRCO had two outstanding by 21 May 2015. It was sitting at 100% at present. He said that he would have to come up with a schedule to deal with the problems identified in the reports of both the AGSA and the DPME. 

Ms Mxako-Diseko added that financial disclosures for the DIRCO for the current year were 100%. She said that the performance of the DIRCO was not perfect. Some of the DIRCO’s problems were perennial. She suggested that the Committee worked with some of the oversight structures of the DIRCO. Certain mechanisms could be put in place. The DIRCO could look at international practice on how foreign services were managed. Countries like India and Brazil could be looked at.

Ms Raphuti pointed out that SA had a great deal of missions abroad. They were doing good work but it would seem as if there were too few staff. The DIRCO’s internal control systems seemed to have many gaps. More staff was needed to close the gaps. The Committee appreciated the cost containment measures that the DIRCO put in place.

Ms Kenye referred to page 7 of the briefing document, which spoke to the Administration Programme and said that the rationale for grievances and disciplinary cases needed to be stated. She also referred to page 12, which spoke about human rights. She said there were programmes in place. Why was no mention made of the African Peer Review Mechanism (APRM)? The DIRCO should provide the Committee with reports from summits that had been held. She asked whether the delay in construction projects was causing the adjustments.

Mr Matjila agreed to look at the issue of the APRM and even the New Partnership for Africa’s Development (NEPAD).

Ms Dudley noted that the DIRCO could rectify disclosures on ethics. She pointed out that concern had been raised that the DIRCO’s wellness policies had not been signed off. She suggested that perhaps the DIRCO should consider rationalising the number of its missions. It was something that the DIRCO did not wish to hear. Lack of resources was clearly a problem and perhaps regional missions should be an option. Why was the DIRCO focusing more on renting premises overseas instead of buying? She referred to funds being set aside for hospitals in Palestine. What was being done to ensure that the funds did not end up in the wrong hands?

Mr Matjila said that the funding for hospitals in Palestine would go where it was supposed. All hospitals in Gaza and the West Bank had been destroyed. The intention was to try to broker for peace whilst reducing the pain of the people of Palestine.

Mr Ramashau, on whether premises for missions should be rented or purchased, said that a strategy was being worked on regarding the acquisition, maintenance and disposal of properties. Rent to buy was an option. The Foreign Service Bill would shed light on the issue.  

Mr Mokgalapa said that the 21 years of service by Mr Matjila with the DIRCO was very admirable. It was however concerning that serial issues were still coming up and needed to be sorted out. The internal management issues of the DIRCO needed to be dealt with. One major recurring problem was supply chain management. It seemed to be plagued with staff capacity problems. Another issue was the credibility of its internal audit committee. A further concern was the DIRCO’s non-compliance with legislation and policies. The lack of consequences for staff where there was wrongdoing was concerning. Problems were evident in leadership but on governance things were okay. Overall there seemed to be a lack in improvement on audit outcomes. He found it totally unacceptable that information communication technology was lacking in the DIRCO given the environment in which it operated. This was especially concerning given that social media was one of the drivers of international relations. He also said that it was concerning that on human resources senior management had PMDS whereas the lower staff had none. He pointed out that the DIRCO’s international transfers almost amounted to R1bn. He felt it to be a huge expense. Perhaps SA needed to reconsider its memberships to some organisations. He said the Annual Report of the DIRCO was good but its audit outcome was bad.

Mr Matjila, on the lack of internal controls, said he would look at issues that had been raised.
The six key areas identified by the AGSA would be dealt with.

Mr Ramashau, on the six focus areas, responded that the DIRCO was doing change management. The results were too late to be reflected in the audit outcome. The DIRCO would look at improving on its turnaround time. On ICT he said that the DIRCO could do things smarter.

Ms Mxako-Diseko said that international transfers figures might be high but said that the DIRCO did derive value.

Ms Maxon said she admired the spirit that Mr Matjila had in doing his work. The report on DIRCO from both the AGSA and the DPME had both painted a picture of the DIRCO not doing too well. Areas of concern had been highlighted and interventions were needed. There seemed to be stagnancy. It overshadowed the good work of the DIRCO. Asset verification problems were serious concern, especially valuable artworks that were found at missions.

Mr Bergman agreed that the audit report from the AGSA did not reflect the good work that Mr Matjila was doing. The internal audit had failed Mr Matjila. Hiring the right people was important. Problems with ICT made the DIRCO vulnerable. He reiterated that expenditure needed to be expressed as a percentage of the budget. He pointed out that SA’s position on the Palestinian issue was balanced and that it had an important role to play. How could asset verification be done? If valuable assets like art could be auctioned off then the auction house that did the auction could do the asset verification. Two birds could be killed with one stone.

Mr Matjila said that heritage assets at missions were a huge issue. For example in Brussels the South African mission had artefacts that were over 100 years old. The items were worth millions. There was no way that they could be valued at one Rand. A workshop on heritage was in the pipeline, which would bring together director general’s and the AGSA. The then leader of the Palestinian Liberation Organisation (PLO) Mr Yasser Arafat had requested SA to assist with the Palestine-Israel conflict. SA had once again been asked to assist. The Palestinian territories were getting smaller and in no time they would have no land. 

The Chairperson said he agreed with the observations made by Members. Nothing could be taken away from the sterling work that Mr Matjila had done. SA had been asked to mediate on the issue of lifting the trade embargo on Cuba and on the return of Guantanamo Bay to Cuba. The self-determination of Western Sahara was another issue that needed to be addressed. He asked Mr Matjila if he had someone who could assist him in taking care of things at the DIRCO whilst the nature of his work took him abroad. There should be someone who should take on the role of a quasi-director general in his absence. The audit report said that in some instances certain assets if for some reason its value could not be determined then it should be valued at one Rand. This would be problematic when it came to valuable artwork. He asked whether the DIRCO had someone who could value the artwork at missions. He asked what challenges the DIRCO was facing in relation to issues of staff. He also asked for information regarding disciplinary cases like the one regarding the High Commissioner in Accra. The DPME had raised the issue that officials from the DIRCO had not made financial disclosures. The DIRCO was also not making payments to some of its service providers within the 30 day period as was stipulated by the PFMA. Disciplinary cases seemed to be less resolved where it involved senior officials. He referred to the US-Africa Leadership Summit and asked what SA’s take on this was. He asked how young students were chosen to study at universities in the US. Did SA have any say in the curriculum that would be taught to them and what did the curriculum consisted of?

Mr Matjila thanked Members for their frankness and their appreciation of the DIRCO’s work abroad. Members had raised fundamental questions. The internal systems of the DIRCO needed to be looked at. He was willing to take the blame for any oversight on any of the internal systems of the DIRCO. Perhaps he had not spent enough time to strengthen the internal controls of the DIRCO. The issues raised by the AGSA and the DPME were not new issues and were recurring. Members had raised many questions and he would prefer to answer them in a clustered approach. He responded that on the management of internal controls Memorandums of Understanding (MOUs) had been signed with government departments. It helped with the management of work and the supervision of diplomats. He noted that the DIRCO now had a Chief Operations Officer (COO) who worked and liaised with ten Deputy Director Generals. On the Accra issue a case had been laid against the individual concerned. The individual in question had in the meantime resigned but the South African Police Services (SAPS) was investigating the matter as huge sums of money were involved. On the payment of service providers the DIRCO’s records had reflected that 98% of them at the time of the audit had been paid. Within the last three months 100% of them had been paid. He was not sure what the reports of the AGSA and the DPME was saying over the issue but said that he would look at it. On the Young African Leadership programme initiated by the US, he said that the best candidates had been sent to study in the US. Questions had been asked on what they were going to be taught and on what was going to happen when students returned. 

African Renaissance Fund (ARF)
The Committee was briefed on the ARF’s Annual Report 2014/15. Mr Ramashau briefly spoke to the efforts of the ARF in meeting the policy and strategic objectives of the South African government. The performance of the ARF for the 2014/15 financial year was elaborated upon. Performance was measured in terms of what was actually achieved against targets set. Members were also given insight into the financials of the ARF as well as detail on approved projects. Detail on the governance of the ARF was provided. It was explained that the accounting authority condoned the irregular expenditure incurred in the financial year under review as it related to projects that were long running with contracts that were irregular from previous periods. The ARF was attempting to address the challenge of procurement in remote areas where it was not possible to comply with SCM prescripts. The finalisation of agreements with recipient countries was an ongoing challenge that affected the ARF’s ability to disburse funds. 
The DIRCO was perusing efforts to review the legislative framework in order to consolidate international assistance provided by government, hence the drafting of a bill for the establishment of the South African Development Partnership Agency (SADPA). The objective of the bill was to support SA’s outgoing development cooperation policy by providing funding and technical support for development initiatives.

Discussion
Deputy Minister Landers said the SADPA Bill would not be tabled in Parliament in the current quarter. It would be tabled in Parliament in the first quarter of 2016. The reason for the delay was that there was no agreement on key matters between National Treasury and the DIRCO. He apologised for not updating the Committee before.

Mr Mokgalapa stated that the Committee acknowledged the unqualified report from the AGSA. He pointed out that there were issues that remained with the ARF. He suggested that the ARF be closed down and to get along with the process of the SADPA. He asked when the Foreign Services Bill would come before Parliament. 

Mahoai responded that the Foreign Services Bill was published on the 17 September 2015.

Deputy Minister Landers interjected that submissions had been called for on the Bill. Thereafter it would go to Cabinet for approval to come to parliament.

Mr Radebe said the internal audit committee had an important function towards the DIRCO and the ARF. During the briefing it suggested that the Committee have a bi-annual engagement with the internal audit committee. He went so far to suggest that the engagement be on a quarterly basis.

The Committee agreed to the suggestion.

The Chairperson noted that the Committee had to deal with its Budget Review and Recommendations Report (BRRR).

Mr Radebe said that the Committee had to consider and adopt its BRRR by Tuesday, 20 October 2015.

The Chairperson suggested that the Committee meet on Tuesday, 20 October 2015 to adopt the BRRR. 

The Committee agreed to meet on the 20 October 2015 to deal with its BRRR.

The meeting was adjourned.
 

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