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STANDING COMMITTEE ON PUBLIC ACCOUNTS
12 March 2003
WATER AFFAIRS AND FORESTRY DEPARTMENT 2001/2: HEARING
Chair: F Beukman (NNP)
Documents handed out:
Comments from the Department on the Report of the Auditor General on the financial statements of the Department of Water Affairs and Forestry for the year ended 31 March 2002
Department Water Affairs and Forestry Annual Report: 2001/2
Auditor General's Report (see Part 5 of the Department Annual Report)
The committee questioned the Department on irregularities identified in the Auditor General's report. The discussion centered on the R5.5 million related to salary overpayments, the lack of supporting documents for expenditures (R12.5 million for which supporting documents could not be found) and the separation of trading accounts.
Mr Muller (Director-General) and Mr Mabala (Chief Financial Officer) represented the Department of Water Affairs and Forestry. Mr Kannemeyer (ANC), Smith (ANC) and Mofokeng (ANC) led the questioning prepared prior to the meeting by a subcommittee convened by Ms Mothoagae (ANC).
Mr Kannemeyer referred to the writing off of suspense accounts under Section 5.1.1. of the Auditor General's Report, as published in the Department's Annual Report. He asked what preventative controls and changes to administration had been put into place to prevent the writing off of amounts of money. Out of R5.7 million written off, R5.5 million related to salary overpayments and he asked for the reasons for this.
Mr Mabala (Chief Financial Officer) said that there were a variety of reasons for the salary overpayments. He explained that forestry officials in particular work and live in very remote areas where it is often difficult to make contact with them. He stated that people absconding and retirements make up the biggest part of the amount. He added that they were also not in a position to find out where everyone had gone.
Mr Kannemeyer emphasized that he wanted to know what causes the extent of salary overpayments. He asked whether there are system problems. He added that if Mr Mabala did not know he should tell them so that the committee can follow this up. He clarified that he wanted an explanation for the amount of R5.103 million in Table 14.3 on page 123 of the Annual Report.
Mr Mabala reiterated that the amount was caused by resignations and people absconding. He stated that it takes a long time for their system to pick these things up and stop payment. He added that another major reason is that workers move without changing address, which makes it difficult to find them.
Mr Kannemeyer requested (within 14 days) an analysis from the department on how they derived the figure of R5.1 million for salary overpayments. He questioned what is currently being done to regulate management of workers in remote areas when they resign and why it takes so long for the department to pick up on it. The Committee wanted to know whether this is a systems or management problem.
Mr Fakie (Auditor General) agreed that they must look at the difficulties experienced when people did not notify the department of change of address when moving.
Mr Kannemeyer asked why the department thought the committee should approve the unauthorized expenditure and what measures has been taken to prevent the unauthorized expenditure.
Mr Muller (Director-General) explained that there had been inadequate budgeting for workers leaving during the restructuring period. He commented that these matters were discussed with National Treasury before the budget process. They were instructed to budget according to departmental planning and not according to contingencies. He added that the biggest amount was paid to people who had left after the target date (benefits paid out to workers after the period in which they planned to retrench them). He reiterated that this could have been foreseen but the decision was taken elsewhere (Treasury). The Director-General said this appeared a contravention of rules but they were not allowed to make provision for this.
Mr Kannemeyer commented that better communication between government departments is essential. There needs to be a better linkage between what is planned and what actually occurs.
Mr Kannemeyer asked the department about the amount of R248.2 million for total outstanding interest and capital and why arrears amounting to R7.5 million have been identified as potentially irrecoverable (he was referring to Section 5.1.3 of the AG Report in the Annual Report). He enquired after the nature of the problems encountered in recovering loans. He also wanted to know why agreements cannot be enforced and if there were no agreements for the loans, why not.
Mr Muller replied that most of this amount relates to the Kalahari West Water board. He explained that this water board on the border of South Africa and Namibia was set up before 1994 in an attempt to get more farmers into the area. This move was never going to be commercially viable. When the loan was given it was understood that they cannot price the water too high otherwise the farmers will not be able to farm. Thus a proportion of the loan cannot be recovered.
Mr Kannemeyer referred to the amount of R16.4 million that was transferred to two water user associations (5.1.4 of the AG Report). He asked whether agreements have been reached with the user associations regarding the recoverability of this money. He also enquired whether this money is likely to be recovered or eventually written off.
Mr Muller stated that the two water associations referred to were the Kalahari West and East water boards. He said that his understanding was that the amount is irrecoverable. He added that the economy in that area is just not strong enough to enable a pay back of the loans. He stressed that it is unfortunate that the department is acting as a bank to farmers. They have held talks with the Land Bank about this.
Mr Kannemeyer referred to the Section 5.1.6 of the AG Report where it is stated that control weaknesses existed in the general control environment at the State Information Technology Agency (SITA) as well as the department. He asked whether the appropriate controls have since been implemented.
Mr Muller remarked that he could not comment on the state of another government organization. He said it is unfortunate that they have to be dependent on other departments and organizations. He added that the controls were SITA's responsibility.
Mr Kannemeyer referred to Section 5.1.5 of the AG Report where it is stated that interest was not charged on all debts in terms of section 11.5.1 of the Treasury Regulations. He added that he was told that this is mostly because of overpayment to suppliers. He asked what system weaknesses allowed these overpayments and why no interest was charged on the amounts. He stressed that he was trying to establish the nature of the problem.
Mr Mabala explained that these overpayments are due to double payments being made. Before the enactment of the Public Finance Management Act, departments did not charge interest on double payments. Some officials still worked under the old system and therefore no interest was charged. He added that they have been educating people on the Public Finance Management Act to prevent this happening again.
Mr Kannemeyer expressed his concern over the measures for prevention of double payments and overpayments.
Mr Mabala stated that steps have been taken to make sure that no payments are made without the supporting documentation.
Ms Hlangwana noted that the Auditor General's report (Section 5.1.5) commented on the lack of a fraud prevention plan. Yet the department in its Annual report refers to a fraud prevention policy. She asked for clarity. She also asked if risk assessments are done before agreements are reached with water boards.
Mr Mabala answered that there is a difference between a fraud prevention plan and policy. He added that the plan is an operational issue and that it was developed after the policy. The plan has been submitted to the Treasury.
Mr Muller added that risk assessments are done and that appropriate measures are taken to ensure that there is a reasonable chance of recovery. He stressed that this is very difficult in the farming business, especially when lending money to emerging farmers.
Mr Smith (ANC) led the questioning on the lack of supporting documentation. He commented on the adverse opinion the Auditor General gave of the department. He commented that the department blames it partially on the hurried audit process. The Auditor General had received supporting documentation for expenditure of R6 million only after the deadline. He asked the department and the Auditor General to comment.
Mr Muller emphasized that he was not looking for excuses for their failures. He stressed that he was not commenting negatively on the Auditor General's office with which they have a good relationship. The Public Finance Management Act requires full records and these records were kept and are available. Because the records are distributed throughout the department, it made it very difficult to get hold of all the documents in time. Their department covers very remote areas from which it takes very long to get documents when the auditor requests them. He also mentioned the difficulty they had with rotating auditors. They have 60 offices and a complicated structure that takes a lot of time for the Auditor General's office to cover. He said that in many cases documents were requested from the wrong people and sometimes the wrong documents were requested. He added that there had been a tenfold rise in the volume of queries compared to the previous audit, which required a lot of time.
Mr Smith stated that the law is clear on the amount of time they had for producing the documents. He commented that if the 60-days period is not practical they need to be told about it. He wondered whether the law is hindering good governance.
The Chairperson reiterated that it is the department's responsibility to stick to the time frames.
Mr Muller acknowledged that this period was reasonable.
Mr Fakie commented that he was not convinced that the problem lay with the new auditors. He stated that the problem with supporting documentation has come up every year with the Department of Water Affairs and Forestry. In his opinion there are systemic problems in the department. He added that the audit plan was submitted to the audit committee, which specified when exactly they would be doing the audit. The department had ample opportunity then to comment on the audit plan. They did not raise the issue of new auditors or of time needed to get the documents. He added that by mutual agreement they did extend the deadline for documents.
Mr Smith enquired about 3.2 (c) in the departments comments presented to the committee. He asked why the amount of R1.4 million was paid out when the tender was never actually awarded.
Mr Mabala explained that a tender number was awarded but it did not go through. He stated that the payment made was for another expenditure.
Mr Smith commented on the amounts in 3.2 (a), (c) and (f), which totals R6.4 million for which there is no supporting documents. He remarked that this lack of documentation perpetuates the public's concern that government is out of control.
Mr Smith addressed the R5.2 million in the recoverable revenue account. He asked whether any monies have been received.
Mr Mabala stated that this money should come to the department.
Mr Smith asked for him to clarify whether this was actual money or money expected.
Mr Mabala stated that this was money in the bank.
Mr Smith asked him to explain the nature of this money, as the Auditor General had no supporting documents for it.
Mr Mabala answered that they have the records and that they come from different parts of the country. He said that they have a 5 page list detailing from whom the payments came and how much. It could not be made available when the audit was done but they could present the committee with the list within 14 days.
Mr Kannemeyer asked the department to explain and contextualise their problems with the separation of trading accounts. He asked what the objective was and how the non-separation affected the department. He also asked when the decision was made to separate.
Mr Muller replied that these accounts control activities that are businesses (water boards etc). As in any business it is important that the revenue gained is applied to that business. There would otherwise be no incentive to recover revenue. They had waited for the introduction of the new accounting system (BAS) before separating the accounts. Treasury was supposed to implement this system in July 2002 and it still has not happened. He added that they had decided to wait because instituting new accounting systems is very costly and local government will take the functions over in the next three years.
Mr Fakie commented that new accounting systems do not cost millions and that they could have used a system for R10 000 or so.
Mr Mofokeng commented that the R12.5 million for which supporting documents could not be found during the audit is unacceptable. This issue has been a problem with this department since 1999. He asked whether measures had been taken to ensure that payments could be traced. He also enquired about disciplinary procedures taken against those responsible for the absence of those documents. He added that those people should be disciplined. He added that they wanted clarity whether this was due to corruption, mismanagement or misappropriation of funds.
Mr Muller replied that their disciplinary committee had found no grounds for any disciplinary action against individuals. He added that the documentation is now available.
Mr Mabala referred them to Point 3.3 of their Comments document where they list the supporting evidence not submitted during the audit. He promised the committee a detailed list within 14 days. He added that their problems were due to the inability to process information and there was no disciplinary action needed.
Mr Mofokeng asked whether the new billing system had improved matters.
Mr Muller answered that they would only be able to comment on that after a year cycle has been completed with the new system.
Mr Mofokeng commented on the closing of the Industrial Plantations Trading Account. He asked whether there is going to be a follow up on the closed account and whether they could get details within 14 days.
Mr Muller pointed out that this information was in their Comments document presented to the committee.
The floor was opened for general questions from all members of the Committee.
Mr Bell (DP) asked Mr Pema (chairperson of the audit committee) whether the audit committee had picked up on the same problems as the Auditor General. He also asked whether they reported it to the Director-General.
Mr Pema stated that they had picked up on procurement problems but that they had not identified all the other problems the Auditor General's office had.
Mr Bell asked after the size of the audit committee and whether they were independent.
Mr Pema replied that there were three independent members of which he was one.
Mr Mabala added that there are 11 members on the audit committee. He stated that they are a new unit, currently in their fourth year. He added that they are getting help from outside groups to help with the identified problem areas.
Mr Kannemeyer referred to the audit committee's report where they state that the department complies, in all material aspects, with the relevant provisions of the Public Finance Management Act. He said he was confused as this differed from the Auditor General's report.
Mr Pema replied that the report was issued in July before that audit was completed. He conceded that his statement in the last paragraph might have been a bit broad.
Mr Fakie remarked that this comes back to the issue of what kind of information was provided to the audit committee by the internal auditors. He stated that the focus area of the internal auditors might have been too narrow. He added that the audit committee should have the external audit before they finish their report.
Mr Pema agreed with the Auditor General and stated that the audit committee cannot make a detailed report like the Auditor General's and that their statements are made in a spirit of broad compliance.
Mr Gumede (ANC) asked whether the problems identified by the Auditor General had been picked up by their risk profiling, and whether this was communicated to the audit committee. He also enquired whether the external auditors have any other dealings with the department.
Mr Muller replied that the results of risk assessments do get communicated to the audit committee.
Mr Mabala said that they have a policy in the department that a company may have a maximum of two contracts in a financial year to prevent conflict of interest. He said that he would check up on the external and provide the committee with the details within 14 days.
Mr Gumede asked about the impact and urgency of the biggest risks that the department identified.
Mr Mabala said that they had identified 12 serious areas and will provide the committee with that report within 14 days.
Mr Fakie suggested that there is perhaps a role to play for the audit committee to make sure there is no conflict of interest with the auditors.
Mr Kannemeyer commented on the department's fraud prevention policy. He stated that the Public Finance Management Act requires every department to have a fraud prevention plan and that a policy was not requested. He added that he saw no need for the department to have their policy approved first. He asked whether the plan is now operational.
Mr Muller replied that it was good practice to have a policy before a plan. He added that there is a plan and it is now being implemented.
Ms Mothoagae reiterated that the department has been turned around since 1994. She added that they were still concerned and unhappy with the financial management and that this reflects in the department's service delivery. She summed up that documents not received had been very problematic and emphasized their concern that the information is only available now. She added that she hopes the Director General will take their comments in a good spirit and not see it as a personal attack on him.
The Chairperson concluded that the committee reserves judgment and that some of the responses to their questions were not satisfactory. He added that the committee would look at all the issues on its won merit. He then adjourned the meeting.