Department of Social Development & NDA on their 2015/16 Annual Reports with AGSA / FFC input & Minister present

Meeting report

Auditor-General South Africa (AGSA) report on Department of Social Development
Mr Lourens van Vuuren, AGSA Business Executive, stated the role of the AGSA here is to reflect on the audit work it performed to assist the Committee in its oversight role in assessing the performance of the DSD and its entities taking into consideration the objective of the Committee to produce its Budgetary Review and Recommendations (BRRR) report. AGSA provides the Committee with applicable information and guidance on the Social Development portfolio’s 2015-16 audit outcomes so that the Committee can ensure effective oversight. This enables the Committee in its oversight to focus on areas that will lead to good governance. The annual audit examines three areas: fair presentation and reliability of financial statements; reliability and credible performance information for predetermined objectives; and compliance with key legislation on financial and performance management. The different opinions that AGSA uses are:
- Unqualified opinion with no findings means that the auditee produced credible and reliable financial statements that are free of material misstatements.
- Unqualified opinion with findings means that the auditee produced financial statements without material misstatements but struggled to align their performance reports to the predetermined objectives.
- Qualified opinion means that the auditee had some challenges as those that were unqualified with findings but, in addition, they could not produce credible and reliable financial statements.
- Adverse opinion means that the auditee has so many material misstatements in their financial statements that the AGSA disagree with almost all the amounts and disclosures in the financial statements. The auditee also did not comply with key legislation.
- Disclaimed opinion means that the auditee could not provide evidence for most of the amounts and disclosures reported in the financial statements. The auditee did not comply with key legislation.

Mr van Vuuren said the National Development Agency (NDA) received an unqualified opinion with findings. The financial statements submitted by NDA were not prepared in accordance with the prescribed financial reporting framework. This is due to inadequate monitoring and review of the preparation of the financial statements. Material misstatements of non-current liabilities identified by AGSA in the financial statements were subsequently corrected by NDA, resulting in the unqualified audit opinion.

The other findings relate to predetermined objectives. This is because management did not put controls in place for reviewing of quarterly report to ensure that the reports are complete and accurate and are supported by reliable evidence. However, the material misstatements were identified, and subsequently corrected in the annual performance report submitted for auditing.

On compliance with legislation, SASSA received an unqualified opinion. However, AGSA found that effective steps were not taken to prevent irregular and fruitless expenditure as required by the PFMA. This is because the accounting authority did not exercise sufficient review and oversight to ensure compliance to legislation.

Still on compliance with legislation, NDA did not comply with Treasury Regulations which require it to submit its proposed Strategic Plan for 2016-2020 to DSD for approval. NDA also did not take effective steps to prevent irregular and fruitless expenditure. Goods and services were procured without obtaining the required price quotation as required by Treasury Regulations. The reasons are mainly because of the vacancies in the Office of the CEO, lack of oversight by management, failure on the part of the accounting authority to exercise sufficient oversight of compliance with Treasury Regulations.

Likewise, the irregular expenditure on the part of DSD relates to the inadequacy in monitoring compliance with legislation. Also, DSD failed to follow due process in procurement for competitive bidding and quotation processes.

SASSA incurred irregular expenditure mainly due to four prior year payments that were confirmed to be irregular in the current financial year.

NDA incurred irregular expenditure due to procurement processes not being followed of which 24% related to procurement without competitive bidding or quotation.

On fruitless and wasteful expenditure, 73% of this expenditure incurred by DSD was due to a contract in which items charged to DSD were excessive in pricing.

SASSA incurred fruitless and wasteful expenditure mainly due to cancellation of events.

NDA incurred fruitless and wasteful expenditure mainly due to interest and penalties.

NDA did not have an effective, efficient and transparent system of risk management in place as a result of that the agency did not have an approved risk management strategy and fraud prevention plan.

NDA’s audit committee did not function throughout the year. Members of the board were only appointed two months before year-end. Consequently, the audit committee did not oversee the implementation of the matters reported by the internal audit unit.

Overall the key root causes that gave rise to the significant findings of the three entities relate to inadequacy in consequence management and slow responses by management in implementing corrective measures.

AGSA recommends that the accounting authorities of SASSA and NDA should exercise oversight and strengthen its internal controls. This will create a control environment that supports reliable financial reporting, useful and reliable reporting on performance information and compliance with legislation by implementing proper record keeping and appropriate reviewing controls.

The accounting officer of DSD and accounting authority of SASSA must continue to ensure effective leadership and appropriate oversight over senior management in the preparation of quality performance reports that comply with applicable legislation.

The accounting authority of NDA must ensure that quality performance reporting is performed as the NDA only received an unqualified conclusion on predetermined objectives due to material adjustments after being identified through the audit.

AGSA recommends that the Committee monitors the filling of the critical vacant positions at SASSA and NDA. Further, the Committee oversees audit action plans to ensure the movement to clean administration for SASSA and NDA. The Committee should evaluate the environment of the Social Relief of Distress fund.

Discussion
Ms B Abrahams (ANC) thanked AGSA for the presentation. DSD needs to take remedial action on the audit outcomes. What is the consequence management that must take place? It was picked up in the previous year. DSD needs to ensure the law and regulations will be followed. On the irregular and fruitless and wasteful expenditure, the regression is noted and must be improved on in the following financial year. DSD needs to check up and improve on procurement requirements. The critical vacant positions need to be filled to ensure stability in DSD. Better planning needs to be done by the department.

Ms E Wilson (DA) thanked the presenter. It is extremely disturbing that NDA does not have an audit committee. Without an audit committee there would not be monitoring of procurement and finances. When will the audit committee be constituted and how long has the agency been without an audit committee? The trend of irregular expenditure in SASSA and NDA is disturbing. People can willy-nilly do as they feel like because there is no monitoring. This will later lead to legal implications. The complaint about non-compliance with regulations and the PFMA is also disturbing. Had there been a qualified audit committee this issue would have been addressed. How long has the position of the CEO and CFO been vacant? When can feedback be given to the Committee?

Mr S Mabilo (ANC) said that receiving a clean audit is a fundamental development. The clean audit is substantive and material. On the finding raised about internal controls, what is the management letter saying about the deficiencies in the internal audit? This is for the Committee to see for oversight purposes so it can follow up. Is DSD addressing the weaknesses of internal audit? This could be as a result of poor planning.

On the material adjustments, what is management’s reason for the material adjustments to the financial statements? Is DSD able to carry out its audit action plan within the timeframe given? Is there commitment by the department with regards to filling of critical positions?

Response
On consequence management, Mr van Vuuren responded that there are PFMA requirements on irregular expenditure which include that the entity should disclose the irregular expenditure in the financial statement and it should be investigated and appropriate actions taken. Each case should be investigated on the merits of the case. It does not necessarily mean that in each and every case of irregular expenditure there was no value for money obtained but that will be determined through the investigation. Therefore, if the irregular and fruitless and wasteful expenditure that is being reported shows that proper investigation was done, then consequence management follows. Lack of consequence management includes failure of responsibilities such as ensuring the financial statement and performance information is accurate and complete.

The audit committee was appointed only in March 2016; there was no audit committee in place during the reporting period to execute this key governance role.

On the vacancies and how long this lasted, this is noted on page 10 of the briefing note. However, it should be noted that the vacancies recorded were for the reporting period so it is possible that the positions may have been filled now. The key positions at NDA that have been vacant are the CEO and CFO because they are strategic leadership positions and should not stay vacant for too long.

On internal controls, the key focus should be on the NDA, as highlighted in page 9 of the presentation, especially HR management. Also supply chain management falls within the domain of the CFO. Therefore, the CFO position is very important and when there is no compliance to supply chain management that leads to irregular expenditure.  The other key area is compliance with legislation on the submission of strategic plan which was not done on time. The CEO is needed to drive the process and give leadership accountability. The other issue is risk management which is also the role of the audit committee. The audit committee ensures that there is a link between risk assessment and risk response by the internal audit. The audit committee will monitor the internal audit plan to ensure that it is executed in time. The audit committee will look at the audit findings from the internal audit during the year. The audit committee will ensure that management puts in the necessary actions in place throughout the year.

Ms Michelle Magerman, Senior Manager: AGSA, responded to the material adjustment. For NDA, the schedules that support the financial statement were not complete. The schedule of the support then needed to be adjusted. Even what was submitted as the schedule of support for the irregular expenditure does not agree, hence the adjustments.

On review processes, Mr van Vuuren said it is the responsibility of the CFO to focus on the annual review process and to ensure that the financial statements are accurate. But this cannot happen when there is no CFO.

Mr Mabilo asked what management is saying now so that when the Committee engages with the entity the question will be posed to it for clarity.

Ms Nagerman answered that since there is no CFO it puts a strain on the financial review. In terms of management’s responses, they have acknowledged the findings and an action plan has been put in place. The schedule of support for the financial statement that will be submitted in future will now be properly reviewed before submission.

Ms H Malgas (ANC) asked if AGSA make a recommendation on the four dormant accounts to DSD. SASSA will have to answer to the irregular and fruitless and wasteful expenditure. On consequence management with regards to unauthorised, irregular and fruitless and wasteful expenditure, reasons such as traffic fines and car damage were given by DSD. The Committee will check with the department to see if these matters are being investigated. Still on consequence management, what due process will be followed since the Committee cannot charge but only make a recommendation on due process.

Ms B Masango (DA) asked questions on the compliance of the legislation section of the audit report. The cross cutting root cause of this non-compliance was that the accounting officer did not exercise sufficient review and oversight to ensure compliance with the applicable legislation. In a situation where the key positions are vacant but the budget is being used and the accounting officer does not exercise sufficient oversight, that is quite astounding and should be looked into.

Ms Wilson referred to pages 8, 9 and 15 of the presentation which deal with irregular expenditure and non-compliance with legislation. The issues are almost similar to that of the previous year and that is alarming. It means that despite the recommendation last year there has been no improvement.

Mr van Vuuren said that a recommendation has been made in the past that these funds are dormant and there is cash in them. These funds are controlled by legislation and if there is no need for them, there are legal and legislative processes to be followed to dissolve them.

Responding to question of oversight raised by Ms Masango, he said that in terms of the PFMA accountability either lies with the accounting authority or accounting officer. In the case of NDA, the board was also not constituted and that speaks to the result. The issue should be addressed because the board appoints the CEO and the CEO appoints the CFO.

The Chairperson thanked AGSA for the presentation. The Committee is committed to oversight of department and to ensure that DSD complies with AGSA recommendations.

Financial Fiscal Commission (FFC) on Department of Social Development 2015/16 Annual Report
Dr Ramos Mabugu, Research and Recommendations Programme Director, said the main mandate of the FFC is to make recommendations envisaged in Chapter 13 of the Constitution or in national legislation to Parliament, provincial legislatures and any other organ of state determined by national legislation.

The analysis of the budget and programmes of DSD shows that its budget grows from R136.9 billion in 2015/16 to R148.9 billion in 2016/17. This translates into a real increase of 2%.

Social Assistance is the largest programme of the budget and it is projected to grow by a real annual average of 2.11% over the 2016 Medium Term Expenditure Framework (MTEF). The largest sub-programmes of this programme are the old age pension and child support grant. The Grant in Aid sub-programme is projected to show real annual average growth of 9.1% per annum - relative to projected growth within other sub-programmes. The war veterans sub-programme shows the largest real annual average decline of 36.5% per annum.

Programme 4: Welfare Services Policy Development and Implementation Support is projected to show high real annual average growth over the 2016 MTEF period of 26.23% per annum.

Spending by economic classification shows that transfers and subsidies are the largest item due to transfers to provincial departments and SASSA. Over the 2016 MTEF period, real annual average decline of 3.7% is projected for compensation of employees. This is as a result of the Cabinet approved budget reductions to lower the national expenditure ceiling.

Departmental transfers to SASSA are set to reach just under R8 billion by end of the 2016 MTEF. Transfers to SASSA decline by a real annual average of 2% over the 2016 MTEF period. Challenges such as lack of systems integration and management information capability impede the social pension system. SASSA will work on a replacement for the social pension system by 2018/19. The focus will be on implementing a range of projects aimed at modernizing service delivery. SASSA’s operations are generally driven by information and communications technology (ICT) over the medium term.

NDA’s mandate review has been completed and the agency will shift its focus from grant making to capacity building of civil society organisations (CSOs) to ensure that these organisations are appropriately capacitated. Allocation is set to increase from R268 million to R283 million in 2016/17. Departmental transfers to NDA are projected to experience a real annual average decline of 0.6% per annum.

DSD has spent close to 99% of its total budget in 2015/16. This equals to underspending of roughly R1.5 billion. The reason for underspending relates to slow spending on foster care, disability and war veterans which is also as a result of fewer than anticipated beneficiaries. Other reasons relate to non-payment of non profit organisations (NPOs) due to non-compliance and slow spending on legal services as litigation cases reported lower than in previous years.

However, DSD achieved 78% of its performance indicators which suggests that the budget and performance functions are not well aligned. Despite the fact the department updated its monitoring and evaluation system, many performance indicators are still vague and do not comply with SMART principles. For example, the nature of socioeconomic assistance provided to households is not clear. It is also unclear how the department measures achieved and non-achieved targets.

There is a big variance between the indicator target and departmental achievement. This suggests a lack of proper criteria in setting targets, including proper costing of targets. For example, the department refurbished four times the number of DSD facilities as indicated in its Annual Report yet budget was not overspent.

On Administration, with finances constrained, the value-add of some activities need to be assessed such as marketing and advertising initiatives and public participation events. Even though some posts are held in abeyance until after the organisational structure review process, the turnaround time in filling vacant posts is concerning (i.e. 15 months).

On Social Assistance, the budget allocation for the Social Relief of Distress does not seem to align with the targets. For example, the department processed three times more Social Relief of Distress applications compared to its targets, yet underspent by R267 million.

On Social Security Policy and Administration, while it is worthy to note new policy proposals such as universal child support and proposals for guaranteed employment, Committee should be apprised on the affordability of the proposals and the potential effect it may have on the national fiscus.

The Welfare Services programme awarded 50% more scholarships than planned in 2015/16. The Committee would need to be aware of the future budgetary implications such as placement of these graduates and financial capabilities of DSD to accommodate the placements.

On Social Policy Programme, some of the services being implemented overlap with similar activities funded by DAFF such as provision of food and nutrition services, and supporting cooperatives. The Committee should be informed whether any coordination between Social Development and DAFF is taking place with regards to implementation of these services.

Also performance of the legislative and policy reform branch under this programme is poor. As a result, FFC recommends that new bills or policies should be costed so the financial implications are properly understood.

Conclusively, stable real growth has been maintained in DSD’s budget over the period reviewed. Areas that require attention are: revision of indicators to comply with SMART principles, examination of some value-add activities, improvements in coordination with other departments that implement similar activities.

Discussion
Ms Abrahams said that the FCC recommendations will be looked into.

Ms Wilson was pleased with the presentation and raised some comments on access to antiretrovirals by women 16 years and older. Considering the huge issue of teenage pregnancy in the country, this needs to be revisited. The future of the children is being jeopardized if access to antiretrovirals is not within the reach of these women.

Programme 4 Welfare Services is projected to show high real annual average growth over the MTEF period of 26.23% per annum. That is a huge astronomical growth and an explanation is needed.

Ms Wilson referred to the report that SASSA will work on a replacement for the social pension system, is this legal?  The Constitution gives the people the right to make their choice but if that is taken away from them it becomes unconstitutional. The question is can such system be enforced by SASSA? A legal opinion is needed for this.

The underspending of roughly R 1.5 billion is quite alarming considering that the department supports the poor and the vulnerable in the country.

On performance of targets which was reported to be 78%, it seems the department is setting low targets so that at the end of the year they look great because they achieve them. It is satisfactory to know that the SMART principles are being assessed.

The amount of money spent on venues and catering is quite alarming when people are starving. What is the outcome of these events that take up these huge amounts of money?

The Chairperson said that questions that should be directed at the department should be differentiated from what is to be asked the FFC.

Ms Wilson referred to FFC’s comment that 50% more scholarships are being offered by DSD. There are 2700 unemployed graduates already, it would not be proper to increase the number, the more so without knowing the budget implications.

Mr Mabilo said that most of his questions are reserved for the department.

Ms Malgas asked why there is an increase in the Social Assistance programme especially the old age pension when there should be a decrease over time. The department should be asked how they measure their targets against achievement.

Ms S Tsoleli (ANC) asked if the FFC met with the department to advise them. Some of the issues raised could have been addressed if they had met with DSD.

Ms N Sonti (EFF) asked her question in vernacular language.

The Chairperson interpreted her as follows ‘is the department positively responding to the recommendation given by the FFC’?

Response
Mr Ramos replied that DSD is responding positively to the recommendation. However, there is an issue that requires to be dealt with. When the Minister of Finance presents the budget in February, he will also table the response of government to recommendations made by FFC ten months prior to the budget and explain what recommendations have been taken into account and what have not. The Minister of Finance makes the response on behalf of the government; this response is in terms of section 240 of the Constitution. Sometimes there are things which are not directly speaking to the Intergovernmental Fiscal Relations Act (IGFR), which the Minister of Finance cannot respond to on behalf of the government because it falls outside of the Act. There has been a lacuna in the way that those recommendations are processed in that in the past some recommendation that are very useful for the department, are not responded to in terms of the IGFR Act. There has been no mechanism to process those recommendations until recently when the thinking was that the Portfolio Committees are in the position to pick up on those recommendations that have not been responded and talk to the specific department that they exercise oversight on. The FFC just gives the Portfolio Committee the recommendation made for the department which will not be found in the budget speech in February because they were not made in the context of the IGFR Act.  So there is a role for the Portfolio Committee to follow up on all the recommendation made.

Ms Tsoleli said that she will read the IGFR Act to understand it better.

On whether the FFC meets with the various departments, Mr Ramos replied that the FFC reports to parliament. It is a tool of the parliament in the main national legislation. The FFC makes recommendations to parliament, provincial legislatures and any other organ of the state determined by the national legislation. These three groups i.e. parliament, provincial legislatures and any other organ of the state, are free to call on the FFC if their services are needed. The FFC does not implement but rather waits to be called upon for assistance. The FFC is not an implementer but an adviser to those organs of national legislation mentioned above.

For the presentation, the Portfolio Committee on Social Development called on the FFC to help it with pointers for when it prepares its Budget Review and Recommendations Report (BRRR). The Committee can ask the FFC to meet with the department insofar as it is within the FFC mandate. There are instances where the FFC has worked closely with the department. The FFC can be proactive in some issues though.

Ms Sasha Peters, FFC Program Manager: National Budget Analysis Unit, responded to what the drivers of the big growth in Programme 4. There are three drivers and they are Early Childhood Development (ECD) – here the department increased subsidies. The other is the increased funding of ECD facilities. The third is spending on reforms and standardisation of the social welfare system.

In terms of the pension growth, there is 3% increase in a particular age category of people hence the increase in allocation.

Ms Tsoleli said the FFC should be called again in future.

The Chairperson thanked the FFC for the presentation. She also asked them to meet with the department.

Department of Social Development (DSD) on its 2015/16 Annual Report
Mr Thokozani Magwaza, Acting Director General of DSD, noted that quarterly performance reports are rated according to three categories: green for achieved, yellow or amber for partially achieved and red for not achieved. This is with the understanding that if targets are not achieved in a particular quarter, they can still be achieved in subsequent quarters. However, when presenting the Annual Report, only two performance ratings are used: green for achieved and red for not achieved. This is because the reporting period has come to an end and all set targets should have been achieved. Even though some of the targets have not been achieved, it is worthy to note that substantial progress was made towards achieving these targets. As such those targets are partially achieved. However, due to the universal rating of performance at the end of the reporting period they have to be reported as not achieved. 

Ms Lumka Oliphant, Acting DDG: Strategy, said the department set a total of 174 targets for 2015/16, 57 of the targets were not achieved and 117 were achieved:

Programme 1: Administration
51% of the set targets were met while 49% were not achieved.
Programme 2: Social Assistance
50% of the set targets were met and 50% were not achieved.
Programme 3: Social Security and Administration
83% of the set targets were achieved and 17% were not achieved.
Programme 4: Welfare Services
65% of the set targets were achieved and 35% were not achieved.
Programme 5: Social Policy and Integrated Service Delivery
86% of the set target were achieved and 14% were not achieved.
 

The performance during the reporting period remained the same as in the previous reporting period. 67% of the set targets were achieved in 2015/16, similar to the achievement of targets in 2014/15.

Financial matters
Mr Clifford Appel, DSD Chief Financial Officer, stated a total of 98.92% was spent in the reporting period:
Programme 1: Administration
100% was spent out of the allocated budget.
Programme 2: Social Assistance
98.86% was spent.
Programme 3: Social Security and Administration
99.99% was spent.
Programme 4: Welfare Services
99.72% was spent.
Programme 5: Social Policy and Integrated Service Delivery
99.95% was spent. The main reason for underspending mainly relates to households in terms of slow spending on foster care, disability and war veterans as a result of fewer than anticipated beneficiaries.

Discussion
Ms Tsoleli welcomed the presentation. On Programme 4 DSD over achieved their targets, which cannot be amazing as the presenter proudly stated as there is a financial implication attached to it.

DSD spent 99% of their budget but achieved 67% of their targets, how did that happen? Targets should be aligned with budget. This is a bad planning. The budget seems to be used for something else.

FFC identified that DSD has not followed the SMART principle and this shows in the report of the department. The achieved targets are not realistic or measurable. DSD should provide an explanation for this. Why did not DSD follow the SMART principle?

Ms Abrahams said that the irregular expenditure is as a result of non-compliance to the PFMA. DSD should strengthen its internal controls. DSD should also assist the NPOs. There should not be underspending with the NPOs.

What measures were taken with regards to consequence management for the irregular expenditure?

Ms Sonti asked her question in vernacular.

The Chairperson asked the Director General, as accounting officer, if he is satisfied with the report. Policies should not continue to be changed. Non-compliance is a very serious issue and also amounts to misconduct. Is there assurance that virement would not happen in future and that planning will be properly done? 

Mr Magwaza replied that virement has been topical and DSD has continually engaged with the Committee on how it will be resolved. However, DSD will look at the issue. Section 43 of the PFMA, however, allows the department to move money. DSD planned properly but it did not work out as planned. As the CFO Mr Appel has said that from next year more money will be put where it is needed and reduced where it is not, so as to avoid virement.

The Chairperson said that the Committee cannot allow the use of section 43 as leverage. Virement cannot continue because the section allows it. Section 43 is just for an exception and for instances where nothing can be done.

Mr Brenton van Vrede, Acting DDG: Comprehensive Social Security, said that a lot of planning does go on in DSD. Getting the plan 100% accurate is not always feasible. No plan is perfect. The PFMA states that the amount of a saving under a main division of a vote that may be utilised in terms of subsection (1), may not exceed eight per cent of the amount appropriated under that main division - hence the virement. DSD does not plan to deviate, it just happens.

Minister of Social Development Bathabile Dlamini said the department is changing on a daily basis. DSD has received a report from the committee doing a review of the White Paper on Social Development. This review will be of immense assistance because there is no ‘Social Development Act’ like that of the Health and Education Departments.

There is now a team looking into a Social Development Act; this Act should cover areas that are not covered by the work of the department. The issues of SMART will be covered by the Act. DSD is also integrating its programmes hence the reason DSD programmes do not go to imbizo for example individually but with all its components. After the event, DSD also stays for two weeks to engage with the community.  When we have older peoples’ day, it does not cover the older persons alone but other vulnerable persons. It is not wrong to say that DSD has “overachieved” its targets. The only problem with overachievement is that target will be increased. It means that the targets are not equal to the plans and therefore need to be increased. There was a R2 billion cut off from the DSD budget. The department has also been asked to re-look at its budget because of the economic situation.

On the measurement of DSD’s work, the department’s work focuses on human development. If DSD cannot measure its work, how does it have children that start from 0-18 years in its programme? There should be proper contextualisation of the issue that needs to be talked to. Criticism is welcomed because it has built and strengthened DSD, but if the department will be micromanaged, then it will be very difficult.

DSD had road shows where NPOs are trained. The department is assisting the NPOs to write reports so that the NPOs do not suffer. Most of the NPOs are at a local level. They are not like other ones who have auditors and graduates. 

The Minister continued in vernacular language.

Furthermore, she stated that DSD had a clean audit in terms of work submitted.

The Chairperson said that money should be put where it is mostly needed. More explanation is needed on target and budget alignment as per the report of the FFC.

Ms Tsoleli said that virement is of concern. The bulk of the money removed is usually from the core business and it is moved into administration. This trickles down to improper planning. The answer that section 43 allows up to 8% is mischievous.

Minister Dlamini said respect should be mutual. The Department should not be told that it is mischievous.

Ms Tsoleli said that she did not say the Department is mischievous but that the answer given for virement is mischievous.

Ms Malgas asked that the word ‘mischievous’ be withdrawn.

The Chairperson asked Ms Tsoleli to withdraw the word.

Ms Tsoleli said she does not want to go into a dialogue.

The Chairperson appealed to the Minister.

Ms Wilson said that the comment about virement is misleading and must be looked into. The 8% allowed by the PFMA is huge amount and should not be taken lightly. When money is moved, the Committee should be advised on why and where the money went, when it is at the cost of the vulnerable.

The Chairperson said that issue of percentage complicates matters but virement should be looked into. This percentage can spoil the good relationship that is going on now. 

Mr Magwaza said that DSD will try to be as close to its budget as possible by next year. DSD does not plan on virement but it just happens.

The Chairperson raised concerns over AGSA’s report, especially the vacancy rate and the period within which a vacancy is filled.

Ms Malgas asked DSD to speak to decreasing the vacancy rate to 10%, when the Annual Report says that it is still at 16%. How will DSD fill the posts of the additional staff in its staff establishment?

On the dormant account, there is a recommendation from AGSA to have the legislation repealed, what is happening at the moment? How does DSD measure its targets? The ECD HR target was not included in the Annual Performance Plan (APP) but it in the Annual Report, clarification is needed in this regard.

Ms Wilson asked about the amount of budget spent on compensation of employees yet there are vacancies, that is alarming. Why is compensation of employees so high?

Mr Magwaza responded to what is being done about staff found to be responsible for the irregular expenditure. There is a team called the loss control committee who work on this issue. All the cases of irregular expenditure are sent and scrutinised by this committee. They have been given corrective measures, warnings have been given and investigations are going on in some cases.

The Chairperson said that the Committee has been hearing about the attack of the Department in the media. DSD should look into it and also advise the Committee on that issue.

Mr Magwaza responded about the vacancy rate. DSD tried to fill the vacant position, interviews were conducted. It happened that the people that were appointed were internal and so that opened other vacancies. National Treasury also came up with austerity measures. When Treasury cuts, it cuts staffing. Goods and services were increased but staff compensation was reduced. It becomes problematic to deal with an matter when there is no money to deal with it. DSD needs to reprioritise the vacancies that it has.

Ms Conny Nxumalo, DDG: Social Services, responded about the ECD HR and said it was an error.

Mr Thobani Buthelezi, DSD Chief Director: Monitoring and Evaluation, said that once a target is set, a performance should go in line with it. The performance is classified based on when it should be achieved. In terms of complying with Treasury there need to be evidence to show that the target was met. DSD continues to work with its internal audit in this regard.

Mr Masete Letsoalo, Deputy Director: Monitoring and Evaluation, DSD, said that performance is time bound. Sometimes when a quarterly performance report is presented, many performance targets are not met but when the annual performance report is presented the performance must have been met.

Ms Malgas asked if the impact on the community is a tool for measurement.

Mr Buthelezi said there are tools used for measurement. It ranges from the target, to the monitoring of the way the performance was done to, to when it was planned, to the input, to the output and then the impact. The targets of the department are not impact oriented but output. There are other instruments used in measurement.

The Chairperson suggested the Committee have a separate meeting with DSD monitoring and evaluation unit which will help to answer the question of measurement of performance and impact of service delivery.

Ms Tsoleli said that the impact of the service delivery of the department is very important. Is DSD changing the lives of the poor?

The Chairperson said that DSD is always about numbers and not measures.

Mr Magwaza said a separate meeting with the DSD monitoring and evaluation unit is proper.

Mr van Vrede responded about the four Funds. The Disaster Relief Fund is still active at the moment and there is a board in place for that. This is mainly because of the drought that the country had this year. The other funds - Refugee Relief Fund, Social Relief Fund and State President’s Fund - are dormant. DSD proposed in the last financial year for the repeal of the Fund-raising Act but when it got to Cabinet, DSD was asked not to repeal the Act but to make it more relevant with the current times. There is now a draft Fund-raising Amendment Bill. Hopefully it will get to the Cabinet by November before the end of the cycle and then come to Parliament by New Year.

Mr Appel said the reason for the increase in compensation of employees is based on the mandate of DSD in terms of what it is required to do. There are vacancies that cannot be filled because of the budget cut.

Ms Mabilo asked for the ratio of personnel and non-personnel expenditure of DSD.

Ms Malgas asked whether it is the norm for the entire department or is it a moratorium.

Mr Magwaza said it is not a moratorium but that the budget was cut. This is a painful exercise and corner that DSD has been put in.

Ms Tsoleli said that when budget is cut, then it should prioritise, especially the catering and travelling.

Mr Appel said that the ratio is 55:45 for personnel versus non-personnel. Furthermore, the savings on personnel budget are now being taken away from DSD. The department is no longer allowed to use the savings from the personnel budget. 

Ms Wilson asked about transfers to Lovelife. The Committee had at one time engaged with Lovelife and it had no relevance to the Department. She noted conditional grants were paid to only four provinces, what are the conditional grants for?  R23 million worth of movable tangible capital assets are under investigation, which is a huge amount to lose. More information is needed on the social assistance debtors over-recovery.

Under irregular expenditure, it was recorded that the increase in 2015/16 relates to an accident with a hired vehicle and the abuse of use of department cell phones and that cases are under investigation. The analysis suggests that only R74 000 was spent but posters but ribbons cost R485 000, that is too much.

The issue of non-compliance with Supply Chain Management (SCM) processes and order numbers not issued prior to the services cannot continue. At this stage there should not be non-compliance to SCM processes. It should not be allowed to continue.

She asked for clarification of terms such as SASSA claim payable, Disallowance miscellaneous and SASSA unallocated receipts. What is ‘Other payables’ in the notes to the annual financial statement? The voted funds that were surrendered to the Revenue Fund is too much, when people are suffering. The figures for local and foreign travel have gone up. That is alarming too.  Under the Goods and Services, what does ‘Other operating expenditure’ mean? Page 123 of the DSD Annual Report is incorrect as the Committee did not commend DSD for achieving 69% of its targets.

Mr Peter Netshipale, DDG: Integrated Development, said that the amount reflected on Lovelife activities in the past financial year before this was reviewed. DSD committed to pay Lovelife 50% of the Lovelife budget. The strategy will change in 2016/17. The amount relates to the activities that they were still doing.

Mr Appel said that the conditional grants relate to the substance abuse grant for the construction of the centres that were paid out.

On the R23 million worth of moveable tangible assets, DSD procured a lot of assets for the provinces and they have not been transferred to the provinces. DSD is now working on transferring these assets so that it will reflect on the provinces’ register.

The Social Assistance debtors over-recovery relates to recovery when people start paying back social grants.

The issue of ribbons was also raised by AGSA during the audit. AGSA found that the amount paid for the ribbons were not market related and therefore it has to be disclosed as wasteful expenditure. DSD acknowledged the fact that the description is a bit misleading and it will be fixed.

On irregular expenditure with regards to non-compliance with Supply Chain Management (SCM) processes and order number not issued prior to the service rendered, DSD felt that the policy allows it procure from a specific group but AGSA and Treasury thought otherwise. DSD thought that it was operating within the rule. There is a loss control committee that deals with irregular and fruitless and wasteful expenditure. Disciplinary letters have also been issued to those that violated the rules. 

The voted funds that were surrendered to the Revenue Fund are the savings in the grants which cannot be used but have to be moved back to the Treasury. This money cannot be applied to virement.

Ms Malgas said that page 123 issue raised should be deleted.

Ms Wilson asked what is happening around the Disaster Relief Fund especially the contingent liability.

Mr van Vrede replied that the previous board before the year came to an end dispensed some funds in Northern Cape and other provinces. There is a specific region in the Northern Cape where the beneficiaries thought that they had the right to claim so they took the department to court. So the amount on the report is an estimate of what it will cost DSD if the beneficiaries are to win the case.

Ms Wilson asked why DSD did not pay the claim which is R551 700 instead of the court case that cost up to a million rand.

Mr van Vrede said that the previous board decided to defend the case rather than pay the claim. The reason is that after the funds were disbursed, two individuals claimed a certain amount and then from there they increased in number hence the decision to defend so as to end it once and for all.

Ms Tsoleli asked about the impact of deferred targets to another year.  Will DSD be able to absolve the bursary holder with the additional scholarship it has allocated?

Ms Conny responded that educating a young person does not amount to wasting of resources. It is also true that there is backlog in appointing social workers that have graduated and that after training, these persons are supposed to be employed. A proposal has been made to Treasury to reduce the intake from next year so that the balance of the money will be used to absolve the social workers on the ground. Treasury has also been in communication and proposed a conditional grant. The problem sometimes is that when money is sent to provinces it is diverted for something else. A proposed grant framework has been submitted to Treasury on how these grants will work. The money is just for salaries only.

The Chairperson said that in due time the Committee will engage with provincial social development who do not utilise the money as planned.

Mr Buthelezi said that most of the deferred targets are target that were not fully met. In the next financial year, they will be prioritised.

The Chairperson suggested that the deferred targets be prioritised.

National Development Agency (NDA) on its 2015/16 Annual Report
Ms Judy Hermans, NDA board chairperson, said that NDA achieved 73% of its set targets for the period under review. The Agency received an unqualified audit with findings and is working very hard to receive a clean audit in the coming financial year. Ms Hermans commended the Acting Chief Executive Officer, Ms Nelisiwe Vilakazi, for bringing stability to the agency. She also commended her for providing an environment where officials can do their work. Ms Hermans assured the Committee that in the next meeting of the Agency and the Committee the new CEO will be present.

Ms Nelisiwe Vilakazi, Acting NDA CEO, took the Committee through the programmes and achievements of the agency (see document).

Financial matters
Mr Solomon Shingange, Acting NDA Chief Financial Officer, said the agency continues to operate under stringent financial constraints due to its financial allocation increasing at 3% year on year while CPI averaged 6.5%. The resources are decreasing in real terms. Key organisational expenses, such as rental of offices and employment costs, increased by 9% and 7% respectively in the previous financial year. The agency is reporting a deficit of R 1.7 million in 2016 versus a deficit of R 12.4 million in 2015. The reported deficits are accounting deficits not cash deficits. Theses deficits are attributable to a timing difference between recognition of revenue and expenditure related to funded projects.

Revenue of the agency decreased by 6% year on year from R260 million in 2015 to R255 million in 2016. The main contributor to the reduction in revenue of R5 million is attributable to reducing conditional grants received from other government departments.

A total of 90% was spent of the R256.7 million annual budget.  64% (R163.7m) of the annual budget was spent on mandate expenses and the remaining 36% was spent on administration and support.

The organisation continues to implement cost containment measures due to budgetary constraints.

Discussion
The Chairperson acknowledged the information that the agency has appointed a new CEO and said that is a milestone.

Ms Abrahams asked how the agency manages the automated information system for reward. Clarity on employment is needed, are the interns temporary or are they absolved? She referred to the Annual Report, and asked what is Other Income, Other Payments, Other Receipts and Other Grants.

Ms Wilson asked if there is a CFO in place. The absence of an audit committee has had a disastrous impact on the NDA in terms of financial management and lack of reporting. It has also led to non-compliance with the PFMA. Why is that?

Speaking to the Minister, Ms Wilson said that when there is not a good organisational structure in place in the entity, an assurance is needed from the Minister that this will be looked into.

Ms Malgas said that the AGSA spoke to the strategic plan and performance information not submitted to DSD even though budget was received. Clarity is needed. What was the irregular expenditure all about? Why are the goods and services procured without price quotation? What is the reason for the instability with regards to the key positions in the NDA?

The Chairperson asked if the NDA once had planned to devolve to district and whether this is still in progress.

Ms Vilakazi responded that the issue of instability was raised by AGSA. In the absence of the board, there was in place an interim accounting authority appointed to oversee NDA matters. The board was then appointed; this means that NDA is moving to stability. As indicated by the NDA board chairperson the next meeting of the Committee and the Agency will involve the new CEO. There is also an auditing risk committee which was formed by the members of the board, this is to ensure that there is accountability within the NDA. On the vacancy of the key positions, this is as a result of when the former CEO departed, the CFO departed as well. Hence, the NDA appointed an acting CEO and CFO for continuity. Before the end of this quarter the positions will be filled since the position of the CEO is now filled. The CEO will appoint the other key officials.

On the irregular expenditure, the hotspot identified by AGSA was compliance to SCM. However, that is being looked into. Disciplinary measures have started, investigation has started, and plans on how SCM matters will be resolved, is also in progress.

In the next meeting NDA will present its business case with regards to devolving to districts. However, the agency has prioritised one province per district and the processes have started.

Minister Dlamini commended the Acting NDA CEO for ensuring that everything is in order. By the end of this quarter the agency would have gone through the interviews for filling the key positions. With regards to decentralisation, what happens is that government gives money to NPOs, NGOs and cooperatives without incubating them by giving them organisations to mentor them. Amongst the roles of the offices that have been opened at various districts, the most important part is to ensure that where government puts money, that money is not lost. The best way to ensure accountability is to ensure that there are people there to monitor the activities. It is worthy to note that the NDA got an unqualified audit. The NDA is committed to working on and improving on the recommendations of the AGSA.

The Chairperson acknowledged the fact that the Acting CEO has ensured stability at the NDA. The agency is not a departmental baby; it is a National Development Agency. The Committee is not undermining the work of the agency but looks forward to the next annual report.

The report of the review of the White Paper mentioned by the Minister is needed by the Committee. The people responsible for it will be invited to meet with the Committee sometime in the future.

The meeting was adjourned.