Independent Development Trust (IDT) on its 2015/16 Annual Report, with Minister & Deputy present

Meeting report

Opening remarks by Independent Development Trust (IDT)

Dr Somadoda Fikeni, Board Chairperson, IDT, stated that the organisation appreciated the opportunity to make a presentation to the Committee. The entity had taken note of the guidance and recommendations that had been made by the Committee in the last engagement in February 2016 and had been working seriously in achieving those recommendations. The Board would also like to thank the Committee for the visit that was made to some of its projects during the oversight period. The Department, including the Minister and Deputy Minister, had been in full support of the entity in the implementation of the Turnaround Plan. The IDT still had an adverse audit finding for 2015/16 as it was the case in the previous financial year. However, the details would reveal that IDT had made strides and significant improvement in most of the areas.

Dr Fikeni highlighted that in the year under review the Board had to take action against some individuals within the financial unit including the Chief Financial Officer (CFO). The CFO was on suspension most of the time and there was a disciplinary process during the current financial year. The Deputy CFO resigned and there were also significant managers within the financial unit who also resigned and this resulted in the problem of lack of capacity within the entity. The Board felt that it was important to address the audit issues that had been flagged by the Auditor-General of South Africa (AGSA) in the previous financial year. The AGSA also made it clear that the entity had made a 100% improvement in some of the areas. However, the scale of the historical problems was just too much for the entity to be able to recuperate and perform optimally. There was a process of digitisation and the reconciliation of some of the programmes and this was something that was being done manually. The Board was optimistic that there would be a significant improvement in the presentation of the next Annual Report as the detail would show how much improvement had taken place.

Dr Fikeni mentioned that the IDT’s consequence management used to be a tool that was targeting middle managers and people at lower levels. The Board had moved quite swiftly in instituting disciplinary measures against corrupt officials and enhancing transparency. It must be made clear that there are some legal processes that are still on-going and therefore the Board would be more comfortable in merely submitting the name of those officials who are under investigation than doing the naming and shaming in the meeting. Some of the disciplinary measures had just started and others were already midway and the Board would not want to interfere with those legal processes. IDT was working closely with the Treasury on these investigations and the forensic is going through the national head office to the province. The Board noted that the decentralisation of the procurement process occurred where there was a significant problem of capacity. It was already being picked up in the investigations that these irregular expenditures were in the provinces. There were policies that were being put in place to prevent the recurrence of these irregular and fruitless expenditures. Some of the employees were involved in doing business with the entity.

Dr Fikeni stated that Treasury had conducted an investigation that looked into the Department of Correctional Services. The investigation started in 2011 and was not initiated by the IDT or the Department of Public Works (DPW). The IDT had been delivering on its core mandate besides all the key challenges that were being experienced as the entity continued building the infrastructure. The IDT was also engaging with various stakeholders and provinces in order to get more work as this would assist in the sustainability of the entity. The business and the reconfiguration of the IDT was in a process since the end of 2007 and this had almost crippled the organisation in many ways. The business case has now been completed with the assistance of the Department and this would provide certainty on the mandate of the IDT. This would also make it easier for the IDT to have proper capacity and the right model for sustainability.      

Briefing by the Independent Development Trust

Mr Coceko Phakade, Chief Executive Officer (CEO), IDT, indicated that the entity had been in transition for the past 6 years. The transformation process is aimed at maximising the entity’s contribution to the country’s development efforts. This process entails the development of a long term sustainability Business Case. The Business Case under development by the DPW proposes the reconstitution of the IDT into a Schedule 3A Public Entity responsible for social infrastructure programme and project management and funded through a service fee charged on clients. The IDT had experienced portfolio growth of approximately 500 % within the last 7 years prior to the 2014/15 financial year, followed by a decline from the 2015/16 financial year arising from the tight fiscal environment and capacity gaps. Over the last four years, the IDT had also faced extensive operational and governance challenges that have threatened to undermine the past good performance and governance record as well as the financial viability of the IDT. The IDT’s impressive contribution to the national development efforts and good governance record had in the recent past, been brought into question due to the disclaimed audit opinion on its Annual Financial Statements for the 2014/15 and 2015/16 financial years.

Mr Phakade mentioned that long years of uncertainty arising from, among others, the prolonged transformation process, long drawn out process of finalising the IDT Business Case and under-capacitation of the organisation in critical areas have taken their toll on staff morale. The organisation has thus been compelled to work with staff members who were demotivated and whose loyalties to the organisation could not be guaranteed. Over the years, document management at IDT has deteriorated to a point that it has been a challenge for the Auditor General (AG) to effectively audit programmes. The lack of adequate document management systems within IDT, has contributed to a negative audit rating by the AG, as it is viewed as a potential scope limitation. The under-capacitation of the Internal Audit function has resulted in apparent lack of Internal Audit support in the organisation. A lack of effective contract management resulted in repeated audit findings and poor management of external contracts. The old accounting information system (Great Plains) was migrated to a new system where a single data base was split into 20 separate data bases. As a result, some of the transactions were not transferred across to the new Great Plains (GP).

Mr Phakade highlighted that the 11 years of unqualified audit opinions were based on the IDT books without the transactions relating to programme funds and expenditure that IDT manages on behalf of client departments. These balances were not accounted for in the financials of IDT and thus not subject to audit until 2014/15. The programme funds (assets, liabilities and reserves) were off balance sheet items on the face of IDT AFS for the respective financial years and these balances are very material in nature as they amounted to billions of rands since the inception of the entity. The challenges of incorporating these balances for the first time in 2014/15 Annual Financial Statements were compounded by the unknown impact of take-on balances that arose as a result of the system migration that took place during the 2013/14 financial period. The AGSA could not express an opinion until these balances are satisfactorily reconciled.

There were a number of issues that had contributed to the continued disclaimer audit opinion and these included the presentation of material balances of programme reserves and liabilities for audit purposes without accurate and complete underlying accounting records: largely due to prior year unreconciled items. There was also a problem of inadequacy of reconciliations performed on the underlying accounts relating to management fees, trade receivables, impairment of trade receivables and provision for doubtful debts. There were also concerns about the impact of challenges relating to programme reserves and liabilities; and management fees, trade receivables, impairment of trade receivables and provision for doubtful debts on related parties balances and prior period errors. The IDT Board appointed Gobodo Forensic Investigative Accounting (Pty) Ltd (GFIA) to conduct a preliminary investigation in 2014, based on serious allegations of irregularities and corrupt activities in the procurement processes which were brought to their attention. The Preliminary Phase (Phase1) focused only on the specific allegations brought to the attention of the Board of Trustees in relation to 4 Service providers involving R100 million of payments. Preliminary findings indicated that certain service providers were appointed without following due procurement processes. In-depth forensic investigation was then recommended (Phase 2) and where necessary, disciplinary processes were to be undertaken.

Mr Phakade mentioned that as the crux of the disclaimed audit opinion rests solely on the take-on balances relating to Programmes in Project Accounting, FSU has commenced going back to cleaning and reconciling old GP, closing the periods and generating Trial Balances for each Regional Office as at the migration point in 2013/14. The data will then be compared to data imported during the migration.  Any correcting journals post migration over the last three years will be identified and assessed as to the validity of such transactions and where applicable adjustments will be made per year. The take-on balance project will take a minimum of six months to unpack effectively and resolve satisfactorily. The old GP will be made to be the same in terms of transactions at the system conversion stage and differences will be cleared. Audit Action Plan for 2015/16 developed and coordinated at senior manager level within the office of the CFO. The plan will be forwarded to AGSA for review this month and a meeting will be scheduled for final discussion and interim review. There is now a close monitoring and regular reporting by Internal Audit and Financial Technical Support from the office of the CFO to Executive Committee Finance Committee, Audit and Risk Committee and ultimately the Board of Trustees

The objectives of the IDT Turnaround Strategy, covering the period 1 April 2015 to 31 March 2018, are to: 

• Strategically position the IDT as a premier social infrastructure programme delivery management entity;
• Regain confidence of the Shareholder, client departments and stakeholders;
• Ensuring financial sustainability, prudent financial management and accountability for the IDT as well as for client funds;
• Attract and retain appropriately qualified, committed and motivated personnel;
• Develop and utilise effective and efficient business systems and processes to successfully implement programmes that contribute to the improvements in the quality of life of communities.

Mr Phakade said that the entity had achieved a total of 13 targets (59%), partially achieved on 6 targets (27%) and failed to achieve 3 targets (14%). The bulk of the expenditure for IDT went to educational facilities: school buildings (46%), followed by Justice and Correctional Services (19%),  Health Care Facilities (18%), EPWP NSS: Public Employment (11%) and 6% on other. There are a number of measures that had been taken to address the chronic problem of underperformance and these included engaging clients to address the diversion, reduction and withdrawal of programme funds post contracting to attain the target of building and replacement of 20 schools. The IDT had engaged the client departments to commit to job creation objectives of the State and build/sustain social facilitation capacity. The Audit Action Plan was developed to address the  disclaimer matters particularly the prior years effect on opening balances. The Board was currently focused on contributing to the development of the IDT Business Case and confirmation of the IDT Mandate and providing leadership towards the long-term financial sustainability of the organisation. The Board was also focused on spearheading effective governance and compliance, and a culture of consequence management and filling the vacant Chief Financial Officer (CFO) role with a competent person.

Mr Phakade concluded that the cost containment strategy seeks to balance the increasing demand for improved services and the resources required to attain effective governance in the context of limited resources. The key areas of cost savings have been the payroll costs, travelling and accommodation, and consulting fees. The IDT has over the years notably improved on its cost management; more focus now was placed on revenue management. The going concern principle is the assumption that an organisation will remain in business for the foreseeable future. The measurement was for a rolling period of 12 months. This implies that the entity will not be forced to halt its operations and liquidate its assets within this time frame. The IDT had, in the past, been able to rely on the capital fund to fund its operations. The issue of long transformation processes was creating uncertainty amongst client departments and IDT staff delays in client departments transferring of programme funds. The delayed transfer of programme funds by client departments was impacting negatively on service providers prompt payment.

Discussion

The Chairperson requested that the Committee should be provided with the name of the company that was being pursued as it was a main source of the whistleblower. The better option of the Board would be to leave the issue for now until all proper processes had been concluded.

Mr Phakade responded that the IDT would be happy to submit the name of the company to the Committee as the matter was still in arbitration. The IDT went to arbitration and lost and then appealed and the chances of winning the arbitration are extremely high. However, even if the IDT was to win the case it was still likely that the case would end up in court. There was need to exercise caution on the matter as it was yet to be taken to court. It must be stated that IDT could disclose the name of the officials who were taken through the disciplinary process related to the case as the matter had been laid to rest.

Mr M Dlamini (EFF) asked that the Committee should be provided with the name of the company that was being investigated as there was nothing to be construed as secret in Parliament. The IDT should be accounting to the Committee by providing any related information that is important for Members of Parliament. The fact that the Department was already involved in the case showed that the matter was serious and the Board needed to provide accountability. 

Dr Fikeni responded that the name of the company is Navigant Consulting.                                                                                   

Mr Thulas Nxesi, Minister of Public Works, pleaded that Members should be helping the Department as it would be the Department that would be accused of losing most of these court cases. The fact that the name of the company was disclosed to the meeting before all due processes were followed could be potentially “arming the other people on the other side”. There is indeed a need to exercise caution on some of the matters that are still under litigation as it could negatively impact on the outcome of a court case. 

Mr Dlamini said that what the Minister was pleading for was irrelevant as the Committee was not an investigative authority. It must be highlighted that anything that needed to be publicly known by Members needed to be shared to the Committee and this was even if the case was still under investigation. The role of Members is to conduct oversight over the Executive and this included being provided with sensitive information.  It was incorrect for the Minister to assume that by providing the Committee with sensitive information was potentially “arming the other people on the other side”. 

Ms D Kohler-Barnard (DA) indicated that there had been regression in the performance of IDT and it would be totally unacceptable for the Board to continuously blame history for what is now a third straight terrible year of poor performance. The disclaimer audit opinion clear showed that the AGSA had been provided with insufficient evidence in the formal documentation and yet this problem continued to recur. It was also evident that there is lack of accountability within the organisation and it did not seem like there is anything that had improved at all and the AGSA was also in support of this view. It was stated that the previous CFO had been dismissed and the entity was trying to recuperate some of the money that had been lost as a result of reckless expenditure. However, what was not clear was whether this CFO and the other “cohort” who had been dismissed took up other work from another government entity somewhere.  The Committee should be provided with information on whether the positions of those individuals that were dismissed had been filled as the IDT still had about 86 vacancies.

Ms Kohler-Barnard also requested that the Committee should be provided detailed information on the court cases that IDT was particularly involved in. It was concerning to see that there had been an increase of R42 million in a year for work that had been done but not paid for by the IDT. The IDT would need to start paying its stakeholders on time as this was impacting negatively on the business operation of the entity. The IDT had also indicated that payment was not being made to service providers precisely because there was lack of payment that was coming from the client departments. However, this was a vague explanation as it failed to provide detailed information about the name of the client departments that were not making payment to the IDT. It was disappointing to see that the IDT had received an adverse audit outcome despite the fact that the Board had made a promise to the Committee in February that it was doing everything in its power to improve the overall audit outcome. It would be important to hear if the Board did receive performance bonuses last year and in the current year. It would be outrageous if the Committee was to hear that the Board was awarded performance bonuses although it had performed poorly in terms of overall performance. The Committee should also be provided with the results of the forensic investigations that were promised in the meeting from February. It seemed like the Board viewed the Committee as its enemy and was doing whatever it could take to hide some important information.

Ms Kohler-Barnard added that the Board was asked to provide detailed information on the forensic report about the “crooks that had been using IDT as their ATM”. Who was going to be held to accountable for the R17.3 million that was incurred in irregular expenditure?  Why did IDT condone R20.2 million of irregular expenditure? Who gave IDT this right to condone such an amount? Who was going to be held to account for the wasteful and fruitless expenditure of R5.1 million as this was a huge increase from the previous financial year? It would also be important to know about the various contractors that were currently being sued and the likelihood that the IDT was going to recover the money. This was to determine whether due diligence was being done to recover all the money that had been wasted. It was evidently clear during the oversight visit that there were cases where contracts would be awarded to the lowest bidders that could not even do the work. There is a case in court where a person who was given a multimillion Rand contract lied about his five references and he is now facing five charges in court. IDT did not even bother to phone those five references for the purpose of verification. Was IDT doing something to resolve these cases of fraud and corruption?

The Chairperson asked if it was correct to assume that the people who had received performance bonuses were in the Executive Management.

Mr K Sithole (IFP) requested that the Committee should provided with detailed information on location of rural areas that had been supported with funding as this was important for oversight purpose. It would be important to hear when the entity was planning to finalise all the pending forensic investigations. The Committee should be provided with the reason for the resignation of most of the personnel within IDT. What are the reasons for irregular expenditure in the area of Msunduza Municipality? What was being done to remedy the problem of irregular expenditure within Msunduza Municipality? What would happen in terms of filling in those unfunded vacant posts? It was worrying to see that IDT had not awarded any contract to the disabled people.

Mr Dlamini said that it was absurd to see that the presentation seemed not to touch on some of the issues that were supposed to be shared to Members. The Committee had an oversight role over the Department and its agencies. The Committee should be provided with information on where the IDT was having challenges and the recommendations that would be put in place to address those challenges.  It was concerning to hear that the figures that had been provided on the overview performance for Strategic Objective 1 were inaccurate and not realistic figures. The Committee would need to be provided with verified figures of the overview performance of IDT as it would not be proper for Members to comment on inaccurate figures.

Ms E Masehela (ANC) also added that everyone was particularly disappointed that there had been regression in the performance of IDT from 2014 onwards. The Committee would certainly not accept the current audit outcome in the next financial year as there should be a drastic improvement. The presentation was giving everyone hope that things would improve from now on so that the entity could go back to what it used to be. The Committee should thank the AGSA for suggesting that there would be a need to also audit the client departments as this had contributed negatively on the adverse audit outcome of IDT. It was clear that IDT would continue to have problems as long as there were still challenges in capacity and management of contracts as the entity is primarily dependent on the service fees from the client departments. It was correct that the Committee could not be briefed on pending cases as this would interfere with the legal processes but these pending cases should be reported to the Committee as time goes by.

Ms Masehela stated that there are many people who had resigned after the CFO was dismissed. Was this being investigated as to why a huge number of people suddenly resigned? There was a possibility that these people were running away from facing criminal charges. The IDT would need to stick to the payment of service providers within the 30 day period as this was negatively impacting those who were working on the EPWP projects. It was concerning to see that there was no stipulated timeframe for the achievement of transformation project within the Built Environment. It was perhaps wise to have a target to be reached on transformation so that we do not leave this issue “open-ended”.

Mr M Filtane (UDM) commented that uncertainty had the potential to inhibit progress and enhance confusion and loss of productivity. It would be good to know from the Minister what the Committee could do in order to bring an end to this uncertainty within the IDT. The Minister should provide the Committee with detailed information on when the decision could be taken to locate IDT in one compartment within the existing others. It would also be interesting to hear from the Minister whether this perennial problem of uncertainty within IDT would be resolved or cleared once and for all by the end of the 2016/17 financial year. This uncertainty was also negatively impacting the entity on an operational level and this was one of the contributing factors to the adverse audit opinion. There was an institution in OR Tambo called Inga that was consumed by uncertainty for about five years and this institution was no longer operational because it was operating in a fluid uncertain situation.

Mr Filtane said that IDT should not be talking about the problem of flawed contract management as this was also likely to kill the organisation. The “horrors” that the Committee witnessed during the oversight visit pointed to the problem of poor contract management. If the entity was unable to deal with the fundamental problem of contract management then it might as well not exist. He wanted to know if the Board had the right personnel in the right position. There is a general feeling that there had not been an efficient way of evaluating everyone in their current positions or even repositioning them if possible.  The Committee should be briefed on the progress that had been made in regard to those 2010 White construction companies that were implicated in collusion. The IDT had notified the Committee that there were still negotiations with those companies and Members would have been provided with detailed information by the end of June 2016. It appeared as if the reason for choosing the route of negotiation settlement was to avoid the exorbitant legal fees.

Mr Filtane indicated that it was unclear if there is a law that prevented CFOs from creating a system within the Information Technology (IT) division that would enable the CFO to get an automatic notification of all single payments that are made by the service providers. It is clear that IDT was being targeted by people who were keen on taking money out of government coffers. In relation to the matter of targets, there should only be two columns that would focus on targets that had been achieved and those that had not been achieved as there was no such thing as a “partially achieved” target.

Ms S Kopane (DA) also agreed that the main intention of the Committee was to assist the entity in dealing with all the challenges that were being encountered. The Committee could not help the IDT if there was an unwillingness to share important information. The IDT had been relying on capital funds for its operations but the status quo showed that the capital funds had now been depleted. It would be interesting to see how this depletion of the capital funds was impacting on the operations of the IDT. What are the other sources of revenue that was being used at the moment to ensure that there was sustainability within the organisation? It was worrying to see that there are problems of leadership and capacity constraints within the financial unit of IDT. There are also so many vacant positions within the financial unit and this was likely to negatively impact on the operation of the entity. How many positions that still needed to be filled in within the financial unit?

Ms Kopane pointed out that the turnover rate within IDT was sitting at 10% and it would be interesting to hear about the impact of this low turnover on the operation of the entity. How many compliance officers that had been employed by the IDT? What was the impact of the resignation of a number of employees on the work of the IDT? It was reported that IDT had managed to collect about 80% of the management fees in the current financial year. What was the exact amount that was collected? IDT had reported that the Department had an outstanding debt of R3.3 million in the management fees. It would be important for the Committee to hear if the IDT had recovered this amount from the Department.  

Ms P Adams (ANC) enquired if there was anything that had been done to deal with the issue of low staff moral within IDT as this was ultimately impacting on the operation of the entity. Was there a yardstick that was being used to measure the outcome of the staff morale within IDT? The core business of IDT is on contract management and it would be interesting to hear on what was to happen if there is a collapse in contract management. The capacitation of the internal audit functions was very important as this was inherently linked to risk management. The Committee should be provided with the timeframes on what was intended to be done to strengthen the internal audit function. She requested that the Committee should be provided with the exact date on which the entity planned to forward to the AGSA a review of the audit action plans this month. What are the outcomes of the regular formal meetings and feedback sessions that are being held by all of the Financial Leadership Teams of IDT where key controls issues and finance risks are addressed with applicable corrective and remedial actions? How was this taking the organisation further?

Ms Adams asked about the basic reason that made the IDT not to be able to achieve the annual target of building and replacing 30 schools. The country was facing serious challenges with regards to the building of schools and there is a constitutional obligation of basic education training. When was IDT planning to fill the 15% vacancy rate for funded positions? Was there any feedback from the Ministry in regard to the tabling the IDT Business Case to the Cabinet before end of calendar year? What was the new CFO doing to deal with the problem in the funding of IDT programmes? What was the social responsibility of IDT as this was not reflected in the presentation? What was being done to improve on contractor development? What was the criterion that was followed in awarding performance bonuses? It would be important to if there was a specific reason for the personnel at level 2 to be paid less in terms of bonuses than those at level 3.

The Minister responded that the “disease” that is faced by IDT is the same “disease” that was faced by the “mother-body”. The IDT was just being audited on its operational budget and this is a point that must be taken into consideration. It was clear that there is stability within the leadership of IDT and this leadership had already implemented some of the plans in place to turn around the entity. The reality is that once you deal with corruption people start to resign and this was very disruptive. It must also be taken into consideration that a worker has a right in terms of Labour Relations Act to deliberately postpone meetings on several occasions and the entity is compelled not to fill a vacant position until all proper processes had been followed. The fact that the current leadership had been able to unearth all these things that had been happening within the IDT was commendable and the main responsibility is now to take the entity forward. There is confidence that IDT is moving in the right direction as there are systems that had been put in place to offset some of the challenges that were perpetually creating stability within IDT.

The Minister added that the matter of the negotiations between the Department and those companies that were involved in collusion was being handled by the Competition Commission and not by the Department. The Competition Commission had already fined those companies and this fine amounted to R1.4 billion. The Department had already started another process - called the reparations package - because individual government entities wanted to deal with these companies. All the entities were quite clear that the process of investigating and fining these companies was going to take years as the burden to prove guilt was going to be on government and the entities. There was a decision that was taken that after these companies had paid the fines then they would have to infuse transformation in the process within the Built Environment. There was also an order that these companies should put a fund in place that would be controlled jointly in training and capacitation of Black companies in order to be competitive. There is very little that the Department could do in terms of transformation because of the current legislation of the Built Environment. There are serious issues that would need to be considered for the Department to be able to foster promotion within the sector and this included coming up with a review of the current legislation in relation to the whole Built Environment.

Mr Jeremy Cronin, Deputy Minister, DPW, clarified that the Committee was not being treated as an enemy and it was important to distinguish between “aggressive rudeness” and “robust oversight” as these are not the same things. There should be a civilised multiparty democracy where everyone would engage with issues in a robust oversight. It is indeed correct that there is uncertainty within which the IDT had been operating. The Department had decided in many engagements with the IDT that the entity should become a public entity Schedule 3A and this would allow the entity to have the agility that is required in this space which a government or  a department might not have. This would also allow the IDT to seek business that was not necessarily coming from the Department. There was also a decision that the Business Case should be built around that formula of Schedule 3A as this would promote efficiency. There is a need to distinguish between mistakes or errors and blatant corruption and the Department was more persuaded that there had been significant looting that had been going on in the IDT. There is a need to appreciate new leadership as things are starting to return to normal and offering a wider perspective. The Department was keen to ensure that the Business Case was approved as soon as possible but this would firstly require Cabinet approval.

Dr Fikeni also appreciated the questions that had been posed by Members and there should be assurance that these were being taken in good spirit. The IDT was equally aware of the frustration of the Committee on some of the challenges. There was nothing more painful as not knowing when the future or fate of IDT would be decided because of a lack of Business Case. The uncertainty in the operation of IDT had corrosive impact since 2008. There was no particular reason why the IDT would not trust the Committee in terms of sharing all information. The IDT approached the Treasury to deal with forensic investigations and this was precisely because the entity did not have adequate funding to pursue that process. It was easy to be distracted from the core business of dealing with social infrastructure and suddenly become a crime investigative unit. Treasury had promised that all the forensic investigations would be completed and the Committee would be provided with the report on all those investigations once completed.

Dr Fikeni noted that the phrase disclaimer audit opinion seemed to obscure the progress that had been made by the Board. The financial year that was being presented to the Committee was the one that the entity did not even have a CFO.  There is now a CFO who has managed to create stability within IDT. There is a need to create a balance between consequence management and dealing with the audit issues. Board members are not entitled to any bonuses and there was a conscious decision that was taken to suspend any talks on the review of Board fees. The Board fees had remained the same. The decision that was taken was that senior managers would not be entitled to any bonuses because the entity was facing financial constrains. The Board was taking ownership of everything and accounting to everything that was happening within the IDT. There is also professional pride that the Turnaround Plan should happen as this entity was very important. The Board was fully aware that there would be unqualified audit opinions that would be based on historical issues and the previous Board that acted without impunity.    

Dr Fikeni provided assurance that the Committee would be provided with all the relevant details as there was nothing to hide. There is a Board member who was forced to step down after it was discovered that he had been trading with the IDT. In relation to the issues of qualifications and competencies of personnel, the IDT took a decision that this should begin within Board members before even going to the Executive. The entity was serious about this kind of work of ensuring that there is accountability within the entity and this was because there is an understanding that South Africans are expecting IDT to do much better in terms of delivering. The IDT took a decision that there should be a prioritisation on the handling of finances. It would be impossible for IDT to fill in all the vacant posts if there is no money. The decline in the business of IDT had negatively impacted on service delivery and the filling of vacant positions.

Dr Fikeni highlighted that IDT was noting every comment, question and suggestions that had been made by Members. He also emphasised that he had presided over entities that had received disclaimer audit opinions and managed to turn them around by achieving a clean audit. There are no illusions that the Board suddenly had a magic touch as there is a lot of work that still needed to be done. The IDT would have certainty on the business model to be followed but the uncertainty was still negatively impacting on the entity.

Ms Seipati Boulton, Chairperson of Audit and Risk Committee, IDT, explained that there is a significant improvement when one is looking at the previous audit report by the AGSA and the current one. There are heavy strides that had been made to ensure that there was an overall improvement in the entity. The Board was acutely that there is a need for the entity to move away from the current “mess” and drastically improve in the next financial year. The Executive had already come up with the five-point plan that would address all the matters that resulted in a disclaimer audit opinion. On irregular expenditure, the Audit and Risk Committee recommended that R20 million of irregular expenditure in its nature is the work that was supposed to be done on rental leases should be condoned. It must be highlighted that the condonation was not just arbitrarily done but it was required that all the due processes should be followed.

Ms Boulton said that it was not made clear in the last meeting in February that the Committee should be furnished with the physical copy of the forensic investigation. The IDT was currently sitting with a draft report of the forensic investigation from the Treasury and the Committee would be provided with the final report once it is completed. There are two processes that would unfold on what the IDT had implemented in terms of the recommendations from the forensic report. There is a disciplinary hearing process, which is an internal process that should be followed and then criminal charges which would be the responsibility of the Treasury. IDT would still need to seek clarity from the Treasury on whether the Committee should be provided with the report on criminal charges that had been instituted. 

Ms Kohler-Barnard indicated that the commitment that was made in the last engagement was that the Committee would be provided with the forensic report on 30 April 2016 and there was no confusion around the issue.

Ms Boulton reiterated that the agreement that was reached with the Treasury was that IDT would be provided with the report and then the IDT would make an arrangement with the Committee to furnish the report. The matter was clear now that the entity would need to provide the Committee with the report as requested. In relation to irregularities in Msunduzi Municipality, this matter was still under investigation and the investigations are still in process. The interest of IDT on the matter was on the legislation that had been contravened and who was to be held accountable. The Committee would also be provided with the recommendations that would come from the investigation in Msunduzi Municipality including the final report. It must be indicated that all the vacancies in the internal audit committee had already been filled from the process point of view but not from the physical body.

The Chairperson interrupted and asked for clarity on what was meant that the posts had already been filled from the “process point of view” and “physical body”.

Ms Boulton replied that this simply means there was an advertisement and interviews that took place for the vacant posts and the post was offered. However, the candidate had not started in terms of accepting the offer. There are middle management and senior management in the internal audit committee who are responsible and accountable for internal audit function. These are the people who are doing the planning and the execution of the plan to ensure that everything was going according to plan. There is also an outsourced service of auditors that are meant to be assisting in the implementation of the greater plan. The IDT would not like to change the model of auditing as it was efficient and contributed towards cost-containment compared to have a fully-fledged in-house internal audit function.

Ms Boulton emphasised that the five-point plan addressed most of the challenges that are experienced by the entity and the issue to be dealt with now was moving from one system to another. The management had been instructed to provide a list of all the litigation matters and gain an understanding of the root cause of those problems. The issue of contract management was one of the causes of the litigation against the IDT and there would be systems in place to ensure that there is a concerted effort to lower the level of acceleration of litigation cases. The CFO had provided an exit interview and personally expressed that she would not be able to cope with the “mess” that was going on within IDT. The Board was very uncomfortable with the fact that the previous Deputy CFO was left on her own without any assistance. The Board was also generally happy that this was seen as an opportunity to give to a woman to learn and gain the skills and experience to take it further within IDT or any other entity.                            

Mr Tlhotse Enoch Motswaledi, Deputy Board Chairperson; IDT, replied that the entity was operating in a space that required certain skills and there are a significant number of people within IDT who are not supposed to be there on the basis of skills and knowledge sector. The IDT had managed to unearth this problem through the remuneration framework that had just been concluded.  It was also discovered that there were people who were given roles where they were not supposed to and paid certain levels that they were not supposed to. The remuneration framework has provided a category of individuals who are supposed to be at IDT hence you would see a laying off of some people purely on the basis that the Board wanted to capacitate IDT better. The IDT was not aware if those individuals who had been fired or dismissed had been redeployed somewhere. It was already known that the previous CEO was retiring at the time of his dismissal and there are a number of people who are going through the same situation. IDT would closely monitor the movement of these people and provide feedback to the Committee.

Mr Phakade added that it was a government-wide problem where people would resign immediately if there are investigations that had been instituted. It was already indicated that government was doing something about this problem as it was negatively impacting on the operation of many government department and its entities. The contingency liability was related to pending litigation and this was a matter that had been prioritised and even elevated to the strategic risk areas that was being monitored regularly. The IDT would need to firstly do a clean-up of the systems in place before going out to various government departments that still owed the entity. The IDT had already met with the accounting officers of the key government departments that still owed IDT and this was to ensure that all the outstanding debt was paid. Some of the government departments had already settled their debts after approaching courts and some of the departments are still in the final process. IDT had now prepared a detailed breakdown that was owed by government departments as this would be important when taking cases to court. The IDT was really looking for the support of the Committee as this would assist in a number of issues.

The meeting was adjourned.