Annual Reports 2015/16
The purpose of this meeting was to assist the Committee to understand the concerns which Auditor General South Africa (AGSA) had raised in its management report, to give a voice to the concerns the Department of Labour had with the AGSA report and thirdly to allow the Committee to interact with both parties.
The areas of concern raised by the Department was that despite improving in areas, AGSA had said the Department had regressed; there was a disclaimer in a number of areas with regard to performance information; the Compensation Fund electronic documents which were not accepted by AGSA; the bids were advertised but the AG had not changed its finding on this; there were no consequences for poor performance; AGSA's comment about the Labour portfolio that : “There was no urgency in correcting the environment due to the lack of political will to deal with fraud and corruption creating comfort to pursue self-interest”; and the possible depletion of reserves based on current spending trends at the Compensation Fund. The AGSA responded to all the concerns and carefully explained their responses to these concerns.
The Committee asked questions about the slow response by management, discussed who wielded the political will to change things, that the Department trying to defend itself about moving from irregular expenditure of R400 million to R130 million was problematic and one Member suggested the Labour portfolio was turning into a "looting machine". The Committee felt the audit report should be accepted and dealt with. The Committee did want to know what DOL was going to do about the areas of concern.
The Chairperson said that the Department of Labour would provide a briefing on some of the issues disputed with regard to the audit outcomes by the Auditor-General. This would be followed by a response by the Auditor-General on these issues. Then the Committee will deliberate on the two briefings
The Chairperson said that both the Department of Labour and the Auditor-General's Office were here today. There were issues that when Committee engaged with the Audit Outcome, it needed further clarification by the Auditor-General (AG). It was put on record the AG had not been summoned, and the Committee was not questioning the findings of the AG. With regard to the report the Committee needed to speak with AGSA directly, because what the AG said about the audit report would affect this Committee Report. The Committee had also felt after reading the report that the two Offices (Department of Labour and the AGSA) had to be put under one roof for the sake of clarity, so that it could then make its own assessment.
Briefing by the Director-General of the Department of Labour (DOL)
Mr Thobile Lamati, DOL Director-General, said that he would like to preface his input with a statement that the Department's disagreement with the AG was in no way an indication that it doubted the credibility of the work it was doing and therefore it did not create an impression that it did not have a good working relationship with the AG. It did have such a relationship and there was constant engagement with the AG on a number of issues where there had been disagreement in terms of the technical interpretation of what the AG had said. It was in this context that when they presented to the Portfolio Committee, the Department felt that there were a number of things that it was not comfortable with. In the course of expressing disagreements, the AG's views remained the ones that were reflected entirely in the management report that the AG had given to the Department. The Department was within its rights to express disagreement and maybe this discussion would assist the Department in finding a way forward in terms of how to approach these technical issues.
The AG made a statement that the entire portfolio of the Department had regressed. There were areas where the Department had not done well in terms of addressing the issues that the AG had raised, and in the response the Department admitted that it had not done well, indicated the reasons why it had not addressed some of these things, and most of them were issues that could not be addressed within a single financial year. On the issue of regression, the Department compared the 2014/15 financial year audit outcomes and there it was accepted that there was a regression. Then if one compared 2014/15 and 2015/6, the graph that was presented by the AG to the Committee, actually attested to the fact that the Department remained static, which meant that there was no movement from where it was with regard to some of the issues which were raised by the AG. For example in 2014/15, irregular expenditure in the Department was just over R400 million; in 2015/16, that irregular expenditure dropped by 69% to just over R130 million. This was seen as a significant improvement even though the Department should not have any irregular expenditure. According to the Department, moving from R400 million to just over R139 million did not translate into a regression.
Secondly on Performance Information, in 2014/15, the AG gave the department a disclaimer on a number of areas. If one looked at the 2015/16 Management Report received from the AG, there was an indication that there was improvement to a point so that in certain areas DOL had moved from a disclaimer to a qualification. This says that there was progress, no regression. It was accepted that if one compared the 2014/15 and 2015/16 portfolio - there were two entities that did not reflect irregular expenditure in 2014/15 but in 2015/16 they there was irregular expenditure. However the total amount in absolute value had gone down drastically. That was why the 69% was spoken about even with two entities now showing irregular expenditure.
The third point that the AG spoke about was on the Compensation Fund which related to the electronic documents that were availed to the AG but not accepted. The Commissioner would testify that the AG wanted information that was made available to them albeit electronically, and they wanted the paper documents and therefore could not accept the electronic version of the documents. The Compensation Commissioner was sitting next to the DG and might make an input on this matter.
The other point of concern was that the AG made a recommendation to the Committee that the Compensation Fund had to develop a turnaround strategy. The Compensation Fund has a turnaround strategy that was presented to the Committee, and reported progress with regard to its implementation on a quality basis. The Committee had indicated that it would like those reports as well on a quarterly basis. This the Department had obliged as it did with SCOPA. This issue has been discussed at length with the AG, and he found it ironic that the AG would then turn around and make this recommendation to the Committee knowing very well that this was something that the Department was already doing and DOL had taken them through this process.
The Department had put in place quality assurance structures, both nationally and provincially to ensure that whatever it did was quality assured. Again the AG had made a statement that the Compensation Fund did not respond to findings. The Compensation Fund held a different view. In the Management Report, the AG said in the presentation they made to the Committee, that the Compensation Fund did not respond to findings. He was referring to a table in the AG's Management Report they submitted to the Fund that indicated the number of findings, the number of issues the Compensation Fund had to respond to and the number that they had responded to. This reflected that there was nothing that they had responded to. They had responded; it may just be that there was a difference in opinion in terms of the responses. DOL says that even though the Compensation Fund received a disclaimer which was accepted, it held the view that there had been an improvement in the audit findings of the Compensation Fund even though those improvements did not reflect materially either in an unqualified or a qualified audit opinion but he thought there was a significant improvement. In the Report submitted by the AG, it acknowledged that because of the internal controls the Compensation Fund had put in place, the Compensation Fund was now in a healthy position financially.
Mr Lamati said that the AG had made an issue with irregular expenditure. He did want to indicate some of the steps taken to address some of the findings because in the report an impression was created that there was nothing that DOL did to address irregular and fruitless and wasteful expenditure. It should be clearly stated that DOL took these things very seriously. In each and every performance agreement of the senior managers in the department, an indicator was included that talked to managing risks because this was a risk. More importantly, in the DOL strategic plan and the annual performance plan was an indicator that said that it did not want to have irregular expenditure. There had to be 100% compliance with supply chain related matters. The Compensation Fund has established a Financial Misconduct Advisory Committee that had been tasked with overseeing the preliminary investigations into allegations of financial misconduct to determine whether there has been a case of irregular fruitless and wasteful expenditure. To date it was confirmed in the report provided by the AG that 130 cases had been recorded in the financial misconduct register. Seventy of those cases had been investigated and recommendations had been made on corrective action. This clearly showed that cases were investigated. However all cases were not investigated in the financial year given the resources that it had at its disposal, but there was a commitment that all cases would be investigated. This was why cases were recorded in the register.
One of the things DOL prided itself on was that it was able to detect these things; and as a result there has been an increase in the number of cases reported. People were also able to report fraud through the Fraud line. It left a bad taste in the month if an impression was created that DOL was tolerant of fraud and corruption when these things were being dealt with and consequence management was being implemented in DOL and there was proof of this.
One area where DOL disagreed with the AG which covered both the Compensation Fund and the Unemployment Insurance Fund, was that the AG said that bids were not advertised in some areas. He wanted to zoom in on the Compensation Fund again. Bids were advertised according to Treasury's Supply Chain Management: A Guide for Accounting Officers/Authorities issued in February 2004. This guide has never been replaced nor regarded as not applicable since its issuance. Despite providing the AG with this information, the finding still remained. The AG recommended that this amount be added as irregular expenditure. The Compensation Fund believed that the AG should not have raised the finding nor have included it in the audit report as these services were advertised and the process followed was competitive; furthermore DOL had copies of the tenders that were sent out.
The intention of this was to implement what was called a body stock where there were service providers that – whenever one had an issue that had to be dealt with, once one had concluded the tender process, one had the service providers there. When one wanted to use their services one went to them on a quotation basis. This was allowed in terms of the Treasury regulations. The Compensation Fund had complied with this yet the AG said this was irregular and a proper supply chain process was not followed. And therefore those transactions were classified as irregular. DOL held a different view but the finding remained in the management letter.
On Consequence Management, the impression was created that DOL tolerated poor performance and there were no consequences for poor performance, fraud or corruption. Again this information was provided to the AG. The Risk Management unit was investigating 110 cases. Some had been referred to the South African Police Service (SAPS) for further investigation. DOL had proof of court cases that were currently running of people who had been referred to court and the amounts associated with the crimes allegedly committed.
The last point where DOL held a very different view to that of the AG was on their recommendations. The Department's view was that the recommendations had to be linked to findings in the audit report. If they were not linked then a general statement was being made. The AG has made a general statement in a number of areas, and one of those general statements was that there was no political will in DOL to deal with issues. The second statement was that there was a pervasive culture of poor performance, fraud and corruption in DOL and it was not doing anything about it. The AG’s report had stated: “There was no urgency in correcting the environment due to the lack of political will to deal with fraud and corruption creating comfort to pursue self-interest”. The third statement made was that ‘there a was possible depletion of reserves on current spending trends’, and yet an explanation was given to the AG why the current trends were as reflected in the financial statements of the Compensation Fund, and the compelling reasons for such spending.
So those were the concerns as a Department. He said that he would like to reiterate the point made earlier that DOL viewed the work of the AG as very important. However it just had disagreements with the AG. It was in the nature of the work that people would not agree on certain things and this should not be viewed as a fight between the two parties concerned.
The Chairperson said that when the DG was talking he had referred to the Commissioner about proof of certain material. She asked if it was required of the Commissioner to provide proof or respond.
The Auditor-General South Africa representative said that it would respond.
Response from the Auditor-General's Office
Mr Vusi Msibi, AGSA Corporate Executive: Audit Office, addressed the concerns highlighted by the Director General. The three areas covered in any regulatory audit are financial statement reporting, compliance with key legislation and also the quality and reliability of performance information.
So the evaluation saying that the Labour portfolio regressed looked specifically at the quality of the financial statements submitted and the extent of misstatements that were corrected by management as a result of the audit. Also it looked at the quality of performance information. The AG also evaluated the entire internal control environment of the entities. The regression related to the areas mentioned above. Yes, the DG had the view that based on the actions taken by DOL to correct those issues there were improvements. The AG appreciated the improvements in certain areas, but overall it was said in the light of the areas highlighted, there was a regression in the performance of the entire portfolio. To give context to the root causes, the AG reported and said – what informed these findings was this: slow response by management. This did not mean typically that management was not doing anything; it referred to the speed at which the audit findings raised were dealt with. The AG appreciated the effort made by management in dealing with the issues. It was also not saying that nothing was being done about the audit findings, but it had highlighted ‘slow response’ as being one of the root causes that informed these findings.
Mr Msibi said he would not like to get into the details around specific contracts that were audited. The DG had mentioned there was a contract where bids were advertised. Here the view of the AG was different and the AGSA team was here to support him if there was a need to get into the details of the actual findings that were raised with management.
Referring to the impression that may be created by the finding that there was a culture of poor performance, corruption as well as fraud. The context around these issues was premised on the evaluation done over the years. The Compensation Fund specifically had received a disclaimer for the past four years. There had been engagement with management, audit committees and all the assurance providers, the Minister as well, to say that there was a risk associated with any environment where adequate documentation was not forthcoming to satisfy the auditor to be able to sign off on those financial statements. So it was a risk related to the internal control environment. The risk was highlighted about the Compensation Fund saying in the AG’s experience in such environments there was opportunity where there could be fraudulent activities and corruption. So basically the AG was expressing concern about the internal control environment, concern with at the slow response by management in dealing with these issues because even for 2015/16 the Compensation Fund had still been disclaimed. He did not think it was on the basis of not accepting the electronic information that had been indicated by the DG because a number of account balances were audited. To provide a context to risk associated with fraud, the AG did speak openly with management around investigations that had been sanctioned in the environment. The context around those investigations was that Compensation Fund employees were involved together with medical practitioners around the alleged fraudulent activities that happened in the environment. The AG’s assertion was that in the light of the slow response and the weaker internal control environment, there was a risk that even the reserves in the Compensation Fund may be depleted due to the lack of internal controls that supported accountability and transparency of the Compensation Fund activities.
With regard to the lack of political will, this was covered in the AG presentation where as part of the visibility programme the AG spoke to management, audit committees, executive leadership, the Minister, the Portfolio Committee as assurance providers - because one of its mandates was to promote assurance accountability on the set of financials it audited. It also had to enable oversight by engaging Portfolio Committee so that a context could be provided to what reports entailed and what they meant. The status on commitments was raised and the AG mentioned there needs to be increased oversight by the executive on the issues that the AG had raised, particularly on the Compensation Fund. So the word political might be interpreted to say political at a different level, but the AG was looking at the executive in the form of the Minister where engagements around the concerns raised was coming from that perspective.
The context that the AG was trying to provide on the issue of self-interest that the DG alluded to, it was part of the audit process where the AG looked at conflict of interest in terms of supply chain management (SCM) processes, bids that were issued and once more the investigations which involved officials and service providers that supported the activities of the Compensation Fund. In terms of agents to correct the environment, the assessment over the years was that the AG was seeing a slow response by management in dealing with the issues that it had uncovered.
The Chairperson said that a number of issues had been raised by the DG regarding the Department’s dissatisfaction and the AG had explained what it was that they looked at in terms of how they did their work.
Ms F Loliwe (ANC) welcomed the two presentations and said that they were an eye opener to her. She asked at what stage the AG finalised their report because the AG had alluded to the slow response by the management on the issues raised. DOL indicated that there was a response. Were they drafting their responses before the audit report came out?
Ms Loliwe said that with the Compensation Fund said they benchmarked their findings on what had been happening in previous years, and this led to them recommending the turnaround strategy and this was where improvements were seen, slight as they may have been. She asked why the AG was not appreciating the changes in the Compensation Fund instead of telling DOL to come up with a turnaround strategy.
Mr M Bagraim (DA) said that in reality what he was hearing from DOL was that they were not challenging the veracity of the report in any way, and not challenging the AG report in its essence, they were challenging one or two interpretations and the gloss that was put on it. He was hearing that ‘yes’ they were still in the doldrums but they were coming out of it and this had not been recognised by the AG. They were also saying that they were taking action and it was not recognised that they had made some movement. He also heard that DOL was making headway into the cases so the Committee also recognised that there had been movement albeit only incremental baby steps.
Mr Bagraim noted that even though DOL said there were compelling reasons for the depletion of their reserves, this could not change the reasons for the AG’s report. The AG had three issues they looked at, and for this they stood by in their report. Perhaps there should be more cooperation between DOL and the AG so that it did not result in a meeting such as this that was at times embarrassing for the Committee. These issues should be thrashed out long before it reached the Committee. The Committee recognised that DOL was moving in the right direction, maybe too slowly, but still in the right direction.
Mr M Plouamma (AGANG) said he appreciated that the AG was carrying out its constitutional mandate. DOL through the DG was applying semantics, trying to use different words to justify what they had done as they were not actually challenging the facts. This Department trying to defend itself moving from irregular expenditure of R400 million to R130 million bothered him. What progress was this? What was needed from this Department was that every single cent should be used to serve the people of this country. The Department of Labour has turned into a looting machine. Sometimes the slow response to questions from the AG showed a Department that was trying to cook reports, trying to sanitise and manufacture documents. This was very bad for our country. The AG had to make sure that this Department served the people of this country. The DG should not come here and talk about a bad taste in his mouth because the Committee was not here for him to have a good taste in his mouth. All the Committee wanted was for the DG to ensure that not a single cent should be used even to benefit officials who were getting salaries from the tax money of the people. He would have been happy if DOL had said that they had not lost a single cent, but they had acknowledged millions. The Department’s defence was that there were cases that were still pending. The response should have been how many people had been convicted and the amount of money recovered from the fraudulent activities. These bureaucratic strategies were known and they were not serving the people of this country. The money of this country has been misused. If a Department had been going through a disclaimer for four years, how could it ever raise its head with pride? DOL was a disaster. The AG had to continue to do its work to protect the money that should be used to serve the people of this country. DOL was not challenging what the AG had reported on a factual basis. This Department was a looting machine.
The Chairperson said that this was not a rally. The Committee wanted facts from the Department. She did not hear anything from the AG that referred to a "looting machine". Link whatever was said to what was on the table. One should not make general statements. She did not want people to leave this meeting feeling insulted and that the Chairperson was not protecting them.
Mr Plouamma said that for the first time since the Chairperson had seen him, they had never had an engagement together, but he was very worried about her making an example that this was not a rally. He asked what qualified her to qualify his words. If a department could not explain some of the questions that the AG required clarity about, he had the right to express himself the way he did. He did not use unlawful language to say money was not used in the right way. He had used a figure of speech and if she wanted him to go through what the AG had just told them
The Chairperson interjected and called for a point of order
The Chairperson said that the language Honourable Plouamma was using now was acceptable because here officials were being dealt with, and the language he used here should be different to the language used with the public. And if he wanted to use that language of ‘looting machine’ she was not stopping him but saying not to talk in general but to align it with what was being said.
Ms Loliwe appealed to the Committee not to be derailed from the original focus of the meeting.
Ms S Van Schalkwyk (ANC) said her concern was that there had been extensive engagement in the previous meeting where the AG was given an opportunity to answer clarity seeking questions. This engagement was not to dispute the outcomes of the AG report, but to get clarity on certain issues that had not been agreed upon and move forward.
Mr T Rawula (EFF) raised a point of order with regard to the rules applicable to this Committee. There were no rules that said that the rules changed when one was in Parliament because that would border on inconsistency. Further he said that any rule applicable to duties in Parliament remained so unless appraised otherwise by the rules. He requested the Chairperson that whenever she made a statement applicable to the rules of Parliament she might have to apprise them of the rule so that Members were not bullied or treated otherwise for any reason. The Committee did not have the responsibility to impress DOL or anyone for that matter when it came to the right to apply the rules and further he requested the Chairperson to withdraw the wording she had used with the Honourable Plouamma that he should never assume that ‘the Committee was in a rally here’. That was an insult and he felt threatened because he was now unsure if when he expressed freedom of speech it might be codified as if he was in a rally. He asked with respect for the Chairperson to withdraw what she had said. He added that when the AG made a finding with regard to funds that were unaccountable, it remained as speculation to the public as to what the funds had been used for. Everyone relied on the authority of the AG.
The Chairperson interjected and asked if Honourable Rawula was still on the point of order.
Mr Rawula said he was and the issue about looting was an open interpretation of what had happened to the funds because no one knew what had happened to the funds. Honourable Plouamma had every right to interpret what had happened to the funds as looting.
The Chairperson said that Honourable Rawula did not listen to her carefully however if he wanted her to withdraw then she would withdraw the statement about this not being a rally. However Honourable Plouamma was not talking to the issue. He had called DOL a looting machine. The meeting was talking about irregular expenditure and fraud. Where did the looting machine come into things? He should explain himself. This meeting was to raise issues of concern.
Mr B Mkongi (ANC) spoke about constructive engagement and respect. There was contestation about the slow pace of submitting information. Both the reports spoke about the progress that had been made but expressed concern about the slow pace of submissions. We have to ask ourselves if the slow pace of submission was a fundamental transgression of Treasury regulations. If this was so, it meant that DOL had to reflect deeply on the matter.
Mr I Ollis (DA) said he thought the point here was for each person to state their view on the comments made this morning and move on. There was no point in trying to reconcile the two reports and he did not know why there has been such a big fuss about this. In terms of political will, the DG was not happy about this but it should be remembered that this comment referred also to the Minister; in fact it referred specifically to the Minister. This had upset DOL but, tough, they had to deal with it. 0% of the ICT targets had been achieved and given that in the previous financial year 50% of the ICT targets had been achieved, this was regression. The AG was not being nasty; this Committee had seen the reports where for example documents were lying around in offices, the scanner was as yet not working, and where sometimes with the UIF system the computers were off two days a week. These issues had been raised and DOL was told that they were areas of concern and thus it was seen that these things had not improved.
Mr Ollis said that some Committee members were under the false assumption that the AG was supposed to harass DOL quarterly until it they complied, or warn them until they came right, but that was not their job.
Ms T Tongwane (ANC) said that the DG had said that the AG did not accept electronic documents. She asked what the reasons were for not accepting electronic documents. She asked what should be done to rectify this situation.
Mr Msibi said he would correct his statement, as he did not mean that DOL was slow around the audit process. All the processes were followed. What he meant was that more work should be done during the year to close the gaps that led to audit findings.
The Chairperson repeated that the Committee was not here to question the AG. Constituencies needed answers and this Committee had to ensure that they had answers for their constituencies. There should be more interaction and engagement between the AG and DOL before they came to a meeting such as this.
Mr Plouamma said that he thought the meeting had achieved its purpose. He was very worried. Lessons had been learnt and the two parties should co-operate and the Committee was not here to challenge the findings.
The Chairperson said that this kind of meeting should not be had again. Some would say that this meeting was not necessary, but at least now everyone was clear and knew that everyone was equal in Parliament.
The Chairperson said that the Committee did want to know what DOL was going to do about the areas of concern of the AG. If evidence was needed and could not be dealt with in the Committee then that should be said. She asked where the two parties could have interacted more. The 'political will' issue should not be left hanging. Political issues did not only have to do with the Minister. Parliament was also a political arena. The Committee needed to know how DOL was going to turn around and how to hold DOL accountable for closing the gaps. The problems of this Department could not be outdone in two years.
The meeting was adjourned.