Department of Basic Education & SITA Annual Reports 2015/16: hearing, with Minister of Education

Public Accounts (SCOPA)

09 November 2016
Chairperson: Mr T Godi (APC)
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Meeting Summary

Annual Reports 2015/16 

The Standing Committee on Public Accounts met to review the irregular, wasteful and fruitless expenditure of the Department of Basic Education (DBE) and the State Information Technology Agency (SITA), with the objective of ensuring that managers did not tolerate this type of expenditure, and would hold officials fully responsible and accountable for any transgressions.

The DBE had to answer questions about service providers being allowed to continue providing their services, and being paid irregularly, after their contracts had expired. Which officials had been responsible, and why had disciplinary action not been taken? Funds had been made available to the Mvula Trust on the basis of a memorandum of agreement (MOU), which was contrary to the requirements of the Public Finance Management Act (PFMA). Why had it been necessary to appoint an external auditor to confirm the findings of the Auditor General (AG), when the DBE’s own internal audit had already confirmed them? The Department could not claim it had received verbal approval for a deviation, as this could not be audited. The Director General was advised to take a serious look at these issues because, as the Department’s accounting officer, the buck stopped with him.

The Minister conceded that the DBE had at times had difficulty in complying with the PFMA, and said that capacity constraints were hindering its ability to monitor adequately. It was engaging with the Treasury in an attempt to address its challenges.

SITA was asked to account for the irregular expenditure being incurred because the entity was not picking up that contracts had expired. This was in conflict with the PFMA, as expired contracts had to be re-tendered. If this practice was deliberate, it could be considered “gate-keeping” to prevent competitors from tendering for SITA contracts. A Member complained that there were too many investigations into irregular expenditure being carried out, and this had to come to an end. Looking at all of these incidents, was SITA saying that it lacked capacity or skills, or did it not have systems?

It was the accounting officer’s responsibility to prevent unauthorised spending, not to explain after the event what he would do. Why did SITA not prevent it in the first place? SITA’s primary task was that of contract management, and that should be its core function, but 20 years later it had come back to tell the Committee that it did not have the capacity. This was unacceptable, because SITA had failed to achieve the very mission that had been set out for it.

National Treasury told the Committee that the appointment of loss control officers had been included in new draft Treasury regulations. It would their responsibility to initiate investigations or put controls in place to avoid any future losses that might arise in a department for a variety of reasons. Treasury was concerned that sometimes a lack of follow-up, or controls not being implemented, resulted in irregular, fruitless and wasteful expenditure. The loss control officers would be able to conduct their investigations independently and make recommendations to their departments.

 

Meeting report

Chairperson’s opening remarks

The Chairperson said that the purpose of the hearing was not just to attend to what had been reported in the annual reports of the departments present, but also to review their irregular, wasteful and fruitless expenditure. The Committee wanted to ensure that managers did not tolerate irregular, wasteful and fruitless expenditure, and that they held officials responsible and accountable for such acts. The Committee was not interested in documents with grey areas. It was the Committee’s perspective that consequence management was a must, and Parliament would ensure that as an Executive, there would be consequence management. The main objective was also to see things done differently, and if they were not done differently, then it was just a waste of time.

Department of Basic Education

The Department of Basic Education briefed the Standing Committee on its irregular expenditure and wasteful expenditure. Its the delegation was comprised of Mr Hubert Mweli, Director General, Mr Anton Schoeman, Deputy Director General, Finance and Administration, and Ms Ntsetsa Molalekoa, Chief Financial Officer.

Ms N Mente (EFF) expressed her happiness that Mr Mweli was appearing before the SCOPA to take responsibility for the irregular and wasteful expenditure as the accounting officer in terms of the Public Finance Management Act (PFMA). Her questions would focus on the irregular expenditure. Firstly, the DBE had listed seven core service providers in its presentation, which included the Development Bank of South Africa (DBSA), the Mvuli Trust and Adopt-a-School. The DBSA had been broken into DBSA 1 and DBSA 2. Could the Committee be given an explanation as to who had signed off on the irregular expenditure, who had benefited from the irregular expenditure, and why was it necessary for the spending to be irregular even though there was a law that guided Departments? The PFMA provided clear guidance and regulations to all departments and stated that everything had to be done within the constraints of the Act.

Ms Angie Motshekga, Minister of Basic Education, interrupted before Mr Mweli could respond, saying she was of the understanding that the Committee would allow for presentations by the Department, and then attend to a question and answer session.

Mr M Booi (ANC) responded to the Minister’s comment, saying that the Committee was honouring Parliamentary processes and in terms of the Constitution, the Committee had its own rules in terms of how Committees were to be governed, and the Committee did not have to be told by the Minister how to run their Parliamentary work.

The Minister said that she took a serious view of Mr Booi’s response, and that he needed to retract his response.

The Chairperson responded by affirming that the Committee would stick to its processes, and that the hearing would be a question and answer session.

In response to the question asked by Ms Mente, Mr Mweli said that in relation to the DBSA, the contract had expired while the service provider had continued, and this had resulted in irregular expenditure. The expenditures had been signed off by the accounting officer at various times -- and this was important to stress -- because the Department had different accounting officers at various times of the year. He gave an example of himself being appointed 1 August 2016, and his predecessor having signed off some expenditure, while he had signed for the last section of the financial year, for which he was responsible. He had looked at the expenditures and questioned the officials involved, and had sought legal opinion whether he had a right not to sign. The legal opinion returned, stating that he did not have that avenue. Mr Mweli said that no one had benefited from this irregular expenditure, and this was a result of the investigation that had been carried out by the Auditor General (AG). Whether it was necessary to have incurred the expenditure, in terms of service delivery, it had been absolutely necessary for the expenditure to be incurred.

Ms Mente responded that on page 19 of the presentation, which referred to the recommendations, there was mention of only two final written warnings out of the six irregular expenditures. That was the basis of her question -- why were the others not charged and what consequences did those not given written warnings have to face? Could the Department afford the Committee an opportunity to see the final written warnings? It was important for the Committee to see that these warnings existed, because often departments had misled the Committee with consequences or actions said to have been taken, but this had not been the case.

Mr Mweli said that in instances where consequences had to follow, consequences had indeed followed. It might be that the Department had indicated two final written warnings, but the number of final written warnings issued had most certainly been more than two. The Department had issued warnings to all officials that had been involved in the transactions.

Ms Mente asked about the memorandum of agreement (MOA) with the Mvula Trust. The Department had signed this agreement with the Mvula Trust with an understanding that their procurement processes were deemed to be free and fair, but at the same time the Department had not checked that free and fair aligned itself with the PFMA. It was later stated by the AG that this agreement constituted irregular expenditure. From this it was clear that the Mvula Trust procurement was not in line with the PFMA, yet the Trust still gets money. How did that come about?

The PFMA was very clear. This was where corruption started -- it started with such MOAs. This was because departments know that they can do anything with less than R500 000, and manoeuvre it within the office. Why did the DBE’s internal audit not pick up that the MOA was not inline with the PFMA? Did an internal audit department of the Department of Basic Education exist?

Mr Mweli responded that he would justify the lapse in not picking up that the agreement was not in line with the PFMA as part of the lapses in management, and the Department had acknowledged this and had been taken action. This included disciplinary action against the officials who had been responsible for such a document, and written warnings had been issued. These actions had not been included in the presentation because the Department had not thought it would be necessary to include it.

The Department did have an internal audit team, and the lapse was not picked up by officials in the line function or by the internal audit. There were, however, challenges around internal audits, which included not having the requisite capacity, which in his view resulted in matters of such a nature escaping the team. Strengthening the capacity of the internal audit was one of the interventions that the Director General would be making to ensure that the Department in future had a strong internal audit team that would detect early warnings so that managers were able to attend to these on time. The lack of capacity had been this way since 2012.

In respect of Adopt a School, the Minister had written a letter to the Minister of Finance requesting an exception from following the normal supply chain management (SCM) processes. The response received from officials of the finance ministry had been a verbal one, and because of that it meant that the spending related to the Adopt-a-School project had resulted in irregular expenditure.

Ms Mente countered that this meant there was a problem, because a verbal response meant that it was one person’s word against the actions of the Department, and verbal responses could not, and should not, be allowed to be agreements, especially considering that there were large sums of money flying out of the budget of the DBE on verbal agreements.


Mr Mweli affirmed that in his previous response, he had indicated that the Minister of Basic Education had written to the Minister of Finance and instead of receiving a written response, the officials of the Department had been told, when they engaged the officials of Treasury, that the Department was allowed to proceed with Adopt-a-School.

A representative of National Treasury said that the correspondence regarding the Adopt-a-School matter from the Minister of Basic Education to the Minister of Finance, had not indicated the advice received from the Chief Procurement Officer (CPO), regarding a deviation. In fact, the CPO’s advice was that the deviation could not be allowed. However, the letter had gone on to inform the Minister of Finance that the Department of Basic Education would go a head with the Adopt-a-School programme to construct schools in KwaZulu-Natal (KZN) nonetheless, despite the advice from the CPO that it was not permissible for them to have a deviation from this particular procurement rule.

Mr Mweli said that he had not seen the response from the correspondence read out, but had seen the letter written to the Minister of Finance.

Ms Mente found this response interesting. She said this meant that if such practices were common in the Department, it would be possible for the Department to find ways of manoeuvring invoices that suited the Director General, and allow for money to be allocated elsewhere, especially considering that there was no proof of this particular Adopt-a-School. She did not trust that it was a real thing, because if ever a Department could mislead by saying that someone told them something, and the Director General had acted on the word of another without demanding a written response and a document, was worrying. The AG worked on documents, it did not work on the word of another. The Director General of the DBE was leader of the most important Department of this country, and he relies on the word of an official and just casually comes to the Committee and conveniently states that the person responsible had left. This was a clear indication of how Prliament was undermined. It was clear from what the Committee was being told, that the Department of Basic Education did not ask for permission, and instead had informed the Minister of Finance what it was going to do.

Ms Mente said that action needed to be taken, because a Department could not incur irregular expenditure based on people’s feelings. The Department should incur non-irregular expenditure based on documentation, based on the needs of the people, and based on tangible things.

Mr V Smith (ANC) added to the comments of Ms Mente, saying that Section 38 of the PFMA stated that the Accounting Officer must take effective and appropriate action, meaning that such a person does not have a choice in acting -- he must. This “no action taken” was therefore a contravention of the PFMA by the Director General.

Regarding the SAB&T, his understanding was that the irregular expenditure had been identified in August 2013, and that was why it had been recorded in the 2014/15 annual statements as R55 million. This current year an additional R24 million had been disclosed regarding SAB&T, and an internal investigation had confirmed the Auditor General’s findings. When was that investigation done, and who was it done by? He found it curious that a service provider had been appointed to do this investigation by way of process and determination of the responsibility, so if the Department’s internal investigation had confirmed the Auditor General’s investigation, what had motivated it to go and find an external provider to do the same investigation? This related to matters identified in 2013, and more than three years later a service provider had been appointed and yet there was still no outcome. He asked who this service provider was and when the Department expected an outcome. What were they hoping to find different?
For the purpose of clarity, the Department should have put this in their presentation for 2015, because reading this document it said that for two consecutive years, the service provider had had irregular expenditure. This did not help the Committee, as it meant that for two years the same service provider had had irregular expenditure. Could the Department confirm that?

In response, Mr Mweli said that the transaction for 2013/14 had come out only in the irregularity findings of 2015/16, and not 2013/14. The advice that he had been given was that it was reflected only in 2015/16 which was what he had confirmed, but for 2014/2015 he could not confirm. The internal investigation had been carried out by the chief financial officer (CFO) of the Department and it was confirmed during the irregularity audit when exceptions were exchanged between the auditors and the office of the CFO. He said that he was not exactly sure of the name of the service provider, and maybe the reason why the service provider had been brought in was because of a difference of opinion. Thus they had needed an independent party to look at it and advise as to whether these transactions were deemed to be irregular, because what had been queried by the Auditor General was the procedure that had been followed in terms of the supply chain management.

Mr Smith asked whether the Director General was saying that the CFO had done the internal investigation and concurred with the Auditor General. If so, how could he in the same breath say that there was a difference in opinion? It could only mean that he, the Director General, was differing with the CFO, or the CFO’s juniors were differing with her. If the service provider who was being paid came and agreed with the CFO, was that not fruitless and wasteful expenditure, especially because the CFO should be the person that should be trusted? He asked if the Committee could put a warning to the Director General - that if indeed the results came out and confirmed both the CFO’s and the Auditor General’s conclusions, the Committee would investigate whether it was fruitless and wasteful expenditure and if it was, and the Director General was the one who had disagreed, the Committee would hold it against the Director General.

Mr Mweli responded that he had no interest in disagreeing, because the transaction had happened before his appointment. Secondly, the supply chain function did not reside with the CFO’s department. The supply chain process resides within a branch for administration that was headed by Mr Schoeman.

Mr Smith went on to repeat his previous question as to whether the Director General was saying that he was challenging the Auditor General’s findings. If that was the case, then he should say to the Committee that he disagreed with the Auditor General’s findings and that of the CFO, and that he had decided to appoint an external consultant to investigate, so that it was on record. This needed to be on record so that it could strengthen the Committee’s hand at claiming all moneys back from the Director General used to pay an external consultant, because the PFMA says the AG would do an audit, and he would choose if he was going to give it to someone else.

Mr Mweli said that the intention with the external service provider was to determine the liability in terms of the supply chain management processes. He did not disagree with the findings of the Auditor General. However, his intentions were to finalise liability, because he had to act. The difference of opinion was that the one view found by the Auditor General was that it did not nullify the contract, so he had wanted to check whether the Department had an obligation to continue with the contract or whether it could terminate, given what had happened in the supply chain management process.

Ms N Khunou (ANC) felt that the Director General did not appreciate the seriousness of the matter, and requested that he take it seriously and answer the questions in a proper manner. She asked that he elaborate on what the challenges were that he had mentioned at the start of the discussion. In the annual report of the Department, the AG’s report was mentioned and it stated that no effective steps had been taken to prevent irregular expenditure of R599 million. She requested that Mr Mweli talk to that finding and asked if it meant that an official had not been taking the job seriously, and whether he understood that no one else but the Director General could be blamed for such a finding, as he was the Accounting Officer? In relation to the SAB&T, she asked how much the service provider was paid. She asked for an explanation with reference to the Eskom contract -- how it was that even though the contract had expired, the projects had continued. An explanation was needed as to what it was that Eskom was doing when the contract came to an end -- who was managing it, who paid them even though the contract had ended, and where the money was coming from.

Mr Mweli said the service provided to the Department by Eskom was the connection of electricity in schools. The contract had come to an end while the service continued, which the Department should have anticipated to ensure that before the end of the contract, a renewal of contract was signed well in advance. However, that had not happened and the services had had to continue, although a new contract had not been signed. Eskom was paid for the work done, and although some of the work fell outside of the parameters of the contract, Eskom was paid only for the work done. When the DBE signed a contract, attached to it was a list of projects which were linked to services provided in terms of what was stated in the contract. In this case, what had happened was that that some of the projects within this contract went beyond the time limit of the contract, but the money allocated was the same. He was not aware of any additional expenditure that had been incurred as a result of operating outside the contract. This had resulted in irregular expenditure due to the fact there was no valid document authenticating the expenditure that had happened outside the contract.

In respect of the challenges faced with internal audit, some staff members were not suitably qualified within the department. The action the Department had taken to ensure that it had suitably qualified staff, was that with the appointment of the new Director who had started on 1 November 2016, the department would be assisting in setting up a strong team to ensure that some of the things that had happened did not continue. The second challenge faced was the appointment of the audit committee, as the term of the present committee had come to an end. The Department had advertised thrice, but still could not find suitably qualified candidates, and the Department was now in the process of head hunting. The quality review on the performance of the internal audit, which was done periodically, had also revealed serious weaknesses around internal auditing, and the review that had been done indicated that the internal audit of the department had been the biggest risk to the DBE.

Mr Booi said that it was the Committee’s hope that Mr Mweli understood that the buck stopped with him. He then asked if the Director General could give the Committee some insight into how the Department dealt with the issue of investigations -- who were the people or service providers that were being referred to in the report? With reference to Deloitte and Touche, on page ten, it seemed that capacity had not been an issue when reporting. How was that?

Mr Mweli said he accepted that as the accounting officer, the buck stopped with him. In respect of Coega and the DBSA, what had happened was that the DBE had followed their own SCM processes, which were not necessarily in line with the PFMA, as indicated earlier on. The Department should have monitored the process from the start, and it should not have been picked up only by the Auditor General. This could have been prevented if the internal audit had been fully functional. The investigations were done by the office of the CFO because the matters were of a financial nature. Ordinarily, the Department would use the internal audit, but due to the lack of capacity, they could not be used. These issues had not been reported to agencies such as the Special Investigation Unit, because the Department could not identify any loss or benefit to an official, and therefore it had not been necessary to involve such units.

The matter of Deloitte and Touche related to the sourcing of additional staff and the competency of appointing staff within the public service, which lay with the Department of Public Service and Administration (DPSA). It was for that reason that when there was a disagreement with the Department and the Auditor General, the matter was referred to the relevant authority in terms of the process. The DPSA’s investigation did not overrule that of the Auditor General, but it provided a useful way forward for both the Department and the Auditor General. The bottom line was that the DPSA had agreed. It was, and became, a useful way forward if there was an agreement between the Department and the Auditor General.

In instances where conduct management was required, it had been indicated in the document and an explanation had been given. As stated earlier, the Department was prepared to provide letters which reflected conduct management in terms of disciplinary actions. In instances where some information was still pending, the Department unfortunately would not be able to indicate whether some matters were criminal or required conduct management.
 
Mr C Ross (DA) said that currently there were indications of irregular expenditure worth R2.2 million. With regard to the trends, over how many years had the Department had such occurrences?

Mr Mweli said that what had been reported was over four financial years. The Department had investigated the irregular expenditure and had written to the Chief Procurement Officer, indicating instances where the Department wanted them to account.

Mr E Kekana (ANC) raised an issue in respect of the issue of fruitless and wasteful expenditure, relating to page 14, where it referred to volunteers. However, there was no information on how the Department had incurred this fruitless and wasteful expenditure, so what had happened? The Department had said that they had not received the report, yet they had started issuing final warnings. How could that be correct?

Mr Mweli responded that the expenditure referred to was related to deceased learners in adult literacy classes. There were 37 000 volunteers offering literacy and numeracy classes to adults throughout the country. However, in this instance, there were some who were deceased. The procedure was that the Department paid on the basis of the number of learners per class, and it had turned out that some of the learners were found to be deceased. So in essence people were claiming money for ghost learners. It was correct that apart from other issues explained, there had been a lapse in management and the Department should have picked up that there were deceased learners and the volunteers should not have been paid, and due to the fact that there had been a management lapse, it required conduct management.

Mr Smith requested that Mr Mweli provide clarity on whether the Department’s officials that the actual amount of wasteful expenditure was R44 million.

Mr Mweli said the R44 million was the figure determined by the Auditor General, using the sample and generalizing the population. The Department did not know what the actual amount was, and it would know only once it had investigated case by case.

Ms Khunou asked whether the Department had systems in place to monitor what was happening, so that this does not recur. She also asked for a breakdown of the R288 000 that the Department said it had recovered, and if this had been based on the investigations undertaken. Were the people who were said to be not qualified for their jobs, still within the Department, and what were they doing now?

Mr Mweli said that the people who were not suitably qualified in internal audit were still there. It had just been a mismatch in placing people in terms of the requisite profile. The Department was looking at placing those people in departments where they could excel.

The breakdown of the R282 000 could be provided to the Committee. The volunteers referred to were called volunteers because they were not paid in accordance with the Basic Conditions of Employment Act. They received a stipend.

Minister’s concluding remarks

Ms Motshekga said that some of the points that had been raised were points she would have raised, and they had been answered. She just had a few things to add to reassure the Committee. There many other factors that should be considered, especially the major issue of monitoring and evaluation of non-core programmes. Most of the programmess discussed had been non-core programmes which had presented blind spots.

The first of these was infrastructure, which was a non-core programme. The Department had made a request to Treasury that the Department would like to increase its capacity but unfortunately, due to the financial problems the country was facing, the Department would not be able to do so. This created problems, because the Department did not have the capacity to follow up by itself. The Department was looking at how it could position itself and ensure that it could strengthen its monitoring capacity.
There were areas where the Department was engaging with Treasury. This was not to undermine the PFMA, but to consider where it had been found that the Act was not very helpful in terms of what the Department had to do. This was not an excuse for where directives had been given. The Department could assure the Committee that it could follow the money and provide proof and evidence as to how it had been spent.
 
There had been times where the Department had not followed the PFMA to the letter, and there were weakness and difficulties with the PFMA. Treasury had in some instances agreed with the Department about its needs after the Department had presented its case.

The Auditor General had in the past advised the Department that if a case could be presented that procurement could not happen in terms of the PFMA, a comparison had to be made, which the Department had agreed to do. There had been deviation in the past, but not with any intention to defraud the State.

She referred to the issue of the ghost learners, indicating that she had visited the provinces where they had said they had 20 learners when they had only five. This had been picked up, and by the time the Director General had come on board, the Department was already in the process of cleaning the situation up. That was why there was a partnership with Home Affairs, and indeed it was proving to be successful.
 
State Information Technology Agency (SITA)


Mr T Brauteseth (DA) started by establishing who was present and accountable. The delegation was comprised of Mr Zukile Nomvete, Acting Chairperson; Mr Stokie Lebothoa, Acting Head of Department Strategy; Dr Setumo Mohapi, Chief Executive Officer; Mr Dave Boucher, Acting Head Internal Audit; and Mr Mboneli Ndlangisa Deputy CEO: (ICT Delivery).

Mr Brauteseth stated that he had two reports before him, 2015/16 and a report from the previous years. Before getting into specifics, he asked who the head of operations at SITA was, and whether he had a diary. Could he be given an explanation as to why it seemed that the person had a problem with detecting the expiry date of contracts, because when looking at the report that had just been put in front of him, it was about 22 contracts where the irregular expenditure had resulted from the expiry of these contracts? In the current year’s report, it showed that there were eight or nine contracts that had expired, and he asked for an explanation.

Mr Ndlangisa responded that in some of the contracts, what had happened was that they were driven by clients, and had expired because the client had not confirmed their critical services. In the past there had been no system that automatically picked up when the contracts were about to expire, but that was no longer the case. A system had been put in place that alerted when a contract was about to expire. SITA dealt with handreds of contracts, and they had different functions.

Mr Brauteseth asked if he was right in assuming that depending on the contract and the size of the contract, once it expired it went to tender? Therefore, every time a contract expired, it meant that SITA was in contravention of the PFMA because once a contract expired according to the act it had to be re-tendered. Thus it could be established that there was a breach. He asked that they look at the consequences, in reference to the report for the current year. He noticed that the first instance was April 2014, and it had stretched to 31 December 2015. He referred to breach 16 from the presentation, and asked why it was taking so long to investigate, and why someone could not look at their diary In terms of the contract dates. Who was doing the investigation? How close was SITA to winding up, and who was responsible for these breaches of the PFMA? What disciplinary action was going to be taken?

Mr Ndlangisa confirmed that it was a breach and that in relation to the question on investigations, SITA’s internal audit team was responsible for investigations. The irregular expenditure would be declared and taken to investigation. A loss control committee had been established to investigate such expenditure, because SITA realised that it had taken too much time to complete the investigation on time. As the head, he took full responsibility for the action, or lack of action, on these contracts.

SITA was going through a number of different ways of trying to deal with this. The application of consequence management had not been very strong. It had become very clear that the system used before was not working well, because the work was not being done or results were not being produced. One could see from the document just issued that SITA had cases that went back as far as 2008. The solution would also be to assign primary responsibility for consequence management not only to internal auditing, but also the line functions.

The Chairperson commented that the narrative of what had been done to improve the lapse was not the focus of the discussion at that point.

Mr Brauteseth said that a detailed report was needed, and asked who the head the loss control committee was. The Committee would require a detailed report on the loss committee. The question that arose was simple: had a contract expired simply because someone did not look at their diary? An assessment needed to made as to whether that expiry was criminally motivated so that someone could continue making money, and was gate-keeping other people out of a fair shot in terms of the PFMA Act. That was a call that could be made once the Committee was given the details.

He asked for an explanation as to what had happened with the Telkom breach, and whether it was another expiry again.

Mr Ndlangisa responded that SITA’s acting head of management accounting, who was not present, was responsible. The matter dated back to 2005 and involved a relationship between SITA and the Department of Justice (DOJ). A request by the DOJ to have that contract reversed whad been made. The last contract had been signed in 2012, to expire at the end of March 2015. Around September 2014, a request was made that the contract between SITA and DOJ be reversed, which had resulted in the contract between SITA and DOJ not being renewed, and for the network services to migrate to the new network service provider (Telkom). The business case for that to happen and then be processed was given to the supply chain on 27 March 2015, which did not allow enough time for the entire process to be done in time.

Mr Brauteseth then raised an issue with point seven, dealing with the emergency procurement process involving R166 000, which apparently was utilised incorrectly, according to the information provided. What were the circumstances around that?

Mr Ndlangisa said that the data centre had run out of diesel. This was maybe due to poor planning by SITA, as there was no contract for diesel to maintain the centre. The head of the province, instead of asking for permission, had approved it themselves, which had resulted in the outcome. The person who had approved it had acted outside their scope and that was why it had been deemed to have been used incorrectly.

Mr Brauteseth drew attention to the Southern Sun Hotel’s interest of R 1.3 million, which referred to a deviation from a SITA procurement process with regard to the procurement of accommodation. He asked how the SITA procurement process differed from the PFMA procurement process. The reason for the question was that sometimes these things were just mistakes, but often they were mistakes for a reason and were disguised as mistakes so that someone could make some money.

Mr Ndlangisa said that there was no difference in the processes, and that the issue was that the organisation had hired a travel management company through an open tender process and the staff members who were responsible for securing accommodation had not use the travel agent. It was not clear whether that had led to an extra cost.

Mr Brauteseth referred to the Hilton in Durban, where it was reported that accommodation had been booked at rates which were higher than approved National Treasury rates. There seemed to be one in March 2016 and one in October. He asked for an explanation on how SITA’s corporate services staff could do that and, to add insult to injury, the investigation had been completed and SITA had asked for condonation.

Mr Ndlangisa said that the dates shown related to when the incident was uncovered. The bookings had been made on instruction. The rules did allow for deviation where there were conferences, or where accommodation could be limited. This was particularly for people who would have been required to be accommodated where the event was. What should have happened was a prior request for approval from Treasury, as opposed to making that decision and then asking for approval afterwards. The investigation had been done, and the finding was that prior approval should have been sought.

Ms Khunou saidt there were too many investigations going on, and they had to come to an end at some stage. She asked about the IFAM report of irregular expenditure discussed in the media. How far was SITA with the investigation and could it provide SCOPA with a full report?

Mr Ndlangisa gave some context to the IFAM issue, explaining that it was one example of a case that SITA had initiated in court to set aside the initial contract, and also another contract that was worth R26 million. Pleadings had been exchanged. What had happened was that a contract had been signed that should have been approved by the board of directors of agencies. SITA had also initiated a Constitutional Court case, where it was looking for clarity on what kind of legal position SITA should use when they found something that had happened in 2008 and the 180 days had expired, and it was clear that it did not comply with PFMA. The questions was whether SITA was limited by the Promotion of Administrative Justice Act (PAJA) or if it could use the principle of legality to be able to set aside a decision that should have been made by officials some time ago. Once SITA had clarity, it would know that it could pursue of all of these cases in terms of consequence management, but would also allow a process that would not subject SITA to sign off where monies have to be paid on what it knew were irregularly completed contracts.

Ms Khunou said there were agencies within the government, such as the Special Investigating Unit (SIU) and the Hawks, so what was the reasoning for bypassing all these agencies and going to court, because it could take many years for a case to be finalised.

Mr Booi asked what or who the loss control committee was, which seemed to be doing all SITA’s investigations, and what was its mandate? Had SITA lost confidence in the agencies available, or did it think they did not have the capacity or resources to handle such cases? Also, did it mean that SITA did not have an internal audit department? What was the structure of SITA’s organogram?

Mr Ndlangisa explained that the loss control committee was a management structure that had been created August 2016 as a response to the slow progress in completing investigations. The first line of defence around what happened in operations was management, and the second would be the audit functions, subject to internal and external audit, working on behalf of the board. What SITA was saying was that before internal audit came in, which had the power to investigate anything it wanted, management itself had to take responsibility for what happened within the internal environment.
How SITA used the law enforcement agencies was that it would have done a full audit of its human resources (HR) environment, starting from the beginning of 2016. SITA would have two cases that suggested fraud, and corruption in another case. SITA had taken the decision that it would send those to the SA Police Service (SAPS) and in the particular case that SITA saw that there was corruption, it would send that to the Hawks.

With regards to how the organisation was structured, members were given the mandate by the board to take care of operations, and the board had a committee, and the internal audit reported to the board. Through different kinds of triggers for the investigations, they provided reports on a monthly basis to the executive committee (EXCO), and then EXCO had to act.

Mr Kekana commented that if one looked at page six of the annual report, the chairperson of the audit committee praises the internal audit team on doing a great job, which indicates that they did not think there was a problem. His question was therefore related to the unending investigations, as well as other departments that SITA assisted, that had complained that SITA was slow.

Mr Ndlangisa said that it was his understanding that the loss control committee and a management tool had been recommended by National Treasury, and that in the terms of reference of the Standing Committee, he was the accountable person for the committee to the extent that he either used the executive or any other tool to execute his mandate, to create and assist him in making sure that the investigations that came out of internal audit were followed up. SITA had an entire chapter in terms of how loss control worked with the internal audit. Regarding the issue around service delivery, it was true that SITA had not ensured contract management, and even though it did have many contracts, that should not be an excuse. The fact that SITA had not updated its contracts very well had had many effects, such as not providing certainty around the continuation of services. Looking at all these incidents, was SITA saying that it lacked capacity or skills, or did it not have systems?

Mr Ndlangisa responded that he thought it was all of the above. The late submission of a business case to refresh a procurement deal could be driven by many things, and that was why SITA had to investigate. The critical thing was the lack of a sense of urgency. When people had to be pushed and made aware that bringing a business case for renewal if it had expired was important, there was a problem. Once SITA made the approval system long and painful, it would deter people from not complying.

Mr Smith said that the accounting officer’s responsibility was to prevent unauthorised spending, not to explain after the event what they would do. The question to be asked was why SITA did not prevent it in the first place, because that was what the law demanded. Further, why must the Committee not hold the accounting officer accountable? SITA’s primary task was that of contract management, and that should be its core function, but 20 years later it comes back to tell the Committee that it does not have the capacity. That was unacceptable, because the very mission that had been set out for SITA, it had failed to achieve. The question then was, why should we have SITA?

Mr Ndlangisa said that he was not aware of some of these contracts, including the Telkom one, because they were irregular from the day he arrived. When he found out, he took steps to limit the irregularity, but it had taken a long time to limit the damage. It took him time to build the systems, especially around the detection of irregular expenditure, and during the time that the systems were being put in place, these irregularities were continuing.

Ms Khunou requested that a report be provided to the Committee on wasteful expenditure.

Ms Mente asked why SITA was not asking for its invoices from a direct party. Why did it have to be subject to an investigation? Why was SITA not calling the facilitating manager into the office to account and explain where the invoices were?

Mr Ndlangisa said that he understood that sometimes one could bring someone in and ask questions and get answers, but there were cases that were being procedurally fought, so one had to be careful that one afforded the employee the opportunity to have a procedurally fair process.

National Treasury offered some insight into what loss control was, but not specifically related to SITA.
Loss control had been in new draft Treasury regulations, and recommended that an institution and a public entity appoint loss control officers. Their responsibility would be to initiate investigations or put controls in place to avoid any future losses, and also to carry out investigations. These would not always relate to wasteful and irregular expenditure, but could involve lost assets or losses that arose in a department for a variety of reasons. Treasury had seen these types of incidents happen, and was concerned that sometimes they did not get followed up and controls were not addressed, resulting in irregular, fruitless and wasteful expenditure. Its recommendation to departments was that they have a dedicated function within the office that looked into these matters. They would carry out the investigation function independently and would make recommendations to that department. It was just another assurance function which was residing within the entity to assist in preventing and detecting matters dealing with losses.

The Chairperson thanked the delegation for its presence, and adjourned the meeting.

 

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