The Committee interrogated the fruitless, wasteful and irregular expenditure reported by the Auditor-General South Africa (AGSA) in relation to the financial statements for 2015/16, for the SA National Roads Agency Ltd (SANRAL) and Department of Cooperative Governance and Traditional Affairs (COGTA). The Deputy Minister of Transport, and the Minister and Deputy Minister of Cooperative Governance were present and gave input. The Committee was not happy with either of the presentations, maintaining that they did not answer the questions that the Committee had posed in advance and required both of the entities to submit further details.
SANRAL had failed to answer specific questions on the irregular expenditure which amounted to R1.1 billion for the 2015/16 financial year. At the outset, Members asked why, in the document, SANRAL persisted in referring to “so-called irregular expenditure” which seemed to suggest that despite the fact that the Auditor-General South Africa (AGSA) and SANRAL had had discussions around the issue, SANRAL was still not accepting the finding. The Chairperson attempted to explain this, and did apologise for the misleading wording. However, SANRAL still could not account for why contracts were awarded to companies with no tax clearance certificates, procured without requesting three quotes, and why an employee (who was not named) had failed to declare conflict of interest on three projects which had a combined value of R1 323 860. The Committee asked who had signed off on this money and what was to be done about it. They pointed out that it was unlikely that the explanation that SANRAL did not have a full understanding of the Preferential Procurement Policy Framework Act (PPPFA) and its regulations was likely, because already in 2013 AGSA had declared its procurement method as non-compliant. Members specifically asked if SANRAL had interacted with AGSA to correct this. SANRAL explained that there were existing procurement contracts in place which SANRAL felt that it could not cancel, but that in the future all contracts would be awarded according to compliance principles. Members then asked that the document presented to the Committee must be revised so that the exact cause of each item of irregular expenditure, including all company names and tender numbers, were specified. They were critical of the less-than-open attitude of SANRAL, demanded that SANRAL must now specifically answer the questions raised in the letter. The Deputy Minister apologised for the errors and assured the Committee that she would now ensure that this was done. Despite the problems around reporting she noted that SANRAL was doing good work.
COGTA reported an amount of R442 458 million as irregular expenditure for the 2015/16 financial-year against R155 375 million in the 2014/15 financial-year. This reflects an increase of 184.7%. At the outset, Members also asked why there was no comment on the fruitless and wasteful expenditure of R8 000 as reported in the annual statements. Members criticised the generalisations in the report, noting that whilst COGTA sought to put the blame on the implementing agents, no names or amounts were mentioned. DeloitteTouche was doing an investigation and the Committee asked which phases of the investigation had been completed and which were still ongoing. COGTA said that Phase 1 had been completed and letters had been written to those to be disciplined on that phase, but the actual process had been deferred as some may be implicated in the other phases. Members pointed out to COGTA that the names could not be withheld on the grounds that this was sub judice, as the matter concerned internal disciplinary procedures, not those before the courts. COGTA sought to explain that the bulk of the irregular expenditure arose as a result of procurement by the implementation agents for the Community Work Programme (CWP). Members pointed out that in fact six factors were mentioned in the report, and that there was substantial non-compliance with the Public Finance Management Act (PFMA) and supply chain procedures, and this was something that the Director General should have guarded against. They pointed out that although a spreadsheet had been provided of agents involved, no details were given on what exactly had happened, how the appointments were made, whether there had been an evaluation of any prior work done, and why some agencies continued to get the work. They sought an assurance from COGTA that this would be done by year-end. They questioned what exactly had been agreed with the Hawks, who was assisting with the implementation of solutions, what criminal aspects were being pursued, noted that the Hawks would be involved in a separate investigation around pension pay-outs. The Minister and Deputy Minister explained that matters had since been corrected, with leaner implementation methods, but the Committee stressed that COGTA was not the only department using implementation agents and that the issue was that the Department must have stricter monitoring.
Interrogation of irregular, fruitless and wasteful expenditure as reported by Auditor-General South Africa in 2015/16 audit reports
SA National Roads Agency Ltd (SANRAL)
Ms N Mente (EFF) wanted to know why SANRAL has referred to irregular expenditure as “so-called irregular expenditure” in its written response to the Committee.
Mr Roshan Morar, Chairperson: SANRAL, said the term was a matter of interpretation. There had been a misunderstanding between SANRAL and the Auditor-General South Africa (AGSA).
The Chairperson asked why, in that case, did SANRAL sign the report and submit it to Parliament, because that implies that the Board agreed with the contents.
Mr Morar said that he had finally, agreed with AGSA. He apologised for referring to this as “so-called irregular expenditure”.
The Chairperson stated that this term indicated that SANRAL accepted AGSA’s finding with reluctance and still did not believe that it was irregular expenditure to SANRAL.
Mr M Booi (ANC) reminded SANRAL that it is accounting to SCOPA, not a portfolio committee. SANRAL’s scepticism around AGSA is not the concern of the Committee. This wording was telling the Members that SANRAL is not showing respect to AGSA. The Committee cannot sit and second-guess what SANRAL are saying. The Committee needs to get understanding from SANRAL about what AGSA was saying about this entity, otherwise there was no point in continuing with this interrogation.
Ms Mente agreed the Committee could not engage meaningfully with SANRAL if this was the view it is expressing. The entity signed the document presented to Parliament and it must be willing to account to Parliament. The letter sent out to SANRAL indicated what it was going to be asked to speak to. The Committee wants to know why irregular expenditure is R1 billion and who signed off the money. The entity is now presenting a view that it did not understand the Preferential Procurement Policy Framework Act (PPPFA) and its regulations, and saying this was the reason for the deviations. However, that was contradictory, because already in 2013 AGSA had declared its procurement method as non-compliant. Between 2013 and now, the doors of AGSA and National Treasury (NT) have been open for discussion. She asked if SANRAL had interacted with AGSA to correct this.
Mr Morar explained that in 2013 AGSA expressed an opinion and matters were corrected. Since then irregular expenditure has been decreasing, and SANRAL had been awarding 3-year contracts. Irregular expenditure for 2016 would not exceed R20 million.
Ms Inge Mulder, Chief Financial Officer: SANRAL, informed the Committee that SANRAL had engaged with AGSA and NT regarding the projects and contracting methods for a period of two years. When AGSA stated the method was non-compliant, the entity could not at that stage cancel its existing procurement contracts, as it would have resulted in legal action and would have a serious impact on the SMEs, so that the contracts then in place were left to run their course. However, moving forward, AGSA had been awarding the new contracts at the lowest price.
Ms Mente asked if the method of award had been corrected or not.
Ms Mulder said all the projects are now running according to a corrected method.
Ms Mente stated that irregular expenditure means that money was used. It is an inconvenience. The Committee does not understand how SANRAL could have understood the letter that came from SCOPA chairperson. There is money attached to each code, and the Committee wants to know how that money was used. She also wanted to know why SANRAL outsourced a person to speak on Women’s Day and who that person was.
Ms Mulder said it was Ms Moosajee.
Ms Mente continued that AGSA had given fair comment on the fact of fruitless expenditure and that the document that SANRAL had sent was very difficult for Members to unpack, in order to see exactly what were the causes of the irregular expenditure and deviations. The entity needed to go back and revise the document to actually bring forward the cause of irregular expenditure.
The Chairperson pointed out that company names and tender numbers are not indicated in the document.
Mr Morar apologised for that and indicated it was not done deliberately.
The Chairperson indicated he is left with the feeling that SANRAL came to the Committee thinking the Members would be going into areas that were none of the Committee's business, because what SANRAL had presented in this document was defensive and did not assist the Committee.
Mr V Smith (ANC) stated SANRAL is treating the Committee with disdain. The entity could not explain why one employee failed to declare a conflict of interest and then got business to the value of R1 million. He said the Committee wanted to know who approved the money, and what the corrective actions are against those involved.
Mr E Kekana (ANC) pointed out that the report was depressing and there was no explanation. The Committee found no meaningful information in it. The letter from the Committee Chairperson was clear, and the entity should have contacted the Office of the Chairperson if there was anything on which it needed clarity.
Mr Booi indicated that the Committee deals with consequences and how the taxpayers’ money is used. The entity needs to answer the questions raised in the letter, and it cannot continue to tell Members it has engaged with AGSA for two years and yet roads have not been built .
Mr C Ross (DA) wanted to find out if the status of the financial report is qualified or unqualified. He asked if the entity was aware of the employee who had private interests.
The Chairperson asked SANRAL to send information to the Committee by 23 November 2016.
Mr Morar apologised for not meeting the expectations of the Committee.
Ms Sindiswe Chikunga, Deputy Minister of Transport, also apologised for not meeting the expectations of the Committee. She said she would make sure the entity revised the document and reported back to the Committee. She appreciated the vigorous and detailed manner in which SCOPA asked it to account for taxpayers’ money. The entities had the responsibility to account as well. Despite the reporting issues she noted that SANRAL is still doing the best work it can and is rated number 18 in the whole world for the quality of roads it builds.
Department of Cooperative Governance and Traditional Affairs
Mr T Brauteseth (DA) said the document received from Department of Cooperative Governance and Traditional Affairs (COGTA) does not contain information on fruitless and wasteful expenditure.
Mr Muthotho K Sigidi, Acting Director-General, COGTA, said there was no fruitless and wasteful expenditure.
The Chairperson said that there was, and it was reflected as R8 000 in the Annual Report.
Mr Sigidi agreed.
Mr Brauteseth stated the report is “detailed in its generalisations”. He pointed out that irregular expenditure for 2015/16 has increased to R442.458 million. COGTA claimed that the problem lay with the implementing agents but their names and amounts attached to them are not mentioned.
Mr Sigidi replied that a detailed list of agents and figures had been submitted.
Mr Brauteseth asked who was doing the investigation on these implementing agents.
Mr Sigidi said it is DeloitteTouche.
Mr Brauteseth asked if Phase 1 of the investigation had been completed.
Mr Sigidi explained Phase 1 had been completed and letters have been written to those who are to be disciplined, but that process has been deferred until all the phases are finalised because the wrong-doers are implicated also in the other phases.
Mr Brauteseth asked why the names of those implicated could not be provided in the report. SCOPA had a mandate to summon anyone and would not have any problem in doing so.
Mr Sigidi said the names of those implicated could not be mentioned because the issue is sub judice.
Mr Brauteseth corrected him, saying that if they were merely under internal investigation, that was not sub judice. This would apply only when the matter was in the hands of the court.
Mr Sigidi said the names of those implicated would be sent to the Committee.
Mr Brauteseth indicated that SCOPA needed details. The new rules state that SCOPA could institute an investigation and summon those involved to appear before it.
Mr Brauteseth asked why the Department had allowed irregular expenditure to increase by 184.7% for the 2015/16 periods.
Mr Sigidi stated that the bulk of the irregular expenditure incurred arose as a result of procurement by the implementation agents for the Community Work Programme (CWP) and was used for the purchase of tools and materials, as part of the execution of the CWP at community level.
Mr Brauteseth pointed out that six factors contributed to irregular expenditure. These were technical issues around the non-compliance with the Public Finance Management Act (PFMA) and supply chain procedures not followed.
Mr Sigidi replied that the first three factors were related to the implementing agents. COGTA had joint ventures with partners who did not have tax certificates.
Mr Brauteseth emphasised that SCOPA's function was essentially to look into what happened after the event, as “post-mortem specialists”. Mr Sigidi should acknowledge that the PFMA was fully important to his position and compliance with it was well within the purview of the accounting officer . He asked the Department to give the Committee the breakdown of details about what the implementing agents were alleged to have done.
Mr Sigidi indicated that COGTA had submitted a spreadsheet that detailed what each implementing agent done.
Mr Brauteseth said the spreadsheet was not detailed. The Committee needed to know exactly what each was alleged to have done and why it was incorrect. He wanted to establish if the Department was able to say that a certain implementing agent got the job because it was efficient, or if an agency had done the job, but it was badly performed, and nonetheless that agent still continued to get the work.
Mr Sigidi said that COGTA had not been able to do that.
Mr Brauteseth asked when he thought that this might be done.
Mr Sigidi said it would be done before the end of the year.
The Chairperson commented that the presentation submitted to the Committee was far removed from what the letter from the Committee indicated should be presented. Details on procurement, and details on implementing agents were not included. This made it difficult to detect fraud and to isolate exactly what issues the Director General should be concentrating upon.
Mr Brauteseth wanted to know if the investigation report on tender irregularities in the appointment of implementing agents for CWP was the same as the report given to DeloitteTouche. He asked who was the service provider that had been appointed to assist with the implementation of the recommendations.
Mr Sigidi explained that the investigation is now concentrating on Phase 2. The Department is working with the Hawks on cases with suspected criminal elements, which were related to the travel and fraud concerns.
The Chairperson asked when last the Department had spoken with the Hawks regarding this matter.
Mr Sigidi said this happened in June 2016. The second phase of the report is still to be given to the Hawks, who were going to assist in a separate investigation that involves the holding of the pension pay-outs.
Mr Kekana remarked that the PFMA is clear about the duties of the accounting officer, who “must prevent unauthorised expenditure”. It appears the Director-General failed to prevent it. He commented that Mr Sigidi was essentially now saying what had “killed the patient”, not what had been done to prevent that from happening in the first place. The implementing agents worked under the Department, and it was their duty to ensure things they did would not happen again. He asked if the implementing agents were taken through the procedures that they were to follow, before starting their work. In future, he stressed that the COGTA must not attempt to tell SCOPA that others had the answers, because it was up to the Department to ensure that it had answers itself.
The Chairperson asked the Director-General to provide the Committee with a detailed report on the deviations and people implicated in cases, including the nature of the cases and their numbers.
The Deputy Minister of Cooperative Governance and Traditional Affairs informed the Committee that the CWP was one of the programmes that COGTA had been entrusted with, to roll out. This programme is unique in that it was not designed to be implemented by government, but was rather supposed to be community-based and implemented by the NGOs. Over the years, many valuable lessons have been learned and it was unfortunate that money did go to waste, through red tape and many layers of implementation. The current implementation is a lot leaner and the government has taken over some responsibilities like the payment of participants. That had backfired when some matters went wrong and COGTA had to shoulder the blame. There are signs now that the programme is working well and there are some agents who are doing “brilliant work”. The participants are playing a meaningful role in communities, schools, and setting up co-operatives. There are also signs that indicate when things are not happening. 75% of the budget comes from the Department, and covers the wages and administration of the programme. The other 25% is for running the programme. The looming budget cuts would make this aspect more difficult. The Department is working closely with National Treasury in order to incorporate lessons learned and to ensure that the process of appointing implementing agents is clean.
The Minister of Cooperative Governance, Mr Des van Rooyen, stated that his Department is committed to implement programmes and has tried to mitigate the areas the Committee Members had raised. The Department has developed a road-map which had been approved by the executive management. The contracts of implementing agents are coming to an end. A new process to appoint new agents had started. The Department was very specific about terms of reference to be adhered to. He drew the analogy of “The elephant has fallen, but now there is a need to identify how to eat it” - which means that using the lessons, there is need to improve on how to run the CWP. He asked that the Committee should first be given the opportunity to study the assessment done on the programme. Community-based organisations were taking part in the programme and that would not mean the ball would be dropped. The Department needs to come up with a different model to cooperate with the provincial sector departments because the CWP is critical to deal with challenges facing the people of South Africa.
The Chairperson maintained that it is important for the government to look at how the implementing agents are appointed and how their work was monitored. Most departments had problems with implementing agents so that COGTA is not the only department encountering these challenges.
He asked the Director-General to submit the further information requested to the Committee by 25 November 2016.
The meeting was adjourned.