Municipal Infrastructure Support Agent on its 2015/16 Annual Report

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Cooperative Governance and Traditional Affairs

14 February 2017
Chairperson: Mr M Mdakane (ANC)
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Meeting Summary

Documents:
Annual Reports 2015/16 


The Municipal Infrastructure Support Agent’s four strategic goals were: refocusing and strengthening the capacity of the Department to deliver on its mandate; to ensure significant improvement in service delivery through sound infrastructure management; building institutional resilience and institute the next phase of institutional building; and provide reliable strategic support services to the Agency’s core programmes. Out of 23 planned targets, it fully achieved 78% while 4% were partially achieved and 17% were not achieved.

The Agency had received an unqualified audit opinion. The main reason for under-expenditure was because under the previous Minister only one post had been approved and filled because he had called for a stop to the filling of posts until an organisational review had been completed.

Key findings of the Office of the Auditor General’s report were that: contracts had been awarded to bidders who did not supply declarations as per National Treasury prescriptions; contracts had been awarded to bidders who did not submit a declaration on whether they were employed by the state or connected to such employees; mandatory Information Technology goods and services were not procured through the State Information Technology Agency; effective steps were not taken to prevent irregular expenditure or for fruitless and wasteful expenditure; contractual obligations and money owed was not settled within 30 days as required by the Public Finance Management Act; key performance indicator 2.1.3 was not specific enough; actual performance against predetermined objectives included in the Annual Report was not considered to be reliable; no supporting documentation was provided to substantiate reasons for variance between planned and actual performance reported in Annual Report; there was a lack of sufficient supporting evidence for 30% of performance targets under programme 2 and 32% under programme 3, rendering reported information unreliable; some contracts for learners were not signed by either the learner or the Agency or both; there was an overstatement of commitment in relation to the contract for one of the technical consultants due to erroneous capturing of contract details.

Members asked about negligent expenditure with regard to penalties paid to SARS. Members said the Annual Report seemed to be about what should be happening rather than what had happened. Members asked what the audit committee had done when it had been formed and the unresolved issues mentioned in the Annual Report were. Why was the report not signed by the Chairperson? What was meant by the term ‘government component’ as used on page 85 of the Annual Report. Members said the Annual Report reported an investigation had been initiated based on an alert of Irregular procurement and human resource processes and for appropriate corrective action to be taken against those employees involved. It would be useful to know what the issues were and how far the matter had been sorted out. Members said that SARS was the final arbiter. Would the Agency take action steps to ensure that there was no repeat and that they made payments on time and therefore would not be caught in the financial year rollover.

Regarding capacity development, Members said that in most instances the reason for not achieving the set targets were because responsibility had been given to municipalities to take charge of this. Were there any monitoring mechanisms to ensure that targets were met regarding 60 graduates? Mention was made of a corrective action process that was unfolding. Could this be elaborated upon? Members said that radical social economic transformation was being called for but it seemed the Department did not know what to do. Members wanted to see the Department redouble its efforts because the Department was an anchor department. Members said the Committee wanted to see the results of expenditure like boreholes and provision of water for example. Members wanted the Department and the Agency to identify municipalities that had a lack of skills because rural municipalities could not attract qualified skills and then deploy young graduates from UNISA to assist with the implementation of capital projects.

The scheduled Departmental briefing on the implications of the State of the Nation Address 2017 for the Portfolio Committee was postponed to a later date.

Meeting report

The scheduled Departmental briefing on the implications of SONA 2017 for COGTA was postponed to a later date.

Municipal Infrastructure Support Agent (MISA)

Mr Themba Fosi, Deputy Director-General, Department of Cooperative Governance and Traditional Affairs, said that the four strategic goals of the MISA were; refocusing and strengthening the capacity of the Department to deliver on its mandate; to ensure significant improvement in service delivery through sound infrastructure management; building institutional resilience and institute the next phase of institutional building; and provide reliable strategic support services to MISA core programmes. Out of 23 planned targets it fully achieved 78% while 4% were partially achieved (the monitoring of Back to Basics dashboard), and 17% were not achieved (skills audit outcomes, support to 60 graduates towards professional registration, support to 170 experiential learners to acquire workplace experience, and 4 program and project evaluation reports to be compiled and approved).

MISA had received an unqualified audit opinion. The main reason for under-expenditure was because under the previous Minister only one post had been approved and filled because he had called for a stop to the filling of posts until an organisational review had been completed.

Key findings of the Office of the Auditor General’s (AG) report were that; contracts had been awarded to bidders who did not supply declarations as per National Treasury prescriptions; contracts had been awarded to bidders who did not submit a declaration on whether they were employed by the state or connected to such employees; mandatory Information Technology (IT) goods and services were not procured through the State Information Technology Agency (SITA); effective steps were not taken to prevent irregular expenditure totalling R162m or for fruitless and wasteful expenditure totalling R486 833; contractual obligations and money owed was not settled within 30 days as required by the Public Finance Management Act (PFMA); key performance indicator 2.1.3 was not specific enough as it was aimed at a number of municipalities but did not address measuring the amount of operational expenditure budget spent; actual performance against predetermined objectives included in the Annual Report was not considered to be reliable; no supporting documentation was provided to substantiate reasons for variance between planned and actual performance reported in Annual Report; there was a lack of sufficient supporting evidence for 30% of performance targets under programme 2 and 32% under programme 3, rendering reported information unreliable; some contracts for learners were not signed by either the learner or MISA or both; there was an overstatement of commitment in relation to the contract for one of the technical consultants due to erroneous capturing of contract details.

The post audit action plan had been updated to include the remedial actions emanating from the AG’s findings and special attention would be placed on improving controls in the Supply Chain Management (SCM) function and management of performance information while priority would be given to the implementation of the new structure to create the necessary capacity for effective execution of its core mandate,

Discussion

Mr K Mileham (DA) asked about negligent expenditure with regard to penalties paid to SARS.

Mr N Masondo (ANC) said the Annual Report seemed to be about what should be happening rather than what had happened. And this was a problem.as he wanted to know what had happened. He raised the issue of governance and in particular the section in the Annual Report of the internal audit committee. When was the audit committee formed, what had it done and what were the unresolved issues mentioned in the Annual Report, and why was the report not signed by the Chairperson. He asked what was meant by the term ‘government component’ as used on page 85 of the Annual Report. The Annual Report said an investigation had been initiated based on an alert of Irregular procurement and human resource processes and for appropriate corrective action to be taken against those employees involved. It would be useful to know what the issues were and how far the matter had been sorted out. On the AG’s findings, he said it was mainly reviewing of standards rather than how the problems were being dealt with.

Mr Fosi apologised for the late submission of the Annual Report and that the referencing in it was not completed.

The hard copy of the report was signed by all signatories including the chairperson of the audit committee. It was just the soft copy that did not have the signatures.

Regarding the irregular expenditure, MISA was established in 2013 at a time when processes were put in place while at the same time work was done. Most of these transactions related to the irregular expenditure. These were on-going contracts that dated back to 2013. The Department had requested its internal audit committee to start an investigation so that it could know what led to the Department not following Treasury SCM prescripts and whether it was because of negligence or corruption. When the report was completed it would be presented to the Committee.

In reply Mr Mileham’s question on negligent expenditure with regard to SARS penalties, it was not really MISA’s fault; it was SARS’ fault in terms of capturing payment. MISA had been engaging with SARS on the matter. The AG had said they would not wait for the matter to be finalised and so it was noted as wasteful expenditure.

Mr Fosi responded to Mr Masondo’s queries regarding p83 of the report. In the signed report, that matter had been addressed.

Regarding Mr Masondo’s queries around pp63-72 of the Annual Report, the audit committee did not say what they had done, but they were doing a sterling job in supporting MISA to meet compliance criteria and the audit committee was very hands on. Perhaps it was the report itself that was lacking rather than the audit committee.

On the National Treasury investigation and how far MISA had come in sorting out the issues, when Minister Pravin Gordhan joined the Department, he instituted a forensic investigation through National Treasury (NT)to look into MISA’s procurement of the building MISA currently occupies as well as other contracts like management contracts. NT issued a report on those transactions and made findings in November 2016 but the audit committee felt the report still contained gaps and had referred the report back to NT to look at issues the audit committee had raised. The audit committee also told management to act on the issues that were raised by the report. Hence some of the matters were referred to the Department’s labour relations unit and would in due course report to the Committee on its progress. One the matter related to the abuse of travel by the Department’s travel agency, TWF, NT had found there had been fraudulent transactions. Some officials implicated were no longer with MISA, but action was being taken to ensure they were brought to book. Cases involving other officials still with MISA had been referred to the labour relations unit.

On Mr Masondo’s question on remedial actions, he agreed that there was a need to improve on this matter. When analysis was done as to what caused MISA to incur irregular expenditure they discovered that the policy was not in line with SCM law, which was why the policy was reviewed and all areas where it differed from the legal requirements were identified to assist meeting compliance.

Ms Fezeka Stishi, CFO MISA, spoke to fruitless and wasteful expenditure incurred in previous financial years. She said it related to PAYE payments to SARS where there had been a time difference in the clearing of the funds. Payments had been made timeously but were reflected as being late in the books of SARS and SARS had charged a penalty payment for payments being late. In the 2015/16 financial year SARS had recalculated and said they (SARS) had made an error. However, MISA’s appeal to SARS was declined. Therefore, it appeared as wasteful expenditure in the books.

Mr K Mileham (DA) said that SARS was the final arbiter. Would MISA take action steps to ensure that there was no repeat and that they made payments on time and therefore would not be caught in the financial year rollover.

Mr Fosi said MISA had elaborate engagements with AGSA which said that they foresaw that MISA would be improving because of internal controls put in place that would avoid transgressions. MISA in fact had been upfront in declaring transactions that had appeared to be irregular. He was sure that there would be no regression by MISA.

MISA would not pursue SARS on the PAYE matter.

Ms Stishi said the SARS cut-off date was the seventh day of the month while MISA had ensured that they now pay before month end.

Regarding capacity development, a Member said that in most instances the reason for not achieving the set targets was because responsibility had been given to municipalities to take charge of this. Were there any monitoring mechanisms to ensure that targets were met regarding 60 graduates (slide 17 of presentation)? Mention was made of a corrective action process that was unfolding. could this be elaborated upon? 

On Mr Mileham’s question that underspending was increasing instead of decreasing, Mr Fosi said it was because then Minister Pravin Gordhan, said that the filling of posts should not continue until the refocus of MISA was completed. This led to a review of the organisational structure, which had just been approved; therefore, there was under-expenditure mainly in the area of compensation of employees.

Mr Victor Mathada, Acting Head Capacity Building, said there were two reasons, one was the lack of monitoring, which had been put into the hands of the municipalities. This was done because MISA did not have many people on the ground to do the monitoring. because there were a large number of apprentices and it was hoped that municipalities would be of assistance to MISA. It wanted the municipalities to give feedback to MISA on the daily performance of the learners. It was trying to reinforce this recently by asking provincial programme managers to assist by making regular visits to the municipalities so that MISA could get feedback and act timeously if there were any challenges arising.

The second issue was around the development of young professionals. Where MISA originally thought it would register 60 people, there had been challenges in the form of MISA revising its mandate to focus on developing professionals. The programme had already started, so MISA was focused on phasing it out. There were also challenges in getting mentoring because the young graduates were often based in rural areas.

The Chairperson said that MISA should go throughout the country mentoring them. Radical social economic transformation was being called for but it seemed the Department did not know what to do. It might benefit if the Department officials stayed in the rural areas to appreciate the challenges faced there. He wanted to see the Department redouble its efforts and wanted to see something happening because the Department was an anchor department. The Committee was not pursuing the Department enough. It was not about spending the budget, the Committee wanted to see the results of the expenditure like boreholes and provision of water for example. The Department was becoming a self -serving bureaucracy.

Mr Mileham agreed fully with the Chairperson’s points. He wanted the Department and MISA to identify municipalities that had a lack of skills because rural municipalities could not attract qualified skills and then deploy young graduates from UNISA to assist with the implementation of capital projects.

The Chairperson said the Department was a strategic department and could assist in turning things around. If the President said it could not be business as usual, there had to be fundamental changes in the way the Committee and the Department worked. There should not be local governments that did not have a single project manager.
The Minister had to try and attend the Committee meeting on the State of the Nation Address (SONA) and its implications for the Department.

The meeting was adjourned.

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