Committee Report on Irregular, Fruitless and Wasteful Expenditure

Public Accounts (SCOPA)

24 May 2017
Chairperson: Mr T Godi (APC)
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Meeting Summary

The Standing Committee on Public Accounts (SCOPA) met to discuss its draft report on irregular, fruitless and wasteful expenditure involving the Departments of International Relations and Cooperation (DIRCO), Basic Education (DBE) and Cooperative Governance and Traditional Affairs (COGTA), and found that irregular expenditure was on the increase.

SCOPA said it needed to take a firmer stand in this regard. Where criminality was established, the correct procedure should be followed. According to Section 86 of the Public Finance Management Act (PFMA), accounting officers who were willingly and unlawfully guilty of contravening the provisions of the PMFA could be imprisoned for up to five years.

Members expressed concerned over the departments which had not submitted financial statements in time. They said the Auditor General of South Africa (AGSA) had raised findings on the appointment of contractors by implementing agencies without following supply chain management processes.  The issue was the appointment of contractors by implementing agents instead of the Department itself advertising, selecting and appointing service providers. The Department was then “hands off” -- at the cost of public money. SCOPA discouraged and condemned the appointment of contractors by implementing agents.

Another problem was the shifting of responsibilities. An example of that was Eskom currently being the problem of the Minister of Public Enterprises, Lynne Brown. The year before, the President had given responsibility for state-owned enterprises (SOEs) to the Deputy-President. Midway, without knowing what the problem was, the responsibility had been shifted back to the President. Every time there was shift of responsibility, Parliament should be informed.

The Chairperson said the end goal was that departments should comply fully with the provisions of the PMFA, especially in relation to supply chain management issues.

 

Meeting report

Consideration of draft report on irregular, fruitless and wasteful expenditure

Guided by the Chairperson, the Standing Committee on Public Accounts (SCOPA) went word for word through the Committee’s draft report that considered the contents of annual reports with regard to irregular, fruitless and wasteful expenditure.

Mr C Ross (DA) was concerned over the departments which had not submitted financial statements in time.

Mr M Booi (ANC) shared this concern, mentioning examples such as SA Airways and the Department of Water and Sanitation (DWS). The Auditor General (AG) had to be protected. These departments and entities were running away from the AG. They were ignoring their responsibility to submit financial statements, but wanted to use the fiscus.

Mr E Kekana (ANC) wanted confirmation that the report was on only three departments.

The Chairperson answered in the affirmative.

Mr Booi asked for patience. The matter of non-submission should be dealt with. Such departments could not escape the eye of scrutiny. The Department of Environmental Affairs (DEA) was abusing the fiscus. The DEA had told SCOPA that they were waiting for an internal report to submit their report, but they had not done so.

The Chairperson said that that issue would be dealt with in the recommendations. He asked the Committee to go through the instances of irregular expenditure. On each issue, recommendations must be made and cases involving the chief financial officers (CFOs) must be resolved.

SCOPA had had hearings with the Departments of International Relations and Cooperation (DIRCO), Basic Education (DBE) and Cooperative Governance and Traditional Affairs (COGTA).

The Chairperson went through the specific instances.

Department of International Relations and Cooperation

DIRCO had incurred irregular expenditure because of BT Communications (R170 million), Price Waterhouse Coopers (R21 million), VW (R788 000) and Dimension Data (R142 million). In terms of the Bid Evaluation Committee’s (BEC’s) recommendations, none of the awarded companies had met the criteria. The Bid Adjudication Committee (BAC), which was chaired by the CFO and other senior executives, had overridden the recommendations of the BEC to cancel the tenders awarded to companies which had been disapproved by the BEC, and had decided nonetheless to go ahead and award them to those companies.

In the case of Price Waterhouse Coopers (PWC), the BAC did not consider the recommendations of the BEC, and the suppliers who scored the highest points had been disqualified based on requirements that were not in the original terms of reference. PWC had been awarded the tender because the BAC and BEC were ignored.

In the case of Volkswagen South Africa (VW SA), quotations had been obtained from five companies in accordance with the transversal contract. The BAC had not considered the recommendations of the BEC and had approved the award to VW (SA) and to Hyundai (SA) due to the high profile of the people using the vehicles.

Mr Kekana said that this was confusing. Was it VW (SA) and Hyundai (SA), or only VW (SA)?

The Chairperson asked for that to be checked.

In the case of Dimension Data, the contract had been extended without inviting competitive bidding. Processes had generally not been started on time, and that had resulted in delays or challenges to conclude the awarding of the contract. Challenges encountered during the bid evaluation processes could have been avoided if the competitive bidding process had been started on time. This was mainly due to poor planning and poor contract management.

Ms T Chiloane (ANC) suggested “to ensure compliance” be added to point G in the Committee’s recommendations to the Accounting Officer.

Mr Kekana said that when referring to the Public Finance Management Act (PFMA), the section should also be mentioned.

Mr Booi said the role of the CFO of BT Communications, who chaired the BAC, was very problematic. Tenders came to him and he decided. One person could not be allowed full authority.

Mr Ross said that if one looked at the amounts involved, he would say that the cases should be referred to the Special Investigative Unit (SIU) to possibly lay criminal charges. 

Ms Chiloane said criminal matters should be referred to law enforcement agencies.

Mr Booi said that whenever new Committees were formed or when responses were shifted Parliament should be informed. The year before the president gave State-owned enterprises (SOE) to the deputy-President. Midway, without knowing what the problem was, the responsibility shifted back to the President. Every time there was shift of responsibility Parliament must be informed.

He referred to what he called the “Lynne Scenario,” and said Eskom had been under her at a particular time, then the Deputy-President had taken it over, and the President had taken it over, but when there were problems, it was currently Minister Lynne Brown’s problem. Parliament should be insulated from the dynamics of the executives of state-owned enterprises (SOEs) and how people were held accountable. The Committee had been faced with that particular dilemma the day before. In keeping accountability, referrals should happen. The day before, that had been understood. When something was referred to the Hawks, the Hawks must refer it to the NPA and so forth. The case should be dealt with by the whole collective. In engaging the Anti-Corruption Task Team (ACTT), that should be a part of SCOPA’s responsibility so that areas of corruption could be immediately resolved. Parliament should build and strengthen the relationship amongst them. A lot had been learned by those involved yesterday, but SCOPA should keep them under pressure. Departments should not work in silos.

The Chairperson wanted to make three suggestions in relation to Mr Booi’s comment. Like Ms Chiloane had said, the wording in the recommendations should be that “the Committee recommends that the accounting officer ensures that all employees cooperate with law enforcement agencies with the investigations into the alleged corrupt conduct of the CFO.” The investigation was already on. He said in the first three cases the BAC, ruled by a CFO, had overruled the BEC. The accounting officer should ensure that there was an investigation into the conduct of the BAC in relation to their disregard of the recommendations in those cases. If found guilty, all the members who had served in the BAC should be banned from serving in a BAC or the department.

Ms Chiloane added, “or any other department”.

The Chairperson said DIRCO could ban them only in their own Department.

Ms Chiloane wanted the difference between “banned” and “blacklisted” made clear.

Mr Booi said life became difficult within an institution when a person was blacklisted.

The Chairperson said that in this instance, the wording should be “banned from participating in BACs.” That was where such a person was found guilty. His third suggestion was that the accounting officer should ensure that SCOPA was supplied with the names of those who served as members of the BEC and the BAC.

Mr Siyanda Saki, Senior Manager, Stakeholder Relations: Auditor General of South Africa (AGSA), asked whether “prohibited” was not a better word.

Mr Booi said vetting within departments should be encouraged, and SCOPA should be given those records of vetting. Public servants should be vetted. Half of the staff at the SABC had criminal records. He asked if the recommendations could also be sent to Treasury and the AGSA.

Mr Sifiso Magagula, SCOPA researcher, asked if a timeframe of two weeks could be added to the Chairperson’s point.

The Chairperson said that was good.

Mr Kekana asked if “SCOPA” or “Parliament” was the correct word.

Mr Ross suggested “Parliament through SCOPA”

Ms Chiloane said that traditionally a period of 90 days to get reports was mentioned in the SCOPA reports.

The Chairperson said that that could be added in the conclusion.

Department of Basic Education

In the DBE, the amounts of irregular expenditure needed to be put at the top. Irregular expenditure had been incurred in the Accelerated Schools Infrastructure Delivery Initiative (ASIDI). R8.2 billion had been allocated for this purpose. The Chairperson explained that after contracts had expired, SOEs, such as the Independent Development Trust (IDT), the Mvula Trust, the Coega Development Corporation (CDC) and the Council for Scientific and Industrial Research (CSIR) had continued to do work. The problem had been with the project management, and their appointment should be looked at. Irregular expenditure had been incurred with the appointment and the continued payment after the expiry of the contracts.

The appointment of Mvula Trust had not been in line with Public Finance Management Act (PMFA) regulations. The Department had also allowed Mvula Trust to use their own procurement system. They had appointed their own service providers and the DBE had found that fair and satisfactory. All the suppliers had been level 4 black economic empowerment (BEE) contributors.

The Chairperson added the amounts of expenditure of Mvula Trust. This came to around R125 million.

Mr Kekana asked if the Committee’s report would include the relevant sections of the PFMA, and the Chairperson confirmed that it would.

On the Development Bank of South Africa (DBSA) and the CDC, the AGSA had raised findings on the appointment of contractors by implementing agencies without following supply chain management processes.  The issue was the appointment of contractors by implementing agents instead of the Department advertising, selecting and appointing service providers. The Department was then “hands off” -- at the cost of public money.

Another case of an implementing agent was Adopt-a-School. They had been appointed by the DBE in 2013 to build three schools in KwaZulu-Natal. The deviation on procurement requirements had resulted in irregular expenditure being declared in the financial statements. Expenditure incurred to date was R13.995 million in 2014/15, and R7.033 million in 2015/16. The Chairperson recalled that the Minister had said the appointment had saved millions of rands.

The tender on Grade R workbooks had been advertised for 13 days instead of 21. In order to rectify the error and comply with Treasury regulations, the Department had issued an addendum in the Government bulletin extending the closing date, but they did not mention this in the advert. During the audit, the AG had indicated that other bidders may have been disadvantaged. Therefore, the expenditure incurred on this tender -- amounting to R32.223 million -- must be declared as irregular. Despite errors, the Department had achieved value for money and there had been no loss to the Department or the state.

In the Kha Ri Gude project – which the Chairperson explained meant, “let us learn” – the Department had paid for deceased learners who were part of the Adult Basic Education and Training (ABET) project. The Chairperson reminded the Committee that they had agreed that this case should be referred to law enforcement, but the Hawks had come back and said this should be referred to the Special Investigating Unit (SIU).

Next the Chairperson went through their recommendations.

Ms Chiloane felt that all the recommendations were proper, but wanted to raise the issue of compliance in the end. She said the point was that there were processes to follow, and these should be complied with, even when the Department did not lose money by the way they did things.

Mr Booi said central procurement should be alerted in Treasury. The executive must be held accountable. It happened that when SCOPA wanted to check on irregularities, the executive became sensitive. He suggested that deviations had to go to National Treasury or the AG before they were accepted. SCOPA should be alerted at an early stage. 

The Chairperson asked if the Committee had followed what had been said by Mr Booi. If the Minister said they preferred to use a particular service provider, processes should still be followed. An example of that was when the Department of Defence (DOD) had wanted aircraft. Cabinet had taken the decision of the specific aircraft, but the officials still had to follow due processes to give effect to the decision of Cabinet.

Mr Booi said the Minister of the DBE had authorised the procurement processes, but it was not known if she had gone to Cabinet. If she had alerted SCOPA, Parliament would have been able to mitigate and listen to the reasoning. Due process should never be walked away from.

Mr Magagula wanted clarification on the third paragraph on page 7. Was SCOPA saying that the DBE had achieved value for money, or was that what was being heard from the Department?

Amongst the Committee, it was said that they had heard it from the Department.

Mr Magagula said that it then needed to be regarded as a claim. The Chairperson agreed, and asked that it should be recorded like that. 

Mr Kekana was concerned over the inconsistency of the flow of the report. He said the amounts should be indicated throughout.

Mr Ross noted the big amounts of irregular expenditure. The implementing agents had carte blanche. Like in the previous section, there should be a recommendation that the accounting officer should ensure that the Department cooperated with law enforcement agencies where criminality had been established. Although what happened in the DBE looked more acceptable, there had been no compliance with regard to processes.

Mr Booi asked if the amounts could be quantified if there had been no loss. Had it been a humanitarian matter? He was unsure where the value came in, and asked for a report profile.

On Kha Ri Gude, the Chairperson said it should read that the project had been referred to law enforcement agencies -- in this case, the Special Investigating Unit (SIU). There should also be a recommendation that spoke about the need to eliminate implementing agents. They were outsourcing what their own manager should be doing.

Mr Booi wanted to check what could be done on centralised procurement.

Mr Kekana asked if there were guidelines on centralised procurement.

The Chairperson said it was safe to say there were, but the problem was the use of implementing agents and a Memorandum of Understanding (MOU) that allowed these agents to use their own procurement system, which was not in the PFMA.

Ms N Khunou (ANC) said Kha Ri Gude had failed because of the lack of a monitoring system. There needed to be training on the PFMA.

The Chairperson said that “effective and regular oversight must be conducted on all work done” should be added. The next line must talk to SCOPA’s disdain for implementing agents.

Ms Chiloane pointed out grammar and punctuation issues on page four.

Mr Magagula said the CFO chose not to understand the PMFA. To be a CFO, one must understand the PMFA. In the recommendations, they should rather be encouraged to comply.

Mr Booi said the Ministers must also comply.

The Chairperson said that would be in the conclusion. Compliance was a must, and this was known.

Ms Khumou said SCOPA needed to pronounce themselves, because even though compliance was a must, there was still non-compliance. It was a problem in other departments as well. SCOPA needed to send a clear message.

Mr Booi said SCOPA should be careful not to create a welfare state, where departments were being “babysat” and sent to workshop after workshop. People were highly educated, and a welfare state should not be encouraged. 

The Chairperson replied that was part of the conclusion as well.

Cooperative Governance and Traditional Affairs

The Chairperson said that COGTA had incurred irregular expenditure of R1 billion. When reading the following:“the bulk of irregular expenditure incurred arose because implementing agents for the Community Works Programme (CWP) procured tools and materials as part of the execution of the CWP at community level,” the Chairperson said it should have been written better. There should be three clear instances of irregular expenditure.

In the recommendations, the use of implementing agents should be discouraged.

Mr Kekana said the timeline was open ended, and recommendation E presupposed that SCOPA was saying that no proper planning and budgeting had been done for the programme, when that was not supposed to be SCOPA’s responsibility. He suggested that the recommendation be removed.

Mr Booi suggested that a report back should be given to the Committee two weeks after releasing the report.

Mr Saki said that was impractical, and 60 days would be better. 

The Chairperson said SCOPA assumed investigations on the matter had started when the AG had reported them. Therefore departments could report on what they had done so far.

Mr Saki said departments had started working in good faith, but they received a directive only with a report from Parliament.

The Chairperson asked why they would wait for Parliament, if the AG said the expenditure was irregular.

Mr Booi said Mr Saki was talking about years of repetitive lying being repeated. One would have expected departments by this time to react when they heard the AG say spending was irregular. Parliament was just facilitating the “report back” mechanism. Two weeks was enough to say what had been done and what had not been done. Fairness must be there, but pressure was also important.

Ms Khunou agreed, but reminded the Committee that it would go to Announcements, Tabling’s and Committee reports (ATC) first. SCOPA had been pushing that there should be implementation of what it presented in Parliament. She agreed that 60 days was too long, and suggested a time of 30 days. 

Mr Magagula said 60 days was too much, and two weeks would be fine. Accounting Officers were required to keep a register, and therefore they must have the information.

The Chairperson read the conclusion. It had to be rewritten.

Ms Chiloane asked whether fruitless and wasteful expenditure also had to be condoned, or if it had to be recovered.

The Chairperson said that that paragraph should be erased.

Ms Chiloane suggested writing that SCOPA was concerned that the departments disregarded procedures, rules and regulations, even though value for money had been obtained. Departments must adhere to the policies and due process in terms of the PFMA.

The Chairperson raised two points. It had been observed by SCOPA that the Executive Authority gave directives on matters of procurement. That should not be encouraged, and if it happened, officials must ensure that due processes were followed. Furthermore, the PFMA required registers of irregular expenditure to be kept. SCOPA observed that departments did not necessarily do that. More worrying was that, even when registers were kept, the irregular expenditures took years to be investigated. 

Mr Booi asked why Treasury was congratulated in the opening line of the conclusion. There was a constitutional obligation on the leader of Government to take responsibility. All the deviations and the participation of the executive should be taken up with the executive. The executive must go through the leader of government with a note, so that Parliament remained informed. The emphasis must be there. 

Ms Khunou said they were already near the end of the term. A clear message should be sent that Section 86 of the PMFA would go into action when accounting officers or officials of government failed to adhere to policies.

The Chairperson said the first sentence should express SCOPA’s horror at the high levels of irregular expenditure and non-compliance with the PMFA.

Mr Ross brought up the issue of consequence management, and suggested it should be said that in terms of consequence management, the Committee resolved that in terms of the PMFA and Treasury regulations there should be strict adherence and enforcement via extending it to law enforcement agencies to achieve results. In the paragraph on irregular expenditure, it should be noted if there had been an increase or a decrease in the last year, and the Committee should express its attitude towards the increase in irregular expenditure. SCOPA was stepping up in this regard, and where criminality was established the correct procedure should be followed. Furthermore, a note should be included about the accounting authority or the accounting officials that would be held responsible.

Mr Saki suggested that SCOPA should start with the end in mind, and craft the sentence accordingly.

Mr Booi reiterated that adherence to processes -- by executives who interfered in processes -- should be made clear. The non-submission of reports should not be forgotten. Departments could not spend the whole year and not submit. The Minister of Environmental Affairs was buying new cars, and SCOPA had not seen the DEA’s report. Non-accountability of the executive must be dealt with. Non-submission must be condemned.

The Chairperson said the end goal was that departments should comply fully with the provisions of the PMFA, especially in relation to supply chain management issues. The last paragraph must talk to the need for oversight, governance structures and law enforcement to combine efforts to fight the scourge of financial mismanagement.

The meeting was adjourned.

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