Minister Malusi Gigaba said the National Treasury was appearing before the Committee on the Integrated Financial Management System (IFMS) project aimed at modernising and integrating all human resource and financial management systems across government and it was there to account for the poor financial and operating controls which an internal audit had revealed.
Members wanted to know how R1b had been spent and what the challenges had been; why the IFMS 2 was needed when R1b had already been spent; if Treasury could not attain the standards of the Public Finance Management Act, how could it expect other departments to attain them; why Treasury went to Cabinet to get a mandate for IFMS 2 and how much did it cost for the World Bank to advise Treasury; and what the recommendations of the World Bank and Ernst & Young were.
Members said Treasury’s own audit committee had acknowledged that Treasury did not know who paid whom. The audit committee letter had described some of the 54 findings as catastrophic. Treasury needed to implement urgent effective controls. How could the Committee trust that Treasury would do so? Treasury chief directors and directors were not doing their work. The Project Management Office (PMO) was staffed with consultants and there had been inadequate monitoring of them and the project costs by departmental officials. What were the old systems currently being used and what were the risks in moving away from these systems? Members asked if the responsibility was not solely Treasury’s in the past but also Department of Public Service and Administration (DPSA) and State Information Technology Agency (SITA) to implement such systems. Members what the challenges were when IFMS 2 started; if Treasury had plans to recover any monies and when the IFMS would finally be in place.
Members asked for the 2005 IFMS budget and if Cabinet knew what it would cost, who were responsible for the planning in 2005 and were they taken to task? How did Treasury realise that it had a problem in 2007 after R1b was spent. In response to Treasury stating that R4.3b had been the 2005 budget and that R4.3b remained the budget even after the review and switch to IFMS 2, the Committee asked for documentation as evidence. Members asked why R1.2b was budgeted for outside consultants and how much of that was spent so far? Members asked for detail on the R81m in Sundries; for a copy of the forensic report; and how would the five very high risks in the audit committee findings be dealt with in moving from IFMS 1 to IFMS 2. They asked about disciplinary action against officials and what SITA’s project management role was as SITA had not done proper oversight. Was the Chief Procurement Officer involved in the process and why was he not present? Members said consultants were allowed to monitor themselves and reliance was placed on their quality controls. KPMG had been paid R2.5m and R2.2m even though reports had not been finalised. Work was done even when no agreements were in place. A R28m contract was signed for R39m. How could it be said that government was taking the project seriously?
Minister Gigaba said Treasury was present because of the failure of internal controls and accountability and because of the robustness of Treasury’s internal audit which uncovered these problems. He was giving his attention to the report of the internal audit committee. All payments had been suspended until controls were in place. The Office of the Chief Procurement Officer would from henceforth play a role. A permanent head for the IFMS would be found and a forensic investigation would be instituted. On Deloitte, he had asked the Director General to report the issue to the Independent Regulatory Board for Auditors (IRBA) and Treasury would not pay for shoddy work. The Hawks were also involved in aspects of the forensic investigation. He said there was a clear failure in internal controls and Treasury would re-establish them.
On Cabinet’s approval of the budget, Minister Gigaba said that when memoranda arrive at Cabinet, they do not come with detailed plans. Cabinet took executive decisions with sufficient information not with a project plan. The Directors General take responsibility for the detail. He said that despite what happened, it should not erode the trust in Treasury. It was important that Treasury be a role model in financial accountability.
Minister Malusi Gigaba said the Department of Finance was appearing before the Committee on the Integrated Financial Management System (IFMS) project aimed at modernising and integrating all human resource and financial management systems across government and were there to account for the poor financial and operating controls which an internal audit had revealed.
Mr M Booi (ANC) said that the initial IFMS project had spent R1b and he wanted to know how R1b had been spent and what the challenges were.
Mr Dondo Mogajane, Treasury Director General, replied that R230m had been spent on SITA and R769m by Treasury. Slide 12 gave the details of what Treasury had spent money on.
Mr Booi asked why Treasury had gone to the World Bank.
Mr Mogajane replied the IFMS was a key, big and complicated project.
Mr Booi asked what had happened since 2005 and reiterated his question on why the World Bank had been engaged.
The Chairperson asked why IFMS 2 was needed when R1b had already been spent.
Mr Mogajane replied the solution implemented had not produced the desired result. He said he would prefer to do a presentation which would better inform members and then they could ask him questions.
Members did not take kindly to this request and said Mr Booi’s line of questioning was proper and correct.
Ms N Khunou (ANC), however, said she wanted to hear a presentation.
Mr Booi said the Public Finance Management Act (PFMA) promoted and enforced transparency. If Treasury could not attain standards, how could it expect other departments to attain those standards. He repeated his question on what happened to the R1b that was lost in IFMS 1.
Mr Mogajane replied the World Bank was an expert because it had engaged in similar projects in other countries. Treasury had also asked the firm of Ernst & Young for an evaluation. Their reports advised that the project be repackaged differently because the hybrid model that was used in the beginning did not work. Off the shelf packages were a better option and hence IFMS 2 was suggested. He acknowledged that the project had taken a long time to reach its current point.
Mr Booi again repeated his request for an explanation of the R1b loss in IFMS 1.
Mr Mogajane replied that when Treasury went to Cabinet in 2013, it was to acknowledge the challenges it had with IFMS 1. R1b had been lost and the project was taking longer than anticipated to complete. This was not because of a lack of political will, it was more because of technical issues.
The Chairperson reiterated Mr Booi’s question on what the challenges were.
Mr Mogajane replied the challenges were listed in slide 8 of the presentation, and Treasury had to change course because of these challenges. He added that ten years ago there was no expertise and capacity in Treasury on changing systems as they were now trying to do.
Mr Booi asked why Treasury went to Cabinet to get a mandate for IFMS 2 and how much did it cost to get the World Bank to advise Treasury?
Mr Mogajane replied that Treasury went to the World Bank not to assess the project at the time. He said he did not have the cost figures on him.
Mr Booi said it appeared that the DG was not prepared or not taking the Committee seriously.
Mr Mogajane replied that Ernst & Young were paid R2m, the World Bank provided its services at no cost and Gartner, a service provider was paid R500 000.
Mr Booi asked what happened after the Project Management Office (PMO) had been established.
Mr Mogajane replied the institutional oversight arrangements had been flawed up till that point. The background to IFMS could be found on slide 3 and the structure listed there was applicable for IFMS 2.
The Chairperson asked what the recommendations of Ernst & Young and World Bank were.
Mr Mogajane replied they had recommended that Treasury consider a modified off the shelf package and not the hybrid model.
Mr Booi asked what the challenges were when IFMS 2 was started.
Mr Mogajane replied that slide 19 covered the start of the IFMS 2 process and the challenges of IFMS 2 were the transition and contracts. IFMS 2 had been made a stand-alone project for the audit committee. The audit committee had ensured that payments between April 2014 and August 2015 were reviewed and Treasury was in the process of completing an internal audit that had been commissioned.
The Chairperson asked why these events were occurring as it pointed to processes not being effective.
Mr Booi added that Treasury could not even forward the paperwork to that audit committee on the work that had been done for Treasury.
Mr Mogajane replied the internal audit committee had found 54 findings or irregularities. These were identified and brought to management’s attention. They were lapses and for each lapse, corrective actions had been instituted. At the time, the oversight process had worked and a forensic investigation was instituted.
Mr Booi said Treasury's own audit committee had acknowledged that Treasury did not know who paid whom.
Mr Mogajane acknowledged that it should not have happened and a process had been undertaken.
Mr Booi said the audit committee’s letter had described some of the 54 findings as catastrophic and so clearly there had been inadequate controls. Treasury needed to implement urgent effective controls. How could the Committee trust that Treasury would do so?
Mr Mogajane replied there was no excuse as it happened under their watch, however Treasury's internal audit committee had found out about these lapses. Further investigations were being done and all payments had been stopped from 7 August. He had had three engagements with the audit committee and would be restructuring the PMO. Currently, only five people worked on the IFMS.
Mr Booi said that if Treasury could not run its own books, how could other departments be expected to maintain high standards. There were inadequate payment procedures.
The Chairperson said that what that meant was that Treasury was not doing its work. Officials such as directors and chief directors were not doing their work. The PMO was staffed with consultants and there had been inadequate monitoring of them by departmental officials.
Mr Booi said there was a lack of management of project costs. The DG was not providing the answers as he had failed to give details.
Mr C Ross (DA) felt there was a crisis in the making. The internal audit report had been very helpful. He asked what systems were currently being used and would this affect state asset management and employee payments.
Mr Mogajane replied that Persal was used for state employees and the Logis system was used for asset management.
Mr Ross said the current systems had been in use for 40 years. What were the risks to move away from these systems?
Mr Mogajane replied the implementation was huge and therefore it was building a parallel system so as not to cause harm in the migration process.
Mr Ross asked if not only Treasury but also the Department of Public Service and Administration and SITA had been responsible to implement these systems in the past, as key programme stakeholders. It was in the public domain that SITA was found to lack competence when it came to technologies.
Mr Mogajane replied it was important that all three shareholders dealt with it.
Mr Ross asked if there was joint responsibility and if the IFMS steering committee was established for IFMS 2.
Mr Mogajane replied the IFMS steering committee was for IFMS 2 not for IFMS 1.
Mr Ross asked about risk assessment in the steering committee. He asked if the risk was assessed and how functional the audit committee of Treasury was.
Mr Mogajane replied that it was largely what had been identified. He was involved in the implementation, the money spent and the relevant progress made.
Mr Ross asked about the prevention of irregular expenditure. Could it be said that in effect there had been R1b in fruitless and wasteful and irregular expenditure? He asked if Treasury had plans to recover the money.
Mr Mogajane replied that Treasury did not have plans to recover the money. Treasury had not concluded whether it was fruitless and wasteful expenditure.
Mr Ross asked when the IFMS was envisaged to be in place.
Mr Mogajane referred the Committee to the list on slide 25.
Mr T Brauteseth (DA) asked what amount had been budgeted for in 2005. He asked if Cabinet knew what it would cost when they agreed to the budget.
A Treasury official said that R4.3b had been initially budgeted for the implementation in 2005 and that R4.3b remained the budget even after the review and the switch to IFMS 2.
Mr Brauteseth asked for documentation that would indicate that that was the case. Who was responsible for the planning in 2005 and were those people taken to task? He asked how Treasury realised that it had a problem in 2007 after R1b was spent. What did Treasury get for that amount of money?
Mr Rajan Naidoo, SITA IFMS Program Manager, replied that an HR module was being used at the DPSA and the procurement module was being used at Treasury for financial and catalogue management.
Mr Brauteseth asked what the remaining R3.3b would be spent on.
Mr Mogajane replied R1b had been spent on IFMS 1 and R1.2b on IFMS 2
Mr Naidoo said that from 2013 no further enhancements were made. By 2007 development was not completed but by 2012 there was a working product that could be implemented and used.
Mr Brauteseth noted that there was a lot of money going to SITA. He wanted SITA to comment on its inability to do the work without using outside consultants.
Mr Naidoo replied it would be a difficult task for SITA to have all that capacity. SITA’s role was that of oversight and providing technical advisory services. Some work had been done by SITA, such as the asset management module and the supply chain module.
Mr Brauteseth asked how many external consultants had been used.
Mr Naidoo replied that given the nature of the product, SITA intended to provide capacity.
Mr Brauteseth asked why SITA was not at that point yet.
Mr Seitumo Mohapi, SITA CEO, said that what was lacking was capacity in design architecture.
Mr Brauteseth said that slide 12 indicated that R1.2b was for outside consultants for professional services. Why was R1.2b budgeted for outside consultants and how much of that was spent so far to do work?
Mr Naidoo replied R300m. It was not prudent for SITA to have this capacity as it was only to do a piece of the job.
Ms Lindy Bodewig, Treasury Chief Director: Technical Support Services, said the fees for professional services were for consulting work.
Mr Brauteseth wanted a list of the small businesses benefiting from the piece jobs.
Mr Naidoo replied that Phase 2 had just been entered into.
Mr Brauteseth asked what the R81m in Sundries were for.
Mr Mogajane replied it was an estimate and was for things such as audit fees and training.
Mr Brauteseth asked what SITA was charging for operating and hosting services.
Mr Mohapi, SITA CEO, said it was for hosting services.
Mr Brauteseth asked when the project would finish.
Mr E Kekana (ANC) said the DG had acknowledged the irregular expenditure and had commissioned a forensic investigation.
Mr Mogajane replied the forensic investigation came about via the audit committee.
Mr Lesego Seperepere, Internal Audit Committee member, said that it was a scoping issue. An investigation was required to see if the scope of the investigation had to be expanded.
Mr Kekana asked for a copy of the forensic report.
Mr Seperepere said there was no report, there had been challenges with the service provider, Deloitte, and the contract had been terminated over issues of performance.
Ms Octavia Matloa, Audit Committee Chairperson, said Deloitte had been appointed but that there had been issues with the ethical conduct of Deloitte where a senior employee had written an email to a DDG in Corporate Services about guarantees of future work. This meant Deloitte work could not be trusted and the contract was terminated. A final draft of its work was presented to determine how much it should be paid, but as its work was not admissible it was not eligible for payment and so no payment had been made. The DDG had been complimented for the actions he had taken.
Ms T Chiloane (ANC) asked about the follow up on the five very high risks identified in the audit committee findings, and how would these findings be dealt with in moving from IFMS 1 to IFMS 2.
Mr Mogajane replied these findings were for IFMS 2 payments. Management had taken note of the findings and accepted most of the audit findings and accepted all the recommendations and had taken corrective action.
Ms Chiloane asked if any disciplinary action had been taken against officials.
Mr Mogajane replied that not as yet, as two processes were unfolding. Two senior DDGs had been appointed to interview all those involved.
Ms Chiloane asked what SITA’s project management role was, as she felt that SITA did not do proper oversight.
Mr Mohapi, SITA CEO, said SITA’s role was listed in slide 18. SITA had done software development work and work on the modules. He acknowledged that SITA could have done better.
Ms Khunou said she was disappointed that a presentation had not been done by Treasury. She asked what the role of the Chief Procurement Officer in Treasury had been and why was he not present at the meeting. Was the Chief Procurement Officer involved in the process?
Mr Mogajane replied he was not involved. He had requested that the Chief Procurement Officer go through all payments to check processes and whether payments were legitimate. The DG was awaiting that report.
Ms Khunou said that this meant that if the Chief Procurement Officer had been involved, the problems could have been avoided.
Mr Mogajane acknowledged that he should have been involved. He felt that IFMS 2 was strengthening the oversight and implementation of the project.
Ms Khunou asked why there had been a delay in the payment of AGSA for services rendered, yet Ernst & Young had been paid.
Mr Mogajane replied it was an unnecessary finding. The finding had been noted and discussed in Treasury.
Ms Khunou asked why officials found it difficult to collaborate with other government departments. Why was there an overuse of service providers? SITA needed to appear before the Committee as there appeared to be lots of problems and therefore departments were not making use of SITA services.
Ms Matloa replied about the two processes underway at Treasury: there was an intervention on the weak internal controls and the Deloitte investigation, and a new process was underway. The audit committee also saw IFMS 2 as a stand-alone project.
Mr Booi said the debacle over the licensing of Oracle software was not a good audit picture. R4.3b had been approved for IFMS with no supporting documentation for the line item figures. How could Cabinet approve this?
The Chairperson said that the way IFMS had been implemented was shambolic and shocking. The PMO had been created to improve the situation but the project was now at the point where all payments had been stopped. The internal audit findings were that monitoring of costs had been done on an informal basis. Consultants were monitoring themselves and reliance was placed on own assurance and own quality controls. KPMG had been paid R2.5m and R2.2m even though reports had not been finalised. Work was done even when no agreements were in place. A R28m contract was signed for R39m. How could it be said that government was taking the project seriously!
Mr Ross said that the Committee should be engaging with the procurement officer as well.
Minister Gigaba said the Department was present because of the failure of internal controls and accountability and because of the robustness of Treasury’s internal audit which uncovered these problems. He was giving his attention to the report of the internal audit committee. All payments had been suspended until controls were in place. The Office of the Chief Procurement Officer would from henceforth play a role. A permanent head for the IFMS would be found and a forensic investigation would be instituted. On the Deloitte issue, he had asked the DG to report this to IRBA and Treasury would not pay for shoddy work. The Hawks were also involved in aspects of the forensic investigation. There was a clear failure in internal controls and Treasury would re-establish them.
On Cabinet’s approval of the budget, the Minister said that when memoranda arrive at Cabinet, they do not come with detailed plans. Cabinet took executive decisions with sufficient information not with a project plan. The DGs take responsibility for the detail. He said that despite what happened, it should not erode trust in Treasury. It was important that Treasury be a role model in financial accountability. On the overuse of consultants, this would be overcome over time. In the auditing profession, 96% of the work went to four multinational firms. Some of them had 120-year contracts so they could not be regarded as providing independent services. IRBA had called for mandatory audit firm rotation. Rotation had been introduced at Transnet with success. He was saying that things that fall under the ambit of the procurement office should include auditing services.
The meeting adjourned.
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