The Portfolio Committee on Water and Sanitation was briefed by the Auditor General of South Africa (AGSA) on the audit outcomes for the Department of Water and Sanitation (DWS) for the 2016/17 financial year and by DWS on its 2016/17 Annual Report.
The AGSA noted that DWS converted indirect grants into direct grants and applied an incorrect accounting treatment. Both DWS and WTE were qualified on irregular and fruitless and wasteful expenditure as they did not have adequate controls to identify unauthorised, irregular, fruitless and wasteful expenditure within projects. Moreover, WTE could not reconcile the financial liability on Trans Caledon Tunnel Authority (TCTA) to the underlying accounting models as it was not timely verified with TCTA.
Programme 3 in particular, deals with water infrastructure development, and spent 99.6% of the budget allocated to it with only 28% achievement. Four of the 10 projects from DWS and WTE were not achieving desired objectives. In the year 2016/17 financial year there was R406 million unauthorised expenditure, i.e. R114 million that was due to a transfer to an implementing agent that was not approved by National Treasury and R292 million was due to the Bucket Eradication Programme where overspending occurred – invoices from previous years paid in current year.
WTE procured an information system for municipalities and water boards to be used over a period of 5 years and none of these entities used the system in the current year resulting in fruitless and wasteful expenditure. DWS implementing agents did not follow normal SCM processes. WTE created a panel from where they source suppliers without going through tender, resulting in irregular expenditure. Deviations were approved without justifiable reasons.
Members wanted to know whether KPMG was involved, questioned how it was possible to spent 99% of the budget with only 28% achievement for programme 3. The Committee also questioned the leadership and accountability structures within the Department and expressed the need for the Special Investigations Unit (SIU) to present its findings to the Committee; as well as National Treasury.
The Minister highlighted commitments for 2016/17 and noted that DWS was objecting to the fruitless and wasteful expenditure audit from the AGSA with regard to the system of control that needed proper project management and costing techniques in line with construction norms and standards were inadequate. The DWS also objected to irregular expenditure, with a view different from that raised. She said she hoped they could engage with the Auditor-General so that there is consistency.
DWS said programme 1 had achieved 75% of its targets, programme 2 with 80% achievement, programme 3 achieved 67%, programme 4 with a 100% achievement of targets and programme 5 sitting at 40%. WTE uses accrual basis of accounting which requires that amortised interest be accounted for. This was not real cash outflow in the WTE financial statements but an accounting book entry. Driven by the TCTA’s amortisation fair value, adjustments were mainly as a result of two things, namely a change in timing of projected cash flows and revision of project costs.
Members questioned the contradictory achievement rates the Department presented and also questioned the functionality of DWS’ internal risk and audit committee. The Committee wanted actual figures on Department programmes such as Drop a Block and War on Leaks and insisted that the Department could not just shift money from one project to another without accounting. The Committee requested a full breakdown of the budget and projects. They also insisted that the internal audit committee be present at the follow-up meeting.
The Chairperson noted that Members preferred that he Department of Water and Sanitation (DWS) delegation be excused during the presentation by the Auditor General of South Africa (AGSA). He emphasised that it would not necessarily work to the detriment of DWS as they are aware of the contents of the AG’s findings. To this, he proceeded to ask the DWS representatives to leave until the AGSA finished their briefing. .
The Chairperson highlighted that National Treasury will not be joining the Portfolio Committee meeting as hoped. As part of the agenda, National Treasury was to brief Members on expenditure trends of DWS. He read a letter from National Treasury which stated the reasons of their absence.
Mr Andries Sekgetho, Business Executive, AGSA, highlighted that the AGSA had a constitutional mandate and was in fact a supreme audit institution of South Africa. The Office of the AGSA existed to strengthen democracy by enabling oversight, accountability and good governance in the public sector through auditing. This in turn builds public confidence in the institutions of government. The current theme for the Auditor General’s office for the purposes of improving outcomes is ‘Accountability = Plan + Do + Check + Act’. To this, he explained what the theme meant institutions of government must have a defined target, implement the basics, requires monitoring to be done by all assurance providers and deal with the consequences and provides for accountability. In the event that all of the elements mentioned were present and followed to the latter, the outcome would be better audit results and a better life for citizens.
Mr Stephen Kheleli, Senior Manager, AGSA, said annual audits examined three areas. These include fair representation and absence of significant misstatements in financial statements, reliable and credible performance information for predetermined objectives and finally compliance with all laws and regulations governing financial matters. Having conducted an audit, there are five possible outcomes. These are: an unqualified opinion with no findings (clean audit), financially unqualified opinion with findings, qualified opinion, adverse opinion and disclaimed opinion. The financial outcomes reflect over four years for the Water Research Commission (WRS), DWS and the Water Trading Entity (WTE).
Of note, DWS converted indirect grants into direct grants and applied an incorrect accounting treatment. Both DWS and WTE were qualified on irregular and fruitless and wasteful expenditure as they did not have adequate controls to identify unauthorised, irregular, fruitless and wasteful expenditure within projects. Moreover, WTE could not reconcile the financial liability on Trans Caledon Tunnel Authority (TCTA) to the underlying accounting models as it was not timely verified with TCTA.
Mr Kheleli added on by noting trends in compliance with key legislation. Financial statement preparation remains a concern, as well as inadequate monitoring of supply chain management (SCM) legislation especially due to poorly motivated deviations. Finally, although internal controls detect unauthorised expenditure, controls are not yet mature to prevent incurring unauthorised expenditure.
Mr Kheleli gave an account on the findings of the audit on key controls and assurance providers per level. The audit revealed that leadership, financial and performance management and governance was at concerning levels within DWS and WTE whereas WRC had improved on governance, and maintained good performance in leadership and financial and performance management.
Mr Kheleli presented on outcomes of programmes and showed that Programme 3 in particular, deals with water infrastructure development, and spent 99.6% of the budget allocated to it with only 28% achievement. Four of the 10 projects from DWS and WTE were not achieving desired objectives. The key findings of the statutory audit were that targets were not achieved, with projects still under construction yet there is overspending on the funds allocated per year. Multiyear key projects which were started in earlier years, were only included in the Annual Report of the current year. SCM processes were not followed on most projects due to emergency of water shortages although there were multiyear projects – thus, this resulted in irregular expenditure.
The audit also revealed that certain projects that did not go through a tender process have been identified as part of the statutory audit by the AGSA. There were potential fruitless and wasteful expenditure identified on these projects that can result in over statement of the value of the assets created. For example, the Mopani Emergency Project has not been budgeted for in the current year, yet spending was incurred during the year under review. The Limpopo Giyani project has exceeded its annual budget.
In summation, 44% of the targets were not achieved and 56% of the targets were achieved on the selected projects used for the statutory audit. Of the 10 audited projects, compliance (including contract requirements) and pre-determined objectives had material findings where concerns were noted. For example, contract management was not available, where it would be necessary to have it in place to ensure there is no overspending. Pre-determined objectives simply mean we check whether they are where they are supposed to be.
Mr Sekgetho referred members to slide 36, where he clarified that for the Giyani project, the recommendation would not be to ‘stop the project’ as written but rather review. He noted that as a typographical error, and highlighted that the AGSA cannot dictate to management to stop projects but rather to review them where there is evidence of fruitless and wasteful expenditure.
Mr H Chauke (ANC) asked if the AGSA conducted a performance audit on the Giyani project.
Mr Sekgetho responded yes, they do take interest in public funds. Moreover, he informed the Members that the AGSA does conduct onsite audits with a specialist who can assess the stage where the infrastructure is and if there are any financial implications.
Mr T Makondo (ANC) pointed out that programme 3 findings were disputed with DWS arguing that there is value for money on the project. He asked why no agreement has been reached over programme 3.
Mr Sekgetho noted that with regard to the audit findings, there was a formal objection from the DWS, and that there was an ongoing dispute. AGSA was confident was with its findings. Double invoicing were uncovered for some projects, which meant a project would cost double for what it should cost thus and it would be impossible to say there is value for money.
Mr Chauke asked if the AGSA take interest in public money and how it is spent.
Mr Sekgetho replied yes as per their statutory mandate to indicate where there is overspending.
Mr Kheleli said DWS did not have enough cash to service liabilities. Even for WTE, cash reserves have dropped. The net profit is also deteriorating. He referred the members to slide 19; where there was a table showing liabilities increasing with double digits while the revenue is increasing with a single digit.
Mr Kheleli highlighted the unauthorised, irregular, fruitless and wasteful expenditure disclosed in the financial statements for DWS and WTE. In the year 2016/17 financial year there was R406 million unauthorised expenditure, i.e. R114 million that was due to a transfer to an implementing agent that was not approved by National Treasury and R292 million was due to the Bucket Eradication Programme where overspending occurred – invoices from previous years paid in current year.
WTE procured an information system for municipalities and water boards to be used over a period of 5 years and none of these entities used the system in the current year resulting in fruitless and wasteful expenditure. DWS implementing agents did not follow normal SCM processes. WTE created a panel from where they source suppliers without going through tender, resulting in irregular expenditure. Deviations were approved without justifiable reasons. There was procurement of IT systems without going through the State Information Technology Agency (SITA). Disciplinary steps were not taken against officials at WTE, hearings were not held for confirmed cases, and allegations were not properly investigated and or nor evidenced was obtained.
Ms Alice Muller, Corporate Executive, AGSA, noted that for root causes, there was slow response by management, instability or vacancies in key posts, lack of consequences for poor performance and transgressions, and those officials did not act in the nested interest of the auditee in managing the financial performance affairs of the entity. The recommendations are for the Committee to request management to provide feedback on the implementation and progress, and feedback on action plans to address poor audit outcomes. Another recommendation would be for the Committee to request management to provide quarterly feedback on status of key controls, especially around project management, payments on key projects implemented by implementing agents. Further to this, it is recommended that the Committee request feedback on the progress of filling vacancies at DWS. Finally, the list of action taken against transgressors must be provided quarterly to the Committee for follow up for all irregular, fruitless and wasteful expenditure incurred. More importantly, the Committee must request feedback on actions implemented to improve the financial health, budget, management and control, and turnaround plans or interventions.
Ms Muller concluded by saying it was imperative that Members are aware that there is a correlation between low accountability, corruption and impact on service delivery. The AGSA had not identified corruption. Proper investigations would have to be conducted.
The Chairperson asked if KPMG is involved with any of the entities audited by the Auditor General’s office.
Mr Sekgetho said no.
Mr L Basson (DA) expressed concern that there was a 28% achievement with 99% of the money allocated to the DWS used. He questioned if this was an indication that there was value for money and he asked where the money went. DWS had put in its report (23 August 2017) that accruals for the first quarter of 2017/18r was R1.5 billion, but the AGSA is speaking to R552 million and he asked for clarification. He noted the liquidity of the entity from R3.3 billion to R2 billion and he wanted to know how that will impact on TCTA. There is no leadership and no accountability within DWS. They are not adhering to requests the Committee puts forward requiring them to give information. There have been numerous investigations with no outcomes. He opined that people who need to make the decisions on sanctioning the culprits are in fact the culprits. Everyone knows what everyone has done, and people are told not to fear because the Minister will get the culprits out.
Ms T Baker (DA) highlighted the need for the Special Investigations Unit (SIU) to make presentations to the Committee on its findings. She asked what the R114 million was for that was not approved by Treasury. She questioned the rationale of the direct grant to indirect grant and how it was supposed to assist the Department. Section 28 of the Public Finance Management Act (PFMA) is clear on the role of the Accounting Officer. Having listened to the presentation of the findings, it is evident that the provisions of PFMA have been violated. She questioned why no action has been taken, who must be held accountable and how the provisions of the PFMA may be invoked.
Mr T Makondo (ANC) agreed with Ms Baker that the SIU should come before the Committee to give an account of the findings of their investigations into DWS. When DWS was questioned by the Committee about projects under investigation, the response was that there are no projects under investigation. It was surprising and worrisome that there are investigations and no outcome and he found it strange that the AGSA findings are disputed. He asked how long the dispute resolution may take, because it will hinder the Committee from conducting an oversight. There could be avoidance of accountability based on that, with the DWS avoiding questions, and simply telling the Committee that the findings are disputed. He questioned whether the performance of programme 3 being at 28% and the budget allocated to it could be attributed to double invoicing. He asked how often double invoicing took place. He asked for clarity about the project in Eastern Cape where there was no completion certificate while the project is said to have been completed.
Mr Chauke suggested that the Committee invite the audit and risk committee of DWS as they are key in monitoring DWS. He further asked if the audit and risk committee possessed the necessary capacity to carry out the functions. Parliament allocates the budget, especially for programmes like programme 3 that deals with infrastructure. He questioned where programme 1 fitted into the structure of the DWS. He also asked if there would be any implications for not auditing programme 1, since it is where capacity of the Department to deliver service is dealt with. He insisted that the Committee focus on programme 3, and certainly invite the SIU to hear its findings. The Deputy Director-General was suspended, and this was never communicated to the Committee. The Committee must take this matter further. There is no concern from National Treasury and he suggested that Treasury be invited to the meetings and be aware of the concerns picked up by the audit. He doubts the corruption slide in the presentation by the office of the Auditor General was put innocently. He opined that it is a wakeup call to the Committee to interrogate the problem. The fact that the DDG was suspended shows that there is a problem. He reiterated that it is not normal that R12 billion could be used up with only 28% targets met. He further suggested that there needs to be a dialogue between the AGSA and the DWS and the Minister has to account for the things happening within DWS.
The Chairperson said the shared opinion among Members is to formally write to the SIU to brief the Committee on their investigations.
Mr M Galo (AIC) said the Committee needs to take a stand; otherwise it will seem as if the Committee is playing politics as opposed to serving the people. He noted poor planning, poor programme management, and poor monitoring processes of procurement processes sits at the heart of the problem. DWS was uncoordinated with fragmented internal controls and systems. It may be deliberate because the Department is largely infested by microbes of the State, if not already captured. In the 2015/16 report, the DWS failed to take steps to prevent unauthorised expenditure. He asked for clarity on the finding that unauthorised expenditure was not qualified, however contributed to material uncertainty on growing concern. He also asked about the relevance of the Department of Planning, Monitoring and Evaluation (DPME) and if its reports and recommendations to the President are not implemented. He asked if DPME and the AGSA could tackle issues collaboratively with the view that reports are treated seriously and urgently as required from the law enforcement agencies. He also agreed with his colleagues that the Committee should write to the SIU. It is deplorable that no action be taken, because some areas in South Africa have no water, and that it was an unacceptable status quo with money being squandered by DWS and somebody must account.
Ms M Khawula (EFF) expressed serious concern of areas with no water. She questioned if the AGSA has time to conduct physical inspections and check if the money has been used properly. She further asked if the money used correlate to what is supposed to be done. She raised concerns over the losses the DWS has incurred, the fruitless expenditures and liabilities that exceed assets.
Ms Baker asked for an indication of how much was actually spent on drought.
The Chairperson asked about the debt collection, because he noticed there is one company that is doing debt collection for DWS and collecting 11.5% commission on recovery. He asked if that was the norm. He also asked on the war-on-leaks programme and whether those who had been trained under it would continue to receive stipend. He also asked about the status of the Clan William Dam, pointing out that there is R18 million spent on it per year yet nothing has come up. He further asked of the liabilities of the TCTA.
Mr Kheleli responded to the question of the money budgeted for programme 3. There are projects that DWS undertook where there was no budget allocation, thus it may be that the money went there. It would also mean that money is being taken from projects budgeted for, which means those projects will delay. When there are delays with projects, it is possible prices increases, thus making the project go beyond what was initially budgeted for. Furthermore, there are projects that are only being highlighted onto the APP although spending has already been done. There are projects that were not budgeted for that DWS and WTE undertook, for example War of Leaks and Drop a Block. Both are incurring substantial amounts of money. There is also an IT system that was procured on behalf of municipality, which was never on the budget.
Chairperson asked if they could be specific in terms of figures.
Mr Kheleli said he has the figures, but unfortunately his laptop had switched off, but he will make avail the figures. He also responded by saying the IT system was procured for R400 million. In response to the question about transfers, he highlighted that the direct transfer was intended to pay their commitments. However, they had to settle balances before those commitments.
Mr Sekgetho responded to the liquidity of the WTE and TCTA question. He highlighted that TCTA will be directly implicated although the impact has not been seen this year. He also responded to the question of section 38 responsibilities of PFMA saying action can be taken by the line manager. Recovering the money would require determining the root cause of the problem. This way, appropriate action can be taken. According to the PFMA the accounting officer should be held to account. On dispute resolution, he said he was not sure when it will be resolved, but did confirm that it was at an advanced stage having the audit go through quality assessment review. The other reason why he could not give a certain date was because legal action was threatened which will prolong the dispute. On double invoicing he noted that the AGSA conducted a sample and based on that, they revealed an issue of double invoicing.
Ms Muller responded on site visits, and said visits are conducted with specialists who can make technical assessments. Next year, they would go back to find out to what extent their recommendations have been implemented. She highlighted that there was an amendment for the Auditor General Act, to give more power to the office to deal with consequence management. Some referral needs to happen as there have been red flags highlighted by the audit outcome.
Mr Chauka asked about the IT project, questioning how far they had gone on that expenditure, if that expenditure was more than R400 million.
Mr Kheleli responded by saying the IT system has 3 faults. In 2015/16, the entity renewed its own license with no due diligence conducted. The maintenance was also irregular. Maintenance is supposed to service all the entities.
Mr Chauke asked what PFMA says about fruitless and wasteful expenditure.
Mr Sekgetho referred to section 1 of the PFMA saying there needs to be a determination of the root cause then takes disciplinary action against the employees who have implemented the irregular, fruitless and wasteful expenditure.
Chairperson said that some of the questions will be followed up with DWS.
Mr Kheleli said the construction unit sits within WTE, with the intention of implementing programme 3. Any construction was supposed was to be implemented by the construction unit. They are however utilising the TCTA or other eternal parties to do construction. He also responded to the question on whether or not the water boards have been taken back, to which he said yes, they are being audited by the AGSA.
Mr Sekgetho responded to the question of the Clan William Dam Wall and said there could have been better planning.
Mr Basson said the construction unit was onsite and there was nothing wrong with it. However the Minister withdrew and put it out on tender and now it is costing R3 billion. It had nothing to do with planning.
The Chairperson said there are different feedbacks. He said he heard the wall has to be restarted, which talks to the design of the wall. He suggested that the Committee would need to plan an oversight visit.
Mr Basson highlighted that he had asked to conduct an oversight visit which was denied by the Minister.
Mr Sekgetho informed Members that they do physically inspect projects and investigations on the draught expenditure can be done if the Auditor General approves.
Ms Muller recommended that the Committee asked DWS for a recovery plan, that states when and how they are going to recover. This would require the Committee to monitor the plan. The plan has to be specific on how they enhance revenue and cut expenditure.
Chairperson allowed for a lunch recess.
Minister and Department’s briefing
The Minister, Ms Nomvula Mokonyane submitted an apology from the Deputy Minister who was off sick. She highlighted that DWS had made some commitments for 2016/17, and she said she will summarise on those that are on high level.
-The inclusion of young people in terms of building capacity, a learning academy has been utilised with 181 engineers and scientist that are now being appointed in permanent posts.
-Equitable water allocation as well as availability of socio-economic development. This is around programme 5 – target however not fully realised.
-Targeting rural development initiative that support small holder farmers under programme 4, focusing on food production.
-Support SMEs and micro enterprises under programme 1 – target was accomplished.
-Policy and institutional reform – there is a new water and sanitation policy approved by Cabinet in December 2016.
-Strategic International Water Agreement, with a critical element of delivery of water security. This would fall under programme 3, to which there is a 67% achievement. The DWS had to intervene even in areas that do not fall under the mandate of the department but rather as a constitutional obligation.
The Minister highlighted that DWS was objecting to the fruitless and wasteful expenditure audit from the AGSA with regard to the system of control that needed proper project management and costing techniques in line with construction norms and standards were inadequate. The DWS also objected to irregular expenditure, with a view different from that raised. She said she hoped they could engage with the Auditor-General so that there is consistency.
Mr Sifiso Mkhize, Acting Director-General, DWS, said programme 1 had achieved 75% of its targets, programme 2 with 80% achievement, programme 3 achieved 67%, programme 4 with a 100% achievement of targets and programme 5 sitting at 40%. There were a general higher number of achievements on the strategic objectives. With regard to targets that were not achieved included water infrastructure development, where 253 bulk water supply and sanitation services infrastructure projects were not achieved. Other milestones that were not achieved include water sector regulation and some aspects administration. Giving an analysis of annual performance, he highlighted that 29% of the main account was not achieved, 21% partially achieved and 50% achieved. Under water trading, 25% was partially achieved and 75% achieved targets.
Mr Mpho Mofokeng, CFO, WTE, highlighted that WTE uses accrual basis of accounting which requires that amortised interest be accounted for. This was not real cash outflow in the WTE financial statements but an accounting book entry. Driven by the TCTA’s amortisation fair value, adjustments were mainly as a result of two things, namely a change in timing of projected cash flows and revision of project costs. He noted that what was qualified from the previous financial year was not the same as what was qualified in this financial year. There was an appeal lodged on the findings. According to the Auditor-General’s report, there is an impairment of assets under construction unaccounted for. To this, he noted the root cause to be inadequate project management and action plan is to ensure that projects are assessed at the end of the year. Project managers will be identified for the ongoing projects and quarterly reports provided. Under consequence management, the Auditor-General’s report highlighted that disciplinary steps have not been taken against officials on cases of financial misconduct. The root cause is slow process in initiating disciplinary action by line management. The action plan is to re-establish the Financial Misconduct Advisory Committee (FMAC). The FMAC would play an oversight role in implementing consequence management.
The Chairperson said Members had discussed areas of concern with the AGSA. One of the areas of interest was the internal audit of the DWS. He asked if the internal audit unit was present.
Mr Mkhize replied no.
The Chairperson referred to page 345 of the DWS audit report, which highlighted a number of areas requiring attention on what management needs to do. It intimately linked to what the Auditor-General alluded to in their report. The second issue he raised was the need to indulge with reports on the investigations by the SIU on the DWS and any other independent report. The Committee was aware of the objections and appeals put forward to the Auditor-General, and takes interest to know where the dispute was.
Mr Chauke asked the DWS to confirm the status of its internal audit committee and risk management - whether it was functioning or not. The Auditor-General notes a 28% achievement and a 99.6% expenditure of the budge for programme 3. He asked DWS to elaborate on what they understand to be the indicators of performance because the targets were far different. He further notes the similarity of objections by both the entity and the Department on fruitless and wasteful expenditure, to which he asked for clarity and AGSA representatives may have to clarify. He also asked whether DWS was going to implement an action plan and where the issues raised by the Auditor General are addressed, including timelines. He also asked the accounting officer’s view on the Auditor-General report.
Mr Makondo asked to what extent the DWS disputed the findings of the Auditor General, because there are two different reports painting very different pictures of the state of affairs of the Department. On double invoicing he asked which projects had double invoices, how much and what companies are involved. Finally, he asked if the DWS had challenges in achieving targets, and what those challenges were.
Mr Basson noted that the report of the DWS is not only different from that of the Auditor-General, but on its own it was conflicting. He referred to page 14 of the presentation that said there was an achievement of 67% of the targets, whereas on page 23, 6 of 18 targets were achieved giving about 33% achievement. He pointed out that there were discrepancies in the document, which was worrisome. He further referred to the report of the 23rd of August 2017, where accruals are reported differently. He questioned why DWS was not disputing the difference in accruals of R1.4 billion, whereas the Auditor-General has a different figure. He asked why there is no dispute there.
Ms Baker asked how much has been spent by the DWS on Drop a Block and about the progress of the validation of water allocation. She asked when the Water Infrastructure Agency was going to be established. She asked for clarity on the amount of financial assistance, as well as what it was for. She further asked about the drought project, where it was being implemented and how it was being implemented. As a general comment towards the report, she said she questioned the validity of the information.
Chairperson asked if war on leaks was on the APP and what was the budget.
Mr Mofokeng said DWS was disputing the Auditor-General’s report on the TCTA, irregular expenditure and fruitless and wasteful expenditure. The Auditor-General did not give them enough time to reconsider the submission and in previous years there was never that qualification. On irregular expenditure, the DWs went out on tender for panels of contractors. AGSA used another circular which only speaks to procurement of consulting services without looking at the infrastructure environment. With regard to fruitless expenditure, DWS takes one project with no budget yet the budget can always be allocated and a project can continue. It would have been better to come before the Committee when differences had been resolved. The action plan will start as soon as there are agreements. Drop a Block, and War on Leaks figures are available on page 393. The budget was almost a R1 billion for War on L and about R200 million for Drop a Block.
The Chairperson asked how money that was not budgeted for is spent.
Mr Mofokeng responded by saying the APP will not have all the expenses listed.
Mr Chauka asked where DWS located the War on Leaks in its programmes and where it got R1 billion and how DWS accounted for such money. It was such a huge amount of money, it was imperative that it gets highlighted.
Mr Mkhize said War on Leaks was an intervention by the Department to prevent loss of water. It was never anticipated at the beginning of the financial year. Small percentage of the revenue collected by the entity should be used for intervention.
Mr Makondo said the Committee cannot excuse the conduct. The Minister was talking about it since 2014, yet it is not on the APP.
Mr Chauke said that this is public money and it cannot be just moved. There must be accountability. He insisted that there must be a report detailing the money spent. The accounting officers are the ones who deal with such matters. He said the Committee must get the report on War on Leaks.
The Minister said DWS will bring a detailed accounting of the money spent. The Department can account for interventions. She explained that when the department obtains revenue from the entity it identifies areas that need intervention and intervenes.
Ms Baker asked how it was possible to make something a programme when it has not been quantified.
Mr Mkhize responded that the programme can be quantified and be made available.
Mr Basson asked why the R1.2 billion was not taken up in the audit.
Ms Kawula said there are long discussions on budget. Her question was how ordinary people were benefiting. She pointed out that water is important in the lives of people but if there was failure of service delivery to improve the lives of people, would this be a basis to approach the Constitutional Court.
Mr Mofokeng said that the TCTA was the special purpose vehicle, who borrows on DWS’s behalf. When customers pay, that revenue is used to service the loans TCTA has received.
Ms Zandile Mathe, Deputy Director-General: Infrastructure, said the difference in programme performance was because of drought. She said the Minister would be asked to intervene and it caused poor performance in programme 3. Some of the municipalities were struggling with no water coming out of the taps which required the Department to intervene. Some projects could not be finished, because it was too ambitious. For example Sedibeng had to be stopped after phase 1. She also added that budgets had been cut. There were also accruals from the previous year plus budget cuts. In some instances, the DWS had to stop contractors from going on site because the money will not be there. Another example she gave was the intervention on Richard’s Bay. She reiterated that the Minister receives calls to intervene, which she cannot ignore. She gave an example of Emalahleni having issues. The contract was on hold due to contractual and financial constraints. Western Highlands was problematic as it was cross border among three provinces, to which when a decision was made, the APP would have been implemented. She added that in Matatiele the contractor could not perform. Therefore, while other projects were being delayed, the Department moved funds to other projects.
Mr Chauke asked for details, accounting for the money shifted. He insisted that the Committee must be able to follow the money. National Treasury is the relevant authority that budgets for drought and not DWS.
The Chairperson invited the AGSA to respond.
Mr Sekgheto explained that the procedure of auditing allows for consultations and these are called communications of findings, to which management is supposed to respond to it. Management can either produce additional information to refute the findings or accept the findings and the audit process continues. However, in instances where management refutes the findings but does not have counter evidence, the auditing team assess and continues with its audit to conclude as the standard would also be in line with accounting standards. As part of the audit process, management is engaged through the audit committee meetings, conducted on a regular basis. There is also a correspondence with the accounting officer indicating the issues. He highlighted that the CFO was raising issues yet he only came back to work on the 28th of July after suspension. To this, he said before the CFO came back, there were no disputes raised by management. The dispute, if raised is handed over to the ethics, risk and assessment unit to check if there was compliance with accounting and auditing standards; which is the stage the dispute is at the moment. Accruals can only be entered into the financial books when it is certain how they are going to reflect. Drop a Block and War on Leaks had to be audited because of the magnitude of money being spent on it.
Mr Mofokeng responded by saying that it was important to first deal with the dispute then come back after it has been resolved.
Mr Basson said Members should know where the money went.
Mr Chauka said it would be critical if the CFO could explain his suspension. He also opined that there were long fingers tapping into public funds.
Chairperson said it was important that the internal audit unit be present for next week. He also asked for a report on War on Leaks, programme 3 breakdowns and financial assistance. He also asked for the breakdown of payments, and IT systems.
The Chairperson thanked everyone.
The Committee agreed to meet on 11 October 2017.
The meeting was adjourned.