The Committee was briefed by the Auditor General of South Africa (AGSA) on the 2016/17 annual report of the Department of Transport (DoT) and its entities. The Department had received an unqualified report, but with findings. However, this year’s performance was an improvement from the previous year’s overall performance. Of the 14 auditees in the Department, six had been unqualified with no findings, three unqualified with findings, one qualified with findings, while four audits remained outstanding.
The report on key programmes had been limited to the DoT, as the audits of the Passenger Rail Authority of South Africa (PRASA) and the South African National Roads Agency Limited (SANRAL) remained outstanding. The most common findings on supply chain management included a lack of competitive bidding invitations, incorrect application of the preference point system, inadequate contract performance measures, and the performance of contractors was not monitored on a monthly basis.
Unauthorised expenditure amounted to R177 million, irregular expenditure was R1 050 million, and fruitless and wasteful expenditure totaled R46 million. The root causes were attributed to the slow response to improving key controls and addressing risk areas, inadequate consequences for poor performance and transgressions, and instability or vacancies in key management positions. There was a need to change the methodology of the audits in order to enhance integration, by bringing in new expertise to evaluate risks more adequately.
The Committee was concerned about the repeat findings which had not been addressed, and the recommended remedies which appeared to be similar to those of the previous years. It was proposed that the AGSA needed to adopt new strategies which would produce positive results and provide earlier detection for unethical behaviour. Members also expressed concern regarding the DoT’s under-spending of R21.7 million on compensation of employees and R5.7 million on goods and services. They asked whether there had been any consequence management arising from the high level of unauthorised, irregular, fruitless and wasteful expenditure during the year. The DoT stated that arrests had been made and there were ongoing cases in court.
AGSA on Department of Transport 2016/17 audit outcomes
Ms Thami Zikode, Business Executive: Auditor General of South Africa (AGSA) said that the audit report had given the Department of Transport (DoT) an unqualified report, but with findings. This year’s performance was an improvement from the previous year’s overall performance. Out of the 14 auditees, six were unqualified with no findings, three unqualified with findings, one qualified with findings, and four audits remain outstanding. The report on key programmes was limited to the DoT, as the audits of the Passenger Rail Agency of SA (PRASA) and the South African National Roads Agency Limited (SANRAL) remained outstanding. The most common findings on the supply chain management (SCM) included lack of competitive bidding invitations, incorrect application of the preference point system, inadequate contract performance measures and monitoring and performance of contractors not monitored on a monthly basis.
Unauthorized expenditure amounted to R177 million, while irregular expenditure was R1 050 million. Fruitless and wasteful expenditure amounted to R46 million. The root causes of these deficiencies were the slow response to improving key controls and addressing risk areas, inadequate consequences for poor performance and transgressions, and instability or vacancies in key management positions. There was a need to change the methodology of the audits so as to enhance integration by bringing on new expertise in order to evaluate the risk more adequately.
Mr Joe Maswanganyi, Minister of Transport, said he had written a letter to the Speaker to explain the delay in finalizing the PRASA report, since the Department was working on legality issues regarding the entity.
Mr C Hunsinger (DA) expressed his concern with the methodology criteria. The Department was in competitive environment and credibility was a precious element in terms of the execution of its mandate. There was a need to improve on the elements that detect errors and fraud, and promoted accountability. He asked what initiatives were being made to improve the methodology in order to get earlier detection. On consequence management, faults happen everywhere but the embarrassment levels differ. Solid recommendations would improve on this, and he asked whether there were any specific recommendations regarding continuous auditing by the Department on the intersection between private and public dealings. Also, how equipped was the Department in making sure that it was more ethical and accountable. What was happening regarding the numerous key positions which were still vacant in the DoT?
Ms S Xego (ANC) asked whether there was any business relationship between the AGSA and the DoT, and whether there was any independence. She asked for a response from the DoT regarding the various vacancies in key positions of the top management. Was the AGSA referring to the Portfolio Committee in its report where it had indicated that the Committee had opted not be assessed? She asked whether it was the AGSA’s responsibility to assess the Portfolio Committee, and who had the mandate to audit Parliament.
Mr M Sibande (ANC) expressed his displeasure regarding the inclusion of the issue concerning the auditing of the Committee, since the matter had been previously discussed at length and its inclusion in the report might give a wrong impression of the Committee. Also, the Committee kept receiving notifications of various ongoing internal and external investigations, but was never briefed on the level or progress of the investigations of the findings. He asked how long these investigations would take and also expressed his displeasure of the lack of transparency regarding the conduct of the investigations. He also asked many times the AGSA liaised with the entities and what its relationship with the internal auditors was. Some of the issues identified in the findings could be sorted out with proper internal monitoring.
Mr M Shekembe (NFP) was concerned about the lack of compliance in the supply chain management and the inadequate consequence management for transgressions for poor performance. He asked when the Committee would be able to see these issues being looked at and adequate measures set so that they did not recur in the future. He was also concerned about the instability in the top key positions reported, and asked what exactly caused this instability.
Mr T Mpanza (ANC) asked on what was wrong with the current methodology being used, since it had been used for a very long time and was achieving the same results. There was a cost implication and there may be a waste of money. He asked for an update on the progress in appointing the members to the boards of entities, and asked how they could be held accountable if their accounting officers were not in place. He said there had been an upward movement in the audit outcomes, from a qualified to an unqualified audit report, and asked whether the AGSA was satisfied with the level of performance of the DoT.
Mr T Mulaudzi (EFF) said that although it may not be easy, the DoT should strive to get an unqualified report without findings. He asked the DoT which particular entities were lacking leadership control, and asked the AGSA what the Portfolio Committee had opted not to be assessed on. Had there been any under or over spending throughout the financial year? When would the board of PRASA be formed, so that the ministry did not act as the board?
The Chairperson reminded Members that last year, the AGSA had informed them that it was auditing portfolio committees. However, the Members had expressed their wish not be evaluated and that was why it was reflected in the AGSA’s report. This finding would stand until such time that the Committee decided to be assessed by the AGSA.
She expressed her concerns regarding repeat findings that had been identified in the previous financial year and asked the DoT why there were still governance, leadership and vacancy issues. The Committee was still trying to deal with issues relating to PRASA and needed to look into it more deeply to find solutions. She requested that the Committee postpone any questions they may have regarding the constitution of the boards of PRASA, since they would be answered during the presentation by the DoT.
AGSA said it tried to continually improve itself and keep up with the concerns of the Committee. It would be enhancing its methodology, which would entail integration and bringing more expertise into the audit process. Such expertise would be in the areas of innovation technology, and specialised investigations that would assist with the risk assessment in the audit process so that potential risks could be identified early.
The AGSA met with the CEOs and the CFOs of the entities on a quarterly basis and discussed matters that had arisen in the previous audits -- areas of concern and matters the management needed to address to improve on the audit outcomes. It maintained its independence by doing internal assessments on the threats that threatened its independence, such as any underlying financial dealings between the members of the DoT and the AGSA.
There had been only three entities where there had been material non-compliance. Other entities may have had such issues, but they were found to be not material. In the case of the outstanding audits, the SANRAL audit would be finalised by the end of October, but in the case of PRASA, the AGSA had just received their financial statements and would have to look at them to determine when they could be finalised.
Mr M Mokwena, Senior Manager, AGSA, referred to the measures the AGSA was taking to detect unethical behavior, and said that from the audit perspective and risk assessments, there were certain elements embedded in the system to identity unethical behavior from the beginning of the audit. There was also a requirement by the standard to disclose every interest that someone has. In order for the AGSA to identify issues that the risk assessment may have missed, it compared information received from the Department and that which it had in its database in order to identify those individuals which had a business interest and whether such interest was declared. The AGSA audited Parliament with a view to express an opinion on the financial statements presented to them. Regarding the assessment of the committees, it was not in the mandate of the committee, but was rather to provide an assurance.
Mr Hunsinger said that from his experience, the auditing process leant more towards compliance rather than financial principles. The preference to achieve a clean audit had driven the audit process in a particular direction. He asked which particular improvements the AGSA had conducted in light of the embarrassments that the Department had received with regard to their previous year’s audit, where revelations of non-compliance had been revealed even after the AGSA had given some entities a clean audit. He asked whether the AGSA had picked up on the rumours that the South African Maritime Safety Authority (SAMSA) had low performance management systems.
Ms Xego apologized for addressing her question regarding the independence of the audit to the AGSA, and said that she would take up the matter with the National Treasury. The National Treasury should be the body to appoint the AGSA to audit all departments and all other state-owned entities.
Mr Mulaudzi asked whether the Portfolio Committee have a right to refuse to be audited and if there were any consequences in the event that they did not have such a right.
The Chairperson advised the AGSA that it may not deal with this question, as it would be dealt in the Committee.
Mr Rendani Makhado, Chief Audit Executive (CAE): DoT, said that the AGSA needed integration in order to be able to gain more expertise in the audit process so as to assess the risk.
Mr Mokwena said that in the last four audits, PRASA had not received any qualified audit reports but only unqualified reports with findings of non-compliance. All the areas of non-compliance or transgression had been reported, based on the audit. The questions as to whether they were fraudulent or there was an intention to defraud had been handled as another matter after the audit.
The Minister said that the AGSA was following its mandate, and the auditee could not opt out of the audit, nor could they threaten the AGSA. Although the AGSA was paid by the auditees themselves, that was just a financial model that made them not rely on grants as a Chapter 9 institution.
Department of Transport on its 2016/17 Annual Report
Mr Mathabatha Mokonyama, Acting Director General (ADG): DoT, said that the Department had achieved 50 out of 53 targets (94.3%), but in the fourth quarter, rail transport, road transport and the DoT had not reached their targets.
Key achievements in Programme One (Administration) included the transport sector gender empowerment policy being approved for implementation in March 2017, and a total of seven community outreach programmes being conducted on gender, disability, youth and children. The DoT had exceeded the Department of Public Service and Administration’s (DPSA’s) target of 5% of staff establishment, by appointing 56 interns.
In Programme Two (Integrated Transport Planning), the review of the White Paper on the national transport policy was finalised and the policy was submitted to Cabinet. The draft road freight strategy and the green transport strategy was also reviewed and submitted to Cabinet for approval.
In Programme Three (Rail Transport) and Programme Four (Road Transport), the legislative review was conducted on the draft National Rail Bill development, and the Road Accident Benefit Scheme (RABS) Bill was submitted to Cabinet for approval.
Mr Collins Letsoalo, Chief Financial Officer (CFO): DoT, said that the DoT had underspent by R21.7 million on compensation of employees and R5.7 million on goods and services, mainly due to under expenditure on projects of management and communications. Unauthorised expenditure had amounted to R1.338 million, whereas fruitless and wasteful expenditure was at R1 603 946, with only R33 212 to be recovered. On irregular expenditure, R10 433 356 had been condoned.
The Chairperson said that the Committee was pressed for time and requested that the questions raised should be as concise as possible or referred to the Department in writing.
Mr Hunsinger said there were some disturbing similarities between the 2016/17 and 2015/16 reports -- as if they were ‘cut and pasted’ -- in particular, around the measures put in place as remedies for the findings. He questioned the effectiveness of such remedies if they had been tried and tested in the previous financial year, yet did not work. The DoT should escalate the measures for the repeat findings and try different measures in order to achieve better results. He expressed his concern regarding the continued reporting of draft policies being made if they were just drafts being concluded, and also questioned what the Department was achieving if they did not mature into actual policies.
Ms Xego said that the DoT’s annual report was going to be a public document and the Committee would not want a situation where members of the public felt that it was not holding the Department to account. However, she appreciated the Department’s 94.3% achievement rate, which was an improvement from the previous year’s 90%. Regarding the DoTs budget allocation and expenditure, she advised the Department to focus on where the money was needed and concentrate on it. Regarding the fruitless and wasteful and irregular expenditures, they could be written off, but the wrongdoers must be held accountable.
Mr G Radebe (ANC) said the Committee should be given more time to engage with the DoT, since the Department had failed to oversee whether the entities had performed or not. He asked on why the vacancies at the top level of management had yet not been attended to. He also asked about the main reason for shifting the funds from the tax recapitalisation, and whether the funds were needed to be used elsewhere, or if they were not able to use those funds. Regarding the irregular and wasteful expenditure, he asked whether the DoT would be refunded the money which had been paid to a service provider who had failed to deliver the services. He expressed his concern regarding the huge amounts of money spent on consultation fees and questioned the value the DoT received. Were the consultants performing a routine task, or did they have a specialised skill that was not in the DoT?
Mr Sibande said that the Department was experiencing challenges with prioritising. The Committee had asked the DoT to intervene in the situation in the Western Cape where some houses being affected by some of its entities. He pointed that one of the AGSA’s findings on the DoT’s annual financial statements was that they were not in compliance with the financial reporting framework, and asked whether the DoT’s system was working. Regarding the reported irregular expenditure which seemed to be persisting, he asked whether any consequences had been imposed. He was concerned about the under-expenditure on public transport. He pointed out that in 2015/2016, about R55 million had been returned. The Committee could not approve the issuance of billions of rands if they were not satisfied with the existence of proper systems. He pointed out that a number of Electronic National Administration Traffic Information System (eNaTIS) assets had been stolen from service centres in Tshwane, and asked what measures had been taken to enhance the security and also hold the perpetrators to account.
Mr T Mpanza (ANC) was copcerned that the explanation given for the existing vacancies was said to be due to containment measures. Cost containment should not be at the expense of service delivery. He asked about the relationship between the National Treasury and the DoT, and whether they had had discussions regarding its constrained budget. Were there any projects being undertaken by the Department which addressed poverty, unemployment and inequality, in accordance with the national development agenda?
Mr Radebe asked why the public transport programme performance had decreased in every quarter, from 100% in the first quarter, to 50% by the fourth quarter. He also asked about the progress regarding the several draft policies that had been submitted to the Cabinet. What was the progress with regard to the finalisation of the situation with the former DG? What disciplinary measures were being taken against the officers responsible for the irregular expenditure of R1.3 billion? How was the DoT going to correct the under-spending that existed in almost all the programmes? What was the progress of the investigations regarding the fruitless and wasteful expenditure of R147 523?
Mr Letsoalo said that with regard to the R1.3 irregular expenditure, arrests had been made and the matter was in court.
On the draft policies, much of the work conducted by the Department was policy formulation, and that was why there were a lot of drafts. However, the approval of the drafts was beyond the DoT’s control.
On the vacancies, the compensation of employees had been cut and some of the posts remain unfunded once they become vacant, since the money given was not for the whole of the medium term expenditure framework (MTEF). This in effect influenced the decision to use consultants.
Mr Mokonyama said there were guidelines regarding wasteful and irregular expenditure, and these all had the same procedure for the investigation and identification of the perpetrators. After the investigation, a decision was made on whether to condone the expenditure. Regarding the compliance of the financial statements, he said that it was not that the statements had not been prepared properly, but only because there were some material adjustments in the assets that had to be ascertained in the municipalities. They had been adjusted after verification, and that was why it was reflected in the report.
In the appointment of consultants, there was a requirement that they had to meet the business skills needed. This entailed proving that the skills being procured did not exist in the Department. Regarding the compensation of employees, the Department had been advised to reduce the wage bill.
Ms Sindi Chikunga, Deputy Minister: DoT, said that they were a policy making Department, which was a process that preceded approval. The DoT’s performance had improved in this financial year to about 94%.
The Minister said that the Department had complied with all directives and Section 9 of the constitution. The AGSA had pointed out some areas of non-compliance, which the DoT would be looking at. On the vacancies in the entities, the DoT was finalising the remaining issues in order to appoint the board of PRASA as soon as possible, while the SAMSA vacancies had been advertised and would be filled soon.
The Chairperson said that there was a need to recall the Department and the entities in order to deal with the issues that had been highlighted, and also those relating to the Budget Review and Recommendations Report (BRRR).
The meeting was adjourned.
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