Finance Budget Review and Recommendations Report

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Finance Standing Committee

18 October 2017
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

2017 Budget Review & Recommendations Reports – BRRR

The Committee met to discuss its Budgetary Review and Recommendations Report (BRRR). The main challenge the Committee picked up with regards to Annual Performance Plans (APP) was that they did not reflect the totality of performance indicators for each department as stipulated in the medium term strategic framework (MTSF) outcomes. This meant that measuring actual performance was impaired since what can be measured are only indicators that are mentioned and not those that the department decided not to include in the APP. The Committee believed the totality of the performance indicators and outcomes of the MTSF should be reflected and reported on in the APPs.

The Committee was concerned about non-compliance with supply chain management (SCM) policies and processes as outlined in the Auditor-General’s (AG) report. It expressed concern about the cases of extension of tenders without inviting competitive bids (evergreen contracts), the failure to invite three quotations and failure to apply the preference point system. (It also condemned the granting of tenders to entities whose tax affairs are not in order and the miscalculation of B-BBEE points where an irregular expenditure of R12.1 million was incurred). The Committee believed that it was unacceptable for National Treasury and the entities that fall under it, particularly as they are in the finance portfolio, not to comply with laws and regulations on SCM. There must be speedy investigations on these matters, corrective action and consequences.

The Committee further noted the failure by the Government Pensions Administration Agency (GPAA) to achieve some of its targets and the regression of the Financial and Fiscal Commission (FFC) from an unqualified opinion without findings to an unqualified opinion with findings. The Committee will call the GPAA and the FFC to account for these shortcomings. The team should appear early 2018.

The Committee requested and had since received information on the number of staff employed in the Minister’s Office. The Minister had replied as follows: “The ministerial handbook provides a guideline for a minimum of 16 ministerial support staff for both the minister and deputy minister; excluding special advisors. Before the appointment of the current political heads the ministry was comprising of 14 core staff and two full-time special advisors and one short term advisor (less than 12 months contract), a total of 17. Currently, the composition is 17 staff and two fulltime special advisors and one short term part time advisor. Additional to the above, is three staff members seconded from the department and will return to their posts at the end of the Minister’s term. This was well within the guidelines of the ministerial handbook.” However, following an input from Parliament’s Legal Services Unit and contributions from Committee Members, the Committee’s understanding at this stage was that the Minister’s response did not correspond with the guidelines in the Ministerial Handbook and mandated the Chairperson to write to the Minister to seek clarity on several issues and secure a response from the Minister.  

The Democratic Alliance felt the quality of the Minister’s response to the Committee’s request for information on the number of staff employed in the Minister’s Office was not convincing. The ministerial handbook actually prescribes the maximum; not the minimum number of staff. If that was the case, it would appear that the Minister was in the breach. The Committee should consider tasking the Parliamentary Legal Advisor to scrutinise the handbook. The Committee had the onus of exercising due diligence and to determine whether the Minister’s claim that his office was well within the limits as prescribed by the ministerial handbook was actually true. Given the ultimate objective of the handbook was to control expenditure by the executive, it was unlikely that the handbook would prescribe a minimum rather than a maximum number of staff. The Committee needed to find out.

The Chairperson indicated that the Parliamentary Legal Advisor would verify the recommended staff complement as per the handbook and would ask for the Minister’s response thereafter if need be. Voting on the BRRR would take place on the following day.

Meeting report

Finance Budget Review and Recommendations Report

The Chairperson welcomed everyone and took the Committee through Budgetary Review and Recommendations Report. The main challenges the Committee picked up with regards to Annual Performance Plans (APP) was that they did not reflect the totality of performance indicators for each department as stipulated in the medium term strategic framework (MTSF) outcomes. This meant that measuring actual performance was impaired since what can be measured are only indicators that are mentioned and not those that the department decided not to include in the APP. He suggested the Committee add that the totality of the performance indicators and outcomes of the MTSF should be reflected and reported on in the APP as part of the recommendations.

The Committee was concerned about non-compliance with supply chain management (SCM) policies and processes as outlined in the Auditor-General’s (AG) report. It expressed concern about the cases of extension of tenders without inviting competitive bids (evergreen contracts), the failure to invite three quotations and failure to apply the preference point system. (It also condemned the granting of tenders to entities whose tax affairs are not in order and the miscalculation of B-BBEE points where an irregular expenditure of R12.1 million was incurred). The Committee believed that it was unacceptable for National Treasury and the entities that fall under it, particularly as they are in the finance portfolio, not to comply with laws and regulations on SCM. There must be speedy investigations on these matters, corrective action and consequences.

The Committee noted Auditor-General of South Africa’s (AGSA) concerns about consequence management, the slow pace in improving internal controls and addressing risk by senior and executive authorities. It recommend that the Minister and the Director-General intervene more actively to ensure that there is an awareness of the urgency of the AGSA messages of improving internal controls and risk management.  The Committee strongly agreed with the AGSA’s concerns.

The Committee further noted the failure by the Government Pensions Administration Agency (GPAA) to achieve some of its targets and the regression of the Financial and Fiscal Commission (FFC) from an unqualified opinion without findings to an unqualified opinion with findings. The Committee will call the GPAA and the FFC to account for these shortcomings. The team should appear early 2018.

The Committee welcomed the auditing of South African Airways (SAA) by the AGSA, which is what it had previously recommended. It believed that as far as possible, state-owned entities (SOEs) should be audited by the AGSA. It expressed concern that SAA had not submitted its financial statements for auditing to the AGSA. It believed that the ‘going concern’ assumption should not delay the submission of financial statements and the conducting of audits. The Committee believed that the SAA annual general meeting (AGM) should be held on 3 November 2017 as proposed by Treasury.

The Committee noted the decision of Treasury and the Minister of Finance to bail out SAA through the utilisation of emergency reserves as per section 16 of the Public Finance Management Act (PFMA). The Committee requested Parliament’s Legal Services Unit to provide an opinion on the legality of the use of section 16 for this. The legal opinion noted that “Section 16 is intended to be used in circumstances where good financial planning and management could not avert the need for exceptional or unusual expenditure.”  The use of this provision by the Minister of Finance for the reasons set out in the Report to Parliament and the Auditor-General did not appear to be exceptional or unusual as the expenditure was foreseeable and has been made in the past.

Mr A Lees (DA) commented on the legal opinion pertaining to SAA. He felt the Committee should direct SAA to respond to the legal opinion in writing before the medium-term budget policy statement (MTPBS).

The Chairperson indicated that the Committee believed that auditors should detect wrongdoing, particularly corrupt activities, early-on in their audits. It was unfortunate that the public gets to hear of major cases of corruption after auditees were constantly receiving clean audits. This raised serious questions about the adequacy of the role of auditors in detecting particularly corruption, including illicit financial flows. The Committee was monitoring developments within the auditing profession and was recently briefed by Independent Regulatory Board of Auditors (IRBA) on its KPMG investigation. Consideration should be given to enhancing the audit processes and methods to detect and expose instances of corruption and maladministration. It recommended that the state and the AG not use the services of firms and individuals that were involved in professional misconduct, including KPMG, if it was found guilty by IRBA. It also believed that those found guilty should not be given fines and have their licences withdrawn, but they should also be referred to the police for action. He noted that Minister Malusi Gigaba was also in agreement with this recommendation.

The Committee requested and had since received information on the number of staff employed in the Minister’s Office. The Minister had replied as follows: “The ministerial handbook provides a guideline for a minimum of 16 ministerial support staff for both the minister and deputy minister; excluding special advisors. Before the appointment of the current political heads the ministry was comprising of 14 core staff and two full-time special advisors and one short term advisor (less than 12 months contract), a total of 17. Currently, the composition is 17 staff and two fulltime special advisors and one short term part time advisor. Additional to the above, is three staff members seconded from the department and will return to their posts at the end of the Minister’s term. This was well within the guidelines of the ministerial handbook.” However, following an input from Parliament’s Legal Services Unit and contributions from Committee Members, the Committee’s understanding at this stage was that the Minister’s response did not correspond with the guidelines in the Ministerial Handbook and mandated the Chairperson to write to the Minister to seek clarity on several issues and secure a response from the Minister.  

Mr D Maynier (DA) said the quality of the Minister’s response as outlined by the Chairperson was not convincing. The ministerial handbook actually prescribes the maximum; not the minimum number of staff. If that was the case, it would appear that the Minister was in the breach. The Committee should consider tasking the Parliamentary Legal Advisor to scrutinise the handbook.

Ms P Mabe (ANC) felt the point being raised by Mr Maynier was not urgent and could be parked for discussion on a later date after verification. However, the Committee should study the handbook so as to clear all ambiguity. Also, the issue should not be dealt with in isolation. The objective of the discussions on same had to be understood and the issue of appointments should be looked at across the board.

The Chairperson replied that the matter was raised by the DA and EFF, and was in the public domain. There was the option of dropping the paragraph altogether. By his own measure, there was no reason for the Minister to mislead Parliament. There was also a provision for the application of exemptions on staff complements under certain circumstances which the Department of Public Service and Administration must approve. He suggested that the Committee make a recommendation and note the concerns as identified rather than opening up a new discussion on the same.

Mr Maynier said the Committee had the onus of exercising due diligence and to determine whether the Minister’s claim that his office was well within the limits as prescribed by the ministerial handbook was actually true. Given the ultimate objective of the handbook was to control expenditure by the executive, it was unlikely that the handbook would prescribe a minimum rather than a maximum number of staff. The Committee needed to find out.

The Chairperson indicated that the Parliamentary Legal Advisor would verify the recommended staff complement as per the handbook and would ask for the Minister’s response thereafter if need be.

The Chairperson emphasised that the Committee believes that the South African Reserve Bank (SARB) should play a more active role in the detection and combatting of Illicit Financial Flows, given its surveillance role over the country’s exchange control regime. The Bank reported that it had handed over to law enforcement agencies 41 cases of exchange control contraventions for further investigations and prosecution over the past five to six years, but there had only been one prosecution –  for seeking to bribe an official not for an exchange control offense. The Committee, as it agreed to do, raised this matter with the Hawks in a Joint Committee meeting on Illicit Financial Flows and the matter will be followed up by the Police Portfolio Committee.

The Chairperson indicated voting on the report would take place on the following day

The meeting was adjourned.

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