Contested audit findings 2016/17 by DWS: Auditor General briefing; BRRR

Water and Sanitation

02 November 2017
Chairperson: Mr M Johnson (ANC)
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Meeting Summary

Fruitless and wasteful expenditure in the Department of Water and Sanitation (DWS) had doubled by R64m. This was reported by the Auditor-General of SA (AGSA) while providing clarity to the Portfolio Committee on the contestation DWS of the irregular expenditure identified in its 2016/17 audit outcomes. The AG said that billions of rands had been spent on 28% of the work, but the rest of the money had not been accounted for.

The stand-off between the AGSA and the DWS emanated from the annual report of the DWS, which was tabled before the Committee. A document needed by the AG for the audit had been found after the prescribed 60 days, when the audit report had already been signed off and published.

The AGSA took the Committee through the journey of auditing the DWS and the Water Trading Entity (WTE) over a period of eight years. It had to look if the money had been spent according to the rules of the Public Finance Management Act (PFMA). When it did its assessment and analysis, it suspended or left pre-judgments behind, because it did not know who the DWS was transacting with. The audit was far from an investigation, but was interested only in the transactions.

The AGSA said that if a department believed it had a chance to pushback effectively against its findings, then the department had to produce reliable evidence, not require the AGSA to prove itself. It had evidence there had been instability in the Department, because in the past eight years there had been nine accounting authorities who had come and gone away.

Members asked if the AG had interacted with the executive and accounting authorities of the Department before it signed off the audit reports; wanted to know how the AG, in its opinion, would change things in the Department; wanted to establish how the debt situation could be turned around; and asked what the implications of the stand-off between the AG and the Department were.

The Committee debated whether it should entertain the presentation from the DWS or not, because the Department had circulated an unofficial document to the Members during the meeting. Some Members argued they were not going to interact with the Department because its document had not been tabled through the right Parliamentary processes, or via the Committee Secretary, so there was nothing to hold the Acting Director-General accountable for. They argued the Department should go away, because the AG had tried to contact the Minister about the report, but with no success. They said the Committee had over the years interacted with the Department and AG, but there was no new story from the Department and suggested it should find another platform for engaging with the Committee.

Other Members reasoned the Department should be allowed to make a presentation, but focus on the specific areas raised by the AG and engage with the Committee. They argued the Department had been invited with the sole purpose of responding to the AG’s findings in order to empower the Committee with information when it considered and adopted the Budgetary Review and Recommendations Report (BRRR). They reminded the Committee when they had met the Special Investigating Unit (SIU), other members of the Department had not been at the meeting, although they should have been because they were the subject of the discussion, so the DWS must be given a chance to respond to issues. It was suggested the Committee should wait for the report of the Ethics and Risk Committee on the complaints, and it could then make its recommendations.

Meeting report


AGSA on contested DWS audit report

Ms Alice Muller, Corporate Executive: Auditor General of South Africa (AGSA), informed the Committee that after the 2015/16 audit, the Water Trading Entity WTE) had lodged a formal complaint against its audit report. The Ethics and Risk Unit had concluded and found that the audit report was factual. Now, after the 2016/17 audit, letters of complaint had been received from the Department of Water and Sanitation (DWS) and the WTE.

During the Standing Committee on Public Accounts (SCOPA) hearing on 22 August 2017, the DWS had contested all the irregular expenditure in the financial statements, even though it had previously been disclosed as such. Processes in the second complaint were in the final stage, and would be communicated to the complainant by the Ethics and Risk Unit.

She said there had been instability at Director General (DG) level. For eight years, there had been Acting DGs and stagnant, unfavourable audit opinions. Irregular and fruitless expenditure had been on the increase and not disclosed over the past eight years. The audit opinion had been qualified for both the DWS and WTE in 2016/17 due to significant doubt on the completeness of the expenditure which was disclosed by management in both the annual financial statements (AFS) for the DWS, and the annual report (AR) for the WTE. The Department was spending money via the implementing agencies. Between the 2011/12 and 2013/14 there had been an increase of R4.2 million in irregular expenditure. Fruitless and wasteful expenditure had doubled by R64 million.

Mr Andries Sekgetho, Business Executive: AGSA, informed the Committee that AGSA focused on four areas when it was doing its audit: the budgeting process, financial statements/financial management, compliance, and predetermined objectives. The Giyani Project and nine other projects had been selected as part of the regularity audit of the DWS and WTE to find out if value had been derived from these projects. He exemplified how these areas worked during an audit with the Giyani Project.

Starting with the budgeting process, he said the project budget had been revised from R2.5 billion to R2.8 billion. The actual expenditure to date was at R2.5 billion, and the project was not near completion. The project business plan did not define a pricing strategy. There were multiple business plans, as the scope of work changed throughout the process. The 2016/17 actual expenditure had been R915 million, compared to the voted budget of R750 million for the current year.

Concerning the financial statements, he reported the project had excessive project management and professional fees, and excessive construction rates. There had been double counting of professional hours. This indicated fruitless and wasteful expenditure that could result in an overstatement of the value of the assets created.

Regarding compliance, the Giyani Project did not follow supply chain management (SCM) processes due to an “emergency” of water shortages, although these were multi-year projects, resulting in irregular expenditure. The initial scope allocated to the implementing agent that was linked to the ministerial directive based on the emergency, was R91m. The directive was signed by the Minister on 25 August 2014 after the contractor had already been appointed by the implementing agent on 20 August 2014. The scope was subsequently expanded to R248m, based on a new ministerial directive signed on 24 October 2014. The current business plan now indicated total costs of R13.6 billion. There were no signed contracts between the Department and the implementing agent. The Construction Industry Development Board (CIDB) guidelines were not followed, and the scope of work changed significantly from the inception of the project.

Mr Sekgetho recommended the Department should conduct a full investigation to determine the actual fruitless and wasteful expenditure on these projects. The DWS needed to determine the extent of other projects where fruitless and wasteful expenditure could potentially exist and investigate them to determine the full amount of fruitless and wasteful expenditure that must be disclosed by the Department. The AGSA also recommended the applicable project management controls and principles be improved by management. It should determine norms and standards for professional fees, project management fees, etc, to ensure all projects were executed in line with the relevant guidelines. Lastly, all the contracts entered into with the implementing agents should be reviewed by the DWS to determine the full extent of the irregular expenditure that must be disclosed in the financial statements of the Department.

Discussion

Mr H Chauke (ANC) asked if the AGSA had interacted with the executive and accounting authorities of the Department before it signed off the audit reports.

Mr Kimi Makwethu, Auditor-General, explained that the management of the Department was allowed 60 days to submit its financial statements, according to Public Finance Management Act (PFMA) rules. After receiving the statements, the AG had 60 days to do an assessment or audit, and make findings. The management had then to sign up for the ownership of the findings produced by the AG. The management had a right not to sign it if it felt the AG was unfair to them. The AG even created that space during the audit process to iron out the differences between the Department's audit steering committee and AG. The Department, if it was not satisfied, had the right to find another auditor to get a fresh opinion. However, if the AG signed the report and the Department signed it, that was the end and the issue of contestation became a problem.

Mr Sekgetho added after discussions with the Department's audit steering committee, the AG had written a letter to the accounting authority about issues that had emanated during the engagement, and an audit strategy development was sent to the Department. This document detailed key focus areas of the audit. Correspondence on key issues was sent to the Minister and DG, and then a letter of audit outcomes was forwarded to the Minister and DG.

Mr L Basson (DA) asked AGSA for its opinion on how it would change things in the Department.

Mr Makwethu said when one looked at the Department and its different programmes, it was clear there was going to be reliance and dependence on others to achieve the work. For example, there had been no mention of recruiting engineers and specialists. The DWS knew that in the maintenance of infrastructure, there were things that were going to be ignored and eventually collapse. It remained unclear whether internally it was sufficiently positioned to change around its fortunes. What compounded matters was that the person who had been “on guard” between the delivery of projects and money paid to the bank, always disappeared. Accountability had not been very strong, so there was no need for an engineer go and find work elsewhere when he/she knew there was no monitoring.

Ms H Kekana (ANC) wanted to establish how the debt situation could be turned around in the Department.

Ms Muller said the Department needed to tighten its internal controls before issues were identified by the AG. It needed to focus on where it went wrong in order to improve the situation.

Ms N Bilankulu (ANC) asked for clarity on the differences between the Mopane and Giyani Projects, and wanted to find out if the AG focused on the negatives only when it was picking up projects.

Mr Sekgetho said the AG was referring to individual projects in those areas. When the AG picked up a project, it first had to understand and evaluate the environment. When it came to water, the risk lay in bulk infrastructure. The AG looked at prior years and then applied a fair process. It did not focus on the negatives, but the audit had to identify risks.

The Chairperson wanted to know what the implications of the stand-off between the AG and Department were.

Ms Muller said the Department needed to implement its audit action plans.

Mr Chauke wanted to know if the Committee was going to interact with the document distributed by the Department.

The Chairperson said if it had just cropped up in the meeting, it was not acceptable. The document was supposed to be sent to the Committee first, so Members could keep it as a ‘bedtime read’ until it was tabled via the Committee Secretary. He then allowed the Department to present its document, but said it must focus on the specific areas raised by the AG, apparently to give the Department a chance to defend itself. However, when given a chance to tell its story, the Acting DG spoke without referring to the unofficially circulated presentation.

Mr Chauke interjected, stating that the accounting officer had not tabled anything before the Committee. There was nothing to hold him accountable for. He was speaking from his own experience, and that was something the Committee was not going to allow.

The Chairperson said the AG had been invited to appear before the Committee and had officially tabled its presentation to the Committee. However, the Department had done the opposite by circulating an unofficial document. The Chairperson then asked the Acting DG to focus on the specific areas raised by the AG.

Mr Basson stated the Department must go, because the AG had tried to contact the Minister, but with no success.

Mr M Galo (AIC) indicated he was not sure what the Committee wanted to achieve by allowing an engagement with the Department. The AG's presentation was not different from the presentation the Committee received from the Special Investigating Unit (SIU). The Committee had even suggested an engagement with the Office of the President to get a response on a matter that had arisen during the interaction with the SIU. Certain individuals had converted the Department into a money-making scheme. The Committee had been engaging with the AG and Department, but it kept getting the same story. The Committee should decide whether some of the Section 9 institutions could ‘bite’ a little bit, because they could not be undermined by the Department. The Committee must not allow a situation where the Department did not respond to issues raised by AG. The Department must find its own platform to engage with the Committee on those matters.

Ms Bilankulu asked if the Committee had invited the Department to come to the meeting, or if the Department had invited itself over. If it was invited by the Committee, then it needed to be given a chance to respond. She said if the Committee was getting the same answers it got from SIU, then there was no need to invite the AG.

The Chairperson said the Department had been invited with the sole purpose of responding to the AG’s findings in order to empower the Committee with information when it considered and adopted the Budgetary Review and Recommendation Report (BRRR).

Mr D Mnguni (ANC) reminded the Committee when they met the SIU, other members of the Department were not at the meeting, and the had Committee felt they were supposed to be in attendance because they were the subject of the discussion. So the Department must be given a chance to respond to issues.

Mr Chauke said the DWS was accountable to the Committee, and it needed to place a record before Parliament when it engaged with it. The stand-off emanated from the annual report which had been tabled before the Committee. The Committee had picked up that there was a stand-off between the AG and Department. However, when the report was signed off and was before the Committee, that meant there was no stand-off. The Members needed to defend Parliament and the work of the AG at all costs. The AG had made a fair presentation, saying that billions of rands had been spent on 28% of the work, but the rest of the money had not been accounted for, and when the Department was given a chance to respond, it had told stories that were irrelevant to the Committee. There were abnormalities in the Department. For instance, the person who had signed the report was not present at the Committee, and there was an Acting DG who was also acting on behalf of another DG.

Ms M Khawula (EFF) indicated it needed to be remembered that as Members, they represented people. The Committee needed to summon all the DGs and DDGs that had come and disappeared, including the current Acting DGs and DDGs, because lots of money had been misappropriated. The Committee could not allow so many DGs and DDGs and Acting DGs and DDGs to come and go while there was no consequence management.

The Acting Director-General asked to respond in writing to issues raised by the AG. He said the stand-off had arisen mainly because of irregular expenditure, and the WTE advertises at the end of each year.

Mr Chauke agreed with the Department, and said it must report to the Committee after it had sent its written submission. The Committee was going to make its own recommendations.

The Chairperson said there was an anomaly in the Department, because matters related to the stand-off had a background. A document that was needed by the AG had been found after the 60 days when the audit report had been signed off and published.

Mr Basson suggested the Committee should wait for the report of the Ethics and Risk Committee on the complaints, and it could then make its recommendations. He said the SIU, National Treasury and the AG were in agreement about the DWS.

Adoption of BRRR

The Chairperson took the Members through the document, page by page.

Mr Chauke moved the adoption of the report with amendments, and Mr Basson seconded its adoption.

The report was adopted with minor amendments.


 

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