The Director General of the National Treasury gave a report on the status of all outstanding issues that had been raised by the Standing Committee on Public Accounts (SCOPA) at the previous meeting, and then made a presentation on the progress the Department had made with the implementation of the Integrated Financial Management System (IFMS). He confirmed that a new service provider had been appointed to finalise the forensic investigation surrounding the implementation of the IFMS and that all related payments had been reviewed and strengthened. Members were keen to know what the Department was expecting from the forensic investigation report, and whether there were consequences in place for elements that had been found to be corrupt.
The IFMS process was currently being managed by National Treasury (NT), the Department of Public Service and Administration (DPSA) and the State Information Technology Agency (SITA). Members raised concerns over the involvement of SITA in the implementation of IFMS 2, citing its role in the failure of IFMS 1 and the several investigations facing the state agency. The role of ICT-Works in IFMS 2 was also questioned, with concerns over its failure to deliver in the design of IFMS 1, with particular reference to the R800 million it had claimed in damages, which had been negotiated down to R383 million. On this basis, the Committee was convinced that ICT-Works lacked the competence and skill to facilitate the implementation of IFMS 2. In terms of time lines, the Department had already signed a contract with Oracle, and expected that IFMS 2 would be rolled out nationally in 2021. The budgeted spend for IFMS 2 in the current financial year was R352 million, and it had already cost the Department R1.2 billion by the end of 2016/17.
The Committee delved into issues of deviations and expansions, which had been flagged as an area of major concern. It was worried that the Department had deviations amounting to R94 billion, which created an environment for corruption, further singling out inefficiencies of the Department in its operations. Among several other concerns, Members raised questions on the involvement of the Office of the Chief Procurement Officer (OCPO) in the procurement of IFMS, the termination of consultants’ contracts, the exclusion of municipalities from IFMS, the issue of starting a project without a blueprint, and the transferability of skills to small businesses for economic transformation.
The Chairperson welcomed Members of the Committee to the meeting and informed them of the passing of one of their colleagues. He further welcomed Mr Mondli Gungubele, Deputy Minister of Finance, and congratulated him on his recent appointment. The meeting was intended to be a follow-up meeting but issues on deviations and expansions would be discussed to take advantage of the presence of the Director General.
National Treasury on Integrated Financial Management Systems (IFMS)
Mr Dondo Mogajane, Director General: National Treasury; began the presentation with a recap on the progress made regarding concerns raised during the last meeting. On the finalisation of the forensic investigation into IFMS, a service provider had been appointed and the investigation was under way. The Department also had no evidence implicating its employees on the payment of services relating to the contracts awarded through IFMS. All payments relating to IFMS had been reviewed and strengthened, while the contract with the service provider who carried out the previous forensic investigation had been terminated.
On the progress of IFMS, the Director General said that the steering committee responsible for overseeing the broader aspects of the rollout of IFMS in 2021, was fully functional. The IFMS process was also being managed jointly by National Treasury (NT), the Department of Public Service and Administration (DPSA) and the State Information Technology Agency (SITA).
In respect of the audit opinion given by the Auditor General of South Africa (AGSA) on payments relating to ICT-Works, the Department had contracted ICT-Works to do work on IFMS 1, which had later been cancelled because of a shift to IFMS 2, resulting in ICT-Works demanding damages of R800 million. This was, however, negotiated down to R383 million and would be paid for in the form of work done by ICT-Works in IFMS 2. On the time lines for the forensic investigation report, the Department was looking to have the report ready in the first week of May 2018, and would submit the findings to the Committee, the Hawks and the Public Protector.
The Director General highlighted the role of internal audit in his Department, and made note of the fact that the Department had kick-started a process of strengthening the internal audit function by bringing in more consultants. The target date of 2021 was still in place for the national roll-out of IFMS, and contractual agreements with Oracle on the software had been signed. Design and template development was expected to be complete by November 2018, pilot site Implementation by November 2019, lead site implementation by June 2021, with the national roll-out to commence in April 2021.
IFMS had cost the Department R1.2 billion by the end of the 2016/17 financial year. The budget allocated for the 2017/18 financial year was R352 million.
Mr M Booi (ANC) thanked the Department of Finance for the effort it had made so far. However, he had concerns about the Department not involving the Office of the Chief Procurement Officer (OCPO) in the process of procuring an IFMS, as they were not in attendance. It was his preference that OCPO be in attendance so that it could give direct answers to the Committee on matters relating to procurement, while further emphasising that OCPO was important in holding the National Treasury accountable. In a bid to hold the executive accountable, he asked a follow up question on whether the DG had reported the issue of Deloitte to the Independent Regulatory Board of Auditors (IRBA), as promised by the former Minister of Finance. What consequences had the Department put in place for persons that the Committee had identified with regard to this issue? He also expected the Department to give them a report on how far it had gone with investigations, which they would compare to that of the Hawks, because they were limited as a Committee in passing any form of judgment. How far had the Department gone in reducing the number of consultants?
In addition to Mr Booi’s concern on OCPO holding the Department accountable, the Chairperson sought clarification as to why OCPO was not involved in the procurement process, because he understood that OCPO should be involved in the procurement of all services beyond a certain threshold, but this appeared not to be the case with the Department of National Treasury.
Mr Mogajane said the absence of OCPO at the meeting did not mean that it was not involved in the procurement process or that the Department did not want them to be present. OCPO ensured all service providers were properly procured and that payment thereof was in line with contracts signed. He affirmed that all checks and balances were in place, and even requested OCPO to give an independent view to avoid the Department from appearing like it was trying to protect itself. On the issue of reporting Deloittes, discussions had been held with IRBA, but IRBA had indicated that it was not their mandate to deal with Deloittes. The Department had no consequences in place for persons identified to have elements of corruption, because it was not ready to take action against individuals without any tangible evidence. It would, however, take action once the forensic investigation report was available and would circulate the same to the Committee, the Hawks, the Public Protector and any other interested parties. The Department had gone further to expand the terms of reference for the forensic investigation report from the original focus of 54 findings, to cover a broader spectrum so that everyone would be comfortable with the outcome of the report.
On the issue of consultants, the number of consultants had indeed been reduced. Consultant contracts with the Project Management Office (PMO) had not been extended or renewed because the Department was reviewing its projects, its payments system and streamlining its processes in relation to the findings and recommendations of the internal audit report.
Mr Lesego Seperepere, Chief Audit Executive (CAE): National Treasury further confirmed that all consultants involved with the PMO were subject to the ongoing forensic investigation and therefore they wereno longer using the services of consultants such as Abacus and KPMG. The majority of the companies had already exhausted their budgets.
Mr Booi wanted clarification as to whether these consultants had been taken out of the system automatically because they had exhausted their budgets, or whether the Department had purposely suspended them. ICT-Works had failed to deliver in IFMS 1, but was still working with the Department. What was their role, after Oracle had taken over the implementation of an IFMS? He was worried that the Department was working with the SITA in implementing IFMS 2, as he considered it to be a very inefficient institution. Did the Department have an agreement with SITA or a memorandum of understanding, and could the Committee be given a copy of it? Was it confident with the work of SITA?
Mr Phila Mhlakaza, Chief Director (CD): IFMS, National Treasury, said that ICT-Works was responsible for a module in IFMS 1 which was still being used in the present environment, but when Oracle was contracted to take over the responsibilities of IFMS 2, they had merged the payment of the licences and were therefore no longer paying ICT-Works for a separate licence. There were service level agreements (SLAs) in place, and the Director General also confirmed that there existed checks and balances between his Department and SITA.
The Chairperson, in trying to clarify the question by Mr Booi on contractual agreements, explained to the Department that the Committee was discussing IFMS 2, and not IFMS 1. Was there an SLA for IFMS 2?
Mr Mhlakaza responded that the SLA for IFMS 2 had not been signed, but the Director General, in confirmed that payments made to SITA were according to the existing SLAs and that the Department would not make payments outside of the SLAs.
The Chairperson interrupted the Director General, pointing out that the question was on the measures and processes in place for IFMS 2. If the Department had no SLA in place, there should be a process leading to the signing of one and if there was none, when was the SLA going to be signed? Why was it being held up?
Mr Booi highlighted that the contradiction between the Department’s staff was a concern regarding the working relationship in the Department, and served to show that payments were not being done in a consistent manner. The Department was regressing on the issue of payments, citing recklessness in payments, as had been the case in the past. Where were the agreements, if the most trusted men in the Department did not have them? On the national rollout of IFMS 2, how was National Treasury going to engage other Departments, such as the Department of Defence (DOD), the South African Police Service (SAPS) and SITA? This was because he had concerns about how SAPS and SITA were working.
The Director General asked that he be given time to respond to the Committee in writing on the issue of SLAs between the Department and SITA, because it looked like his Department was giving a wrong impression.
His request was granted by the Chairperson, who asked Members to wait for the response before the Department could be held accountable.
Mr D Ross (DA) asked for a special meeting with SITA to assess their competency level, because it had taken ownership of IFMS1 from 2005 and had never completed the process, which did not sit well with the public. On the issue of the initial forensic investigation report which had been rejected by the audit committee, could the Committee be provided with a copy of the rejected report so that it could look into why it was rejected? Why was the internal audit function being beefed up when it was expected to be fully competent? Could the audit committee engage Members as to why their function was being beefed up by consultants, which he found to be quite strange? He asked for the names of members of the steering committee, and wanted to know if OCPO was involved in the procurement process of IFMS. Were they expecting the worst on the outcome of the forensic investigation report, seeing that the Public Protector, the Hawks and other law enforcing agents had been lined up? What system was Treasury currently using? Were they still using old systems, and what was the progress in terms of the actual money spent on IFMS?
Mr Mogajane said that the Department was still using old systems, but the procurement management module was being piloted in the Department of National Treasury. He was not worried or expecting the worst from the forensic investigation report because he believed in the integrity of his team and would be more than happy if the report singled out certain deficiencies and challenges that faced his Department. The names of steering committee members would also be provided.
On the issue of beefing up the internal audit, Mr Seperepere explained that the audit function had built its own in-house capacity, and did not use the services of consultants internally. Consultants were sought only when the Department needed extra capacity or specialised skills. He added that OCPO was involved in everything related to the procurement module, and assisted in policy formulation and monitoring.
Ms Octavia Matloa, Audit Committee Chairperson, National Treasury, said the Department had terminated its relationship with Deloittes because of unethical conduct, and no payment had been made to Deloittez for their services because their report was of poor quality and could not be relied on.
She said that the audit committee was made up of six members who were competent, and did not rely on the panel that had been appointed by the Department. The Department did not know what to expect from the forensic investigation report, and she urged the Committee to allow the process to be completed before the Department could take any action. The Hawks had also engaged the Department and asked that they provide an affidavit, which had been submitted last week. The investigating officer was going to ask for provisional closure of the matter until the next forensic report was presented.
Ms T Chiloane (ANC) wanted to know if the two months allocated for the forensic investigation to take place would suffice, because it was a matter that had been sitting with the Department for some time and had not worked previously. How much would it cost to pay the service provider? Was the investigation on Oracle related to the forensic investigation? She appreciated the R149 million saving that Treasury had attempted to make with the system upgrade, but wanted a detailed explanation on whether it was going to be a body other than SITA that would be involved in the upgrade. What was the anticipated date for the IFMS to be functional, given that this process had been kick-started in 2005, and how much would it cost the country in its entirety? How would IFMS assist in preventing corruption? Did the rollout include municipalities?
Ms N Mente (EFF) referred to the conceptualization of IFMS 2, and asked if the exclusion of municipalities was a Cabinet position, or if it was a proposal from the proof of concept that recommended implementation at only the national and provincial level. Did the Department interrogate whether handling the implementation of IFMS 2 altogether at different levels would save cost, or was it too complex a concept which required that it be started at a certain level, and then be phased down at a later stage?
The Director General responded that the Department could not avoid using Oracle because the implementation of the Oracle system could not be handled alone as an in-house function. It was not a deliberate attempt by the Cabinet to leave out municipalities, but had found it complex to standardise processes at this level because different municipalities used different systems. They would, however, look into it in the future when handling local government reforms.
The cost for the service provider in carrying out the forensic investigation was R4.4 million. On the time frame given for the forensic investigation, the Department was confident that the service provider would meet the deadline, because the information required for investigation had already been compiled for the previous investigation team.
Ms Matloa added that the time frame had not been imposed on the service provider, and she was therefore confident that they would deliver within the stipulated time frame.
Mr Mogajane explained the R149 million saving, saying that the annual support fee paid by the Department to Oracle was a long term saving investment, and Mr Mhlakaza had clarified that failure to pay would require a larger future payment, which the Department was trying to avoid. A functional design of the blueprint for IFMS 2 would be available by November 2018, and in June 2019 the Department would have IFMS 2 running in Treasury and the Department of Public Service and Administration (DPSA) before rolling it out to five Departments in the Western Cape, and three in the Eastern Cape. The full cost of IFMS in its entirety was not known because it would depend on the demand for government to have IFMS running.
Ms Mente cautioned the Department on the importance of the Department being confident with the system because of the potential risk it had for collapsing the financial system and its impact on service delivery. She raised a concern on SITA being involved in the implementation of IFMS 2, in view of the several investigations into SITA’s management team and the problems incurred in the implementation of IFMS 1. Would people with the same elements of corruption delay the implementation process of IFMS 2? Did the Department have people that would sit with SITA to screen the parties involved with system implementation? How did the Department eliminate entities that it did not need?
Mr E Kekana (ANC) was not convinced by the Director General’s responses on the implementation of IFMS, because it should have been implemented a long time ago. The suspension of IFMS-related payments, as indicated in the presentation, meant that there were persons involved in irregularities. What consequences did the Department have in place for those involved, or was this included as part of the forensic investigation report? If the Department had done nothing, what was it going to do?
Mr T Brauteseth (DA), in following up the Committee’s request for the Department to do a forensic investigation, said that the Department seemed to have made a false start. Who was the false start with? And why had the audit firm that was initially contracted to do the forensic investigation been terminated? Had they been irregularly appointed in the first place? Were they incompetent? What was the cost spent on the firm and had they started any form of civil recovery from the people who had appointed the firm in the first place? Did the Department have information on the current investigation at SITA in identifying corrupt elements within its organisation, seeing that the Department had a close working relationship with SITA? Were they in support of SITA’s current Chief Executive Officer (CEO) to clean up?
The Director General said that his Department had the right capacity to oversee the procurement process of IFMS, together with OCPO, and was working to strengthen this capacity to avoid being blind-sided by any underlying processes. This was where the steering committee played a critical role in the oversight function. For the second forensic investigation process, the Department had sought the services of other companies besides those in the panel, to demonstrate the seriousness of the matter.
He confirmed that the system of payments had indeed been reviewed. It had relieved some individuals of their functions and would take full action at the end of the forensic investigation. He was aware of SITA’s attempt to clean up, but did not have full details on the investigation. SITA had, however, reached out to Treasury to assist in the seconding of staff members to SITA. The Department was keen to support any government department that was focused on cleaning up and modernising its systems to reduce elements of corruption, including the attempt by the current CEO of SITA.
Ms Matloa also added that there were no consequences in place for the people who had initially contracted Deloittes to do the forensic investigation, because the termination of the contract was not related to the failure of individuals to do their work properly.
In response to Ms Mente’s question on the delayed investigations relating to IFMS 1, and on managing the expectations of the current investigation, she clarified that the revised terms of reference would cover only the issue of settlement in relation to IFMS 1, and nothing more on what had happened before.
Ms N Khunou (ANC) asked if the Department was going to fall into the trap of monopolising companies forever by contracting only big companies such as Oracle or SAP in the implementation of information systems. Was there a way of transferring skills to the small players to come into this space, for radical social and economic transformation?
Mr Kekana also wanted to know whether there was a clause that allowed for the transfer of skills in the contractual agreements between the Department and information systems service providers. This would ensure the transfer of skills to government, enabling it to run its own affairs irrespective of service providers.
Mr Mogajane said that they could not avoid contracting the big companies because there were only a few global players, but it contracted the support services of small players to be more inclusive. The Department did not have a choice but to ensure that government was included in the transfer of skills as part of the policy framework on radical social and economic transformation. He agreed that it was important for small players to be brought into the space, citing the inclusion of ICT-Works in the implementation of IFMS 2. This was a 100% black female-owned company, and would ultimately allow for the transfer of skills from Oracle.
Deviations and Expansions
Mr M Hlengwa (IFP) raised a question on the issue of expansions and deviations. Could Treasury look into deviations and expansions granted to Transnet in their entirety? This was in relation to a letter from Treasury that seemed to dismiss the granting of an expansion or deviation, outlining a number of reasons, but the final paragraph on the letter had granted the deviation. The concerns raised by Treasury in the letter had no correlation to the granting of the deviation, which was a strange kind of arrangement and had to be looked into, because it compromised the integrity of expansions and deviations, and entrenched them as the norm instead of the exception. What had happened after termination of Deloittes? Had any other body filled their shoes? Was it internal or external? He would be concerned if the function continued with an external body, because the integrity of the internal audit could not be in the hands of private practitioners, whose motive was profit.
On the issue of Deloittes, the Chairperson informed him that another body had been appointed, and it was external.
Mr Booi expressed concern at the rising number of deviations, which had reduced the credibility of the supply management system. He quoted the former Minister’s budget speech on deviations, where he had said that “deviations could lead to uncompetitive practices that open the door to corruption and opportunistic transformation by preventing small businesses from doing business with the state.” The fact that Treasury had housed OCPO under its arm but had not integrated them into the procurement process showed that Treasury wanted to stand alone and did not want to be scrutinised by procurement. How could Treasury have a shortfall in revenue when deviations totaled R94 billion? How could an official, without the authorisation of the ministry, have the sole power to authorise the spending of R1 billion? Where was the limitation for individuals? Did this not breed an environment for corruption and make the Department look inefficient in handling its operations? He added that such actions compromised the government’s position on small business and entities.
Ms Khunou agreed with Mr Booi’s concern on deviations, saying that it was a serious problem because deviations could easily be manipulated and become a big corruption scandal if not managed well. Why were letters being signed by Chief Directors, and not by the Chief Procurement Officer? The signing of letters should not be a one man show, but rather a team effort. It was high time government officials took their planning with Treasury seriously, to avoid deviations.
In closing the discussion, the Chairperson said that he was impressed by the Director General’s enthusiasm in explaining the issues at hand, which had made it easy for the Committee and the Department to engage. He expressed worry over the seemingly loose ends that the DG was trying to tie up after his appointment, making the Department look like it was starting from scratch.
The Chairperson drew attention to the matters he felt had not been covered conclusively, such as the non-renewal of contracts for companies that had been appointed by the project management office. Did this imply that they were not needed in the first instance? Had the Department employed more people than they needed? Of the service providers whose contracts were not renewed, was it because the Department purposefully sought to terminate their services, or was it because these service providers had exhausted their budgets? When the Director General mentioned that ICT-Works had been contracted by the Department to do other related work, what did hr mean by this? What other related work was he referring to, and was there a contract in place for the said work? He wanted to know what role ICT-Works played in IFMS 2, if the design and implementation process had been taken over by Oracle? Was the role of ICT-Works in creating a database for OCPO, part of the R383 million negotiated settlement in damages, as claimed by ICT-Works? Or was it a new contract which ICT-Works had tendered for? This needed to come out clearly, because part of the failures of IFMS 1 may have been related to the design by ICT-Works, which was necessary for the Department to take note of. What skills did ICT-Works possess besides their name as an information communication technology (ICT) company?
The Chairperson asked Mr Mhlakaza to confirm that service providers were no longer being paid without deliverables. What measures had the Department put in place to prevent rogue elements from signing long-term contracts with an ICT company just before the national roll-out, to minimize the risk of individuals benefiting from government beyond 2021? In relation to the implementation process of IFMS, clarification was also sought on where the Department had reached with the conceptualization phase 2. Did they have a proof of concept? Where had the design phase reached? Was there a clear rollout for IFMS 2 up until 2021, with clear milestones along the way? What did the Department mean when they said at their last meeting that IFMS 1 was not a complete loss, as certain aspects of it were being utilised by National Treasury and DPSA?
On the issue of deviations and expansions, the Committee did not understand how the signature of the CPO was missing in the approval of such critical issues, signifying that the process of checks and balances was weak. In terms of protocol, how could the CEO of a company like Transnet write directly to the DG and have his fate decided by a Chief Director? He was quick to note that deviations and expansions maintained the status quo, because all companies and institutions that benefited from this process were not black-owned, but rather old white establishments. Giving the example of Bidvest Protea Coin, a security company, how was their contract renewed 13 times? Deviations and expansions had only been introduced to assist in specific situations, but because this function had clearly been misused, the Chairperson called for vigilance from the Department and urged it to strengthen its processes.
In response to the concerns raised by the Chairperson, the Director General affirmed that it was in the interests of his Department to look into the streamlining of deviations, and that this process required a balance between his office and that of the CPO, because it was indeed worrying. He stressed that it was not functional to always have the Director General’s approval on all letters, because he was not always in the country, which called for the delegation of duties.
On the issue of the IFMS 1 not being a complete loss, he explained that the procurement management module and the human resource module were products of IFMS 1.
The Department would make available the contract between them and ICT-Works. Because the settlement reached was a legal agreement that required ICT-Works to be given a role in IFMS 2 in lieu of the R383 million demanded in damages, the Department had had to find work to give to ICT-Works. He requested that his Department be given time to respond in writing on matters relating to ICT-Works. It would be irresponsible for them as a Department to target the R383 million owing to ICT-Works, because that would sometimes mean that ICT-Works would get paid for work that had not been properly done.
Mr Mhlakaza said that the contract with ICT-Works was for a period of two years, which would end in November 2018.
Regarding how far the Department had reached with the IFMS 2 project, service providers that were handling the project before Oracle came on board had already been re-assigned to the provision of generic service works elsewhere in the Department. Consulting services with Oracle began in November last year, and the Department was in the process of developing a project strategy with key stakeholders. The Department was also designing the blueprint on paper and planned to complete it in June 2018, because ICT-Works had been given the job of designing the blueprint but had not delivered.
The Chairperson expressed concern as to whether the failure of ICT-Works in designing the blueprint had breached the legal settlement that existed between them and the Department. Would the generic services provided by ICT-Works amount to the R383 million that should have been settled? How long was ICT-Works going to provide these services?
In addition to the concerns raised by the Chairperson, Mr Booi asked the Director General to take charge of the discussion because his colleagues were providing information that required more questions to be asked. He was comfortable with the arrangement that the Director General speak last, and allow the Deputy Minister to give the concluding remarks.
Mr Brauteseth pointed out that it was clear ICT-Works did not have the capacity to handle work allocated to them, and spending money on them was a case of no value for money. Who had made the decision to allow ICT-Works to assist the Department with generic services, and had they been dealt with from a disciplinary point of view?
The Chairperson raised major concerns as to how the Department of Treasury could start a project without a blueprint, emphasising how important the matter was. He wanted it to be very clear that the Department had taken into consideration the concerns of the Committee.
Mr Ross asked what the consequences would be if a Committee like SCOPA decided to make a recommendation that the process of implementing the IFMS be completely aborted and started afresh, as it had long been an outstanding issue for over ten years.
Deputy Minister Gungubele expressed appreciation for the interaction that had taken place during the meeting, and asked the Director General and his team to present an audit of all questions raised, which they would translate into points of action. He was of the impression that all questions raised were an effort by the Committee to get the Department to rise up to its Treasury standard of being allies of the Committee. It was important for Treasury to make it a practice to follow the developments from SCOPA, and noted that the concerns raised were indeed capable of being addressed.
In agreeing with the Committee on the issue of deviations, Treasury must answer to what degree it tolerated deviations. He had a sense of the outcry of the Committee, and promised to have internal conversations with the management of Treasury and get back with a turnaround plan on all the issues raised.
He concluded by emphasising the importance of an independent internal audit to hold every department accountable, and expressed confidence in the competence of staff within the Department.
The Chairperson thanked the Deputy Minister for his remarks and expressed happiness at the steps the Ministry would take on all issues raised. He urged the Director General and his team to continue to do what was right, and assured the Department that they would provide their input as a Committee on how some matters could be handled.
The meeting was adjourned.