Financial and Fiscal Commission 2016/17 Annual Report

Meeting report

Briefing by Financial and Fiscal Commission (FFC)
Ms Kay Brown, CEO, FFC, took the Committee through the FFC’s 2016/17 annual report. She highlighted that the FFC’s Research and Recommendations Programme Division had achieved the following: meeting all legislative requirements; annual submission for the Division of Revenue; making inputs to the medium term budget policy statement proposals; making submissions on the Division of Revenue Bill, the Fiscal Framework and Revenue proposals; and Appropriation proposals. The FFC also recorded growth in economic, fiscal and service-delivery publications. The Commission also gave testimony before the Commission of enquiry into Higher Education and Training, and completed a forensic investigation arising from allegations made in two anonymous letters regarding staff impropriety. Recommended actions arising from the report were being implemented and internal controls continue to be strengthened.

On the FFC’s performance, to ensure that Commission research is converted to policy advice and recommendations written in language that policymakers can understand, the Use of Official Languages Policy was developed but not approved during the period under review. The objective of ensuring the progressive and innovative management of human resource that attracts, develops and retains key talent, and leverages external expertise was satisfactorily achieved. The target relating to compliance with legislation and adherence to relevant corporate governance best practice was achieved, save for the Risk Management Register which had to be updated. In addition, the Fraud Prevention Plan had to be reviewed, and the process to update the plan was undertaken and finalised by year end.

Ms Brown highlighted the Commission’s financial performance during the period under review. The Commission was given an unqualified audit opinion and the financial statements fairly presented its financial position in accordance with standards of Generally Recognised Accounting Practice (GRAP) and the requirements of the Public Finance Management Act (PFMA). Reported performance information was useful and reliable, in accordance with the identified performance management and reporting framework, and no material findings were raised on the selected objectives. However, evidence of significant deficiencies in internal control was found, thus the audit outcome had regressed compared to the 2015/16 financial year mainly due to weaknesses in internal controls. Currently, the Commission was putting much emphasis on the findings on non-compliance with legislation as the auditors had found that irregular, fruitless and wasteful expenditure were not prevented in accordance with relevant legislative prescripts. On the upside, Commission finances benefited from other improved controls and austerity measures.

The FFC’s baseline allocation from government for 2016/17 was R44.8 million. Additional income earned included interests received from the bank, funds recovered from a landlord in respect of overpaid rental costs and services in kind related to office rental, which was paid by the Department of Public Works. Notably, a 12% operating expenses increase was as a result of increases in publications, office rental cost escalations, as well as significant usage of mobile and landline phones. The Commission also made a significant investment in new computer equipment during the period under review. In addition, a 29% increase in the asset base resulted from retention of surplus funds, which had National Treasury approval.

Ms Brown identified challenges in respect of funding which were due to increases in requests from stakeholders which led to challenges in balancing the Commission’s wage bill and the rest of its activities. This hampered the extension of the Commission's work and presence across all three spheres of government and the research complement needed. The challenge of irregular expenditure and fruitless and wasteful expenditure incurred due to non-compliance with legislative prescripts and policies was being addressed through appropriate measures being implemented to redress the problem. Also, attracting talented staff, management and retention of staff was identified as a challenge for the Commission. On the way forward, the Commission was looking into the review of its service delivery model, reorganising and restructuring the secretariat, expanding research work programmes, and maintain clean audits.

Update on the FFC forensic probe
Prof Daniel Plaatjies, Chairperson, FFC, noted that the Commission had received a letter from the DA requesting the full report of the forensic probe undertaken following allegations made in September 2016 by an employee. The FFC was willing to hand over the forensic report to the Committee only if it was dealt with in a closed meeting to protect the information and the institution. Publicly revealing its contents would compromise the investigation and other clean-up processes under way. He emphasised that the FFC was not hiding anything. He told the Committee that evidence of fraud and corruption uncovered at the Commission had been reported to the police, and 24% of the secretariat staff had been implicated. One employee faced disciplinary charges and had made representations and eight others could also face disciplinary charges by the end of the month. Charge sheets have been drawn up and there was also a possibility of civil claims. However, no commissioners were implicated in the allegations but the chief financial officer had been put on precautionary suspension, which he was contesting through the CCMA. An action plan had been put in place to address the findings of the forensic report. The supply chain management system had been overhauled and the commissioners would be meeting more regularly going forward.

Discussion
Mr D Maynier (DA) commented on the annual report presentation. He queried whether the FFC was impactful and if it indeed was offering influential advice. He asked how the FFC measured its influence and impact. Was it in a position to demonstrate that it had any influence or impact on any legislation or government policy decision during the financial year under review? His hypothesis was that the Commission has no impact and would be a very good candidate for a shutdown. He asked for the name and position of a staffer who was allegedly involved in settling traffic fines using FFC funds. He asked for an explanation for the very low work rate by the FFC. Broadly, it seemed to produce very few op-eds per year on the back of millions worth of grants from government. How was that possible? He also identified the need for the FFC to generate its own datasets rather than relying on government’s- to ensure its autonomy and independence.

Ms P Nkonyeni (ANC) appreciated the report and asked if there was a reason why the FFC does not consult with the South African Local Government Association (SALGA). One of the FFC’s mandate was to consider and make recommendations on the workings of the various spheres of government, down to local levels. It should be seen fulfilling this mandate effectively.
The Acting Chairperson welcomed the presentation and said it was well-understood that the matters relating to the FFC forensic report were sub judice. Therefore, the Committee might need to consider having a closed meeting to discuss these. She asked how the FFC was able to generate surplus during the period under review as identified. Did the generation of surplus not result in operations or programmes being compromised? She disagreed with Mr Maynier’s sentiment that the FFC had little or no impact. It played a noteworthy role during the fee-free tertiary education debates as well as ongoing macroeconomic policy discourses. In addition, the Committee would welcome a presentation on the internal controls which the FFC had put in place to avert wrongdoing within the organisation.

Prof Plaatjies, in response, said the Commission had influence in various matters of public interest. For instance, every budget review document tabled by the Minister of Finance always has a schedule responding to FFC inputs and proposals. More so, the Commission gives periodical inputs on a number of service delivery issues and welfare matters. The Commission had a close working relationship with Treasury. However, it should be noted that the Commission’s primary mandate was to give advice to Parliament about issues the Executive should be interrogated on. It was incumbent for Members to then take the issues raised by the FFC up. He pointed out that the Commission was gradually building performance management into the FFC system. The number of op-eds produced per year could not be the ultimate test of its yearly output the test. On the staffer who paid traffic fines from FFC coffers, she was no longer with the Commission due to various cases of misconduct. He emphasised the need to create an ethic focus as part of resetting the integrity of the Commission. The Commission was in regular consultation with SALGA on various issues, including staff remuneration and fiscal policy matters. Also, the Commission would welcome an opportunity to give a presentation on its internal controls as suggested.

Ms Brown said the surplus funds identified in the Commission’s financial performance and position indicator was as a result of duplications and double rental payments to landlords by the Commission and the Department of Public Works, for its Midrand premises. The funds did not technically belong to the FFC but DPW. She expressed the FFC’s commitment to address its challenges moving forward and ensure that it stops operating under the radar and clearly articulate its positions. Also, the Commission was already working on setting up a new data system which would enable it to generate its own data sets thus guarantee autonomy and independence.

Mr Maynier referred to the FFC update on the forensic probe. It appeared the FFC believed it had the discretion not to hand the forensic report to the Committee. He pointed out that Parliament could not be denied access unless if the Commission had authority in law. He asked if the FFC’s position not to release the report was informed by legal advice.

Mr N Nhleko (ANC) pointed out that he understood the FFC to have said it was not refusing to furnish the Committee with the forensic report. The Commission was only expressing concern about making the probe public as this could jeopardise the ongoing investigations. He felt the Committee should consider having a closed discussion on the matter as suggested.

Ms Nkonyeni said she was convinced the matter relating to the FFC forensic probe was sub judice and could not be discussed publicly at this stage.

Prof Plaatjies pleaded with the Committee to assist in protecting the integrity of the ongoing investigations and other unfolding processes. Releasing the report into the public domain at this stage could also create problems for the clean-up that was underway. The FFC’s position on this was not informed by any legal advice.

The Acting Chairperson appreciated the engagements and emphasised that the law should be followed to the letter. The Committee would consider discussions on the forensic report at the right time and within the confines of relevant legal prescripts.

The meeting was adjourned.