Integrated Financial Management System (IFMS) forensic investigation: update, with Deputy Minister

Public Accounts (SCOPA)

20 November 2018
Chairperson: Mr T Godi (APC)
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Meeting Summary

National Treasury had previously briefed SCOPA on the IFMS wrongdoing that implicated companies and Treasury officials. A financial investigation of the IFMS by Deloitte was discredited and rejected by Treasury. Nexus was then contracted to do a forensic investigation and submitted a report in July. Treasury had requested time to process the report and this was the first opportunity to engage on that report.

The Treasury Director General said that Nexus and the Treasury Audit Committee considered the 421 page report with memory sticks and addenda as final. However, the Director General reported that on engaging with the report, there were material matters over which Treasury had concerns. Treasury had written up 12 pages of queries about material matters to do with regulations, processes and methodology including the interpretation of key statutes and interpretation of key definitions such as irregular expenditure and unauthorised spending. Treasury is still interacting with the report which it does not consider final. Also those individuals who have been implicated have a right of reply. He said while the report is not final it cannot be distributed to SCOPA or the affected individuals.

The Deputy Finance Minister noted that there was a fear of leakages. The Audit Committee had accepted the report. The Director General had indicated to him that there were matters that needed to be clarified with the investigators and the report is not ready to be presented until those matters are clear. Should SCOPA wish to be given the original report with all the discrepancies, Treasury will present that report as there is no attempt to hide anything.

SCOPA was adamant that it is not going to allow the Director General to doctor the report. National Treasury was directed to provide the report to SCOPA 22 November 2018. The Committee will then review the report and meet with Treasury again on 5 December 2018.

Meeting report

The Chairperson welcomed the Ethekwini Municipality delegation who was present to observe how SCOPA meetings are conducted. SCOPA was meeting for the third time with Treasury about the IFMS – a system central to modernisation of government processes to ensure uniformity in government processes aimed to curb loopholes in the loss of public funds. IFMS is a critical program and once got right, it will minimise many challenges and curb inefficiencies. However, it is a program hampered by a whole range of negatives which is why there was IFMS 1 and now IFMS 2. IFMS 1 became a failure and was reorganised as IFMS 2 run by Treasury.

He reminded Members that the Treasury Director General had made a presentation to SCOPA on the identification of the wrongs. The wrongs had financial implications and had implicated companies and Treasury officials. On that basis a forensic investigation was instituted on what went wrong. The financial investigation by Deloitte was discredited .Treasury rejected the report and sought another company. The report was to be ready in the second week of July 2018. SCOPA wrote to Treasury to engage on the report. Treasury requested time to process the report, thus the current November engagement. He added that IFMS together with the Public Audit Amendment Bill are all tools to manage public funds.

Deputy Finance Minister, Mondli Gungubele, said that his presence in the meeting is to reconnect and provided accountability at political level. He noted that there had been fear of leakages, fear of lack of capacity and for the business case of IFMS. This is Treasury will not be presenting the forensic report in the meeting. The report had gone through all its stages including the Audit Committee which had accepted the report. The Director General had indicated to him that there were matters that needed to be clarified with the investigators and the report is not ready to be presented until those matters are clear. Should SCOPA wish to be given the original report with all the discrepancies, Treasury will present the report as it is so that there is no indication of an attempt to hide anything.

The Chairperson asked what the essence of the Treasury briefing is if the presentation will not be talking about the report.

Mr M Booi (ANC) said that he thought the DG will be making the presentation as per the invitation. He asked what the status of the presentation before SCOPA was and whether it dealt with the forensic investigation

The Chairperson asked the Director General to make the presentation first

IFMS forensic investigation: Treasury Director General briefing
Mr Dondo Mogajane, Treasury Director General, said that Treasury intended to respond to SCOPA on three items:
- Action that Treasury has taken since its last engagement with SCOPA;
- The forensic investigation report not being ready;
- Implementation progress to date on the roll out of the IFMS project including finances.

Treasury recommended Nexus as the preferred bidder in December 2017. Treasury issued an appointment letter to Nexus in January 2018 for a term of three months ending 30 April. A steering committee was formed to monitor progress and to assist Nexus in sourcing documentation, liaising with Treasury staff for interviews and getting access to any other information whatsoever. The steering committee was chaired by the Treasury Audit Committee. The steering committee met in February, March and April and was briefed by Nexus on progress and critical milestones in the investigation.

The contract was extended from April to 15 June due to delays in obtaining information. There was a further extension to 2 July. He had to write two letters to SITA and to individual officials who were deemed not to be liaising properly with the investigators to meet the July deadline. The steering committee met again in May and July to get progress reports. Nexus presented the draft report on 2 July to the steering committee. The steering committee met on 4, 5 and 10 July for input and for investigation.

Ownership of the forensic investigation lies in the hands of the Audit Committee of Treasury. This has to do with how the process unfolded starting from the internal audit report discussed in SCOPA, which made assertions at the time that the Office of the DG will have direct impact on the project. The matter was thus removed from Treasury to be done by the Audit Committee. The liaison between the Audit Committee chair was direct with forensic investigators and not necessarily through the DG office. The Audit Committee met with Nexus on 25 August for further interrogation and input. On 28 August the Audit Committee Chairperson and Nexus met with the Director General for a high level presentation of the final report. The report was final as far as Nexus and the steering committee were concerned. The 421 pages were presented to him together with memory sticks and some addenda.

Mr Dondo Mogajane said that he engaged with the report and furnished the report to other key officials in Treasury and the CFO office to help him interact with the report. Treasury engaged with the content, findings and recommendations. On 4 October, Treasury informed the Audit Committee head that Treasury was requesting a meeting with Nexus to raise material matters of interpretation and application of regulations, process and methodology. He said that Treasury had not made available the report to individuals impacted by the report. The control of the report is amongst the people he had earlier identified. A request was made to Internal Audit to set up a meeting with all parties. Treasury officials availed themselves on 18 and 20 October but Nexus investigators were available only on 30 October. However he was not available on 30 October. The Audit Committee chair indicated that he had to be present and the meeting was scheduled for 12 November.

On 12 November, Treasury met with Nexus and the Audit Committee Chair to raise the material matters about regulations, process, methodology and interpretation of key statutes that informed how the report was written. It was agreed these matters be communicated to the Audit Committee chair who would engage with the service provider and refer back to Treasury.

Mr Mogajane said that he wrote to Audit Committee chair annexing all the key matters. It was about 12 pages of matters that Treasury wanted clarity on. These included the interpretation of key legislation, interpretation of key definitions for example what is categorised as irregular expenditure. On 12 November, Treasury indicated to the Audit Committee via a letter that Treasury has issues with the way the matters were interpreted. The report is not final. Treasury cannot confirm the correctness of the material matters, for example, how the investigators define unauthorised spending. There were also key people who were never interviewed. Mr Mogajane suggested that Treasury makes available to SCOPA the letter written to the Audit Committee identifying the matters.

Mr Mogajane said that the report is not final making it impossible for him to distribute it to SCOPA and also to the affected individuals. The report suggests that he recommend action against certain individuals and companies. It is fair that these individuals are first given an opportunity to comment. After Treasury has finalised that, it can make the report available. If there is an concern that Treasury may want to change the report, other than the fundamental things Treasury is suggesting, Treasury can make the Phase 1 final report (which was the Audit Committee version) available to SCOPA. Thereafter, they can have a phase 2 report after Treasury has confirmed it agrees with the definitions and interpretations. Those are the reasons Treasury is not presenting the report to SCOPA.

Mr Booi asked Treasury to confirm that it did not have the report.

Mr Mogajane responded that Treasury has the draft report with which it is still interacting.

Mr Booi made reference to the National Development Plan (NDP) and said central to a capable state is IFMS. He was concerned that the most important department, Treasury, for the IFMS is not able to provide the status. The IFMS program began in 2009 and SCOPA had questions about the previous report provided to SCOPA. There was now the forensic report which SCOPA still does not have. The internal processing of the report is not relevant at all and the presentation by Treasury does not have status and reflects an undermining of Parliament. Parliament has a program to follow and is to close shortly. He expressed concern that at the end of the Fifth Parliament, SCOPA has not resolved the IFMS matter. He wanted to know how much the process is going to cost and who was going to pay. The other process had cost R1.8bn

Mr D Ross (DA) noted that SCOPA had received the perspective of the DG, Treasury and the Audit Committee. The Audit Committee had special functions for looking at the report. The DG cannot kick the can to the Audit Committee. He asked what Treasury expects of SCOPA. He advised that SCOPA could have engaged with Treasury on the differences that it has. He asked if the investigators consider the report as the final report. On the Auditor General findings, what is the status of irregular expenditure? He gets the impression that the DG is kicking the can down the road. The report was finished so that there is engagement, not for the DG to determine what is important.

Mr M Hlengwa (IFP) asked why SCOPA convened when there is no report. SCOPA is not being taken seriously. SCOPA cannot be discussing such processes and should not be discussing the right of reply. SCOPA should be given the report to determine what to do with it. SCOPA has been undermined. He asked why Treasury had to come all the way from Pretoria.

Ms N Khunou (ANC) asked if the DG had indicated to the SCOPA Chairperson that Treasury will not be presenting on the report

The Chairperson replied that there was a discussion but Treasury had already submitted its presentation to SCOPA

Ms Khunou referred to the minutes of 5 June 2018 SCOPA meeting. The same reason SCOPA is given by the DG at today’s meeting was given at that meeting.

Mr E Kekana (ANC) was concerned that SCOPA was witnessing a trend. Why did the DG agree to a meeting when he knew there was no report? SCOPA is not going to allow the Director General to doctor the report. The Committee will look at the report and comment on the report. He moved that SCOPA gets the report and reconvenes the following week to engage on the report.

The Chairperson said the DG had pointed out the initial findings pointed to the things that were wrong that go right up to the Office of the DG so it was correct that the Audit Committee manages the process. He asked the Audit Committee to confirm that it got the report and could not see the deficiencies that ExCo has identified.

Mr Booi said that SCOPA would not want a situation of two heads in one department. The DG has done the work and SCOPA should not get a report from another person as it will not augur well.

Mr Kekana said that SCOPA wants a report from the DG since he is the one that accounts. He emphasised that no one should interpret the report for SCOPA.

The Chairperson said that it is useful that Treasury came. He previously received a letter asking for more time to process the report. If he had received another letter saying that Treasury is still processing the report, it would not have been good. To him it was useful that Treasury was talking to SCOPA about the challenges. He suggested that SCOPA looks at the report and engages with Treasury on the report. The Audit Committee can come in on interpretation. The presentation by the DG raises questions about Nexus and its capability, if it is unable to define unauthorised expenditure. The report went to the Audit Committee which had three meetings to look at the report. ExCo raised questions and it is not clear if the questions were on form or content.

Mr Booi pointed out that Treasury had written the report on Eskom and no one was consulted.

Deputy Minister Gungubele said that it is clear that Treasury has a lot to sort out internally.

Mr Mogajane added that he will not be available the following week because he is expected in Argentina.

The Deputy Minister suggested Treasury finalise the meeting date with the Chairperson after the meeting.

Mr Hlengwa reminded Members that it is not the first time SCOPA is dealing with ill preparedness on the part of Treasury and this had cost implications. The taxpayer will have to bear the cost and SCOPA needs to consider the implementation of cost recovery.

The Chairperson said it was good that SCOPA met with Treasury so as to set the ball rolling.

Mr Kekana recommended that SCOPA sets the date in this meeting to have the matter on record. Dealing with that outside the meeting is problematic Treasury must give SCOPA a date. It is unacceptable for Treasury to meet with the Chairperson privately.

Mr Mogajane said that he will be back on 3 December and proposed that Treasury meets with SCOPA on 4 December

Ms Khunou pointed out that there is a meeting on 4 December in Johannesburg.

The Chairperson said that SCOPA will have an engagement with the Department of Water and Sanitation on 4 December in the evening.

Mr Booi added that Parliament is closing on 7 December. Other committees will fight if the dates are stretched. He added that committee meetings in January are not as effective.

The Chairperson said SCOPA will negotiate with the Office of the House Chairperson to have the meeting on 5 December 2018. He asked Treasury to avail the report to SCOPA in the current week.

Deputy Minister Gungubele responded to SCOPA’s request to send the report in the week. He said that Mr Mogajane had pointed out that there is a legal opinion on that approach.

Mr Mogajane said that there is a process issue if Treasury gives the report to SCOPA and implicated individuals hear about it for the first time in that way. Treasury must make the report available at the same time to the implicated individuals.

Mr Booi suggested that Treasury takes the names out of the report.

The Chairperson suggested that Treasury issue the report to the implicated persons and thereafter give the report to SCOPA.

Mr Ross requested the Auditor General be present at the 5 December meeting and prepare something on irregular expenditure for SCOPA.

Mr Hlengwa requested the Chairperson be definite on which day SCOPA will receive the report.

The Chairperson asked Treasury to avail the report by Thursday 22 November 2018.

Mr Mogajane confirmed that the report will be availed.

Mr Booi requested Treasury to have the Minister come to the 5 December meeting.

Meeting adjourned


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