Statistics South Africa: hearing

Meeting report

STANDING COMMITTEE ON PUBLIC ACCOUNTS (SCOPA)
27 August 2003
STATISTICS SOUTH AFRICA: HEARING

Chairperson: Mr Francois Beukman (NNP)

Documents Handed out:
Statistics SA Annual Report 2001/2
Auditor General's Report 2001/2 (See Appendix below)

Statistics SA website

SUMMARY
Statistics SA was summoned to a hearing as the Auditor General had issued a disclaimer on its financial statements of 2001/2 which the Committee pointed out to Statistics SA is a very serious indication of the state of affairs. The result which the hearing produced, was that the Committee was not completely satisfied with the responses received from STATS South Africa with regard to the Department's state of affairs. The department was questioned on the following concerns:
1. Performance of the Chief Financial Officer
2. Human Resources Issues
3. Financial Management
4. The Audit Committee Report
5. Emphasis of Matter
6. Planning for Census 2006
7. Management and Implementation
8. Trading Account

The Committee was generally not satisfied with the calibre of the responses to the Committee's probing on matters that gave rise to the disclaimer, especially around the R298 million unverified expenditure.

MINUTES
The Chairperson noted that the focus of the hearing was in terms of the Public Finance Management Act (PFMA) requirements on the Accounting Officer. They expected the main response to come from the Accounting Officer, as envisaged in the PFMA. He informed Stats SA of the criteria used by SCOPA when they call in departments:

Departments are categorised in terms of their financial performance. Category A indicates that the Department is not doing well in terms of financial management. Category B indicates that a follow-up by SCOPA is necessary. Category C classification will not engender an enquiry, but rather a standard resolution. It was because Stats SA had achieved a Category A grading, that they were appearing before SCOPA today.

Referring to the Public Accounts Committees of South Africa's Handbook, the Chairperson related some answers given by Departments which are considered inappropriate, and from which they would draw a negative inference. Some of the strategies used by Departments to avoid engaging with key questions posed by the Committee or the Auditor-General are: the long slide presentation; nitpicking; blaming problems on transformation; saying that Treasury approval was not given; inadequate systems; and unfunded mandates.

SCOPA was very concerned about the financial management of Stats SA. A disclaimer by the Auditor General is very serious indication of the state of affairs. The Committee required relevant information to come to an informed decision. They would not accept the excuse that the financial affairs of the Department were in tatters because of the magnitude of the 2001 population census. Such a response would prove that the management of the Department was not up to scratch, and so confirm SCOPA's initial assessment.

Opening remarks of Hearing Convenor
Ms K Mothogae stated that the Auditor General's Report under review indicated inadequate financial management in the STATS Department, capacity constraints to perform functions effectively and efficiently, and non-compliance with the PFMA. It would be important for the Committee to know whether the financial management challenges are seen as a priority, whether a credible strategy for corrective actions had been identified, and whether the Department was able to ensure a successful population census in 2006.

The areas in which the Department would be engaged for questioning:
1. Performance of the Chief Financial Officer
2. Human Resources Issues
3. Financial Management
4. The Audit Committee Report
5. Emphasis of Matter
6. Planning for Census 2006
7. Management and Implementation
8. Trading Account

1. Performance of the Chief Financial Officer (CFO): questioning by Mr F Beukman
Although the Accounting Officer is ultimately responsible for the overall management of the Department, specific duties with regard to financial management are entrusted to the Chief Financial Officer (CFO) by the PFMA. The Chairperson asked if the CFO had a valid letter of appointment.

The Accounting Officer / Statistician General (Mr P Lehohla) responded that the CFO did indeed have a valid letter of appointment, which included conditions of service.

Mr Beukman asked if he had a performance contract, which included the responsibilities listed in the PFMA, to which Mr Lehohla responded that although the CFO had been appointed in terms of the PFMA, his performance contract had not yet been finalised.

The Chairperson noted that it was quite serious, in the light of the disclaimer achieved in the Report, that the CFO had no performance contract. He asked Mr Lehohla if he thought this constituted an oversight on his part.

Mr Lehohla responded that the Department was implementing the signing of all performance contracts for all staff members, including the Executive Managers, and the CFO.

The Chairperson asked to be given the reason for the delay in finalising the CFO's performance contract.

The CFO explained that the Department had experienced a number of resignations from key positions, including one from Human Resources. They appointed a Human Resources Manager in September 2002, meaning that the drafting and preparation of all performance contracts could now be implemented.

The Chairperson asked for a date by which the CFO's performance contract would be concluded.

Mr Lehohla responded that on the 2 and 3 September 2003, he would meet with the Executive Managers on a panel, and on the basis of that meeting, performance contracts would be signed, to which each of the managers, including Mr Lehohla himself, would be bound.

The Chairperson asked how, in the absence of a performance contract, he had indicated to the CFO his main responsibilities.

Mr Lehohla explained that the CFO draws his duties from the PFMA, as well as other regulations in the Public Service Act.

The Chairperson asked if Mr Lehohla had made an assessment of the performance of the CFO, in view of the disclaimer of the audit opinion of the financial statements.

Mr Lehohla had indeed made an assessment of the CFO's performance. The gravity of the disclaimer against the Department caused him to seek a re-audit. It was true that when the Auditor-General approached the Department for an audit, their state of readiness for such an audit was lacking. The Department required time to reconcile various amounts paid to census workers after the census had been completed. Mr Lehohla said he had acknowledged this to the Auditor-General. He felt the disclaimer suggesting that the Department could not account for payments amounting to R293 million, was incorrect. It was probably true that that amount had been spent. He had appealed to the Auditor-General to: (a) either not report the expenditure of R293 million; or (b) report the expenditure of R293 million, which still had to be reconciled, since they still needed time to reconcile the payments, in order to be able to demonstrate to SCOPA exactly how, and to whom that money had been paid.

Mr van Heerden (Office of the Auditor General) explained that at the time at which the Auditor-General's Office had finalised their reports, they did not have the reconciliations of the R293 million, and could not express an opinion on them. Mr Lehohla had, towards the end of the audit, requested the Auditor-General's Office to do a follow-up audit. The Auditor-General felt that, due to an extension which they had already given the Department, it would serve no purpose to do a further audit. He was not sure if another audit could still be performed.

The Chairperson asked Mr Lehohla if he thought it had been an oversight on the part of management, not to have had performance contracts in place, already two years ago.

Mr Lehohla responded that it had indeed been an oversight on the part of management not to have had those contracts in place. He did not want to blame the census for financial mismanagement. However, with hindsight, they had a choice to make, and they chose to run the census. At any given time, it cost two or three times the budget of Stats SA. They were aware of deficiencies within the Department, and were determined that as soon as the census had been completed, the deficiencies would be dealt with. With hindsight, it would probably have been advisable to tackle both issues simultaneously.

In terms of the performance contract, the Chair asked if there was sufficient description of the responsibilities and duties of the CFO and other financial officials so that a state of readiness could be achieved for the next audit.

Mr Lehohla was pleased to say that this year, they had closed the books at the end of May. He felt it should be noted that Stats SA was not a habitual offender in terms of bad financial management. The census brings its own dynamics, which falls in the realm of management.

Mr Nair (ANC) commented that the PFMA stipulates that the financial statements be ready for audit within a particular period of time. All the information, including that which was being described as having been available subsequent to the audit, should be available at that time. He asked if the R293 million which had not yet been reconciled, could be dealt with in the audit for the new financial year.

The Auditor-General confirmed that Mr Lehohla had approached him, asking for more time to reconcile the outstanding amount. It was his hope to include these reconciliations in the new audit, as suggested by Mr Nair. However, the time frames given to Stats SA in which to bring the outstanding information for inclusion in the new audit, were not met. The result is that an outstanding matter from the 2001/2 audit could not be included in the 2002/3 audit report, either.

Mr Lehohla confirmed that the Department had again not been ready with the outstanding information to meet the new audit time frames. This was due, again, to time constraints because of the demands for the delivery of census information, and because the systems used for this purpose, could not be utilised for the purposes of preparing audit information at the same time. However, the information was now available, and ready for a re-audit by the Auditor-General.

2. Human Resources Issues: questioning by Ms K Mothoagae
Ms Mothoagae (ANC) asked why Mr Lehohla had not submitted personnel files of employees whose services had been terminated, to verify the accuracy of the final payments to them.

Mr Lehohla explained that in 2001, the Department had lost key personnel in Human Resources. The reason that they were therefore not able to produce those documents, was largely due to a lack of human resources. After the completion of the 2001 census, due to costs, they closed the regional offices, thereby demobilising human resources. Going forward, they have now appointed people in human resources. They have strengthened the provincial offices, each with a human resource person.

Ms Mothoagae asked if this meant because of a lack of human resources, they paid only those people whom they could pay, to which Mr Lehohla responded that the people who had been appointed, had been paid the relevant amounts. However, by the time the census had ended (end November), all the 95 regional offices had to be closed. The person in charge of the census at head office had resigned, along with the Human Resources Director. The documents could not be produced for the Auditor-General at the appropriate time, because of time constraints upon the Departmental staff. Those documents are now available.

Ms Mothoagae asked why the required minimum information did not appear on the personnel files of newly appointed employees to verify the correct salary scales.

Referring again to the lack of a Human Resources Manager, which has now been addressed, Mr Lehohla conceded this point. Moving forward, all these matters were being aggressively addressed, especially with the appointment of the Human Resources Manager, and the implementation of the policies related to Human Resources, such as employment equity, document management, and proper gathering of documents.

Ms Mothoagae asked if the investigation of ghost employees had been completed, and if so, what the impact thereof was on the financial statements.

Mr Lehohla reported that this investigation had been completed. In the period under review, someone had actually placed himself on PERSAL system, and siphoned off monies. That matter had been addressed and the person was currently serving a five-year jail sentence. The problem was being addressed, with payslips and PERSAL records being signed by each of the Executive Managers. The Department's finance section follows up on these records on a monthly basis.

Mr Lehohla reported that he had commissioned an internal audit of the organisation, in order to guide him as to where his key focus areas should be. In addition, he had also commissioned a forensic investigation through KPMG, to show where the Department had been vulnerable during the census. The results of the reports emanating from the audit and forensic investigation have been helpful to the Department, and they are still under discussion.

The ghost enquiry had exposed that the Department was vulnerable to this occurrence, and needed to deal with it. Recourse measures had been taken through law processes, as well as preventative measures, to ensure that the occurrence is not repeated.

Ms Mothoagae asked if any time frames had been identified to implement recommendations and suggestions emanating from those reports.

Mr Lehohla reported on some actions which the Department had taken in response to the reports. They appointed financial officers and accountants in all provinces. There are now Human Resource Managers in all the provinces. They aspire to have 31 regional offices this year, 57 in 2004, and 95 by the time of the census in 2006. Those offices should have sufficiently trained manpower.

The Department was interested in departing from employing people on short contracts, to employing them on longer-term contracts. That would result in greater accountability from staff members.

Ms Mothogae noted that in his management report in the Annual Report, Mr Lehohla had indicated there were capacity constraints. However, information provided to SCOPA indicated that there were no staff shortages in the finance section. She asked how he could reconcile the two statements.

Mr Lehohla reported that at the time of the period under review, there certainly had been serious capacity constraints in the finance section which they had begun to address in the last five months. Additionally, the Department had brought together all the finance people, state accountants, and provincial managers for common training.

3. Financial Management: questioning by Mr B Bell
Mr Bell (DA) asked if the Department had completed the necessary reconciliations and paid the income tax and regional services council levies to the relevant authorities.

Mr Z Nkosiyane (Financial Manager: Stats SA) replied that in terms of payments to Regional Services Councils and SARS, all the necessary payments had been made. They may owe SARS penalties, or on the other hand, SARS may owe the Department over-payments. Reconciliations of payments to census field workers have not been finalised.

Mr Bell asked if the late or non-payments of tax and levies resulted in penalties or fruitless and wasteful expenditure. If so, he asked for the amounts in each case.

Mr Nkosiyane explained that, in paying taxes to SARS, because of incorrect appointments, some payments were overpaid and some were under-paid. Some debt recovery is taking place. The organisation has a database which lists those people who owe them in terms of taxes which were under-paid by them.

Mr Bell stated that a particularly high-risk area is any area where significant cash is involved. Cash advances were made to provincial offices during the census period. Had the Accounting Officer now reconciled the full balance of cash advances to provincial offices for payments to census field staff?

Mr Lehohla replied that they had been fully finalised.

Mr Nkosiyane stated that the ledger showed R25.4 million sent to the provinces. Another reconciliation had been done, since the Department was not satisfied with the documentation they had received from the provinces. There was presently R1.325 million in the suspense account which could not be accounted for.

Mr Bell asked why they had not submitted valid documentation to verify the validity, completeness and accuracy of the above advances.

Mr A Fanoe (CFO) responded that the amount of cash that had been sent to the provinces, was to pay people who had not been identified as having worked for Stats SA. There was a danger that people who had worked, but whose names had not been forwarded to Head Office would not be paid. There were rumours that some of the field workers were threatening to withhold questionnaires unless they were paid. Policy had been prepared to describe how the cash monies would be paid. All the regional managers were called in, where payment procedures were spelt out to them. The "bottom line" was that no field worker would get paid, unless he/ she produced his/her box of questionnaires. Written instructions were also given to the regional managers on how to make payments. However, because positions could be offered only for a very short time, they were compelled to employ only such workers as the market would allow. The skills level were therefore not always adequate. The result was that in accounting for monies, not all the regional officers could produce sufficient supporting documents. The Department employed the services of a firm to assist the temporary staff. However, they were not able to employ the firm on a long-term basis, since their services were extremely expensive.

Mr Bell (DA) asked why the Department had not disclosed the fact that if the amount that was unreconciled at the end of they year, was correctly included under Expenditure in the Income Statement, the budget would have further been exceeded.

The CFO explained that at the end of the 2002 financial year, the Department was not aware that they would not get those vouchers. The reconciliation of that amount, had still been ongoing.

He further explained that the Department did not only have to reconcile how each regional office was using its money, but also how much money each regional office had. They kept track of the money which they had sent to each regional office. However, they found that each office had a bank account, and that various offices had been sending money to each other, without recording these transfers. For that reason, before they could reconcile the amounts that were being used by each office, they had to determine how much money each office had at its disposal.

Mr Bell asked what the Department planned to do with the balance in its financial records.

The CFO responded that they would probably write this amount off. However, the staff at the provincial offices were being consistently assisted and trained, with the possible result that the outstanding amount unaccounted for, could be considerably lowered.

Finally, Mr Bell asked why the CFO had not provided for the unaccounted amount in the estimates of expenditure for the 2002/3 financial year.

Mr Fanoe explained that they never include the amounts, because the estimates are global per programme. They are well aware of the amounts in the cash flows, however.

4. Audit Committee Report: questioning by Mr R Mofokeng
Mr R Mofokeng (ANC) asked why there was an apparent difference between its view of the financial management of the organisation and that of the Audit Committee.

Mr Lehohla explained that the point of difference related to the census. He described the Audit Committee as a valuable, tough ally in discussions around the management of the organisation. While there are points of difference, there have been several points of convergence, along with ways forward.

Mr Mofokeng asked the Audit Committee to explain what they see as their role in improving the financial management of the organisation.

Ms Southall (Stats SA's Audit Committee) confirmed saw its role as improving the financial management of the organisation. The Committee had started making suggestions on how the organisation's financial management could be improved.

Mr Mofokeng asked if the Accounting Officer and the Chief Financial Officer were amenable to suggestions for improvement, and if in general, except for the over-expenditure on the budget, they normally implement the Audit Committee's suggestions.

Ms Southall responded that in general, they were not amenable to suggestions. The Committee usually found that suggestions which they had made, were not being implemented. She mentioned, however, that very recently, things had improved somewhat.

The Auditor-General felt it was critical for both the Audit Committee Chairperson and the Accounting Officer to note that the understanding of the Audit Committee's role was very critical to the management and proper functioning of the organisation. It did appear that tension existed between management and the Audit Committee. Both entities needed to work on improving their relationship, as the existing tension was not conducive to successful collaboration. Additionally, it was clear from the CEO's report in the Annual Report that there appeared to be a different view of the role of the Audit Committee. The Accounting Officer there indicates that the Audit Committee's role is purely advisory, and their recommendations are not binding on the organisation.

Mr Kannemeyer (ANC) emphasised the statement of the Audit Committee in the Annual Report, to the effect that, "in the opinion of the Audit Committee, there has been an apparent in the executive financial control of STATSA, an ineffective internal control environment, and a resultant contravention of the PFMA". He wanted to know if this opinion was mainly informed by the census year, or if it applies beyond the framework of the census impact, as well.

Ms Southall stated that the Audit Committee's statements had not been made lightly. A lot of discussion went into it, and the statement as it appeared, was unanimously agreed to by all on the Committee. The statement did not apply only to the census, but to STATSA as a whole.

Mr Mofokeng asked Mr Lehohla why, if in his view the Audit Committee had an advisory role, he would choose to ignore their advice.

Mr Lehohla stated that as an accounting officer, he did not ignore advice. He said that advice received was absorbed, implemented and results perceived. If management had ignored the advice given by the Committee, that would have reflected in the last meeting they had with the Committee. That meeting, however, had been a very positive one. Previous tensions had existed with the census looming heavily in the background. That had largely contributed to the confrontational situation which existed.

Ms Southall said that notwithstanding some improvement of late, earlier there had been lots of frustration. The fact that the Committee's suggestions were not being implemented, was a great source of discouragement to the Committee members. The budget for internal audits was not high enough, meaning that they were not able to adequately perform the investigations that they wanted to.

Mr Mofokeng suggested the fact that there was an Audit Committee whose recommendations were being ignored, constituted fruitless expenditure.

Mr Lehohla said that if the performance of the Department were to be plotted over time, it would show that in a census year, performance dips, and in a non-census year, there is improvement. He said that it was not management's intention to constrain the arm of the internal auditors. Everyone experienced constraints with regard to budgetary allowances. He said that the recently appointed state accountants and financial officers in provinces were the mechanisms of appropriating the advice that came from the Audit Committee. Greater improvement would follow.

5. Emphasis of Matter: Mr R Mofokeng
Unauthorised Expenditure
Mr Mofokeng noted that there had been an unauthorised expenditure of R121.9 million. He asked the Accounting Officer why he did not take approriate steps to prevent any overspending o the vote as required by section 39(2) of the PFMA.

It had become necessary to overspend on the budget, because of the necessity to extend the population census.

Mr Mofokeng asked the CFO if it had been his conscious decision to overspend the approved budget.

Mr Fanoe responded that he monitored expenditures very closely on a daily basis. He kept up to date with the latest estimates as to cost. The census, being very dynamic, required decision-making on a continuous basis, and plans made a month in before would no longer be appropriate a month later. Plans affect finances. All he was able to do, was to track continuously, advise and inform management of the actual amounts they could spend, and what they would spend according to their future plans. The responsibility for the decision to either stop or continue with the census, did not reside with him.

Ms Southall stated that in September 2001, the Audit Committee pointed out that at some point during the conduct of the census, the budget would become overrun. They thought the overrun would happen at a point at which the enumerators would be doing fieldwork. The Committee had a meeting with the Minister, in which they explained to him that the next allocation of funds would be in November (after the overrun). It was the Minister's decision, on political grounds, that it would be wrong to stop the census.

Mr Fanoe stated that the extent of the expenditure became apparent after the pilot census, which pointed out certain weaknesses. They then went into another budget meeting, where the Project Managers were asked to unpack their budgets according to their detailed plans. They arrived at a shortage of R333 million. In accordance with Section 39 of the PFMA, they approached both the Minister and Treasury to inform them of an impending over-expenditure. Treasury awarded R220 million.

Mr Mofokeng asked Treasury for their reasons for not approving the full sum of the additional R330 million requested.

The response was that National Treasury has a responsibility to ensure sound financial management in terms of the PFMA. On receipt of the request, it was felt that the amount could not be motivated to the Treasury Committee as unforeseeable and unavoidable expenditure, a prerequisite of the PFMA to supply additional funding. Subsequent to discussions between top management of Treasury and top management of STATS SA, it was decided to lower the amount requested from R330 million to R153 million. In addition to that, it was decided that STATS SA be assisted with an additional R80 million through the roll-over process. The final recommendation, in total, was the R220 million. Treasury did all they could, according to regulations, to support the Department. It was the ultimate responsibility of the Accounting Officer to ensure that the Department's expenditure remained within the approved budget.

As the "holder of the purse", Mr Mofokeng asked why Treasury had allowed STATS SA to overspend their budget by such an amount.

The response was that Treasury did not allow the Department to overspend. In terms of Section 39 of the PFMA, it is the responsibility of the Accounting Officer to ensure that the Department does not overspend on its budget. National Treasury plays a monitoring role in terms of the PFMA. They receive monthly reports from the Department. Subsequent to the additional R220 million which Treasury handed over, they received two monthly reports from STATS South Africa for September and October which revealed no overspending. The November report indicated a possible overspending of R74 million. Requests from Treasury to indicate, in terms of the PFMA, how the Department would remain within their budget, they were told that the decision had been taken to bring forward the processing phase, which would initially only have started in 2002/3. In addition to that, they indicated the over-expenditure was also necessary because of the extension of the census.

Mr Mofokeng noted that the Department's bank overdraft is at R177 million. He asked if allowing departments to overspend to that extent was not defeating the purpose of the budget.

The response was that overspending, in terms of the PFMA, is viewed as unauthorised expenditure. It was true that the purposes of the budget were defeated when departments overspent.

Mr Mofokeng asked, in the light of this answer, who had authorised the over-expenditure, and why.

Mr Fanoe responded that he was not empowered to make final decisions. Those decisions were taken by the Accounting Officer.

Mr Nkosiyane explained that the responsibility of financial provision is to ensure that operations of the organisation are fully adhered to. The Audit Committee fully advises top management in that regard. Various mechanisms have been implemented to take up control measures, such as the Tender Committee, the ITC Committee, and others, with the assistance of the Audit Committee. He continued that the budget has now been decentralised to the Budget Manager, who is now accountable for irregular, fruitless and wasteful expenditure.

Mr Mofokeng noted an amount of R36.1 million reported as unauthorised expenditure for the 1997/98 financial year. For the year under review, unauthorised expenditure amounted to R121.9 million. Would the trend for the next census in 2006, escalate even further?

Mr Lehohla responded that to prevent further escalation of over-expenditure, proper planning was required. Censuses take cycles of seven years. The previous two censuses in which he was involved, provided little time for preparation, which accounted for the difficulties experienced. To ensure an effective population census for 2006, planning would have to start now.

Computer Audit
Mr Mofokeng asked what steps had been taken to ensure that: all computer users change their passwords at least every 30 days; passwords of less than six characters are not allowed to be used; and all users are required to enter a password to sign onto the system.

Mr Lehohla stated that the Department's servers are highly protected. The above measures are all in place, and all systems are automated.

Mr Mofokeng asked what steps had been taken to (1) develop a formal security policy; to (2) ensure that the network and print servers, workstations and other devices were securely configured; and (3) to prevent intruders from obtaining sensitive information from the operating system servers by way of server banners.

Mr Lehohla explained that (1) the Department has tracking devices on all its laptops; and there are random physical checks on cars as they enter the complex; (2) sensitive data are kept on a separate server, and are not externally accessible.

Mr Nkosiyane added that the nature of the Department's security systems is such that they are alerted by external attempts to access the Department's servers. On the day prior to the release of census results, they picked around 80 000 attempts to hack into the Department's servers to obtain that information.

Mr Mofokeng asked the Accounting Officer why he had not complied with section 40(1)(a) of the PFMA, requiring him to keep proper records supporting the annual financial statements, and thereby severely delaying the audit and consequently the timely expressing of the audit opinion.
Had the matter been corrected for the current financial year, and would the Accounting Officer present the annual report to the Executive before 1 September 2003?

Mr Lehohla replied that the Executive had discussed extensively with the Auditor-General, regarding the financial records of the last financial year. They had formally requested an extension of the audit, and that the financial report be submitted late. The financial statements have already been submitted. The report is scheduled for submission on 30 September 2003.

Ms Southall said that, although the Accounting Officer had claimed the financial statements had already been submitted, the Audit Committee had not seen those statements. A meeting scheduled for August to discuss the statements had been postponed to September.

The Auditor General said that by 1 August, they should have had their Audit Committee meetings, for the Audit Committee to approve the statements, and prepare the Audit Committee's report. The Accounting Officer should submit the annual report to the Executive authority by the end of August, who then has one month to table that report to Parliament.

The Accounting Officer assured the Committee that they would attempt to keep to PFMA timelines.

6. Planning for Census 2006: questioning by Mr B Bell
Mr Bell asked what strategic initiatives had been identified to prepare the Department for the 2006 population census so as to eliminate the inherent financial risk.

Mr Lehohla responded that they were already behind time, with three years to go before the census. Sufficient infrastructure has now been built, which was been put in place in previous censuses. There is good infrastructure in terms of the processing of information gathered in the census, and this area is constantly improving. Regarding human resource management, they're not only looking at service level agreements between various players like human resources, finances and all other areas, but at plotting an integrated process whereby the support areas map on the process. The required budget allocation for the exercise would be around R1 billion.

The major cost drivers which impact on the budget, have been identified. The matter of how public participation will be dealt with, is also being looked into. Apart from that, they're also focusing beyond 2006, and how the management information systems will impact on the work of the organisation.

Mr Bell asked if these initiatives would include the formulation of appropriate action plans, and if they would be included in the performance contracts of the senior management.

Mr Lehohla responded that the census was a flagship activity of the organisation. It required the active participation of all staff, including management. Service level agreements are being worked on. A structure will be established to deal with operational and strategy issues, and to implement quick intervention strategies during the census period. The organisation was due to meet in September to discuss all these matters.

Mr Bell asked how far planning for the population census in 2006 has come.

Mr Lehohla replied that the organisation would determine its readiness for the census. Should they find that they are not sufficiently prepared for the census in 2006, the act allows for an extension. Looking at the internal ability, and the external demands in law to meeting requirements, required much deliberation and soul-searching.

Mr Bell asked if an estimate of the 2006 census had been included in the recent MTEF submission to National. He also wanted to know what that estimate was.

Mr Lehohla responded that National Treasury had agreed for this submission to be delayed to the end of August 2004, so the Department would have a stronger idea of what their needs will be. There are many factors which could swing the balance of costs, such as whether they make use of students and teachers at the management hierarchy, or whether they use unemployed people, and quickly lay them off afterwards, whether they make use of rented cars or people's private cars, and so forth. For the next financial year, they will seek R101 million to plan for the census, and according to the current state of the rand, they surmise they will seek R1 billion up to 2006.

Mr Nkosiyane stated that the areas in which financial difficulty was usually experienced by the Department, was in equipment, appointments, and payment of fieldworkers. However, structures are now being put into place in the provinces to effectively deal with those matters, especially in terms of financial administration.

7. Management and Implementation: questioning by Mr B Kannemeyer
Mr Kannemeyer understood that the census must have had a severe impact on the final opinion expressed by the Auditor-General's office, and that the Department itself was not responsible for determining how much money would be allocated to it in the budget. He also understood that the Department had other duties in times of performing a census. However, the running of the census is part of the Department's responsibility. The amount of time, energy, planning, management, and focus on implementation which was spent on the census, would have been extremely important.

He asked Mr Lehohla if (1) he had completed a risk assessment to reveal what the key risks would be in approaching census 2001, and what key risks had been identified during that risk assessment; (2) if he had supported each of the provinces with an operations manual of how the census would be conducted, and if training had been provided to those responsible for overseeing monies that would be disbursed to the different regions.

Mr Lehohla responded that in preparation for census 2001, a series of workshops had been convened with the key management team that would conduct the census, and in each of the projects, a risk analysis had been done. A key risk identified was that if the geographic programmes did not work, the Department would be "on its knees". He felt, however, that the Department dealt well with that risk area, in part.

Funding was always a high risk area. Each of the fifteen projects had its own risk profile, which the Department also had to deal with. Another risk area was the timely delivery of questionnaires to various venues. The biggest risk was the integration of information.

He confirmed that operations manuals had been circulated to inform people on performing the census. In addition, there was also an operations manual for managing the funds of the regional offices.

Mr Lehohla further informed the Committee that training had been provided for census workers.

Mr Kannemeyer asked what measures had been implemented to ensure that the accountability process for monies disbursed were put in place before those people who were to oversee the payment of funds for workers, were released.

Mr Lehohla responded that there were measures to ensure such accountability. The Department outsourced the recruitment and employment of workers. The outsource agents were the point of accountability. The accountability and responsibility still remained with the Accounting Officer. He informed the Committee that STATS SA and the outsourced agents are presently involved in court proceedings against each other over the matter.

Mr Kannemeyer referred to a file which contained the names of 100 000 people who were employed by the Department, as workers during the census of 2001. A quick look at only two pages contained in the file, revealed that a number of people under fifteen years of age, were employed as field workers during that census. He questioned the practice of employing under-aged persons by the Department. He felt that the mechanisms and operational manual put in place should have provided a framework to prevent this occurrence.

He further called into question the completeness of the information provided in the file.

Mr Kannemeyer asked what controls were in place at head office, and what management information was in place to ensure that regions were making payments only with regard to expenditure that was validly that of STATS SA.

Mr Nkosiyane responded that, to verify payments that had been made, cash book statements are submitted at the end of the year, with details of monies used.

Mr Kannemeyer asked Mr Nkosiyane of he had ever performed spot checks to verify the information reflected in the cash books.

Mr Lehohla informed the Committee that the Department had employed consultants to assist them with that manner of work.

Mr Kannemeyer noted the statement by the Chairperson of the Audit Committee that they had foreseen that there would potentially be overspending, and had attempted to alert the Minister. He asked if Treasury had ever been contacted, apart from the monthly reports which they had received from STATS SA, to indicate the potential over-expenditure.

Ms Swart responded that the first over-expenditure indication had come through in August. In September, Treasury decided to support the Department with an additional R220 million. The October report had no projection of overspending. The November report was the second indication of overspending, due to the extension of the census.

Mr Kannemeyer asked to be informed of the procedure when Treasury grants additional funds. Does it do so on the premise that the particular department should bring a revised budget showing its plans for the funds requested, or does Treasury approve the granting of a lower sum of money, requiring the department to make do with that.

Ms Swart explained that a request for additional funds goes through an evaluation process. An important consideration for Treasury is whether the expenditure is unforeseeable and unavoidable. After looking at the request put forward by STATS, Treasury was not satisfied that the overspending had been unforeseeable and unavoidable.

Ms Southall said that the point at which the Audit Comiitee wanted to see the Minister, was before the granting of the R220 million. The Committee knew that if the enumerators were hired, there would be a point at which there would not be sufficient funds to pay them, and that over-expenditure would occur. The R220 million was a process handled between Treasury, the Minister, and STATS South Africa, in which the Audit Committee was not handled. Furthermore, Ms Southall made the point that the present situation where the Minister of Finance was also the Minister of STATS South Africa, was probably not ideal. She felt this constituted conflict of interest.

Ms Southall stated that the over-expenditure could not have been entirely unforeseen, since the estimates that were being made in January of that year, were already pointing to a total expenditure of R893 million. STATS SA had always been very consistent about what the census would cost, and had maintained from the beginning that the money would not be sufficient.

8. Trading Account: questioning by Mr V Smith
Mr Smith (ANC) asked what progress had been made to ensure that the financial statements comply with generally accepted practices, and that the weaknesses in the Department would not again be reasons for disclaimers in the future.

Mr Fanoe explained that the trading account had been set up before the inception of the PFMA, by the old Treasury instructions, according to strict guidelines. He conceded that the trading account did not accurately reflect the results of trading. The Department took a decision to close the trading account, so that by the end of this financial year, it will no longer exist.

He further informed the Committee that the Department follows GAAP procedures.

Accounting Officer's Closing Remarks
In his closing remarks, Mr Lehohla informed the Committee that the Department was able to account for 100% of census workers who were paid in 2001. He would investigate the occurrence of the employment of under-aged people as census workers. He sought guidance as to the Committee's response to what the Department had done since the Auditor-General's pronouncement of the disclaimer.

Closing Remarks of Cluster Convenor, Ms K Mothogae
Ms Mothoagae thanked the Accounting Officer and his team for responding to the numerous questions put to them. However, they were concerned that the disclaimer of the Auditor-General's report would reflect on the 2002/3 report. In the interaction, the Accounting Officer had not satisfied the Committee on matters that gave rise to the disclaimer, especially around the R298 million expenditure. SCOPA's central task is to ensure proper financial management, and that the resources of the state are protected. They insist that structures in the PFMA are strictly adhered to, that the financial management and accountability, and internal structures as required by law, are observed. They hoped that the interaction would reflect in the coming report for 2002/3.

Closing Remarks by Chairperson
The Chairperson stated that the reports of the Auditor-General are an important factor in the work of SCOPA. The Committee has full confidence in the Auditor-General and his staff in the compilation of reports. He did not agree with departments who questioned the reports of the Auditor-General. The role of audit committees in departments were also very important. They are a very important tool for SCOPA, in terms of judging the status of financial controls within a department. SCOPA desired a unified report from the Audit Committee, reflecting on the affairs of a department. The independent members of the Audit Committee play a very important monitoring role. It was apparent that basic management tasks were also problematic within the Department, amongst other things.

Post-hearing Evaluation
The Committee was concerned with the status of the Department's financial management, and the approach of management towards this. They were generally not satisfied with the calibre of the responses to the Committee's probing into the Department's state of affairs.

Appendix 1:
Report of the Auditor-General to Parliament on the Financial Statements of Statistics South Africa - Vote 12 for the year ended 31 March 2002

The financial statements as set out on pages 60 to 84, for the year ended 31 March

2002, have been audited in terms of section 188 of the Constitution of the Republic of

South Africa, 1996 (Act No. 108 of 1996), read with sections 3 and 5 of the Auditor-

General Act, 1995 (Act No. 12 of 1995). These financial statements, the maintenance

of effective control measures and compliance with relevant laws and regulations are

the responsibility of the accounting officer. My responsibility is to express an opinion

on these financial statements, based on the audit.

2. Nature and scope

The audit was conducted in accordance with Statements of South African Auditing

Standards. Those standards require that I plan and perform the audit to obtain

reasonable assurance that the financial statements are free of material misstatement.

An audit includes:

• examining, on a test basis, evidence supporting the amounts and disclosures in the

financial statements,

• assessing the accounting principles used and significant estimates made by

management, and

• evaluating the overall financial statement presentation.

Furthermore, an audit includes an examination, on a test basis, of evidence supporting

compliance in all material respects with the relevant laws and regulations which came

to my attention and are applicable to financial matters.

I believe that the audit provides a reasonable basis for my opinion.

3. Qualification

As indicated in paragraph 3 of the management report, some 124 000 temporary staff

were employed during the population census. The control measures that the

department put in place to ensure that only valid payments were made to census field

staff for work actually performed relied heavily on the supervisors, also of necessity

temporarily employed, to certify the work and control the payments. The validity,

accuracy and completeness of R249 million paid to enumerators which is included in

note 6, survey allowances, (R298 million) could not be verified as the department could

not submit sufficient records for example, applications or contracts.

The accuracy of income tax (R8 million) and regional services levies (R901 491)

calculations on the above-mentioned payments could not be determined. The financial

records available at the time did not permit the application of adequate alternative

procedures to confirm the accuracy, validity and completeness of the amounts

mentioned.

Neither the income tax nor the regional services council levies had been paid over to

the South African Revenue Service or to the Regional Service Councils since the

relevant reconciliations had not yet been completed. These non-payments may result in

penalties and interest which may result in fruitless and wasteful expenditure.

3.2 Advances to provinces could not be verified

R25,4 million of the cash advances made to the provincial offices of the department for

3.3 Personnel information not submitted for audit purposes

Seventy one percent of personnel files requested for employees, other than census