Induction on Committee Mandate and Work

Public Accounts (SCOPA)

20 August 2019
Chairperson: Mr M Hlengwa (IFP)
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Meeting Summary

The Anti-Corruption Task Team (ACTT) briefed the Committee on its mandate, organisational structure, progress report and constraints. Notable progress had been the operational achievement pertaining to convictions. In the current financial year there had been 16 convictions resulting from ten cases. Government officials’ convictions were standing at 210.

Challenges faced by the ACTT since 2010 to 2019 had been:

  • No statutory mandate or overarching legislation;
  • Lack of commitment by some departments or executives;
  • Insufficient allocation of resources;
  • Drawn out processes (investigations and prosecutions) and full court rolls;
  • Operational results achieved did not reflect the provisions in legislation;
  • Perception or reality of political interference

Members asked questions about the non-statutory existence of the ACTT; clarity was sought for more details on political interference, and why the ACTT had realised only now that it could use existing legislation to establish itself as a statutory entity. They also wanted details of the proposed ministerial function and the purpose and function of the proposed Anti-Corruption Inter-Ministerial Committee (ACIMC).

Members suggested that perhaps guidelines on political interference needed to be furnished, supported by case studies. This would assist Members to brace themselves to deal with the thin line between intervention and interference.

The Auditor-General of South Africa (AGSA) took Members through an orientation package and briefed Members on its mandate, functions and the amendments to the Public Audit Act. The main focus was on “material irregularity,” which was defined in the amendments as “any non-compliance with, or contravention of, legislation, fraud, theft or a breach of a fiduciary duty identified during an audit performed under this Act that resulted in, or was likely to result in, a material financial loss, the misuse or loss of a material public resource, or substantial harm to a public sector institution or the general public.” The AG outlined the process of the referral process with other stakeholders by means of a diagram.

Members wanted to know about the financial implications of the expansion of AGSA’s mandate; to whom a certificate of debt would be issued; the looming challenge of litigation as a result of the material irregularity amendments; the AG’s choice of auditors; the safety and security of its staff members; its measures to counter attempts to bribe its auditors; whether state-owned entity (SOE) board members were audited; and AGSA’s working relationships with the departments’ internal audit function.

Meeting report

Opening remarks

The Chairperson welcomed everyone present and announced that the new Committee had already started work, but it was important to meet with the stakeholders that were making it possible for Parliament to exercise its oversight. The meeting was of a pleasurable nature. Hopefully, the Anti-Corruption Task Team (ACTT) would emphasise the urgency that was required.

The Auditor-General (AG) would submit audit reports in September that would indicate problems, and some of those problems would require prosecution, people to “walk the plank” and be subject to investigations. The outlook was consequence management, and hopefully the ACTT would fill in the gaps. The Committee did not work in a vacuum and its only challenge was that it did not have full sight of the month on month or quarter to quarter reporting, so when those reports came forth, the institutions and the Committee needed to ensure that it did them justice to ensure that never happened again. The bane of corruption was of serious concern, and the Committee’s correspondence was bulging with whistleblowers. It was going through each to ensure their veracity.

He hoped the engagements would be meaningful, based on a commitment to do the right thing. The ACTT had the special expertise to be able to zoom in on the issues.

The Committee would meet with the 13 municipalities cited by the AG which have had adverse or disclaimed findings for a period of three to five years or more. There was something fundamentally wrong for a municipality to be in that state. There would be hearings on that, and he appealed for the ACTT to be present. Corrective measures had to be taken, especially those that had been recommended by the AG. They could not simply be ignored.

Various stakeholders would be present at the meeting, and the Committee did not wish to speak about corruption at a high level that could not be touched. The aim was to go straight from the bottom up. The platform for these engagements would be created, so hopefully the ACTT would be present.

Next week the Committee would be visiting the Kusile and Medupi power stations, and Members would also meet with the Eskom management to discuss the pertinent issues which were crippling the organisation.

The Chairperson handed over to Mr M Dirks (ANC) to chair the first segment of the meeting.

Mr Dirks thanked the Chairperson, and assured him the ANC would ensure he received full support so that the Committee could carry out its mandate the way it should. ANC Members would not jeopardise the Committee solely because it was chaired by a Member of another party. Mr Hlengwa would receive all the support he may need.

Briefing by Anti-Corruption Task Team (ACTT)

Lt Gen (Dr/Adv) Godfrey Lebeya, National Head: Directorate for Priority Crime Investigation (DPCI) gave Members a background on the ACTT. He reported that the operational targets had mostly been met in the current financial year, with 16 convictions from ten cases. Government officials’ convictions were standing at 210.

Challenges faced by the ACTT since 2010 to 2019 had been:

  • No statutory mandate or overarching legislation;
  • Lack of commitment by some departments or executives;
  • Insufficient allocation of resources;
  • Drawn out processes (investigations and prosecutions) and full court rolls;
  • Operational results achieved did not reflect the provisions in legislation;
  • Perception or reality of political interference

Mr S Somyo (ANC; Chairperson of the Standing Committee on the Auditor-General) said during the presentation there had been striking terminology that referred to the “watching over,” and he had tried to link that to the rest of the content of the presentation. However, he was more comfortable when he heard that the existence was not a statutory body and that the actual power to exist or operate was persuasive and based on mutual agreements and interactions. He was happy that the ACTT was not supported by the regulatory environment, as the silo environment promoted objectivity from the ACTT. This independence would assist the ACTT to pursue any case without favour, fear or prejudice.

Mr B Hadebe (ANC) said the Chairperson had already indicated that some of the Members were new to the Committee. He was more concerned about the existence and the mandate of the ACTT, as well as the Anti-Corruption Inter-Ministerial Committee (ACIMC), not being statutory bodies and unregulated.

In the presentation’s slide 23 showing the proposed operational committees, it was indicated that amendments had been made in 2008 and 2012, and those had been the last amendments to the Act. Moving forwards, it was mentioned that the ACTT would use the existing law in order to derive its mandate. Since 2012 there had been sections of the Act that the ACTT could have used to derive its existing mandate, but it had not.

He asked for clarity regarding the extent to which the ACTT would be legislated, and why the team had realised only now that it should be legislated and that it could use the 2008 and 2012 amendments that had been effected?

Ms B Swarts (ANC) asked about the proposed ministerial function – how it would function, and why it needed to be in place. Since 2008 to date, it had not been implemented and it was now awaiting designation from the President.

Ms B Zibula (ANC) said she was worried that the new committee had already taken too long to be established. She hoped that the people who would sit on the committee would not delay its establishment and work. Time frames for its establishment should be set out, as well as time frames for cases.

Mr Hadebe referred to the ACTT’s constraints and challenges, such as political interference -- perceived or reality -- and asked for a detailed analysis of the actions of politicians that may be perceived as interference. Were there no guidelines or terms of reference that regulated political interference? Some of the actions may be perceived as interference, but in reality they were regarded as intervention. If there was nothing written down, political interference and intervention may be subject to interpretation.

Mr Dirks commented on the strengthening anti-corruption legislation, and said he was concerned about the kind of legislation that was drafted in Parliament without going to the masses on the ground to understand the root causes of the corruption plaguing South Africa. Perhaps there must be a change in the processes used to draft legislation, because sometimes legislation drafted to combat crime and corruption yield the opposite of what it intended. A case in point was the Public Finance Management Act (PFMA) and the Municipal Finance Management Act (MFMA).  Drafting anti-corruption legislation had to be done in a way that allowed people to participate and share their views on addressing corruption.

The Chairperson zoomed in on the fundamental point of political interference, and suggested guidelines to avoid Parliamentary overreach so that Parliament could manage its cooperation.

Among the constraints and challenges described by the ACTT had been a lack of commitment by some departments and stakeholders. He asked who the non-cooperators were, because that translated to the weakest link of the team. Where were the loopholes? The issue of cooperation had been raised in the previous Parliament.

On the matter of designated Ministers – when would this take place?

The biggest problem with consequence management in government departments and agencies was that the Accounting Officers, chief financial officers (CFOs) and top management personnel would be the ones signing off on things. When it came to prosecutions, it was the lower staff members who were facing consequences, but the bigger fishes continued to swim. The clerks and administration staff at the lower levels ended up taking the blame. This continued to be a fundamental problem, because the corruption continued.

Where were the bottlenecks in the investigations and prosecutions? The ACTT was a high level structure which should really be looking at the top leadership in management in order to fight corruption. Cosmetic prosecutions should be done away with. The outcome of prosecutions must be impact driven. The public service needed to assist Members with the issue of senior officials who were ‘well travelled’ – moving from one department to the other, while financially crippling the previous department. It needed to get to point where individuals were blacklisted until they had cleared their names. The way out should not be resignations, and then the case going cold.

In pursuing these cases, the investigative organisations should consider the opportunity cost as well when deciding whether or not they should pursue cases. If an individual stole R5 million from ‘department A’ and moved to another department, and if pursuing that case would cost R1 million, it should be pursued because that could potentially save the latter department from the potential theft of another R5 million, for instance. Hopefully, a more detailed discussion around this issue – repeat offenders that do not get prosecuted -- would take place. In addition, the seriousness of sanctions which departments were issuing, such as final warnings, recovery and so one, should be considered, but the impact the crime had on the whole value chain was not being looking at.

Therefore, the manner in which internal disciplinary measures were handled needed to be looked at and perhaps legislated. Internal auditors also pick these issues up, but management ignores the internal audit reports and act surprised when the AG picks up on these problems.

With the 30-day payment rule, the tenderers that should require attention were not the ones who were not being paid, because if officials got their cuts or bribes, they would ensure that those entities were paid within the prescribed time frames. Perhaps when investigations were being done, reverse psychology should be applied.

Finally, he emphasised the issue of consequence management and the fast tracking of the corruption cases that were on the court rolls. The ACTT should outline the frequency of their meetings, because Members wanted to know who was cooperating and who was not, in order to deal with the weakest links.

DPCI’s response

Lt Gen Lebeya responded that the amended Act should have been implemented in 2008, but if not implemented the system just continued because those at the higher level were supposed to be overseeing the function of the unit. In its place, the anti-corruption ministerial committee existed, so it was difficult to point out what was missing, even though it was not carrying out its function.

The law would say that there was a need to adopt a multi-disciplinary approach, and in that approach everyone would be required to carry out their specific mandate, which would assist the ACTT’s work altogether.

The Police Act, section 17(i), states that the President must designate Ministers to serve on the Ministerial Committee, but that gap was not seen. That Committee was supposed to do the oversight, but that did not happen.

Section 17(k) directs that there must be a multi-lateral approach, and that came with amendments, but it also did not suggest that it must be an entity. Section 17(j) then says that there must be an operational committee which would include representatives in the ACTT – so it was the same thing. The directorate felt that this was a duplication and had gone back to interrogate the law. The ACTT was now aligning the structure to the law and working as an umbrella body, and did not have entities operating outside the law when they were actually within the law. The President had to designate certain Ministers to serve on the Committee. Previously this was not in the law, but now the team had attempted to bring it into the law so they would not have fallen into a trap.

Mr Hlengwa said it was safe to assume that the designation of the Ministers’ function did not exist over the years in the Ministerial Committee. What was the link between Section 17(j) and (i)?

Lt Gen Lebeya said that the operational committee was based on (j) and the ministerial committee was based on (i), so they were now waiting for the President to designate for (i). It had not been in existence as they waited for the President to designate. The anti-corruption inter-ministerial task team was in existence, but the Act did not make provision for it, and they wanted the latter to be in the Act. Currently, the ACTT had to account to the anti-corruption ministerial task team, so they wanted the latter to be within the law.

The Chairperson said the operational committee would meet in the afternoon, and that committee must forward its report to the ministerial committee (i), so in the absence of that, the ACTT was working with something that was not within the law. How was the test law passed? It seemed there was a lawful committee (operational) working with an ‘unlawful’ committee. Why separate something that had been established outside the law when the law made provision for something lawful?

Ms Swarts wanted to know what the Ministerial Committee performed oversight over.

Mr Hadebe said in terms of the organogram, there was clearly a link between the operational and the ministerial committee. Since it had not yet been established, did it not obliterate the work of the ACTT? Was the team confident that those sections were tight enough for the ACTT to derive its mandate without any Glenister judgment that would trigger an amendment?

Mr Somyo indicated that he was getting a sense that the non-existence of the structure that the operational committee should be accounting to was obliterating its optimal functioning.

Lt Gen Lebeya said he would not classify the ministerial committee as unlawful. It was not in terms of legislation through an Act of Parliament, but if it was an intention by government to fight corruption, one could not call it unlawful. With that said, there was a law that stipulated that the ministerial committee should be established – it should be placed in an Act.

The Chairperson said that he had used the term “unlawful,” because why would the ACTT form another structure when there was a provision in law to form that structure. The issue here was the organogram – the solid line for accountability here was the Ministerial Committee.

Adv Shamila Batohi, National Director: Public Prosecutions, National Prosecuting Authority (NPA), said that this year the ACTT team had looked at the how the structure had been functioning with regard to improving and changing things. What had emerged from that was that the ACTT was not performing as well as it should be. The team wanted an engagement with SCOPA to be open and frank. Through that session, the team had discovered that there were various things that had happened that should not have happened, and vice versa. For various reasons during the session, there had been colleagues who happened to be in the ACTT in relation to cases that had disappeared and others that had not been investigated, such as the Bosasa case. The team had therefore looked at how it could deal with corruption properly.

The structure was a new proposed structure, and there was a provision in the Police Act regarding the operational committee, as well as provision for the operational committee to report to the Ministerial Committee. The team still needed to interrogate the function of the Ministerial Committee and what reporting to that Committee entailed. That work was yet to be done.

Regarding interference, the Constitution requires government departments to work together, but the NPA was always acutely aware of not interfering with each other’s mandates. They still needed to find ways to work together effectively to achieve the National Development Plan (NDP) objectives.

She agreed that the people that had been prosecuted in the past were always in the low levels of the organisational structure. The team was now trying to address these problems and deal with those who were the most responsible.

Lt Gen Lebeya said the team had assessed and audited the attendance at the meetings that had taken place among the stakeholders. The ACTT had then admitted its flaws and reported itself to the Director General (DG) cluster and indicated that there was poor attendance by the ACTT in the justice and crime prevention structure.

Mr Robert McBride, Head: Ethics, Integrity and Disciplinary Technical Assistance Unit, DPSA, said that if all relevant stakeholders within the cluster could do their work, South Africa would be in a hole. It seemed that there were changes with the new faces, but there was the same old behaviour. For example, take the matter of consequence management – a general had been found guilty of corruption, and the sanction had been suspension and the docking of one month’s salary. In this day of age, under the new administration, this could not be the outcome.  In his previous position, there had been no asset forfeiture undertaken in all the cases involving about 12 to 15 generals in the police. These were cases with case numbers.

IPID did not attend any ACTT meetings when Maj. Gen. Berning Ntlemeza was in charge, and that was on purpose. The issue was the capture of the criminal justice sector, and they needed to show through their actions that they were staying out of it.

At the recent Organisation for Economic Cooperation and Development (OECD) anti-foreign bribery conference in Paris, South Africa had got hammered for its lack of prosecutions. This had been a peer review exercise, and SA has up until March next year to start with prosecutions. They also became aware of other cases which the world was looking at – they had been told in a meeting by the Republic of Ireland that an Irish citizen had bribed a Bosasa official to influence regulation within the Department of Mineral Resources. They said they picked had this up from Agliotti, because they were keenly watching the Zondo Commission.

Adv Andy Mothibi, Head: Special Investigative Unit (SIU) said the team were ensuring that consequence management was implemented. While there were criminal prosecutions, there was also the civil part where they had to ensure that they improved on the recovery of assets. However, they had to ensure that they improved immensely at the coordination level. In many cases, they investigate and refer to disciplinary action, and find that when people become aware of a looming investigation they resign, and one sees them popping up in another department.

The bottlenecks around investigations and prosecution would be addressed, but while they focused on this aspect, they needed to enforce prevention as well.

Mr Vusi Madonsela, DG: Department of Justice, said that in all cases of corruption, the courts had jurisdiction over them, and they normally used a case management system which involved judicial officers and the prosecution. They get together to work out how to fast track the corruption cases, but they recognised that court rolls were clogged.

They had now established special commercial crimes courts which focus on the matters they were talking about. At the moment, they were only in six provinces - not in the Northern Cape, Free State and the North West. Those courts existed to deal with these matters and enabled them to be dealt with expeditiously. As part of the new medium term expenditure framework (MTEF), they we were looking at the establishment of these courts in the other provinces.

Adv Pieter Durant, Department of Justice, said that with respect to working with the relevant stakeholders, including the South African Revenue Service (SARS), there was legislation in the pipeline for which public comments had already been sought, and the Bill was being finalised. The team had written to the Minister to take it to Cabinet for promotion in Parliament. On the legislation and regulation front, the team was attending to that.

Auditor General of South Africa: orientation workshop

Mr Kimi Makwetu, Auditor General (AG), involved the Members in an orientation workshop (See orientation document attached).

He also briefly provided an overview of the Public Audit Act (PAA) amendments, illustrating it with a
diagram that outlined how the material irregularity process would be carried out. (See attached document for the diagram)

Mr Dirks wanted to know who audited the Auditor General of South Africa (AGSA). He commended the AG for the work that his office had been doing over the past 10 years. He asked about the trends over the past ten years and the reasons for outstanding audits in municipalities and departments.

Mr X Qayiso (ANC) asked about the mechanisms applied to deal with the risk of auditors being bribed to produce clean audits. He sought clarity on disclaimers, as outlined on page nine of the presentation. What were the financial implications of the expansion of the mandate of the AG, considering that the AG was self-funded? What informed the writing off of fruitless and wasteful expenditure?

Ms E Peters (ANC) also referred to slide nine, and commented that if one looked at the trends over the past ten years, there had been a regression. What needed to be done to improve matters?
She said that the public at times struggled to understand how the AG presented its information on reports. It could be a lack of information and understanding by the public, but the AG’s reports needed to be simplified. She appreciated the expanded mandate of the AG, but wanted to know the criteria used to determine the status of the nine municipalities. As a matter of concern, the issue of safety and security of auditors needed to be at the top of the discussion and agenda. It was worrisome that one found auditors being threatened in some areas when they went conduct their audits.

The Chairperson agreed that the issue of safety and security of auditors continued to become a problem and needed to be addressed. Auditing was an enabler, not a witch-hunt. He asked about the extent to which the AG interacts with agencies such as the ACTT, and whether it receives the kind of support that it requires.

He wanted to know to whom the AG would issue a debt notice. Did it go to the department or the accounting officer under which an issue of materiality had occurred?

It seemed that the risk of litigation would escalate, particularly the costs. He was concerned about that.

Mr S Buthelezi (ANC) said that at some stage, the AG would outsource the audit of state-owned entities (SOEs). Was that something that still happened? Who audited the impact of the appropriations disbursed to departments? Did the AG audit the performance of board members? What was the AG’s relationship with the internal audit functions in departments? What was the AG’s view on the internal audit function? He also asked the AG to comment on matters of emphasis, and the weight the AG gives to them.

Mr Somyo said that in the Standing Committee on the Auditor General, the AG had indicated that it did not audit Eskom, and he wanted to know whether the AG had considered taking up those audits.

AGSA’s response

Adv Marissa Bezuidenhout, Legal Services, said that the issuing of a certificate of debt was administration of justice, so the process must be fair, rational and reasonable. One could not issue a certificate of debt to an accounting officer who did not have the powers to enforce a recommendation or a remedial action by the AG. In addition, one could not issue a certificate to them if they did not have a reasonable amount of time to perform the remedial action. The certificate of debt would follow the accounting officer, granted that he/she had reasonable time and opportunity to implement the remedial action by the AG. The certificate would follow that individual and could not be inherited by another official who later occupied that position.

The AG had already been in a litigious space for a long time -- it was not as a result of the new powers that were now entrenched in the new law. Accounting officers did not always agree with the audit outcomes and they would take an audit report on review. To deal with this matter, the team had recently drafted a litigious strategy and policy to curb litigious pressures. The new provisions might come with an increase in litigation. The AG had made financial resources available for this.

Ms Linda Neville, Executive: Research and Development, explained the criteria applied to decide which municipal auditees to focus on. They looked at the outcomes of these auditees, and who had had the highest irregular expenditure for the past few years.

There were quite a number of outstanding audits, and most of them were at the local government level. It was mostly municipalities that did not produce financial statements or produced them late. The AGSA did do not issue a disclaimer or opinion until they had finally received the financial statements. Some of the financial statements were actually not up to scratch or put together well. There were a few municipalities where the audits were late due to various reasons, but there had been an increase in the number of outstanding audits.

Findings of irregular expenditure should be based on a detailed process that must be undertaken, and all reasonable steps taken to recover the funds. If after all reasonable steps had been taken but the funds could not be recouped, it would be under those circumstances that irregular expenditure would be written off.

Ms Alice Muller, Acting National Leader: Audit, responded on safety and security and said that the AG had recently started safety awareness with staff members. A lot the areas where staff found it difficult to work were related to matters that were not directly targeted at the AG’s staff at the premises. They had therefore engaged with the South African Police Service (SAPS) to create a relationship with AGSA business executives in the provinces, and the provincial commissioners. There was now a close relationship. When the teams go out to municipalities, the senior manager is tasked to meet with the senior commander in every jurisdiction and create a visible policing effort.

When there were threats at the premises, AGSA teams were withdrawn immediately and once the law enforcement officers had conducted an assessment, it would be determined whether the team would go back or the audit would be finalised at AGSA’s offices. There had been a number of audits that had been finalised in their offices due to the unsafe environment their teams had been in at the time.

The leadership of the organisation takes a breach of ethics very seriously. They act on ethical breaches immediately, and do what they can to prevent them. They always encourage their teams not to take risks.

Mr Makwetu said that AGSA was audited by private audit firms, but there were not too many of them that qualified to audit it. Although the majority of the private firms had the commercial appetite to audit the AGSA as statutory auditors, the challenges were largely financial. The AGSA allocates work on an outsourced basis, and many were barred from auditing it because there would a conflict of interest, so it ends up with a small pool of auditors to choose from.

The Audit Committee members were all independent, and handle the process of appointing an auditor. They submit their recommendations to the Standing Committee on the Auditor General to consider the recommendation.

The AGSA always passes its audit. If it did not, it would be a nightmare.

The disclaimers had decreased over the years due to the efforts that had been employed, and some people had been incentivised for that.

As for bribery, it was a nightmare for any auditor. The AG could not control how its auditors may conduct themselves when they did field work. Most of its auditors were chartered accountants who had to subscribe to the ethical codes of the profession.

When the new provisions of the PAA came to fruition, there had been a frank conversation with senior management at the AGSA office, and everyone was aware of what needed to be done.

On the financial implications of the amendment, the finances were quantified at a high level and a submission had been made to Treasury. The amount involved was about R34 billion for the unit that AGSA believed would manage the material irregularities across the country. It was a once-off appropriation that had been proposed, and they were working with Treasury to get access to it.

AGSA had a business investigation unit which employed people who had forensic training. There was a difference between a normal auditor, and an auditor with forensic insight. AGSA empowers its auditors through that unit in order to have forensic insight when carrying out audits.

Regarding ACTT interactions, AGSA had met with a lot of agencies to sensitise them to the fact that the AG would be relying on them, and would interact with them to ensure that its work did not disappear. It a direct line to the Speaker of the National Assembly, as well as direct lines to the relevant Ministers and portfolios.

AGSA had reviewed the funding model in the fourth Parliament, and had proposed various options to the then Portfolio Committee. However, the advice the team had received at the time from counsel was to remain with the billing option and not to go with a full appropriation from government. With the billing option, the only challenge was recovery. Collections had been a problem over the years, but steps had been taken to minimise that.

For small municipalities that may struggle with audit fees, the Office of the AG had made an arrangement with the National Treasury to access the audit fee through the National Revenue Fund. The agreement had been finalised and agreed to by the Minister of Finance.

The meeting was adjourned.

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