The AGSA briefed the Committee on the mandate of the Chapter Nine institution, the audit process, audit opinions, root causes of continued poor outcomes, the role of oversight and the Executive Authority, oversight structure and the expanded mandate of the AGSA following amendments to the Public Audit Act.
The Committee asked about the continued use of transfer payments in the Department, the new remedial action powers of the OAG and whether it could be used respectively and then if OAG had done any follow-ups on the fruitless expenditure in the Department.
The Department of Environmental Affairs, Forestry and Fisheries, with the Minister present, then briefed the Committee on the implementation of Modified Cash Standards but this presentation was cut short. The Department had not prepared on issues that the Committee wanted to discuss and be informed on. It was then decided that the Department would present the desired report to the Committee at a later stage.
The Department then briefed the Committee on the quarterly report of the Environmental Affairs branch but was not able to report on the Forestry and Fisheries branch as there was not enough time.
The MPs asked the Department questions on how better it would deal with gender employment equity targets? How did the Department plan on solving the problem of vacant positions? The issue of air quality and the monitoring of environmental stations were also raised. The Department was also asked how it would tackle the issue of mercury and other hazardous chemicals.
The Chairperson opened the meeting.
Introductions were made.
The Minister of Environment, Forestry and Fisheries, Ms Barbara Creecy, was accompanied by a large delegation from the Department, including the Director-General and Deputy Director-Generals as well as other staff of the Department. The Minister informed the committee that the Deputy Director-General of the Fisheries branch was suspended and that there was an investigation into financial irregularities. The disciplinary process was ongoing.
Briefing by Office of the Auditor General (AGSA)
Mr Eugene de Haan, Deputy Business Executive Manager, AGSA, explained that the purpose of the presentation was to explain what the AGSA does in terms of executing its oversight and how it can help committee members to interpret the AG’s management reports and audit reports in order for them to exercise their oversight role.
Mandate of the AGSA
AGSA gets its mandate from the Constitution and it contributes to strengthening the country’s democracy by enabling the effective oversight, accountability and governance. AGSA does that by auditing and thereby building confidence that South Africa’s democracy is working. A democracy has effective institutions and AGSA has confidence that the country's democracy is working. Section 188 of the Constitution requires AGSA to audit financial statements and the financial management of a government institution. The Public Audit Act in Section 20 gives effect to that mandate by requiring that on an annual basis AGSA has a compulsory mandate to perform audits. AGSA's audit report must cover three areas. One, is an opinion on the fair presentation of financial statements to ensure they reflect fair representation of the financial state of the institution. The second part is compliance with legislation and the third is on reported performance information. Section 5 also gives AGSA a discretionary mandate to perform additional tasks such as special audits and performance audits.
On an annual basis AGSA must audit financial statements that have been submitted to them. They also audit the performance report, as well as compliance with laws and regulations. And in the process AGSA ensures that it is adding value to the public. AGSA reports those individual findings to management, monetary officers, and accounting authorities. It provides them with value adding recommendations on how they can rectify wrongs. At the end of the audit AGSA produces audit reports and those are made public. They also report on those audits to elected public representatives through municipal council, provincial legislatures and Parliament. In cases where there are unfavourable audited outcomes, AGSA engages with role players starting with management of the institution to ensure that there is commitment from them on how to remedy the situation. Those commitments together with the root causes of the negatives outcomes, are included in the general report the Auditor General tables in Parliament annually.
Role of the Auditor General
Sometimes there is confusion as to what the AG does versus what it does not do. The AGSA provides assurance that financial statements are free from material misstatements. But it does not guarantee that everything in the reporting is correct. On the performance reports, AGSA reports on their usefulness and reliability to ensure that the information presented in reports is reliable and useful. It does not provide assurance on the achievements of service delivery targets. AGSA then also reports on material compliance with the relevant key legislation. Public service has a lot of legislation so AGSA will perform scoping of legislation to decide focus areas so that they do not audit everything. The key areas will state the piece of legislation that is going to be audited as well as the particular sections. AGSA does not provide assurance that all applicable legislation has been complied with. The institution also identifies key internal contradictions that will be addressed. To give information on deficiencies, AGSA looks at both risk of material misstatement and of compliance. They do not perform identification of fraud because that requires an investigation. AGSA does not perform audits on investigations.
Within the audit process there is risk assessment, risk response and reporting. On the risk assessment side AGSA agrees to terms of engagement with the audited entity. A plan of the audit will be created. This is a guiding document on the scope which includes details such as who is going to be involved, when the audit is going to be completed and the extent of the process. Risk assessment procedures must include an in depth understanding of the entity so that AGSA is able to identify the possible risks of material misstatements and noncompliance. For reporting, AGSA reports individual findings. As findings are identified, AGSA reports them to the management of the entity, gets their responses and then an audit report will be produced. Reports are given to management, the board or accounting officer or authority. This is then presented in the legislature / council, in public and are subsequently published. The published report will include the audit opinion and material findings.
The AGSA generates about five classes of audit outcomes. The worst one is the disclaimed audit which means AGSA could not make sense of the information provided to them. Usually there is a lack of supporting evidence to support the numbers presented. Therefore, AGSA is unable to provide an opinion on whether the numbers are correct.
The second audit outcome is an adverse opinion. Here AGSA is able to audit, but there are many misstatements that affects the majority of the items in the financial statements. It renders the entire set of financial statements to be meaningless.
Then there is financially qualified. This is when the financial statements have material misstatements but AGSA can pinpoint the items. The audit report will state that the findings can be relied on with the exception of a few sections. AGSA will indicate the misstatements on the individual items. The report will also have other findings on compliance and performance.
The fourth outcome is financially unqualified with findings. This means that AGSA can make sense of the numbers presented on the financial statements and can rely on them. They are free from material misstatements. However, there are still material findings on legislation compliance or the performance report.
Finally, there is the clean audit outcome, which means that the findings have passed all three elements. Therefore, the financial statements and performance reports are free from material misstatements, and AGSA could not identify any material non-compliance.
Adding Value to Parliamentary Work
The information that comes from the AGSA has influence in parliamentary processes. This is because AGSA shares insights and root causes on audit outcomes and provides the commitments and recommendations that will help improve matters. The information has strengthened parliament’s oversight work and adds value to its work.
Trends over the past 10 Years
The slides show audit outcome trends over the past 10 years. The audit outcomes of the year ending 31 March 2019 are not yet available. They still need to go through due process. The trends presented cover up to 31 March 2018 and incorporate both national and provincial governments.
Starting with the 2008/9 financial year, only 10% of the institutions had clean audits; 18% of institutions have disclaimed audit opinions and that it was quite a huge number. There have been fluctuations and stagnations throughout the years. But it is noted that in 2015/6 there was quite an improvement with 28% of institutions with clean audit opinions and not a single audit was outstanding. Disclaimers were reduced to 6%. However, in 2017/18, only 17% of the institutions have clean audit opinions – this is without counting the 9% that is outstanding and there are still 6% that got disclaimed opinions. The bulk of institutions are sitting in the middle meaning their financial statements can be relied on and are free from financial misstatement. Although they are still battling with compliance and or performance reports.
Over the past 10 years the figures are indicating that there is a trend towards irregular expenditure. Municipalities incurred R21 billion of irregular expenditure in 2017/18. This expenditure is in contradiction of the law. Services were delivered but the law was not adhered to. This is very serious because there is disregard of the law and other checks and balances are ignored. Provincial government had R50 billion of irregular spending that year. It is also worth noting that as of the end of the year there is R161 billion worth of irregular expenditure that is yet to be dealt with. When irregular expenditure is reported, there must be an investigation. Where losses are incurred there must be a recovery. Criminal action must be taken if there was criminal conduct. As of 31 March 2018 in provincial government, R61.8 billion has not yet been investigated. In local government, R71 billion from prior years has not yet been dealt with in the accountability processes. As for fruitless expenditure, there is similar increase - national and provincial government are sitting at R2.5 billion and local government is R1.3 billion in 2017/18.
History of Unauthorized Expenditure
There are cases where institutions will either exceed the budget or will spend money for purposes other than what it was approved for. That is what is meant by unauthorized expenditure. For 2017/18, there was R12.8 billion of unauthorized expenditure at national and provincial government. For local government it was R2.1 billion. This expenditure must be investigated by the department. If it is confirmed that there is no person liable in law for the irregular expenditure, the accounting officer or accounting authority may write off the irregular expenditure as irrecoverable. Only R9 million which is less than 1% of the irregular expenditure was recovered from the liable person. R5.8 billion was condoned meaning that those with the power to do so have looked at the expenditure and the cost and determined that the expenditure was understandable. For unauthorized expenditure, less than 1% of it was recovered. R1.6 billion was approved through parliamentary or council processes where the unauthorized expenditure has been investigated.
For the unauthorized expenditure, R147 million of it was recovered or transferred to recoverable for processes to start recovery from the liable people. Over R1.6 billion was approved, meaning that the parliamentary or council process for approving the expenditure had been undertaken. In addition, a large amount of R6.5 billion was written off, meaning that it was lost and could not be recovered.
On fruitless expenditure, this cannot be condoned, its either recovered it or written off as irrecoverable. That means the person liable for this is either bankrupt or could not pay back the money. R16 million was recovered, R1.3 billion was written off and R5.6 billion is still waiting to be dealt with.
Negative Audit Outcomes
The root causes of negative audit outcomes according to our assessment is there is blatant disregard for controls, compliance with legislation and AGSA recommendations. There are capacity gaps in the institutions to be able to effect proper and effective financial management. There are a lot of vacancies and instabilities - a lot of senior positions are either vacant or are in an acting capacity. Other identified causes are unethical behaviour in the administration and also by political office bearers and leadership. Failure to address the transgressions creates a culture of no consequences.
There have been a number of initiatives implemented to improve audit outcomes. AGSA has had a lot of regular engagements with the leaders of institutions. That includes door to door campaigns and regular engagement with accounting officers to discuss the status of records review. There are regular road shows to share the audit outcomes, and the Auditor General will appear on radio, parliament and legislatures to discuss outcomes. There are also capacity building initiatives that happen in various institutions such as the parliamentary committees and working with National Treasury to ensure initiatives are implemented. AGSA has an input on those initiatives so that they can be effective in addressing a culture of poor audit outcomes.
Public Audit Act Amendments
On 1 April 2019, the amendments to the Public Audit Act come into effect There were three main changes:
1. If AGSA identifies a material irregularity, it can decide to refer it to a public body such as the Hawks, NPA, SIU and Public Protector. Alternatively, AGSA does not have to refer if there is material irregularity. It can go through a process where recommendations are included in the audit report which then become binding.
2. If the recommendations are not implemented by the institution, then remedial action is recommended.
3. If remedial action is not implemented, a certificate of debt is issued.
Those are the three major changes – AGSA refers, recommends remedial action and if that is not implemented, a certificate of debt will be issued.
Looking at the definition of material irregularity, it is divided in three distinct sections. First, there must be irregularity which is non-compliance with the law. There is fraud, theft or breach of duty.
Secondly, material irregularity must be identified during the course of the audit. It cannot be from 10 or 20 years back. It must be during the normal course of the audit.
And lastly, there must be a material impact. That material impact must either be a material financial loss, misuse of material public resources, or harm to the public or to public institutions. Irregular expenditure must have resulted in a material loss. When looking at harm, this includes examples such as water pollution, the safety of people and misuse of resources.
Examples of material irregularity were provided:
• A supply chain open tender process which is meant to be competitive. The idea is to get the best service provider at the best price. But if the allocation was given to a service provider that is more expensive than another, the difference will then be regarded as a material loss. For instance, a water bottle can generally be bought in the market for R10.But if there was a tender process in a department and a water bottle was sold for R15, the R5 difference from what it could have been procured for will then be regarded as a material loss. If there is also suspected bribery, that would be regarded as material financial loss.
• If the board of a public entity is not executing its responsibilities or is not making decisions and taking the utmost care, it also meets the definition. We are aware of the VBS investigations that took place last year. There was a regulation that stated that there cannot be investments in mutual banks. But yet decisions were made without taking due care. And given that money was lost, it also meets the definition.
• With audit disclaimers, there is insufficient documentation. AGSA cannot audit the set of financial statements if there is lack of documentation to verify that money has been used for intended purpose. That can be an indication that there was substantial harm or potential loss was incurred.
Difference between material irregularity and irregularity
Irregularity is a contravention of the law. Material irregularity will also touch on fraud, theft, and duty not being adhered to. Irregularity is only reported when there was expenditure. If the procurement process is not followed, as soon as there is payments being made on that contract there will be irregular expenditure that is being incurred. That can be compared with material irregularity in terms of the new definition, where AGSA does not just look at the expenditure. AGSA also looks at fraud and breach of financial duty.
In terms of impact, with irregularity, there is none that has been specified in the PFMA. But the Public Audit Act now stated that there will be impact if there is likely material financial loss or there is actual financial loss, or there is misuse of material public resources or there is substantial fraud. But the impact is very specific and refined in the Public Audit Act.
When such expenditure is incurred, the amount paid in that year will be regarded as irregular expenditure within the financial statement. But with material irregularity, it considers both that expenditure as well as other social impacts. For example, if a tender for was issued and processes were not followed, and the best client was not selected, that will be regarded as irregular expenditure. The amount that has been paid during that financial year will be regarded as irregular expenditure, and must be disclosed in the financial statements. But in terms of material irregularity, the difference between the contract amount and what it could have been if correctly awarded, is regarded as a material loss.
PFMA and the role of Accounting Officials
The PFMA is very clear on the responsibilities of an accounting officer. The Public Audit Act is not trying to supersede or to take away from it. It is actually there to remind accounting officers of their responsibility. The PFMA stated that when there is potential non-compliance in irregularities, then there has to be a preliminary investigation. If applicable, the accounting officer must put steps in place to prevent any irregular expenditure or further loss. It must be reported to the police and there must be attempts to collect this money back. There must be steps in place to determine within a department or entity if it is necessary to recover the money. Therefore, the PFMA gives very specific steps stating that authorities cannot just condone irregularities. There must be processes to investigate it. Accountability must be ensured, and the money must be recovered.
With the material irregularity process, which came into effect on 1 April 2019, it is not a short process. It is going to take some time. AGSA started this year and has only identified 16 auditees for the 2018/19 financial year. In detecting those 16 auditees, AGSA went through a process of identifying material irregularities during the course of the audit. When AGSA identified them, the accounting officer was notified, and given 20 days to respond to the notification of the material irregularity. AGSA will then allow time for those recommendations to be implemented. Reasonable time must be allowed for the accounting officer to execute his or her responsibilities. If time given was six months, then after that period, AGSA will again follow up if the recommendations were implemented. If not implemented, then remedial action will be implemented on the accounting officer. Once remedial action has been recommended, when following up, the accounting officer will be given 20 days to respond to the steps that have been taken. Once AGSA gets the responses, they will be assessed. If they are insufficient, the accounting officer will be notified that AGSA is going to start the certificate of debt process. Once the certificate of debt starts, the entity will have the opportunity to do a verbal representation to the Material Irregularity Advisory Committee which is appointed by the Auditor General. Based on the Committee’s recommendation, the Auditor General will consider whether the certificate of debt is going to be issued or not. This entire process of communication, notification, receiving responses and giving opportunity to do verbal presentation, can easily take up to 18-19 months. For example, for this year if there are going to be certificates of debt, it is only going to happen in October 2020. That is to ensure that there is reasonable time, there is a sound process, and that everything is in place before getting to the certificate stage.
Environmental Portfolio Prior year audit outcomes (BRRR for 2017-18).
The Auditor-General found that unauthorised, irregular as well as fruitless and wasteful expenditure increased over 5 years.
The Department had to change its method in accounting for transactions from transfer payments to capital assets and goods and services. The Department was given an exemption by Treasury to get its accounting systems correct until 2015/16. As soon as the exemption fell away the Department was still accounting for transactions using transfer payments.
Preventative controls to detect non-compliance risks were not always in place at the department.
Inadequate record keeping of financial and performance information.
Forestry and Fisheries Prior year audit outcomes (BRRR for 2017-18)
None of the two auditees (Forestry and MLRF (Fisheries) received an unqualified with no findings opinion during the last 4 financial years.
There was a regression in the audit outcome during the 2017-18 financial year on account of the MLRF receiving a qualified audit opinion.
Other matters reported for the MLRF during 2018-18 financial year are as follows: Credible performance reporting; expenditure management (irregular and fruitless and wasteful expenditure); consequence management matters; procurement and contract management matters; and strategic planning matters;
Forestry: There was material adjustments corrected after year-end on the biological assets line item. Matters not corrected could potentially impact the audit outcome during the 2018-19 financial year if not attended to.
Challenges exists with regard to Forestry management viz. safeguarding of plantations; illegal harvesting and theft of trees; vacancies; etc.
The Forestry and Fisheries Branch have not had a CFO for some time. They also do not have an acting head of supply chain. Without these two critical positions being filled the entity was exposed to non-compliance.
Slow response to improving key controls and addressing risk areas.
Inadequate consequences for poor performance and transgressions.
The AGSA recommended the Committee to:
-request management to provide feedback on the implementation and progress and of the action plans to address poor audit outcomes during quarterly reporting
-request management to provide quarterly feedback on status of key controls, especially around project management/ payments on key projects implemented by implementing agents
-obtain a list of action taken against transgressors must be provided quarterly to the Committee for follow up for all irregular and fruitless and wasteful expenditure incurred
-request feedback on actions implemented to improve the financial health, budget management and control and turnaround plans/ interventions
Mr N Singh (IFP) asked for clarity because the Department wants to obtain a clean audit by the end of 2018/19 but that audit would have already been completed and the outcome of that audit was still unknown. He requested that the Department deals with the problems it had and come back later to tell the Committee how it plans to achieve a clean audit for the 2019/20 financial year.
Mr N Paulsen (EFF) raised concern that only R9 million, out of a total R104 million of irregular and wasteful expenditure, had been dealt with. The Minister had inherited a headache with the Department of Environmental Affairs. Part of solving the problem going forward was to find the culprits, deal with them and make an example out of them. Irregular and wasteful expenditure should not be tolerated. The Department had gotten away with a lot of unethical behaviour.
The Chairperson noted that he was also confused as to why the Department stated it wanted to obtain a clean audit for the 2018/19 financial year but asked that any questions be kept and held for after the presentation. He asked for the Department to proceed with its presentation on the implementation of the Modified Cash Standards (MSC).
Minister Creecy said that it would be appropriate, once the Department has the audit report for this financial year 2018/19, to present to the Committee how it will deal with all matters of emphasis and matters of qualification. Secondly, the Department would put forward to the Committee a realistic timeframe in which to achieve a clean audit. In her experience of dealing with audit outcomes, it was not possible to move from a disclaimer to a clean audit in one year. If anyone thinks that it is possible then that is because of a lack of experience.
Minister Creecy stated that the Department should not be presenting ‘pie in the sky wish lists’ before the Committee but rather the discussion should be deferred until it has the audit outcome. The Department should then present a realistic presentation to the Committee as to how to reach a clean audit outcome. Once the audit outcome has been received by the Department and there was irregular expenditure the instruction to the Director-General will be that all irregular expenditure must be investigated. An independent forensic investigation was the standard approach to irregular expenditure. That will then advise the Department on what to do about it.
The Minister affirmed that she was serious about irregular expenditure and if there were findings it would result in disciplinary action.
The Chairperson responded that the Committee still wants to hear from the Department. Any money lost still belongs to the people of South Africa. The process to achieve a clean audit starts now and that means taking the past records into account.
Ms H Winkler (DA) asked for clarity on 2017/18 adverse finding within DEA on the issue of transfer payments and why it had not been classified under goods and services in that financial year already. Why was it still under transfer payments the following year? Or was it not? Then, in terms of the Department being geared to implement certain controls, how far is it in achieving this outcome? The Department did touch on the 2018/19 audit and said that there were still great efforts being undertaken but that there were qualification areas. Are these qualification areas still on the basis of misallocation of funds under transfer payments when they should have been under goods and services? If this was so, why has it still continued?
The Chairperson interjected and said that the questions put forward were not for clarity and that they should be held until the questions and discussion part of the meeting.
Ms S Mbatha (ANC) said that once the Auditor-General Report was submitted to the Department, it must immediately respond to the issues that have been raised. By now the Department should have had time to respond to the Auditor-General’s report of 2017/18. What was its response? What were the corrective measures that they have put into place? What processes and plans has it put in place in response to the Auditor-General’s report?
Briefing by Department of Environment, Forestry and Fisheries (DEAFF) on the implementation of the Modified Cash Standards (MCS)
Ms Nosipho Ngcaba, Director-General, DEAFF, presented on the implementation of the Modified Cash Standards.
The AG had outlined that subsequent to the Department having not received the exemption, the budget in terms of allocation and appropriation was still under transfers, and therefore the Department still applied the transfers’ regulation in respect of 2016/17. Then the AG presented a paper guiding the Department on how it should treat the various programmes within the Environmental programme portfolio. There are different types of transactions, some qualify to be transfers even now, and others are not. The process with the Accountant General assisted the Department in breaking down all of the different programmes. Similarly, the Department has the Green Fund. The Green Fund was administered as a transfer to the bank and they issue loans. How that was accounted for now was still challenging for the Department but it is reported on in the annual financial statements. Because the Department does not carry the loan book there are other tricky disclosures that need to be discussed with the AG and further guidance was required. The presentation outlines what has been done. There was improvement but there are still areas where the Department has challenges. Further details on 2018/19 would be provided at a later stage but in the document the Department has given some areas that have been highlighted by the AG. Maybe the Minister was correct that it was premature for the Department to get into a discussion on the 2018/19 audit report because the AG has not completed that report.
The Department has presented previously on the turnaround strategy. The CFO can highlight the areas that the Department has made and effected changes with respect to the turnaround strategy. The Department has appeared before the Standing Committee on Public Accounts (SCOPA). The Department presented the same information that the AG presented to this Committee to say that these were the areas where there were differences and it was not money that had disappeared. It was actually how the money had been disclosed and how the transactions had been treated in terms of the Department’s processes as supplied by Treasury regulation.
Vote 27: Environmental Affairs PC Briefing Quarter 4 Expenditure Report 1 April-31March
Ms Esther Makau, Chief Financial Officer, DEAFF, took the Committee through the Quarter 4 Expenditure Report.
Expenditure was at 90% by the end of the 2018/19 financial year.
For Programme 6 (Environmental Programmes), where the Modified Cash Standards primarily operates, only 84% of funds were spent in 2018/19 because the Department was also looking at re-categorising that. Classification in accounting treatment of Extended Public Works Programme projects has changed from transfers to goods and services. Goods and services stands at R1.1 billion and Extended Public Works Programme stands at R3.1 billion and that was where the Modified Cash Standards were being applied. The Department still has other Transfers including Departmental Agencies and others. The Green Fund has not even been transferred to the bank because the accounting keeps on changing.
The CFO went through the next few slides relatively quickly.
The Chairperson said that Members of the Committee felt that the CFO was browsing through the presentation and was not helping them understand the report. The slides cannot simply be browsed through as that was not helpful for the Members of the Committee.
Ms Ngcaba intervened and stated that the Department was not aware that the Committee wanted it to present the same report as they did to SCOPA. The Department did not prepare the slides that deal with how the changes were made in detail. What the presentation shows was how the EPWP has been moved from transfer to goods and services. Secondly, the Office of the Accountant General has allowed the Department to give a detailed breakdown with regards to the reflective information of the financials with SCOPA. She suggested that the Department present the report that it had given to SCOPA at a later stage or present it when it presented the 2018/19 Audit Report because the Department did not prepare the presentation to deal with that specific information. She asked the Members to allow the Department to bring the presentation that they did previously together with the points the AG has raised, as to what were the problems and how the Department resolved them with guidance from the National Treasury.
The Chairperson replied that the Committee was interested in job creation and whether the Department used its funds appropriately. Did the Department get value for money? When the presentation started the Committee had assumed it would deal with the turnaround strategy and how that was implemented. The Committee wants to know how the Department was trying to turnaround the situation.
The Committee Members asked for a short break and then to reconvene the meeting.
The Chairperson says that there was a breakdown of communication in terms of what needed to be presented.
The Chairperson then opened the floor to suggestions on how to move forward with the meeting.
Ms Mbatha said that the Department had not prepared for what was supposed to be discussed in the meeting. She requested that the presentation not be continued. The Department needed to go and prepare properly and give a proper presentation that will align itself to what has already been presented in the meeting.
The Chairperson said he was under the impression that the Department would be presenting on its turnaround strategy and acknowledges that they may have presented that turnaround strategy in February but most of the Committee Members were not there. It was obvious that the Committee would want to see that turnaround plan if it wants to perform its oversight duty properly. If the turnaround plan was submitted to the Committee in the form of a document that would be helpful so that it can be compared to the 2018/19 Audit Outcome when it is released in October/November. The Committee agrees to move on to the next item on the agenda. The floor was opened for questions for the Office of the Auditor-General.
Ms Winkler asked the Minister if the audit outcomes of 2016/17 and 2017/18 would be forensically investigated to establish if there had been any irregular expenditure? Could the Committee receive a detailed breakdown of all the amounts accrued under the rubric of the irregular expenditure level? Ms Winker would like to see where exactly the money went and the percentage that was part of EPWP. A way must be found to recoup those funds if funds have gone missing due to maladministration.
Mr P Modise (ANC) asked when the Department coming back to give that presentation? A clear timeframe should be given to the Department and the Committee. Referring back to the presentation by the AGSA he asked when was the Portfolio Committee or Parliament interfacing with the legislation that allows the Auditor-General to hold Accounting Officers and Authorities accountable? When was it going to be enforced? How was this provision going to be applied? Would it be applied retrospectively or not?
Ms T Mchunu (ANC) agrees that a timeframe needs to be given on the presentation that the Department needs to prepare for the Committee. She suggested that the Committee gets the report immediately after the AGSA report. The AGSA reports on departments should be ready by end of September or beginning of October and that should be the timeframe given to the Department. On the new mandate given to the AGSA on ability to take remedial actions on their findings, have they done anything on their previous findings? The AGSA spoke about irregular expenditure in government generally and the large amounts of money that has not been recouped. Is it possible to begin the process of trying to recoup that money? Was there any process that has been started by the AGSA to recoup those funds? How far does the AGSA monitor the remainder of the unauthorised expenditure?
Ms Mchunu raised a query on the process of sampling by the AG. Did sampling provide an accurate picture on whether there was corruption in a Department or not? Does it give a true reflection of what was happening in the entire Department? How often does the AG rotate the auditing process so that different sections within the Department are audited?
Ms Mbatha asked whether the AGSA had done any follow ups to see if the Department has corrected those fruitless expenditures? The AG stated that fruitless and irregular expenditure can be attributed to people who are not financial experts working in specific programmes. There are, however, financial managers and overseers who are responsible for ensuring that certain procedures are adhered to and that SCM procedures are followed.
Ms N Ganthso (ANC) asked for how long had the Department not had a CFO and head of a supply chain? Were there any plans in place on how to fill those vacancies?
The Chairperson said that once the Committee engaged with the document it would want answers from the Department and not the AGSA. The Committee’s interest was on performance and efficiency. The question on irregular expenditure cannot be postponed. The Committee wants to know about the 2017/18 audit report and what was done.
Minister Creecy responded to the questions. What the law required was that the Accounting Officer must investigate irregular expenditure and take remedial action. The Department will ask the Accounting Officer to submit a report on what investigations she did into irregular expenditure and what remedial action she took. This was required by law because National Treasury will only take it off the Department’s books if there has been an investigation and if there has been remedial action.
The Minister stated that she would not what to spend vast resources going back many years to do investigations because the Department does not have those resources. The Department was committing to, from this year, putting in place an independent investigation into irregular expenditure and that investigation will guide the Department into what remedial action needs to take place. But for the previous years the Accounting Officer can tell us what she did.
Minister Creecy did not think that there was any unauthorised expenditure. Unauthorised expenditure is when ‘you spend more than you have’. One of things this Committee had to think about was where the line between this Committee and SCOPA starts and ends? Because some of these matters would be in the domain of SCOPA.
The Department will undertake that the turnaround strategy deals with the Modified Cash Standards and is tabled, in writing, to the Committee within two days. Members can have it and peruse it and when the Department does the presentation on the audit outcomes the Committee will be well versed as to what insightful questions it wants to ask.
In the Minister’s experience the AGSA, has over many years, been constantly improving. The issue of Modified Cash Standards was indicative of this improvement as it does not only apply to the Department of Environmental Affairs but a decision was made to apply it across National Government. ‘The AG has upped the bar’. The ‘shifting of the goalposts’ was done to ensure that system was functioning better and better.
There had not been a CFO in the Fisheries Branch for many years. The Acting-CFO was dismissed earlier this year for all kinds of unfortunate activities. The situation was sub-optimal.
Ms Ngcaba said that the R8 million fruitless and wasteful expenditure arose because the Department undertook an investigation, having appointed Deloitte (the audit company), to investigate some of the projects that had been funded through the Expanded Public Works. From that forensic audit the Department got to where there was adjudication of responsibility by the implementing entity and those are the cases that have been reported. The AGSA wanted the Department to disclose this in the financial statements. The funds are being recovered by security agencies and their processes. So there have been cases that were opened to recover those funds.
Ms Ngcaba then commented on the R78 million irregular expenditure. This was as a result of the Department procuring services with shorter timeframes. This was a tender that was run on an advert that was run in less than twenty-one days. The Department needed to find a way to intervene and provide services in a short space of time. The grounds for the shortening of the timeframe were well motivated. That was what the R78 million of irregular expenditure entailed.
The Director-General responded to the question about the performance of the Department. The next presentation talked about performance. In general, the Department has performed between 75 and 80%, depending on the specific branch in question, even with all the challenges facing it. Overall the Department has been delivering services and programmes on the ground. The challenges lied in how the Department accounted for the resources used for those programmes.
Mr de Haan responded to the questions posed by the Committee Members. He first commented on the binding remedial action and when it came into effect. The legislation was signed off by the President in April. It was in effect from 1 April 2019. Binding remedial action will therefore be applicable for any material irregularity, not properly responded, identified during the current audit process. For 2018/19, the AGSA did not implement this throughout the whole of Government. It only looked at 16 main audits of which the Department was not scoped in. Going forward, the AGSA might increase the scope until a full implementation was performed which would probably be by the 2020/21 financial year. Retrospectively how it works is that the AGSA cannot open up any previous audit reports and do an investigation. Any new legislation was prospective and forward-looking. There was a way that the AGSA works retrospectively, to a degree. For example, when payments are being made in the current year that relates to a contract that went through a supply chain 4 or 5 years ago. If there are still current payments being made on that contract, then it falls within AGSA’s scope. This was because those payments would still be identified under expenditure incurred in the current audit cycle. That was the only way AGSA could perform any retrospective remedial action.
The process of recouping the funds was then discussed. The AGSA will do a follow-up on any irregular expenditure, a follow-up on whether or not the Accounting Officer or Authority has executed their consequence management responsibilities by either implementing an independent investigation or some sort of investigation to determine what the material loss was. If there was, who needs to be held accountable and what are the steps to be taken concerning consequence management going forward against the individual. Then also, what was the outcome of the investigation. That all needs to be reported to National Treasury for it to condone any irregular expenditure that was made in terms of supply chain management.
He then went on to discuss certain processes not being followed. The DEA did not have any irregular expenditure for the 2015/16 financial year. The first time this came into effect was when AGSA started looking at the contracts for implementing EPWP. It was only form 2017/18 that some irregular expenditure occurred which will now be followed up. The outcome, in terms of corrective measures taken by the Department, of that will be presented before this Committee with the 2018/19 audit report.
He then commented on the sampling methods of the AGSA. The AGSA does not give 100% assurance. It gives reasonable assurance. A sampling method was followed as per the international standards of auditing. A full assurance can never be given. If full assurance was desired then a specific scope needs to be identified, that would be more of a forensic investigation. A forensic investigation determines the exact scope and all the information will be looked at and the outcome will only be based on facts. With the audit process, because sampling was done, it was more of a ‘dip-stick’ method. A sampling of the environment was taken and an understanding of what are the controls. Sometimes what will happen is that an error will be identified in a sample and that error will be extrapolated to the total population. It was still the duty of management to identify the true mistake going forward. So total assurance cannot be given but the audit still provides a reasonable assurance for management to determine where the issues are, what the root causes are and then it was up to them to identify the full extent of the misstatement or non-compliance or misrepresentation of performance information. Looking at every single transaction in the Department was also not a financially viable option for the AGSA. From the audit process if any fraud risks are identified, the AGSA was obligated, under the International Standards of Auditing, to report it to management or any oversight structures for them to make a decision on whether or not they want to investigate further.
Mr de Haan answered the question relating to vacancies. At the MLRF, the CFO position has been vacant since 2011 and the SCM head has been vacant since 2014.
He then discussed the efficiency in terms of the annual performance report. With regards to the Department, the AGSA had not identified many matters related to performance information. Irregular expenditure had occurred with non-compliance to section 217 of the Constitution which talks about fair and equitable supply chain management practices. One of the pillars was value for money. Usually if the supply chain was not followed it would be difficult for the Department to receive value for money. The AGSA had not identified matters that relate to performance information as such.
He then commented on inadequate record keeping within the Department’s programmes and projects. The Member was correct in saying that because certain workers in the Department are not financial experts it does not mean that improper and inadequate accounting can be condoned. The statement was made to highlight that the Department has those sorts of challenges. The Department needs to up-skill the environmental specialists. There needs to be a proper format as to how each project should be done and this needs to be in compliance with the financial statements.
How often do we rotate focus areas? The focus areas chosen are determined by the quantitative and qualitative material factors. If a specific programme has the majority of the budget, then that programme will be a focus area. If it were possible for different programmes to be rotated, then that would be done every 2 years or so. That was how the AGSA approached the scoping of the annual performance report.
An official from Treasury commented on the importance of classification within the Department’s financials. Whatever funds were acquired needed to be disclosed as such so that the users would be able to understand the financials. Assistance was given to the Department. Progress has been made. Whatever challenges the Department raises on the Green Fund, and others pertaining to the classification, Treasury will be able to support it going forward so that in the current financial year financials are cleared, classifications are cleared and that whatever was deemed a transfer was classified and the infrastructure assets that might form part of the programmes in the EPWP are disclosed as such.
Briefing by the DEAFF
The quarterly report of the Department of Environmental Affairs for the fourth term of 2018/19 was presented by the Director-General and the Deputy Director-General, Ms Limpho Makotoko. The Department of Environmental Affairs presented 7 programmes.
Programme 1: Administration
The overall summary of 2018/19 Programme 1 performance showed that 78% of targets were achieved, 19% of targets were partially achieved and 3% of targets were not achieved.
Programme 2: Legal, Authorisations, Compliance and Enforcement
The overall summary of 2018/19 Programme 2 performance showed that 75% of targets were achieved and 25% of targets were partially achieved.
Programme 3: Oceans and Costs
The overall summary of 2018/19 Programme 3 performance showed that 77% of targets were achieved, 14% of targets were partially achieved and 9% of targets were not achieved.
Programme 4: Climate Change and Air Quality
The overall summary of 2018/19 Programme 4 performance showed that 75% of targets were achieved and 25% of targets were partially achieved.
Programme 5: Biodiversity and Conservation
The overall summary of 2018/19 Programme 5 performance showed that 82% of targets were achieved, 9% of targets were partially achieved and 9% of targets were not achieved.
Programme 6: Environmental Programmes
The overall summary of 2018/19 Programme 6 performance showed that 38% of targets were achieved, 44% of targets were partially achieved and 18% of targets were not achieved.
Programme 7: Chemicals and Waste Management
The overall summary of 2018/19 Programme 7 performance showed that 60% of targets were achieved, 33% of targets were partially achieved and 7% of targets were not achieved.
Overall summary of the Department of Environmental Affairs in the 2018/19 financial year stands at 77% of targets achieved, 22% partially achieved and 7% not achieved.
The Committee agreed to focus their attention on the Department of Environmental Affairs quarterly report and to postpone the Forestry and Fisheries quarterly report to another meeting.
Ms A Weber (DA) asked if filling important vacant positions in the Department was not more important than providing employment for thirty permanent interns? The filling of important full-time vacant positions needed to be prioritised in the budget. Secondly, on page 7 the target for number of officials trained in environmental enforcement was 720 but in the end the Department trained 1966. Where did the funding come from to train the additional 1246 trainees as the budget only catered to train 720 people?
Ms Weber raised a question on air quality. Air quality was a serious problem. It was not good enough to say that only 54% of monitoring stations are working. They are being vandalised but what is the Department doing to stop the vandalism? Monitoring surely should not only be done at the monitoring stations. Monitoring should also entail visiting the sites and seeing if they adhere to the minimum emissions regulations and to see if they are implementing their own plans. In 2018 the Department created a monitoring and evaluating system. Was it working? What was the result of this monitoring and evaluating system developed? And was it effective?
Mr Singh commented that for the Department not to spend 10% of its budget, R700 million, was unacceptable. From the R700 million of unused funds, how much of it has been granted as roll-overs by Treasury? How much of virement took place in the course of the year to ensure programmes where resources were required were actually done? On page 2 it stated that USD 715 341 720 million was mobilized by the Department from international donors. What was the money used for? What programmes were given money from the international donors? Where does accountability lie for these resources? On page 3, rference is made to misconduct cases and dockets handed to the NPA. How old were these dockets? What discussions were taking place with the NPA to ensure speedy prosecution? Are any of the people that were referred to the NPA for criminal charges employed by the Department and still being paid by it? Or have they been suspended without pay?
Mr Singh pointed out that the report speaks about learnerships. More needed to be done to ensure young people were afforded the opportunity of these learnerships. One hundred learnerships was the target but yet no young people were taken on board. Young people need to be employed and learnerships can help in this regard.
Ms Mbatha asked how the Department was going to reach the gender employment equity target of fifty percent women? Has the Department looked at the impact of the awareness campaigns? Have the awareness campaigns changed the behaviour of those communities? The National Management Strategy has been updated but was it being monitored in terms of its implementation? It was disturbing that the industrial waste management plans that were supposed to be submitted to the Department were few. If industries do not have a waste management plan that means industrial waste is simply going to disposal sites. When tyres are bought there was a levy that went to the recycling of the tyres. What is happening to that levy?
Ms Mbatha then asked about the management of Mercury usage. There were still lightbulbs and various other tools that contain mercury. What had been done to limit mercury usage?
Mr J Lorimer (DA) asked about the joint management committee meeting with Mozambique. Have the meetings been taking place? How many have there been? He then raised a question on air quality. Why had industry refused to supplement funds for the air quality monitoring plan?
Minister Creecy, and the delegation from the Department, responded to the question on air quality by saying that the Department was putting together a comprehensive report for the Committee detailing all the technical questions around air quality, what stations were and were not working etc. Questions around air quality would therefore be postponed until the Friday meeting with the Committee.
The Department explained that it was not employing interns permanently. There were 130 interns appointed, that was the first intervention. The second intervention was the bursaries provided to 30 people. Therefore the Department did not employ interns permanently, those interns were awarded bursaries.
The Department agreed that it was critical to ensure that environmental learnerships for youth took place. When the Department realized that it did not have funding for these learners it approached universities. The Department facilitated that process so the learnerships still happened but it was just not funded by the Department.
The Department has not yet conducted a study on the impact of awareness initiatives in different communities. The awareness initiatives need at least 2 years to have a proper impact so the studies would occur in the years to come.
The EPWP funds could not be shifted for other purposes. The Department can and will provide a document describing what the funds were used for.
The Department indicated that more than fifty percent of the staff employed in the Department are women. That has been achieved, the challenge was now under the category of Senior Management Posts (SMS). The Department will present a plan on how to reach the target of fifty percent women in senior management positions.
The Department indicated that it can provide a report to the Committee on exactly what has been done to implement the National Waste Management Strategy, which is currently under review. The Department would be able to present the revised strategy to the Committee and review the implementation progress overall.
The Department explained that it had secured and mobilised those international donor funds. The Green Climate Fund can be applied to directly through implementing agencies. The accounting of the funds happens according to the rules of those international agencies. At this point in time the Department does not fully account for all of the funds. The Department only accounts for the funds utilized. The Department will provide a breakdown of which funder provided support and for what purposes. This will be made available to the Committee.
There were regular operational interactions that were done with Mozambique. SanParks, by virtue of its borders with the western side of Mozambique, interacts regularly with officers from Mozambique. There were regular meetings held with Mozambique and Zimbabwe. There were also transboundary projects done with the external parties and donor funded money. The Department works jointly with Mozambique on that regards as well.
The Department then discussed mercury management. There are a lot of products that include and use mercury. The Department was increasing awareness on problems with regards to mercury. The Department was presenting and meeting with schools and committees to see how best the country can manage mercury and any other hazardous substances. There was a plan to phase out mercury especially in medical applications in the country. The Department would provide an update on those processes as it worked together with the industries that use mercury and work on a way to decrease usage.
The tyre levy was collected by SARS. The Department receives funding from the National Treasury to undertake some of the work done by the waste management.
Mr Singh wanted further clarity and more information on the disciplinary cases, criminal charges, interactions with the NPA and the pool of service providers to deal with cases as one of the corrective measures. Why did the Department have to appoint service providers and who are the service providers?
The Department informed the Committee that the budget for training the additional trainees came from external sources and international donors, for example the US Government. That has enabled the Department to train more people than originally budgeted for.
In relation to the case dockets, it was not necessarily people that were in the Department. These were case dockets for people outside of the Department.
Minister Creecy said that the Department had a special cooperation agreement with the United States that has allowed the Department to train provincial and national conservation authorities and train other actors in the justice and security cluster so that better outcomes can be achieved in terms of wildlife crimes.
Mr Singh asked about the internal criminal cases within the Department. Were those people being suspended with pay or without pay?
The Department replied that a detailed report can be provided on all the different cases and where they are. The Department had 21 cases in that financial year and all of them were finalised.
The Chairperson said the Forestry and Fisheries report still needed to be dealt with but this would happen on another day as there was not enough time. There would be communication between the Committee and the Department as to when the report will be dealt with. The Chairperson also noted that there were challenges with regards to the transitional arrangement of Forestry and Fisheries from Agriculture to Environmental Affairs and that these challenges needed to be discussed in the next meeting.
Minister Creecy confirmed that the Department will meet with the Committee on Friday to discuss air quality and asbestos.
The meeting was adjourned.
- DEA - Quarter 4 Expenditure Report
- DEA - 2018/19 Audit Outcome
- DEA - 2018/19 Annual Performance Report
- MLRF - 4th Quarter Review 1 April - 31 March 2019
- DAFF - Quarter 4 Expenditure Report 1 April 2018 – 31 March 2019
- DAFF - 2018/19 Annual Performance Report
- AGSA - Capacity Building Programme - Parliament of the Republic of South Africa