Western Cape 2018/19 audit outcomes; Legislative Oversight through Annual Reports

Budget (WCPP)

02 October 2019
Chairperson: Ms D Baartman (DA)
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Meeting Summary

Auditor-General South Africa  provided the Committee with a high level overview of the Western Cape audit outcomes for departments and entities for 2018/19. This was followed by a briefing on the Annual Report process and guidelines for legislative oversight by the Provincial Treasury. All Legislature Members were invited to the meeting in preparation for the annual report process that would commence in Committees the following week.

AGSA announced that of the 20 Western Cape government departments and entities audited by AGSA, 16 had received a clean audit (unqualified opinion with no findings), three had received an unqualified opinion with findings and one had received a qualified opinion with findings in 2018/19. The result was unchanged from the previous year. It was reported that one auditee in the Western Cape had achieved an unqualified opinion only because the department had corrected all misstatements identified during the audit and eight auditees had no material findings on their published performance reports only because they had corrected all misstatements identified during the audit. Three departments in the Western Cape had findings on compliance with key legislation. The Western Cape Department of Agriculture’s qualified report was as a result of a technical difference between the Department and the Auditor-General and was being addressed. R1 million in contract awards had gone to close family members of government employees and that could be more closely investigated by the relevant Standing Committees to ensure that there had been no undue influence.

Following the Public Audit Amendment Act coming into operation on 1 April 2019, the Auditor-General would include a paragraph in the Audit Report on material irregularities and any progress made on the matters identified.

Members asked why some entities were found wanting and asked about the appeal process when there was a difference of opinion with the Auditor-General. What was the reason for the ongoing problems in the Western Cape Department of Agriculture? The new powers of the Auditor-General with its binding remedial action had been noted in the media and was widely welcomed. Were there specific remedial actions stipulated in the 2018/19 audit reports?

Members asked for a definition of a material irregularity. Would the breach of fiduciary duty apply to Members who served on oversight bodies and audit committees? Could they also be held responsible or did the new law only speak to Accounting Officers being held accountable? Members also raised the problems in municipalities and what their money was spent on when there was no service delivery.

The Western Cape Provincial Treasury gave a briefing on the Annual Report Process and Guidelines. Copies of the National Treasury Guideline for Legislative Oversight through Annual Reports were supplied to Members. The Committee was informed that the Annual Report was the most important document in holding departments and entities accountable. It enabled Committees to evaluate performance. Provincial Treasury explained the different sections of the Annual Report and where Committees should focus their oversight.

Members asked what mechanisms were available to Committees if they found something wrong. What was Provincial Treasury’s advice to the Western Cape Department of Agriculture about going to court to contest the Auditor General's opinion? What was Treasury’s view of an alternative dispute resolution mechanism for such conflict? Was it Treasury's view that the MEC had to be present at Annual Report meetings? Members asked if the immense number of regulations impeded service delivery and requested Provincial Treasury submission on supply chain management regulations.

Meeting report

PFMA Audit Outcomes 2018/19: Auditor-General South Africa (AGSA) briefing
Ms Sharonne Adams, Business Executive: AGSA, Western Cape Office, said that of the 20 departments and entities in the Western Cape audited by AGSA, 16 departments or entities had clean audits (unqualified audits with no findings), three had received an unqualified audit with findings and one had received a qualified audit. She noted that one auditee in the Western Cape had achieved an unqualified opinion only because the department had corrected all misstatements identified during the audit and eight (40%) auditees had no material findings on their published performance reports only because they had corrected all misstatements identified during the audit. Three departments in the Western Cape had findings on compliance with key legislation. There was a slight improvement in supply chain management compliance but R1 million in awards had gone to close family members of employees. She explained that it was not wrong as long as those persons involved had made a declaration and were not part of the awards committee.

Basic Education received an unqualified audit with findings because the AG could not confirm the reliability of the measures used in Programme 2 to determine that all learners had received 100% of textbooks. There was also a finding on the absenteeism rate of learners and teachers as there was no evidence of the figures and on checking, PERSAL and school-based registers did not agree. Ms Adams expressed some concern about the quality of this performance information.

Following the Public Audit Amendment Act coming into operation on 1 April 2019, the Auditor-General would include a paragraph in the Audit Report on material irregularities and any progress made on the matters identified. In 2018/19, implementation would focus on material irregularities. Accounting officers and authorities had to begin preparing for implementation. This was a very serious matter as ultimately a certificate of debt could be issued by the Auditor-General which would have to be paid by the Accounting Officer personally.

Ms Adams advised new Members as the WCPP began its budget process. Committees should use the information in the audit report on material irregularities for accountability and oversight purposes and insist on timely implementation of the recommendations. They should also use the reports tabled on progress with material irregularities to oversee investigations by public bodies and influence the speed of their progress.

Discussion
Mr A van der Westhuizen (DA) referred to slide 3. When an audit entity missed the mark, he assumed that there was pushback from the entity such as not accepting the audit findings, not taking the audit seriously, or not meet the audit recommendations. Why were entities found wanting? Secondly, what was the internal appeal process? The AG sent the draft audit report to the entity so that it had an opportunity to respond and the AG could accept or reject the explanations

Mr van der Westhuizen loved the idea of cross-referencing between school teacher attendance registers and Persal but learner and teacher numbers changed frequently. He presumed that the AG was interested in the last day of the financial year and perhaps that was why the figures did not correlate.

Mr P Marais (FF+) said that the AG had the same problem, year after year, with the Cape Agency for Sustainable Integrated Development in Rural Areas (Casidra). What was the reason for the ongoing problems? Was it a management problem or inefficiency? Casidra had not spent a considerable amount of its budget. Did that money go back to National Treasury? From 2016/17 onwards Casidra had not spent all of its budget and the AG could not confirm details because the statistics were not reliable. He was concerned about Casidra and asked if the AG was going to make audit recommendations on it. Did the AG have a solution? Had the AG written to the Premier and the Minister of Finance to inform them that Casidra was not complying and its audit outcomes were not good?

Mr Marais was concerned about suppliers who were family-related to government employees.

Mr C Dugmore (ANC) thanked the AG for the report. He recollected that with the previous report, Members had not just received an overall summary but also a summary of each Department. Only then were Members able to see regression.

He asked for more details about the three departments which had legislation non-compliance. Was the reason for the qualified audit of Western Cape Department of Agriculture an old issue or something new? He asked about the supply of services by close family members. Was that in one department or was it a general occurrence? He needed specifics. He was concerned about supply chain management (SCM) legislation compliance. Which two entities had not indicated the minimum threshold of local content and what were the consequences for that?

Mr Dugmore particularly appreciated the explanation about the expansion of the AG’s mandate. The binding remedial action had been noted in the media and was widely welcomed. Were specific remedial actions already stipulated in the 2018/19 audit reports?

AGSA Response
Ms Adams responded about pushback and how departments responded to the AG’s audit opinion. There had been a technical difference of opinions between the Western Cape Department of Agriculture and AGSA in earlier years, and currently a court case was underway on that matter. The AG’s interpretation was based on the National Treasury interpretation of the specific standard [for classification of payments to entities involved in farmer settlement and disaster relief projects]. AGSA was awaiting the outcome of the court case before adjustments could be made and the matter resolved.

How did audit findings work? Ms Adams explained that the AG asked for information. Based on that information, the AG could find that it accurately reflected the situation or the AG could make findings. Management was given five days to respond with evidence and then the draft management report was written. The entity could respond to the management report and the AG would look at the information and thereafter the Audit Report was written. The technical unit at AGSA would also look into issues. The AG liaised with Provincial Treasury and National Treasury. If a department or entity still disagreed, it could complain to the Ethics Unit at AGSA.

On absentee rates at schools, Ms Adams replied that what was important was reliability. There had to be a clear procedure for how the information was to be collected. AGSA had looked at manual registers and Excel registers at schools but those did not tie up with Persal. There was nothing else to confirm the information provided. It had been a finding in the previous year but had escalated to a material finding because it had not been adequately addressed.

Ms Adams replied that slide 3 indicated Agriculture in the purple section as it had received a qualified audit with findings. The Casidra board would appear before the Standing Committee on Economic Opportunities, Tourism and Agriculture and before the Standing Committee on Public Accounts (SCOPA) and that would provide the opportunity to discuss the audit. The AG would give specific recommendations for improvement and questions about these had to be raised when Casidra board members were present. In previous years, the AG had done the auditing of Casidra. Then after three years of external auditing, the AG had taken Casidra back again. She noted the query on oversight but she would go into greater detail when she presented the matter to those Committees. Today she was currently presenting on a very high level. When presenting to the relevant oversight committee, she would go into detail.

Ms Adams replied that the R1 million awards to family members was across the board but she could provide details which were also in the Department reports. She apologised for not supplying the departmental summaries but would do so.

On the AG's increased mandate to issue binding remedial action, Ms Adams replied that some audits were still under way. In the past it had been management’s prerogative to address findings. It would now be compulsory to address the findings. The first step would be the identification of material irregularities. The AG would give the Accounting Officer 20 days to respond and if done so satisfactorily, then it would go into the audit report that action had been taken. If the Accounting Officer did not respond timeously or did not respond adequately or if within six months the Accounting Officer had not instituted the promised action, then a letter would be issued warning about a certificate of debt in the name of the Accounting Officer. The Accounting Officer was given 20 days to respond to the warning letter and if AG was not satisfied, the Accounting Officer would be invited to reply in an oral hearing. The last step was the issue of a certificate of debt in the name of the Accounting Officer. The information Mr Dugmore required would be on the spreadsheet.

Further discussion
Mr D America (DA) thanked AGSA for the report. He asked about the deficit of 5% and if that related to the classification of expenditure in the Department of Agriculture. He did not like the negative term, “pushback”, especially if there was a recognised disagreement. He knew that the AG operated according to a rigid professional code of conduct. The 5% should not be regarded as a pushback but as a consequence of the litigation. Should such matters be adjudicated by a court of law when there were other mechanisms for appeal? Should there not be an ombudsman to deal with disputes, similar to the tax ombudsman? Litigation was costly. What if the outcome of the court case was against AGSA? What would the implications be?

Mr America had a question on the Public Audit Amendment Act and its sense of duality. He was not entirely satisfied with the previous response. There were degrees of irregularity. He agreed that a department or entity had to satisfy compliance frameworks but what if there was a computer malfunction and a response could not be forwarded to AGSA on the requested date? Technically speaking, it was an irregularity. A second component of an irregularity was the impact of the irregularity on the public or on service delivery. Why would such non-compliance impact so severely on the audit of a department?

He noted that Ms Adams had told Members about progressive actions, but whose responsibility was it to retrieve the debt if an Accounting Officer was given a Certificate of Debt? Invariably, the case would end up in court. Who collected the debt? Was it the responsibility of the Department or the AG?

He asked for a definition of a material irregularity. Would the breach of fiduciary duty apply to Members who served on oversight bodies and audit committees? Could they also be held responsible or did the law only speak of Accounting Officers?

Mr P Marran (ANC) had heard the discussion about the pushback about the 5%. He believed there was pushback from both the AG and the department. When an entity stood to lose its clean audit status, there pushback.

He spoke about the food security programme which dealt with food parcels. Small farmers were supposed to receive support but the system was failing because the fund had not supported small farmers and they had not received the money they were supposed to receive. People had not received food parcels because the truck had left with the parcels but it was empty when it arrived. Where was the support for small farmers? The support did not end up where it was supposed to. Where was the money going? Had anyone compared the number of farmers not receiving support and the number of farm failures? There was no reliable information, but where did the money go?

Mr Marran referred to close family members of officials and councillors got contract awards. It seemed to be a problem across the province where close family members were benefitting. He asked for a list of those officials involved. Even if processes had been followed, it was a corrupt practice.

Mr D Mitchell (DA) asked for a breakdown of those municipalities where a R160 million was awarded to family members, as discussed the previous day. Had the two suppliers without tax certificates received payment? Were they also close family members?

AGSA Response
Ms Adams replied that she would dealt with irregularities in a broad sense and hoped that she would cover all irregularity questions in that response. She would try to give a simpler explanation.

Ms Adams stated that in respect of the quality of information AGSA was satisfied with 45% of the Western Cape auditees. After addressing the concerns with the auditees, the information was corrected by all except for the Department of Education and Casidra. In 95% of the cases, AGSA could say that the measurements were correct according to verifiable information.

On the interpretation of law and the differences in interpretation, Ms Adams replied that interpretation was not to do with quantity but was how one looked at the matter from a quality perspective. The auditee had to have standards and had to comply with those standards using a sound methodology to ensure compliance.

Three things were important in understanding the AG’s process. Firstly, the AG audited financial statements but the entity needed to say which policies informed financial control and the numbers in the statement should speak to the policy. If the policy was, for example, to write off furniture over five years, that had to be shown in the financial statements. Sometimes a department did not write off over five years and that would be picked up in the audit.

Secondly, were laws and regulations. The AG had to determine which laws and regulations were important for compliance. AGSA worked against a key standard developed by the International Organisation of Supreme Audit Institutions (INTOSAI). The AG had to have consistent criteria so it made a predetermined decision on what was important in terms of financial impact and what people out there should know. That information was in the AG’s Directive. It explained to everyone what the AG would look at.

The third thing that the AG looked at was the usefulness of the information and the methodology used to obtain that information. The AG assessed the materiality of the information. The financial statement had to include what was important for the public to know. The AG would set qualitative and quantitative standards above which details had to be reported. Qualitative criteria was also about that which was important to the public. The AG might decide that something was not sufficiently important for it to be reported on. For example, if there was non-compliance in only one instance – but it related to a big amount – the AG would determine that it was important for the public to know that.

Ms Adams explained that the only way one could prove an audit was wrong, was if the specified methodology was not followed and, based on that evidence, the auditor could make an audit finding. It was the auditor’s opinion. If there were an ombudsman, he would have to prove negligence by the auditor. There was no other way to prove that an auditor’s opinion was wrong if the auditor had followed the process correctly. However, she reminded the Committee that Chapter 9 Institutions like the Auditor-General were deliberately meant to be independent and not report to anyone. The AG was supposed to give an independent opinion.

She explained that the AG could make two different kinds of materials irregularities: a compliant material irregularity was one and material non-compliance was another. There had to be non-compliance with regulations; secondly, it must be found during the audit and thirdly, the irregularity had to result in serious financial loss.

Unless the auditor had proof, it could not report a matter. In some cases of theft, the auditor could tell if there had been collusion on the part of officials, but not in all cases. When it came to the fiduciary duty of the Accounting Officer, the AG had to ask if that person had been negligent. In the recent municipal audits, an Accounting Officer was found to have been negligent. During the phase-in years of the extended mandate, the AG was focussing on finance. The things to catch were those that were glaringly wrong, such as where one knows money was spent, but nothing was achieved, such as money was spent on a road but there was no road. To be reported as a material irregularity, the loss had to be R1 million or above and it had to be a material loss of a public resource.

The AG would be looking at any substantial harm to a public sector institution or the general public, such as paying a large bribe. Another example was where a department needed a specific licence to operate, losing the licence could be a substantial loss. She assured Members that the new law was intended to issue certificates of debt only in cases where nothing was done by the Accounting Officer despite the identification of a material irregularity.

On the question about detailed procedures, Ms Adams said that she did not have details on the specific procedures to hand but she would provide the information.

On the two cases were tax compliance was not in order, she was not sure if close family members were involved but the information would be available in the spreadsheet she had referred to earlier. She would also inform the Committee once she had checked.

Further discussion
Mr D Smith (ANC) stated that the previous day during the discussion on the municipalities, the response about the close family member concern was that there had been no declarations. Did it not relate to a form of nepotism? What was considered corruption in other provinces and at national level, was allowed in Western Cape if any family member could be awarded a tender.

Mr America thanked Ms Adams for her clarification as he had a much better understanding of the interpretation of the extended mandate. Everyone knew that deviations from the terms of a contract were a common occurrence. Did deviations form part of the audit scope? Was a quantitative amount looked at or was that a qualitative issue? Deviations could have a material impact.

The Chairperson referred to slide 7. SCOPA had heard of multiple departments that struggled with local content. For example, if one bought a ball off the street, the price was R500 but paying for the same ball via tender with local content, caused the cost to skyrocket. How did the AG deal with queries where there was good service delivery but a department was not adhering to the local content requirement? Sometimes the specified content was not available in the country. Was the local content requirement a law or a rule and could the WCPP address it?

On material losses, she had seen examples in presentations to SCOPA where an amount of R25 000 was irregular in a contract but the whole contract, of perhaps R2 million, was declared irregular.

AGSA Response
Ms Adams agreed that conflict of interest was a concern. Sometimes people just happened to work in an institution and awards went to a close family member. The legal requirement was for those persons to declare the conflict of interest and recuse him or herself from the bid committee and the bid awards committee. The AG always flagged such transactions because it was a sensitive matter. It was known that even if a person was not part of the process, he or she could influence the process.

The conversation about local content should take place with National Treasury and the Department of Trade and Industry. The origin of the local content requirement lay in the idea of stimulating the local economy. She could not vouch for local content being inflated. At Stellenbosch University a student had researched Broad-Based Blacked Economic Empowerment (BBB-EE) and had come to the conclusion that BBB-EE did not hamper service delivery. The AG could not say if it did.

Ms Adams explained that deviations were allowed by supply chain management regulations. From an audit perspective, when there was evidence of a real emergency or there had been an urgent need to procure, a deviation was allowed but deviations could not be supported by the AG without evidence of it being an emergency, nor could deviations became habitual due to a lack of planning.

Mr Dugmore asked for the Chairperson to record the need for the Committee to get full information on whether officials were involved in decision-making when their close relatives bid on tenders.

The Chairperson agreed that it could be done at the resolution stage of the meeting.

Annual Report Process and Guidelines: Western Cape Provincial Treasury briefing
Mr Aziz Hardien, Provincial Accountant, Governance and Asset Management at the Western Cape Provincial Treasury, noted that as National Treasury had been unable to attend the meeting, he had handed out the National Treasury Guideline for Legislative Oversight through Annual Reports and he speak to that.

Mr Hardien explained that the Annual Report was the most important document in holding departments and entities accountable. It enabled Committees to evaluate the performance in terms of:
- assessing the level of service delivery against the Annual Performance Plan deliverables, including the extent of actual service delivery.
- assessing if the performance information clearly showed the department’s achievements against performance targets as identified in the Strategic Plan, Annual Performance Plan and budget document.
- understanding the reasons for deviations from targets.

He discussed the five sections of an Annual Report, noting that the organogram was important for understanding who had oversight of areas in the department. Part B was the performance information, including quarterly reporting and reasons for not meeting targets and remedial action taken. Included in performance information was the amount of money spent and if the department had received donor funding.

Part C dealt with governance and the Audit Committee report would indicate compliance with rules and regulations. That was important for oversight. Part D showed how a department deployed its resources, bonuses and training and Part E contained the annual financial statements. Committees should go through every entry in the financial statements.

Provincial Treasury’s job was to ensure that every department prepared a set of financial statements.
Mr Hardien announced the results of the 2018/19 audit. Of the 13 Western Cape Government departments, 11 had received an unqualified opinion with no findings (clean audit), one had received an unqualified opinion with findings, and one had received a qualified opinion with findings. Of the 10 Western Cape public entities, seven had received an unqualified opinion with no findings (clean audit), three had received an unqualified opinion with findings, and none had received a qualified opinion.

Discussion
Mr Dugmore referred to the National Treasury Guide which contained a reference to the Minister/MEC. It seemed very clear that the oversight process could not be successful unless Members had the full participation, not only of the Head of Department but also of the MEC. Was it the view of Treasury that the MEC had to be present at all stages of the Annual Report process? That was what the Guideline seemed to suggest. He was raising this as sometimes the MEC was not there for the full duration of the process.

Mr Marran referred to the difference of opinion between the AG and the Western Cape Department of Agriculture about interpretation of a standard. Treasury could only advise a department but could not stop a department from going to court. What had Provincial Treasury’s advice been to the Department of Agriculture about going to court?

The Chairperson asked what mechanisms were available to Committees if they found something wrong? What if the AG had audited a department but the department disagreed with the AG’s opinion and the Committee agreed that the AG was mistaken? What mechanisms were there to deal with that? In terms of legislation, there was no dispute resolution mechanism. Municipalities wanted an ombudsman. What was Treasury’s view of an alternative dispute resolution (ADR) mechanism? What legislative or regulatory measures could WCPP put in place to assist with an ADR mechanism?

Response by Provincial Treasury
Mr Hardien replied that one of the items that the AG looked at was leadership. It showed leadership if MECs attended the entire process, particularly as they needed to be brought up to speed to lead the department. However, Treasury was not prescriptive and did not instruct ministers and MECs to attend all sessions.

He explained that the Western Cape Department of Agriculture had always made transfer payments to Casidra, an entity established by that department. However, following an accounting standards change, that transfer payment changed to a Goods and Services payment. Difficulties had arisen because with transfer payments, certain laws and regulations had to be followed but with Goods and Services payments, different laws and regulations applied. The Department had done the same transfers for years and so the issue was a technical difference based on the change in accounting standards. Until that matter was sorted out, it would remain a qualification. National Treasury had since issued a clarification statement on transfer payments which limited transfer payments to salaries and day-to-day costs.

He explained that the Department of Agriculture received grant funding from National Treasury for drought. However, as one could not pre-plan for a drought, the grant funding awarded in cases of drought always came after the drought.  Casidra as an entity gave the Department an opportunity to manage the irregularities of drought. A Department had to use its money for the purpose for which it was given in the year it was given. When the Department was given funding for drought, the actions had taken place in the prior year. A department had to spend all its funds in a single year but an entity like Casidra used the accrual system of accounting. Due to the confusion created by National Treasury’s clarification circular, other provinces had found similar problems as they also used entities to support farmers. He would send someone from Provincial Treasury to clarify the National Treasury clarification circular to the relevant Committee.

Mr Hardien stated that where a client was not in agreement with the AG’s opinion, the department could appeal to the Office of the AG. The trouble was that the department was objecting to the same Office that had made a finding against it. Departments wanted an independent authority that could stand back and see what had taken place. According to National Treasury processes, if there was a difference between a client and the AG, the relevant Provincial Treasury had to be the arbiter but AGSA did not recognise a Provincial Treasury as an arbiter. AGSA saw Provincial Treasury as a support mechanism for departments and so it could not be fair as an arbiter. The matter would then go to the national level where AGSA national office would engage with National Treasury. An independent arbiter was the next step and if the client was still dissatisfied, then the client could go to court. As neither AGSA nor the department benefitted from litigation, it was better to keep matters out of the courts. Those steps were in the new guidelines and if it worked, it should eliminate the need for an ombudsman.

He referred to the litigation by the Department of Agriculture, noting that if the court found in favour of the Department, it would be a procedural matter. No audit report had ever been changed.

On a Committee finding problems with the audit opinion, Members had to remember that the Annual Report always looked backwards and the Committee had to determine how to address the matter during future oversight.

Further discussion
Mr Marais asked if the regulations was the problem. There were so many regulations for the three tiers of government and there were so many layers of oversight, one had to first check who had to check with whom. It was an administrative question: should the WCPP look at deregulating to ensure a freer flow of information?

Mr Marran was not happy with the explanation. If a disaster happened, a province had to use its own money first. That was in the Disaster Management Act. The money from National Treasury came afterwards. That had already been mentioned. His understanding was that the minute the disaster happened, the Department of Agriculture had to purchase through Goods and Services.

Response by Provincial Treasury
Referring to the difference of opinion and if regulations were hampering departments, Mr Hardien replied that on 31 August 2019, the Director-General of National Treasury had requested input from provinces about factors that were hindering development. The Provincial Treasury had provided comprehensive input. Mr Hardien was waiting to see what would come from the workshops to be organised by National Treasury. He added that there were over 117 pieces of legislation relating only to supply chain management (SCM). In the audit process itself, every piece of those 117 pieces of legislation would be tested in an audit environment. Drafting of a Public Procurement Bill had been commenced two years previously but had not made progress. Everything that could go wrong was in SCM. Workshops were being held to clean up SCM regulations.

On drought, Mr Hardien said the example of the Department of Agriculture and Casidra was a specific example. National Treasury had funds that could be repaid in the following year after a drought was declared. A province would use its own funding first and, if national government declared a disaster, a department could apply to National Treasury for a grant. The specific example showed the difference between a cash basis environment and an accrual entity. As an accrual entity, Casidra could show money flow without actual expenditure.

Further discussion
Mr Marais asked about Provincial Treasury’s response to National Treasury about regulations. Could the Committee have a copy of the submission? He was sure that the Committee would like to discuss the matter and perhaps bring a motion as it should not be a fight between officials, but between two spheres of government.

Mr Dugmore expressed his shock at there being 117 sets of regulations for SCM. There was the Constitution and the Preferential Procurement Policy Framework Act  but that was only two. He asked for the list of laws and regulations as he was really intrigued to see the list as well as the submission to National Treasury.

Mr Marran gave the example of when a department requested three quotes but only received one response. There was no other way of getting the additional two quotes. Who made the decision on that matter?

Mr van der Westhuizen asked for an explanation of the National Treasury clarification on transfer payments.

Mr Hardien informed him that key to a transfer payment was that it was a payment to an individual or organisation where there was nothing of similar value in return. It was unrequited as the department got nothing back. However, for the transfer payment to be accepted, there were controls that had to happen. The Accounting Officer had to ensure that the internal audit of that organisation could demonstrate the money was used as intended. The clarification note had actually minimised how a transfer payment could be used

Mr Hardien added that National Treasury was currently busy with a FAQ (frequently asked questions) about the clarification note.

On the 117 pieces of legislation, he explained that laws and regulations were added for unique and anomalous events. If one department did something, a regulation was written but without considering the impact on other departments. At the end of the day, the Accounting Officer had to make a decision based on best evidence available. However, with all these regulations abounding, departments were afraid to make decisions and that hampered service delivery.

Ms Nadia Ebrahim, Acting Chief Director: Asset Management, Provincial Treasury, replied that there was general legislation that applied to everyone such as the Public Finance Management Act and its Regulations, especially the Supply Chain Management Framework, the Preferential Procurement Policy Framework Act and BBBEE requirements, but there were other regulations that were specific to a particular industry, such as the construction industry. Despite the number of regulations, the problem was not that there were too many regulations as one needed a regulated system to govern effectively. The problem lay with conflicting requirements or where the cost or consequence of following the legislation was high.

Ms Ebrahim noted that National Treasury issued instructions, guidelines and frameworks. The problem was that non-compliance with guidelines or frameworks was treated the same way as non-compliance with an instruction. Many of the requirements were attending to the mischief of corruption and fraud. The law was written from the mischief perspective and so it was written from a punitive perspective rather than from a regulatory perspective and then there were unintended consequences.

She added that National Treasury requirements were the problem. Law had to be written from a principled perspective, i.e. transparency and fairness. Processes should not be included in the law. Provincial Treasury tried to ensure that the processes adhered to principles but the AG applied the legislation rigidly. In the Western Cape more than three quotes were requested, but then a department was obliged to evaluate all applications. The Auditor-General’s problem was there was no evidence and no motivation for the process. These were very technical issues. Therefore, it was not that a department was not complying but the problem lay in the lack of evidence of supply chain management processes. Due to the volume of work going through SCM, people dropped the ball.

In the Western Cape, government had collectively put in a strategy and issued policies, frameworks, templates but it was a work-in-progress because the Western Cape had to change prescripts without conflicting with the AG or National Treasury.

Provincial Treasury had provided a very specific response to the request from National Treasury for input into the SCM issue and had given some indications of solutions. Ms Ebrahim understood that National Treasury had to take a national perspective and not a specific provincial perspective. She added that National Treasury did not always accept the Western Cape proposals.

Mr Marais agreed with Ms Ebrahim’s remark. He asked if Provincial Treasury agreed that the regulations were the result of poor law which gave the ministers the discretion to address matters in a way that the minister saw fit and he could make any regulations because there was already a law. Could all the SCM regulations or laws be put into a single piece of legislation, instead of the bits and pieces of regulations that changed all the time? Could law be passed without allowing for regulations? Was it not bad law when the minister could decide to approve exceptions?

The Chairperson replied that they would deal with the details of legislation later.

Mr van der Westhuizen said that all regulations had two goals: firstly, to provide reliable management information so that the right decisions could be made and, secondly, to improve service delivery. He had heard that from AGSA the previous day. Taking into account the discussion, was government still on track to achieve those two main purposes?

Mr Hardien provided an example to illustrate the current situation. National Treasury had recently issued cost containment instructions: if the distance between an official’s normal abode and an event being attended was less than 50 km, one could not sleep over but had to go home. In the past, the Accounting Officer could use his discretion and perhaps decide that it was too dangerous for an official to drive home and give permission for an official to stay over. However, with the latest instruction, the Accounting Officer could no longer use discretion because the AG applied the letter of the law. That was the implication of such instructions. Especially in municipalities, such instructions often hampered their work and added a number of processes that had to be followed in order to address contextual issues. The situation, for example, was very different in a rural municipality from that in Cape Town. The perspective of the legislation had changed from service delivery to compliance with the law and that was a constant difficulty. One had to have a process where it was not necessary to follow the letter of the law. Mr Hardien did not condone breaking the law but there had to be discretion dependent on the context. Legislation had to be about adhering to principles not the letter of the law.

Mr Isaac Smith, DDG: Governance and Asset Management, Provincial Treasury, said that the instructions had been issued to address particular behaviour over the past five years. Originally the intention was to let the manager manage but certain behaviours had led to the issuing of specific instructions by National Treasury. Those behaviours had to be curtailed. Provincial Treasury had realised that there were inconsistencies, although it was aware that when one said that the manager should manage, there were also departments that simply wanted to do their own thing. Provincial Treasury’s point of view was that its duty was to uphold compliance to ensure governance in its particular environment. As an oversight department, it had to support departments to deliver in that environment. There were reasons for the issuance of so many regulations but there were also consequences.

Mr Smith stated that one had to be quite careful about over-regulation as the Western Cape did have a more advanced procurement process than some of the other provinces. Provincial Treasury could not expect that the province be treated differently; the Western Cape had to work within the national environment – that was important.

The Chairperson thanked Provincial Treasury and expressed appreciation for the informative discussion. She understood there were differences in interpretation and that the Western Cape had to advance its departments but within the framework of National Treasury. Some of the issues could be taken up in the resolutions.

Resolutions
It was resolved that:
- AGSA should provide a summary of audit outcomes for Western Cape municipalities and departments.
- AGSA should provide details of the R1 million in tenders in Western Cape departments awarded to close family members, irrespective of whether the officials participated in the adjudication process or not.
- AGSA should provide the details of tenders awarded by municipalities to close family members, irrespective of whether the officials participated in the adjudication process.
- Provincial Treasury provide its submission to National Treasury about the regulations overload.

Mr Dugmore reminded the Chairperson that he had raised MEC attendance for the Annual Report sessions and requested a resolution to that effect.

Mr Mitchell responded that it was not necessary for a resolution. It was not for the Budget Committee to prescribe to MECs or other Committees.

The Chairperson suggested that Committees should ensure that the MEC was in attendance.

Mr Dugmore felt it would be helpful if the Budget Committee expressed a view on the need for MECs to attend budget process meetings and to record if the MEC attended or, if not, the reason for the non-attendance. The Committee could just express its view as part of the accounting process.

Mr Mitchell agreed that there was a need for accountability but he did not think that the Budget Committee could be prescriptive about how another Committee should deal with the process. He did not think it would be procedural.

The Chairperson agreed that it would not be procedural for the Budget Committee to instruct other Committees. All Members should encourage Chairpersons to ensure that the MEC was present and to interrogate reasons if the MEC was not there. An MEC could be called away by emergencies, but it was the duty of a Committee to hold the MEC accountable.

Committee Minutes
The minutes of the 30 September 2019 meeting were adopted. An amendment was made to include that the Committee had asked Provincial Treasury for the percentage of all funds spent on the poor and indigent for each and every municipality.

The Chairperson indicated that a programme had been handed out about meetings at the National Council of Provinces that would be of interest to the Members. The Appropriation Bill would come to the province later and she encouraged Members to attend as many of the budget meetings as possible. There were other meetings that might be of interest, such as the meeting with the Parliament of Kenya.

The meeting was adjourned.

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