Auditor-General South Africa presented the audit outcomes of the Department of Social Development and its two entities, South African Social Security Agency (SASSA) and National Development Agency (NDA).There has been a decline in audit outcomes over the last five years from 2014-2019. This had seen SASSA, the NDA and the Department of Social Development (DSD) having qualified audit opinions from 2016 to 2018. The portfolio’s overall audit outcomes remained unchanged in 2018/19. SASSA improved from a qualified opinion to an unqualified opinion with findings. DSD has regressed from an unqualified opinion with findings to a qualified opinion. The NDA outcome remained unchanged.
It was noted with concern that AGSA found numerous errors and misstatements in SASSA’s files. It was emphasised that SASSA needed to strengthen its controls and consider possibilities of digitalising this information. The DSD and SASSA submitted their annual financial statements timeously, while the NDA did not. These contained many errors and misstatements. There were audit findings on DSD procurement and contract management with legislation not complied with. DSD had been unable to pay suppliers within 30 days over a few months.
AGSA said that the root causes of the recurring poor audit outcomes were a lack of oversight responsibility and effective leadership; policies and procedures are not followed; instability due to vacancies in key positions; lack of reviewing; monitoring and compliance with legislation; inadequate consequence management of transgressions; and slow response to AGSA recommendations by senior management.
of oversight responsibility and effective leadership, a lack of compliance with legislation and instability in key vacancies. Senior managers did not respond to issues with urgency. AGSA was concerned about the financial health of the DSD as its current liabilities exceed its current assets which may cause the department to be unable to pay its suppliers and ultimately cause a breakdown in service delivery.
Fruitless and wasteful expenditure in the portfolio increased from R2 million in 2017/18 to R78 million in 2018/19. This was attributed to service delivery failures, rental damages and late cancellations. The largest part of the R78 million can be attributed to SASSA paying contractor invoices for services that were never delivered. Irregular expenditure has decreased for the current year from R517 million to R180 million.
There has been a decrease in irregular expenditure in the portfolio from R517 million in 2017/18 to R180 million in 2018/19. The majority of the irregular expenditure was incurred by SASSA and was caused by payments made on unapproved contract extensions and variations. Irregular expenditure accumulated from previous years by the portfolio that needs to be written off, recovered, or condoned is sitting at R2 billion.
AGSA recommendations included filling vacancies in key positions in the portfolio; internal controls over compliance with legislation, policies and directives must be strengthened; audit action plans must be monitored quarterly; SASSA must strengthen contract management, particularly the SAPO contract; and consequence management must be dealt with timeously.
Members asked about investigations pertaining to irregular expenditure and fraud and the individuals implicated in this.
AGSA reported on the flow of grants money. These funds moved from National Treasury to DSD and upon request from SASSA, funds are released to Bankserv and distributed to SAPO for payment to beneficiary accounts. SASSA uses the Social Payment System (SOCPEN) and this shows SASSA the amount of service charges that need to be paid to SAPO. Payment instructions take place over weekends to allow speedy processing of data. Various service fees are attracted by the different channels through which beneficiaries can collect their grants such as at cash pay points or SAPO counters. SAPO receives a monthly report detailing from where beneficiaries obtained their grants and the relevant charges are then applied. AGSA noted this as one of the challenges experienced in the current year and said it was under review as the reconciliations were not done on a monthly basis, but rather toward the end of the year which reflected some differences.
Members raised questions about the service charges attracted by grant payments and were concerned about how these charges were determined and if this cost was incurred by the grant beneficiary or SASSA. A reference was made to incidents where beneficiaries could not access grant payments and AGSA was asked about the possible cause of this. AGSA explained that these beneficiary accounts may have been flagged as having fraudulent activity.
Department of Social Development 2018/19 audit outcomes: Auditor-General South Africa briefing
Mr Faizel Jogee, AGSA Senior Manager, presented the audit outcomes for the Department of Social Development and its two entities, the South African Social Security Agency (SASSA) and the National Development Agency (NDA). A better audit formula that ensures that there is accountability and improved audit results requires strategic planning and implementation as well as monitoring and oversight.
Mr Jogee said that there has been a nose dive on the DSD portfolio audit outcomes of the last five years from 2014-2019. Between 2014 and 2016 there were clean audit outcomes in the Department of Social Development with no findings on legislation compliance or performance information. SASSA and the NDA had unqualified opinions with findings. However, from 2016 to 2017 SASSA, NDA and DSD had qualified audit opinions and this continued over 2017 and 2018. SASSA’s irregular expenditure has improved as they have reversed certain condonements which were incorrect and have ensured that irregular expenditure amounts disclosed are complete and accurate. There has been a regression by DSD which received a qualified audit opinion.
Mr Jogee addressed the Chairperson saying that it was not a unique situation to 2019, but has been an issue that was identified over the last couple of years with the department. However, this year, AGSA found numerous errors of which the amounts have to be extrapolated for the last couple of years. Social grant payments are administered by SASSA, however when AGSA looked at SASSA’s files this year it found misstatements in certain files and some were not provided for audit purposes so it could not be ascertained whether a particular beneficiary was actually a valid beneficiary. Here, where accuracy could not be judged it posed a risk of fraud. He emphasised that SASSA needed to strengthen its controls and look at possibilities of digitalising this information.
The portfolio’s overall audit outcomes have remained unchanged in 2018/19. SASSA improved from a qualified opinion to an unqualified opinion with findings. DSD has regressed from an unqualified opinion with findings to a qualified opinion. The NDA outcome remained unchanged.
DSD and SASSA submitted annual financial statements timeously, but they were not supported by records that were full and proper. SASSA had to make material adjustments after submission to avoid qualification. The NDA did not submit their annual financial statements timeously. Material non-compliance was reported at all three entities, while the NDA also had findings on predetermined objectives.
The NDA had not submitted its financial statements before the legislated deadline of 31 May 2019 and none of the entities submitted financial statements without errors. SASSA and the NDA achieved unqualified audit opinions only because they corrected all the misstatements that were identified during the audit.
DSD received a qualification on the accuracy of transfers and subsidies for social assistance grants as appropriate audit evidence could not be obtained to confirm the amount reported. This was because some beneficiary files were not provided or in some instances critical information was incomplete or omitted from beneficiary files.
The quality of the DSD and SASSA performance report improved from prior years to 67%. In contrast, the NDA made numerous errors on performance information and they continue to experience challenges with the usefulness and reliability of their targets.
Mr Jogee said that all three entities had audit findings on non-compliance with legislation which impacted their audit reports. The quality of the financial statements for all three entities was not aligned with what the Public Finance Management Act (PFMA) requires. The quality of the DSD financial statements was not aligned with PFMA requirements while SASSA and the NDA were similar as material adjustments had to be made to the financials submitted for audit.
Another non-compliance matter for both SASSA and NDA was prevention of irregular, fruitless and wasteful expenditure. The accounting officer should be able to ensure there are sufficient preventative controls to prevent this occurring. The same finding is recurring year after year as accounting officer have not taken appropriate steps. The NDA non-compliance is lack of consequence management to identify and investigate what the root causes of this are and what steps need to be taken to prevent this.
There were audit findings on DSD procurement and contract management where legislation was not complied with. There was also expenditure management concerns where DSD had not paid its suppliers within 30 days over a couple of months.
Mr Jogee identified the root causes of recurring poor audit outcomes as a lack of oversight responsibility and effective leadership; policies and procedures are not followed; instability due to vacancies in key positions; lack of reviewing; monitoring and compliance with legislation; inadequate consequence management of transgressions; and slow response to AGSA recommendations by senior management.
AGSA noted that although SASSA successfully migrated the social grant payment function done on behalf of SASSA by a previous private entity and moved it to the South African Post Office (SAPO), inefficient internal controls were identified as a finding. Service agreements were not fully complied with during this transition.
DSD financial health is a concern as the current liabilities exceed current assets, indicating liquidity issues which mean that the department may not be able to pay its creditors when payments are due. The net liability position is a possible risk that the department cannot continue its operations at the desired levels, which may lead to an interruption or breakdown in service delivery.
Fruitless and wasteful expenditure incurred by entities in the portfolio increased from R2 million in 2017/18 to R78 million in 2018/19. This relates to services not delivered, rental damages and late cancellations. The biggest portion of the R78 million is in relation to services not delivered. This referred to when SASSA moved from CPS to SAPO and SASSA took over making direct payments to beneficiary bank accounts. It is the payments for January, February and March 2018. The previous service charged for the cash payments but also billed SASSA for the beneficiaries which SASSA had paid directly. AGSA also noted significant delays by SASSA in finalising investigations that impact on consequence management.
There has been a decrease in irregular expenditure in the portfolio from R517 million in 2017/18 to R180 million in 2018/19. The majority of the irregular expenditure was incurred by SASSA and was caused by payments made on unapproved contract extensions and variations (R147 million of the R180 million). Irregular expenditure accumulated from previous years by the portfolio that needs to be written off, recovered, or condoned is sitting at R2 billion.
Supply chain management findings which relate to quotation and compatibility processes were not being followed and local content requirements are still a concern.
AGSA recommendations to the department and its entities were:
• Appropriate action must be taken to ensure vacancies in key positions are filled within the portfolio.
• Internal controls over monitoring and compliance with applicable legislation, policies and directives must be strengthened to prevent non-compliance.
• Audit action plans must be monitored quarterly to support financial management and governance.
• The accounting authority and senior management of SASSA must strengthen its key controls over contract management, particularly the SAPO contract for the provision of social assistance grants. The updated service level agreement and payment structure must be finalised to ensure that it is cost-effective.
• Structures must be put in place to manage consequences and it must be dealt with timeously to prevent long outstanding cases at SASSA and the NDA.
In response to the Chairperson asking for elaboration on the comment about the slow response by senior management, Mr Jogee clarified that AGSA found that the senior managers needed to be more involved, able to review and monitor work and offer guidance.
The Chairperson remarked that senior managers were sleeping on duty.
Ms M Sukers (ACDP) asked about some of the remarks that were not part of the presentation and requested that those notes be provided to the Committee. She noted the R2 billion accumulated irregular expenditure and asked if the AG could assist them when doing performance reviews of departments.
Mr Jogee answered that more details on the presentation would be sent to the Committee in writing. The Committee needs to understand the nature of the irregular expenditure, particularly within SASSA which played a major part in the R2 billion irregular expenditure, in order to help improve this process. A major portion of the R100 million from DSD relates to social relief for distress. For example when there is flooding and social relief for distress is administered by SASSA, it does not follow the correct channels for approval. The AG will assist to provide clarity where it can. There should be an independent board as the accounting authority to assist and ensure oversight improvement.
Ms D Ngwenya (EFF) commented on accountability and AGSA reporting that inadequate planning, monitoring and implementation had taken place. Senior management were not able to provide assurance and guidance. She asked if the senior management referred to here were about the key unfilled positions.
Ms Ngwenya asked who the public bodies were that AGSA refers a material irregularity to for further investigation and if the Committee could make contact with them. She asked what basic services would be compromised by the lack of financial health of institutions and if the cash flow management concern would include the paying of salaries if this continued. She noted the negligence of senior management and asked how many certificates of debt should be issued until real action is taken on those findings. The Committee should commit to ensuring the AG recommendations are applied and the concerns resolved.
Mr Jogee replied that the biggest concern about senior management and accountability is that they have not done the basics and held people accountable. No planning and monitoring was taking place. Implementation was not being done very well. The filling of vacancies was key in ensuring improvement.
Ms B Masango (DA) asked if there is any help from internal audit committee when AGSA does its work. She asked how many years the SASSA investigations had continued. She referred to managers not responding to recommendations with the required urgency and asked what the AG does when that happens.
Mr Jogee replied that the internal audit work differed from the work that the AG does in that it is based on ensuring that there are proper controls. He noted that the entity does its work, but the challenge is management and their slow response to implement the audit recommendations effectively. The majority of SASSA investigations could be within the last five years.
Mr Jogee replied that if the AGSA recommendations are not adhered t, AGSA reports to management and briefs the ministry so that they can start taking action against staff.
Ms A Abrahams (DA) asked about the R360 million that Cash Paymaster Services (CPS) was supposed to pay back and asked where this was reflected in the figures presented.
Mr Jogee replied that it is reflected in two areas of the financials and will not specifically be found under irregular expenditure as it is part of the opening balance from the previous year and is included in the contingency note 25 on page 146 of the SASSA Annual report which contains full details of the R360 million.
Mrs T Mpambo-Sibhukwana (DA) asked for the timeframe that the AG gave for investigations on fraud. She asked how many of the AGSA recommendations made to SASSA were followed. Was there a plan to retrieve the grant money found to be fraudulently spent and what has been done about the people implicated in doing this?
Mr Jogee replied that funds cannot be recovered as the person who incorrectly received a grant does not have the means to pay it back. However, there are other instances such as syndicates where cards have been fraudulently issued and they have obtained the funds, in which case SAPS should become involved to recover the money lost.
Ms J Manganye (ANC) commented on accountability and said that when receipts are checked what must be considered is whether the amount expended showed the impact of the work that has been done. She implored her colleagues to be accountable.
Ms L van der Merwe (IFP) referred to the expanded mandate of the Auditor-General which gives it more power. However, it seemed the AG still remains as toothless as Parliament. In most of the past five years, the portfolio does not improve and recommendations are not implemented. She asked what the AG could do differently and if the AG would be issuing a certificate of debt to SASSA and DSD.
Ms van der Merwe commented on instability and vacancies in departments saying that there is no money to fill those posts.
Mr Jogee replied that the Public Audit Amendment Act was approved and there was a process to follow when looking at audits. Since it came into operation on 1 April 2019, there were already certain auditees that were highlighted for testing. Next year AGSA will look at more auditees. It will look at non-compliance and irregularity and determine if this resulted in a material irregularity. It will then begin the process of communication with the accounting authority (board) or accounting officer (Director General). The AG will provide certain recommendations and monitor these. If AGSA is of the opinion that nothing is being done, it will approach the Hawks, Special Investigating Unit (SIU) or Public Protector for further investigation. If the AG is not satisfied with the progress of the auditee, AGSA will issue a certificate of debt. AGSA had not yet issued any certificates of debt yet as it is a new process for the current financial year.
The Chairperson commented on the weakness of oversight over independent institutions. The challenge for the Committee is to increase its oversight so as not to have its work being done by the AG. The AG cannot be expected to have views on operational areas which is not its work, as the AG has done its work.
Grants money flow DSD–SASSA–SAPO–Beneficiaries: AGSA presentation
Ms Omphemetse Setebe, AGSA manager, presented on the grants money flow process for the distribution of funds to beneficiaries – as requested by the Committee.
A diagram in the presentation depicted the flow of grant funds from the bottom up and showed how funds are allocated from National Treasury to DSD. Upon request by SASSA to DSD, the funds are distributed through Bankserv to SAPO. SAPO directly makes payments to bank beneficiaries through their bank accounts.
DSD has ten social assistance accounts, one that is national and nine provincial accounts. DSD with SASSA reports on the payment of funds and administration. SASSA has full access to the provincial Paymaster General (PMG) accounts and reports on the administration process. SASSA transacts on behalf of DSD through the nine provincial PMG accounts. If there are funds left in the accounts, this will be topped up for the following month based on the expected number of beneficiaries that need to be paid. DSD transfers the money from the National account into regional PMG accounts which are held by the South African Reserve Bank (SARB). SASSA pays these funds from the DSD accounts via Bankserv to SAPO and various banks. SASSA uses the Social Payment system (SOCPEN) to register beneficiaries and the registration is done at SAPO branches or SASSA local branches. They provide SASSA with the information of all eligible beneficiaries which is loaded on to SOCPEN. SOCPEN records are sent as a payment file to Bankserv which is a payment clearing house approved by SARB. SARB receives payment information and processes it to the relevant accounts which are managed by SAPO through a system called the Integrated Grant Payment System (IGPS). This system informs SASSA as to how many people were paid through the various payment channels which would reveal to SASSA the amount of service charges needed to be paid to SAPO.
SASSA uses SOCPEN to prepare a monthly payment instruction which lists all amounts to be paid to beneficiaries for the various grants in each province. These payment instructions take place over the weekend to speed up data processing. Once these payment instructions are generated they are sent by SASSA to Bankserv to make interbank payments into the accounts of beneficiaries at a cost of R1. The beneficiaries can either obtain their money at a cash pay point which will attract a service fee of R51 or over the counter at a SAPO branch for a service fee of R23. The National pay point system which refers to retail points at for example Pick ‘n Pay can also be used as well as an ATM which would have service fee of R18. Each beneficiary will decide where they will go to collect their money and at the end of the month SAPO will get a report through IGPS to see where beneficiaries obtained their money and the relevant charges are applied. Ms Setebe pointed out that this was one of the challenges experienced in 2018/19 and is under review as the reconciliations were not done on a monthly basis and were only done toward the end of the year which reflected some differences.
Ms Setebe continued that in the event of unsuccessful transactions, Bankserv will draw an EFT 70 rejection report which shows the accounts for which payment could not be effected. The money would revert back to the regional PMG II account.
Mr Jogee said that the challenge of monthly reconciliation of service charges must be looked into by the Portfolio Committee as it affects the payment to beneficiaries and cost effectiveness must be considered.
Mr Jogee pointed out that if one looked at SASSA’s financial statements there has been huge savings in comparison to what they had paid Cash Paymaster Services (CPS) previously.
Ms Sukers asked about the service charge when beneficiaries collect their grant and asked if this was money taken from the beneficiary's account. She referred to a situation which had occurred last week where beneficiaries had gone to collect their grants, but the money was not available and asked what caused this and what costs SASSA had incurred because of this.
Ms Setebe responded that the service fee was not deducted from the beneficiary's grant but was paid by SASSA to SAPO. Some beneficiaries were not able to access their money because their accounts may have been flagged as those that may have had fraudulent activity.
Ms Ngwenya asked what the factors were which determined the rate of the service charges. She asked where exactly the grant money reverts to if the payment cannot be effected. What happens to the money if a beneficiary is not able to withdraw the money in a certain month?
Ms Setebe answered that a cost analysis was undertaken for each of the service charges which took into consideration the infrastructure. For example, in remote areas where there would be no stores or ATMs in the immediate vicinity, the cost of armed security guards to go to these communities had to be taken into account which is quite expensive. Over the counter collections of grants were based on the cost to improve the facilities of the post office. The cost of the transfer of funds was also considered in this analysis.
Ms Setebe replied that if money was not drawn by a beneficiary, it would remain in their account for three months as per the agreement with SAPO and if not drawn, it should be returned to the provincial accounts. She noted that this has not taken place, but it has been a challenge which also occurred with CPS, when a beneficiary had passed away. If the money remained in the account it would have to be returned to SASSA. Since SAPO operated in a similar way to banks it was challenging to return the money to SASSA. This is an issue that is being worked on.
Ms A Abrahams (DA) asked if the Portfolio Committee was able to see the service charges that Cash Paymaster Services (CPS) had charged so that the savings could be compared. She asked who is in charge of processing the grant payments.
Ms Setebe answered that SAPO invoices SASSA for the payments made to beneficiaries and this invoice is reduced by 10%. When the previous CPS model is compared to the current model, CPS bank charges were R16.44. The current system showed an average of approximately R14 which appears to be cost effective. The person in charge of releasing funds is the SASSA General Manager and the Chief Financial Officer.
Mr D Stock (ANC) asked what the impact of the implementation of the SOCPEN system would be and if this would assist in spending less on the disbursement of social grants.
Ms Setebe answered that the fraud and biometrics system has been suspended. The current system will reduce the amount government spends on the disbursement of grants, because the new system will show for example, who blocked a beneficiary account and transferred the money into another account and withdrew it at midnight before the beneficiary could withdraw it. The person who did this would have had to use their own fingerprint and no investigation would be necessary.
The Chairperson expressed the Committee's gratitude to AGSA.
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