Audit Outcomes: Department of Transport and Public Works & Government Motor Transport 2018/19 Annual Reports

Meeting report

Briefing by the Auditor General of South Africa (AGSA)

Ms N Ndzamela, Senior Manager: AGSA, presented the audit outcomes of the Western Cape Department of Transport and Public Works (DTPW) for the 2018/19 financial year. The Department has improved in its under-expenditure value and has received a clean audit for the past three years. The Western Cape Government Motor Transport (GMT) entity achieved an unqualified audit for the seventh consecutive year

Briefing by the Audit Committee

Mr Mervyn Burton, Member: Audit Committee, presented on behalf of the audit committee.

Discussion

Ms D Baartman (DA) asked for clarity on the deviation from the B-BBEE Act. Does the deviation relate specifically to matters within the Department or does the deviation address identified risks? Deviations are increasingly being approved by accounting officers and used by state departments. The presentation indicates the Department may appoint lawyers from a third party but the Department of Justice and Constitutional Development may not approve it. This is worrisome. How does the provision of appointing lawyers work between provincial and national departments? It is concerning that regulations are continuously reviewed and departments may not comply with it because of how they are interpreted. Do the new announcements apply to the Department or state departments in general? Measures should be in place so that departments don’t fall into the trap of non-compliance due to changing regulations.

Ms Ndzamela replied the emerging risks are those that might affect the Department itself. Non-compliance with the B-BBEE Act was identified as an emerging risk but it doesn’t have any material implications. The Department achieved a clean audit because the finding was immaterial. The AG advised the Department to address the matter so that it does not escalate into a material finding in the future. On state attorneys, the Department has implemented controls and processes. The State Attorney is responsible for providing services to all state departments but sometimes the Department requires the service of specific attorneys. This is a deviation by its nature because it is not a normal procurement procedure and this is why the AG advises that such deviation is properly approved.

Ms M Maseko (DA) said the issue of deviation is a concern because departments are exploiting certain loop-holes. Audit entities must tighten such loopholes to prevent the abuse of using deviations. Why does the AG not include the issue of deviations as something to be monitored by the internal control of the Department?

Ms Ndzamela replied a deviation is an allowable process but it’s only used when justifiable and especially in emergency situations. The AG thoroughly evaluates such a deviation to ensure the provision is not abused by departments.

Mr Burton replied the issue of procurement and contract management remain the priority focus of the AG because it’s a major channel through which departmental money flows. There is a tendency to abuse the process so the AG requires the Accounting Officer to document all events that result in the approval of a deviation.

Ms N Nkondlo (ANC) asked for clarity on the rationale behind the non-compliance with the B-BBEE Act. Why is the matter not escalated at the moment? The Accounting Officer is supposed to prevent irregular expenditure but there are 2 cases which have escalated to the level of labour relations. Who are the people responsible for such cases? What is the threshold of irregular expenditure?

Ms Ndzamela replied the non-compliance with the B-BBEE Act is because the Department failed to fill in a specific form at the end of the previous financial year. The explanatory note was received late and this is why the AG considered the non-compliance to be immaterial. It could become material if it persists in the subsequent financial year. The irregular expenditure findings detected by the AG was immaterial. It revolved around the phased-in approach where the new amendment was only applicable to selected departments. 

A member of the AC replied there is new legislation that sets materiality at R1 million and this is public knowledge. Any irregularity that amounts to this is reportable and the Accounting Officer must develop a means to recover the loss. It is important to note that not all irregularities lead to financial losses. 

Discussion

Ms Baartman said the recurrence of the emerging risks is concerning. Does the AC, AG and the Department have deadlines to deal with all the emerging risks?

A member of the AC replied the instruction notes continuously come from the NT and there is sometimes a disparity of interpretation between the Department and the AG. This results in findings by the AG. There is also a challenge with the componentisation of assets and predetermined objectives. These challenges come up every year and they impact the performance of the Department. 

The Chairperson asked for an explanation on why the GMT uses the GRAP system when the Department uses the Modified Cash Standard (MCS) system. What is the difference between the two accounting systems?

A member of the AC replied the GRAP system accounts for expenditure as a transaction is made while the MCS accounts for expenditure only when money is spent. The NT is taking steps to move all state departments towards the accrual system but this will take considerable time and resources.

Ms Maseko commended the AG and AC for holding state departments accountable.

The Chairperson commended the audit entities and said they will be great partners in assisting the Committee to hold government departments accountable.

Mr Bonginkosi Madikizela, Minister: DTPW, said his predecessor was responsible for the achievement of the Department in the 2018/19 financial year. Both the Department and the GMT have very healthy reports. The Department performed excellently even under unfavourable situations. It is not easy for a department as large as the DTPW to achieve a clean audit. There is room for improvement but there is no cause for concern.

Ms Baartman noted that not all members of the Enterprise Wide Risk Management (ERM) Committee (ERMC) were present in the 4 scheduled meetings. Did the absent members send apologies and if so were they justifiable? What is the motivation for travelling expenses? What are the findings and the implementation of measures to mitigate risks in this regard? Were action plans previously implemented based on the resolutions outlined in the annual report? Has the Department and the AC achieved any progress in moving from a clean audit to a performance audit? On capacity and skills development, only a few officials attended the training held on 23 April 2018. Was the training open to all officials of the Department or only a selected few?

Ms Jacqui Gooch, Head of Department: DTPW, replied the absent members sent apologies. The apologies were justifiable and adequately documented in the minutes of the meetings. Some of the officials were on leave or had other official engagements to attend to. The relevant authority can provide the Committee with details about traveling expenses. The AG informed the Department about the need to move from a clean audit to a performance audit. A clean audit is based on ticking boxes whereas a performance audit deals with the efficiency of service delivery. On capacity and skills development, the invitation for training extended to all of the departments. A particular department may have few attendees if the organisers decide to select participants on a first-come first-serve basis.

Mr C Dugmore (ANC) said the determination of the Department to minimise conflicts of interest in the supply chain is concerning. There are reports that family members of officials in national or provincial government are being awarded contracts. What is the Department doing to address this matter? The lack of engagement structures between George local municipality and George Link as well as the safety of directors is concerning. Was the task team able to resolve the matter and is there any report submitted to that effect? Did the task team implement the resolutions of the Committee?

An official from the Department replied that all cases relating to a conflict of interest were dealt with and treated accordingly. There are only 5 unresolved cases and these involved officials that have since resigned but whose information has not been updated yet. 3 task teams were constituted to resolve the matter between George local municipality and George Link. The task teams will submit the report of the intervention.

The Chairperson asked if there are any particular levels of staff that are affected by the e-disclosure policy of the Department of Public Service and Administration. What are the levels of the affected officials? Are they on levels 13-16? Can officials who are not designated to disclose an interest do as they wish?

Mr Dugmore asked if the Department knows if any of its officials are affected by the e-disclosure policy.

An official from the Department replied that officials on levels 13-16 are affected by the e-disclosure policy. The policy is extended to officials on levels 11 and 12 and all officials in supply chain management and finance. None of the staff within the Department are affected by the policy.

Ms Baartman said there is an instruction note that requires suppliers who intend to do business with the Department to be registered on both the National Central Supplier Database (CSD) and the Western Cape Supplier Database (WCSD). What is the difference between the CSD and WCSD? Why are suppliers required to register on both systems? She asked for more clarity on the under-expenditure in the Transport Regulation programme. What vacancies were not filled within the planned timeframe and what is the progress on this? She also asked for an explanation on the under-expenditure in the Transport and Infrastructure programme. Why did certain municipalities fail to claim their subsidies for the construction and maintenance of infrastructure?

Ms Baartman noted the issue of public transport violence. What was the outcome of the letter written to the Deputy-Director General in charge of Transport Management? What is the extent of the implementation of the resolution in this regard? Why does the provincial AC meet more regularly than the scheduled quarterly meetings? Are these additional meetings quantitative or qualitative? On loss control case files, why is the opening balance at 346 but the number of cases closed at 178? Can more detail be given on the open cases?

Ms Gooch replied the under-expenditure in the 2 programmes are related to the 2017/18 financial year and not the year currently under review. The Department has provision to subsidise the construction and maintenance of transport infrastructure but municipalities are required to do the maintenance. The Department doesn’t reimburse or pay out money if the municipality fails to do such maintenance. This sometimes leads to under-spending. The Department takes active measures to address the challenge of violence in the public transport sector. The AC meet based on prescribed terms of reference and ad-hoc committee meetings are held where necessary.

Ms Chantal Smith, Chief Financial Officer: DTPW, replied the WCSD holds detail of all suppliers doing business with the provincial government and it provides documentation as well as a history of transactions. It provides detailed information such as validity of contract and tax clearance and these are valuable tools during the audit process. On the other hand, the CSD only provides evidence of suppliers but cannot be used for audit trails.

An official from the Department replied there was a claim of R23 million against it for road accidents and subsequent loss of income. The Nature Conservation also filed a case of R35 million against the Department in relation to a fire outbreak that affected the entity.

The Chairperson asked if private individuals involved in road accidents can claim from the Road Accident Fund.

Ms Gooch replied she is not sure if that is possible.

The Chairperson noted the concern about non-compliance with the B-BBEE Act. The Department needs to address this matter so that it does not lead to material findings in the future.

Ms Smith replied the Department is compliant with the B-BBEE Act. The concern of the AG is about the reporting standards. It was impractical for the Department to implement some of the AG's instructions because the instructions came late. The Department could not complete a particular form requested by the AG.

Mr Madikizela replied the Department has a moral obligation to implement the B-BBEE Act in order to redress the imbalances and injustices of the past. The Department must do this in the right way in order to achieve sustainable goals. There are numerous challenges that confront the implementation of the Act but the Department is committed to address them.

Ms Nkondlo said compliance matters must be taken seriously. Discussions on non-compliance raised by the AG must be thoroughly considered and addressed by the various arms of government in order to avoid a future recurrence. The various arms of government and other role-players need to harmonise pieces of legislation so that one does not encroach onto the other. The harmonisation of legislation will help to mitigate some of the emerging risks.

Ms Gooch replied the Department should not be having fundamental problems on non-compliance. It is developing measures to deal with this matter.

The Chairperson said the implementation of the B-BBEE Act will help to address the injustices of the past. The Department must take the necessary steps to address this challenge. The issue is not about non-compliance. It has to do with certain reporting standards which the Department needs to clarify with the AG. The Department must take the findings of the AG seriously. The Committee is happy the AG raised a concern on non-compliance and the Committee will continue to monitor the Department and hold it accountable. The Department is encouraged to perform better going forward.

Ms Maseko commended the Department for its willingness to address some of the concerns. The Department submitted an excellent financial statement.

The Chairperson asked Members to submit the Client Service Satisfaction Form which was sent by the AG to the Committee. 

Mr Dustin Davids, Procedural Officer: Standing Committee on Public Accounts: WCPP, said the Committee needs to get documentation on the progress to resolve the challenge between the George local Municipality and George Link.

The Chairperson said the Committee must get a progress report from the Department on its implementation of the B-BBEE Act. Its implementation must be monitored to prevent adverse findings in the future.

The meeting was adjourned.