DIRCO Annual Report 2018/19; with Minister

Meeting report

DIRCO audit and risk committee briefing
Mr Zola Fihlani (DIRCO and ARF Audit And Risk Committee member) explained that the role of the audit and risk committee was advisory. He discussed the root causes of DIRCO’s failure to achieve a clean audit in 2018/19. Among its challenges, DIRCO did not have an asset management system and its asset register was maintained on an Excel spreadsheet. The Department’s Audit Steering Committee was also dysfunctional. There had been little to no progress on matters raised in previous audits, and very little progress on current challenges. The risk management culture at DIRCO was not effective. Mr Fihlani recommended that the Portfolio Committee meet more regularly with the audit and risk committee.

DIRCO audit outcomes 2018/19: Auditor-General South Africa (AGSA) briefing
Mr Solomon Segooa, AGSA Corporate Executive: Audit, introduced the AGSA delegation before handing over to the AGSA manager handling the DIRCO portfolio.

Ms Portia Mpete (Senior Manager, AGSA) provided an overview of the last five years of audits for DIRCO and ARF. In 2018/19, ARF had received a clean audit, while DIRCO had received a qualified audit with findings. She went into detail on the AGSA audit finding for both entities. DIRCO had inaccuracies in its asset register, a large amount of irregular expenditure (R298m, down from R374m in 2017/18), and R2m fruitless and wasteful expenditure (down from R4m in 2017/18). Of the R298m, R204m was new, while R84m was from ongoing multi-year contracts. Although there was evidence that irregular expenditure was being investigated, there was no evidence that fruitless and wasteful expenditure was being investigated. DIRCO had not been able to explain or correct all the errors that had been found in its financial statements. She agreed with Mr Fihlani that risk management was not functioning optimally at DIRCO. The root causes of the problems at DIRCO were: slow response to improving internal controls, inadequate consequence management and lack of required skills in the finance department and at foreign missions. She recommended that DIRCO address these root causes and the audit findings and the Committee follow up on DIRCO’s progress.

Mr Segooa said that AGSA had received an expansion of its mandate from parliament which would allow it to refer material irregularities to a public body for investigation, take binding remedial action against entities that disregard AGSA’s recommendations on such irregularities and, as a last resort, issue a certificate of debt in the name of the accounting officer of the entity concerned.

Discussion
In answer to Mr X Nqola (ANC) request for clarification on the inaccuracies in the DIRCO asset register, it was explained that they were the result of inherent deficiencies in the Excel software, and the lack of a proper handover when assets were transferred to DIRCO from sister departments.

Mr Nqola asked what the effect of a certificate of debt was. Did it hold a particular individual responsible for the debt?

Mr Segooa explained that the certificate of debt was a debt recovery instrument. It allowed AGSA to recover a debt from the accounting officer of the entity in his or her individual capacity.

Mr B Nkosi (ANC) asked Mr Fihlani if the Auditor-General could rely on the audit and risk committee’s findings.

Mr Fihlani suggested that AGSA could answer this question, but he believed that they did rely on the committee’s work.

Ms Mahambehlala was not satisfied with this response.

Mr Nkosi asked what was causing the dysfunction in the Audit Steering Committee.

Mr Fihlani replied that lack of quorum was the biggest problem.

Ms Mahambehlala asked which members did not attend meetings.

Mr Fihlani replied that it was the deputy directors-general who failed to attend.

Ms T Msane (EFF) asked who had adopted the presented report if the committee was dysfunctional.

Mr Gideon Labane, Chief Audit Executive, DIRCO, explained that it was the Audit Steering Committee, not the audit and risk committee, that was dysfunctional.

Ms Msane asked which levels of financial management contained inadequate skills.

Ms Msane asked what recommendations the Auditor-General had given DIRCO to reduce irregular expenditure. What could be done about irregular expenditure from ongoing contracts?

Mr Segooa replied that irregular expenditure needed to be recorded and investigated, and this would determine what steps should be taken.

Committee members asked several questions about a halted DIRCO building project in New York.

Ms Msane asked if the reduction in irregular and fruitless and wasteful expenditure had anything to do with the halting of DIRCO’s cancelled project in New York.

Mr T Mpanza (ANC) asked AGSA to explain the irregular expenditure figures in more detail, and deal with the cancelled New York project in particular.

Mr M Chetty (DA) asked what exactly had happened to money redirected from the New York project. Could AGSA give more detail on the R298m irregular expenditure?

Mr D Moela (ANC) asked if AGSA had discovered anything concrete about the New York project.

Mr Labane responded that the audit and risk committee had recommended an investigation into the New York project, which DIRCO had since produced.

Ms Mpete responded for AGSA. She said that irregularities in the awarding of the New York project had been noticed in 2017/18. Two suppliers had submitted bids but one was disqualified because it did not disclose that it was submitting a joint bid. The winning bid, meanwhile, did not meet the required auditing standards and did not have a high enough bank guarantee. It emerged that it was also in a joint bid, and the director representing the company that submitted the bid was not listed in the company that won. A prepayment of R117m had been made. An investigation into whether this money could be recovered was still ongoing, so it was not included in the figures presented for irregular expenditure.

Mr Chetty asked how the R117m related to the figures of $9m and $5m the Committee had been provided with previously. These amounts added up to about R210m. What accounted for the difference?

Ms Mpete replied that the amount disclosed in the financial statements was R117m.

Mr Mpanza said that the Auditor-General’s recommendations to the Portfolio Committee were not specific enough.

Mr Segooa gave some more detail on the recommendations.

Mr Mpanza asked why AGSA had not recommended DIRCO fill vacancies.

Mr Chetty doubted that the 22 diplomatic missions examined by AGSA were an accurate sample.

Mr Segooa replied that different missions were examined from year to year, with the same or similar findings.

Mr Moela asked what the reasons behind the lack of progress reported by the audit and risk committee were.

Ms Mpete replied that management did not seem to take the recommendations of their own audit and risk committee seriously.

Ms Mahambehlala said that the common factor in all AGSA findings was a lack of sufficient financial management capacity, experience and skills. It needed to be addressed urgently. She asked for an explanation of the leadership deficiencies at DIRCO mentioned in the presentation.

Mr Labane replied that decisions were not always transparent, particularly regarding career paths, and also a there was a lack of consequences for wrongdoing.

Ms Mahambehlala asked for more detail on the irregular expenditure resulting from ongoing contracts.

Ms Mpete listed a few contracts that were ongoing. Several were being extended from month to month.

Ms Mahambehlala asked for how long DIRCO had had financial misstatements. Discrepancies pointed to corruption, and action had to be taken against implicated individuals.

Minister of International Relations and Cooperation response
Minister Naledi Pandor noted that the Audit Report for 2018/19 concerned a period before she had been at DIRCO. She was reluctant to discuss New York, as there were still some matters under dispute, but she assured the Committee that DIRCO will report back on it. She said that the salary structure of DIRCO was quite top-heavy because of the many foreign missions, and heads of missions who had to be paid at the level of a deputy director-general. South Africa should consider the system in other countries where the diplomatic service was separated from the administration. She was looking forward to the passing of the Foreign Service Bill into law. She said that the number of diplomatic missions should be looked into, as they were a heavy cost burden. This should be done without compromising the country’s overseas presence. She supported the Auditor-General’s suggestion of quarterly reports to the Portfolio Committee on DIRCO’s progress in addressing the audit matters raised. She admitted that DIRCO needed to improve its cash handling and processing of information coming from missions. A task team had been appointed to advise the department on modernising its information technology systems.

Ms Mahambehlala said she also looked forward to the passing of the Foreign Service Bill. She was aware that the Minister had inherited a department with many challenges, and thanked the Minister for her contribution.

Department of International Relations and Cooperation on its Annual Report 2018/19
Mr Kgabo Mahoai, DIRCO Director-General, introduced the delegation from DIRCO and then handed over to his Chief Director on Monitoring and Evaluation.

Ms Delores Kotze, DIRCO Chief Director: Monitoring and Evaluation, reported on DIRCO’s performance in each of its four programmes. In programme 1 (administration), one out of four targets had not been achieved. It had not completed the integration of its information and communication technology (ICT) systems.

In programme 2 (international relations) all targets were achieved. The presentation gave some detail on achievements, such as a R2.1bn increase in tourist spending and a positive trade balance of R1.7bn, that DIRCO’s economic diplomacy was partly responsible for. She gave details on South Africa’s trade relationship with the Middle East region, the United States of America and Western Europe. It also looked at DIRCO’s political diplomacy activities in the Southern African Development Community (SADC) and in Africa more generally.

Programme 3 (international cooperation) was broken down into four sub-programmes. In programme 3.1 (system of global governance), all targets were achieved. These targets related to South Africa’s presence and leadership in various United Nations and other multinational organisations such as the World Trade Organisation (WTO). In programme 3.2 (continental cooperation), DIRCO failed to achieve two out of four performance targets. The failures related to South Africa membership on the African Union Peace and Security Council (AUPSC) coming to an end, and the fact that the New Partnership for Africa’s Development (NEPAD) had not convened a summit in 2018/19. In programme 3.3 (South-South cooperation), one out of four targets was not achieved. In programme 3.4 (North-South cooperation), all targets were achieved.

Programme 4.1 (public diplomacy) and 4.2 (state protocol and consular services) targets were all achieved.

Ms Hlengiwe Bhengu, DIRCO Chief Director: Financial Management, reported on finances. Total expenditure had increased by 6% from R5.997bn to R6.370bn. She broke down spending according to programme and economic classification, showing that DIRCO overspent on compensation of employees by 4.2%. DIRCO spent only 25% of its budget for payments for capital assets because of the cancellation of the New York project. She pointed out an error on slide 58: for departmental agencies, “total available” should read R48m and “% of available funds transferred” should read 80%.

Ms Bhengu detailed DIRCO’s ongoing progress and audit action plan to address the matters raised in the Auditor-General’s report, including the officials responsible within the department.

Discussion
Mr Mpanza noted that AGSA had emphasised the responsibility of the Director-General in leading DIRCO’s turnaround strategy and asked for a commitment from the Director-General. When would the Portfolio Committee receive the audit action plan? The financial problems needed to be addressed.

Mr Mahoai replied that the existing audit action plan had some serious inadequacies, which were currently being corrected.

Committee members once again had many questions about the New York project. Mr Mpanza said that action was required against the officials responsible for the New York debacle.

Mr Nkosi asked what lapses in internal controls had led to the New York debacle?

Mr Mahoai replied that DIRCO was currently compiling a report on the New York project and would deliver it to the Committee when all internal processes had been completed.

Mr Mandla Mashaba, DIRCO Deputy Director-General: Supply Chain Management, replied that the problem must have arisen when the project was examined by the evaluation committee. Due diligence could not have been done.

Mr Chetty read from the Annual Report, where it was claimed that the capital budget for the New York project was redirected to renovate properties in Namibia and Swaziland. Was the money redirected, or accounted as fruitless and wasteful expenditure as the Auditor-General reported?

Mr Caiphus Ramashau, Chief Financial Officer: DIRCO, gave an unclear answer [6:30:18] and Mr Chetty was not satisfied.

Mr Moela hoped that this was the last time they would have to interrogate the department on the New York project. He asked the Director-General if he thought he had really done what AGSA had directed him to do.

Mr Moela asked the Chief Financial Officer (CFO) and Director-General if they agreed with AGSA’s report.

Mr Mahoai replied that he did agree with AGSA’s report.

Mr Chetty asked if the CFO still disputed AGSA’s report, as he had previously done.

Mr Ramashau agreed with some parts of AGSA’s report and disagreed with others. In particular, he agreed with the recommendations in the audit report.

Several Committee members strongly expressed their dissatisfaction with Mr Ramashau’s response. They pointed out that it would be difficult for them to monitor DIRCO’s implementation of the AGSA recommendations if they were unclear about whether the CFO agreed with the audit report.

Mr Ramashau explained that he disagreed with the report on the matters he had been charged with, and said that he had not had an opportunity to respond to them, as he had been suspended. He was seeing the audit report for the first time.

The Committee did not accept this as an excuse. Ms Mahambehlala asked whether AGSA had interacted with the Office of the CFO during the audit process.

A member of the AGSA delegation explained that the auditor interacted with structures as and when issues arose. There were procedures in place for dealing with disputes between the auditor and an auditee. He also confirmed that the audit report had been presented to DIRCO previously.

Ms Mahambehlala asked Mr Ramashau if he had followed these procedures.

Mr Ramashau replied that he had been suspended at the time, so he could not even go to DIRCO offices.

Mr Nqolo said that the important fact was that the Office of the CFO had had the opportunity to dispute AGSA’s audit findings.

Mr Nkosi said that there was no record of a disagreement between AGSA and DIRCO on the audit findings. The CFO seemed to be asking the Committee to second guess the Auditor-General, which it could not do.

Mr Nqolo said it was absurd for Mr Ramashau to disagree with the content and agree with the recommendations of the audit report.
 
Committee members including the Chairperson asked Mr Ramashau to provide a response in writing by the next day.

Mr Nkosi said it was important that in future DIRCO did not only send delegations of managers to the Portfolio Committee, but included some technical staff as well.

Mr Nkosi said that audit report showed that DIRCO’s supply chain management policies were outdated. Was there proper consequence management?

Mr Mahoai replied that DIRCO had created a comprehensive supply chain management policy that would address the conditions that led to the irregularities identified. A step by step guide for financial management had been available to all managers since July 2019, which was after the period of the annual report being considered.

Mr Mashaba added that problems often arose at diplomatic missions, where markets were not necessarily competitive enough for multiple bids for a particular service to be received. Supply chain management experts did not often apply for jobs at DIRCO, and he did not foresee this changing in the near future.

Mr Nkosi asked why DIRCO did not seem to take its internal audit and risk management committee seriously.

Ms Msane said that the Portfolio Committee had not received promised reports from DIRCO about the asset register, cash and cash equivalents and the property management strategy.

Ms Msane asked how much was spent on renting accommodation for diplomats abroad and if they could not be accommodated in properties owned by DIRCO.

Ms Bhengu replied that DIRCO was paying rent of R478m per annum for 596 officials, and R425m for 106 offices overseas.

Ms Msane questioned the characterisation of R21m spent on “other transfers” under international transfers as “small.” R21m would not be a small amount if used for housing. What memberships fell under this item?

Ms Bhengu explained that this number represented a large number of small memberships, such as the Group of 77, the International Tribunal for Law of the Sea and the Comprehensive Nuclear Test Ban Treaty.

Mr Chetty disputed several claims made in DIRCO Annual Report on the topic of discipline. He said that their visit to DIRCO’s offices had revealed a serious lack of discipline, clearly contradicting the claims in the Annual Report. He asked the Director-General to explain why recommendations relating to misappropriation of funds and sponsorships at one of its missions had not been actioned. He also asked why the Committee had still not received a report on an investigation of the conduct of the CFO, which the Portfolio Committee had demanded when it conducted an oversight visit of DIRCO’s offices.

Mr Nqolo suggested that it was only the doctrine of the separation of powers that stood in the way of the Committee suspending some DIRCO officers. He asked how DIRCO could claim to have achieved its vacancy rate target when it still had such a large number of acting officials.

Mr Nqolo asked for a breakdown of the kinds of goods the country was importing and exporting. He also wondered if the recently reported xenophobic attacks in the country had affected its standing as a widely accepted country on the continent.

Ms Mahambehlala criticised DIRCO for not saying anything when South African police had been attacked by foreign nationals recently. Our ambassadors had not said anything. We only heard that foreign nationals had been attacked in South Africa. Meanwhile, the Nigerian president just signed a law protecting Nigerian employees from foreign competition in Nigeria. Nor had there been any response when South Africans living abroad had had to be evacuated. The recent booing of President Ramaphosa in Nigeria was the worst diplomatic embarrassment the country had ever faced, and still our ambassador had been silent. South Africans were angry about this affair. Why were these issues not even mentioned in the report?

Mr Clayson Monyela, DIRCO Deputy Director-General: Public Diplomacy, replied that the International Cooperation, Trade and Security (ICTS) cluster had done a post-mortem of the response to the violence. He admitted that it was a communication issue and that DIRCO could have done more. The post-mortem had revealed that unless the root causes of the violence were addressed, it would happen again. He noted that the acting South African High Commissioner in Nigeria had actually addressed the media more than twice, and that the Minister of Police had addressed the media in response to the attacks on the police. A sustained and comprehensive strategy was required. Economic migrants would continue to look for opportunities in South Africa, especially since Europe was beginning to close its borders.

Ms Mahambehlala said that DIRCO needed to communicate directly with ordinary South Africans, and should have no fear about condemning crimes such as drug trafficking conducted by foreign nationals.

Ms Mahambehlala warned the department that the Portfolio Committee could take the New York matter into its own hands, and would take it to the media if necessary. The matter posed a risk to the country’s international reputation.

Ms Mahambehlala was highly critical of DIRCO’s handling of ARF. There were development agencies in other countries that were highly effective, but ARF was no more than a slush fund. She spoke in Xhosa (5:3:16).

Ms Mahambehlala asked how DIRCO could complain about inadequate capacity while there was still such a high vacancy rate.

African Renaissance Fund on its Annual Report 2018/19
Ms Dineo Mathlako, ARF: Head of Operations, said that the ARF had processed R44.7m in disbursements to countries in 2018/19, and gave details on how these funds were used. She discussed ARF’s achievement of its performance targets. Most targets had been achieved. She explained about the unachieved targets. ARF had not submitted its United Nations Relief Works Agency (UNRWA) Palestine Project progress report due to political instability in the country, and it had not recommended all received project proposals for funding as planned. She said that the ARF was inefficient due its position within DIRCO and use of its procurement processes. She discussed its financial affairs and noted the Auditor-General’s recommendations.

Discussion
Ms Msane asked if there had been other bidders for the R37m given to Zanele Mbeki’s Women in Africa programme.

Ms Mathlako explained that ARF funding was demand-driven. In this case, the ARF had received a request to provide the funds.

Mr Ramashau confirmed that procurement processes had not been necessary in this case.

Ms Mahambehlala asked DIRCO for a strategy on public diplomacy. She said the Committee wanted to visit the department again. She reminded Mr Ramashau to provide a written response on his agreement with AGSA’s report by the next day, and adjourned the meeting.