The Committee was briefed by the office of the Auditor General South Africa (AGSA) on the Auditor General’s inputs for the budgetary review and recommendations report on the Department of Defence (DoD) and the Department of Military Veterans (DMV).
The portfolio in 2019/19 comprised four entities, all of which were successfully audited.
The Department of Defence had the worst audit outcome in the portfolio – a qualified audit with findings. This poor result is unchanged over the last five financial years
The Department of Military Veterans obtained an unqualified audit with findings, unchanged over the last three years, but better than the qualified audit opinions of four and five years ago.
The Armaments Corporation of South Africa SOC Ltd (Armscor) obtained an unqualified audit with findings, the same outcome as in the previous year, but the entity regressed from a clean audit in the three years until 2016/17
The Castle Control Board (CCB) obtained an unqualified audit with findings, a regression from the clean audit of previous years.
The Auditor General found that even though there was a decrease in fruitless, irregular and wasteful expenditure in the portfolio, there was a general lack of consequence management. Vacancies and underspending were also criticised. Members of the Committee were particularly concerned with the Department’s shortage of staff within senior levels of management, and the underspending. The Members emphasised that if the Department did not improve these areas, institutional instability would continue.
The Committee was briefed by the Director General of the Department of Military Veterans on the DMV annual report. The Department has three main programmes: administration, socio-economic support and empowerment stakeholder management. Within these programmes there are several sub-programmes that the Department funds to cater to the needs and concerns of the country’s military veterans. The Director General informed the Committee that the Department had reported underspending of R85.1 million (14% of its budget allocation) in the 2018/19 financial year
Members of the Committee noted that it was concerning that the Department had requested more funds from National Treasury, yet it reported underspending in its programmes. Members asked the officials from the Department if this underspending was the reason why the Department had struggled to reach its targets for programmes, such as the provision of housing for military veterans and their dependents. Members were surprised to hear that several military veterans within the different provinces still do not access to the houses that they were promised by the Department.
Members recommended the Department first fill the vacancies within senior management so that the Department can set realistic targets that it will be able to achieve. The Members then recommended the Department spend its allocated budget on its programmes, so that it can fulfil the policy objectives that it has set for itself.
Opening remarks by the Chairperson
As the Committee Chairperson was absent, the Committee nominated Mr T Mmutle (ANC) as Chairperson for the meeting.
The Chairperson noted Mr B Holomisa apologised for not attending the meeting.
Presentation by the Auditor-General South Africa
Deputy Director at the Office of the Auditor General, Ms Mbali Tsotetsi, began by outlining the purpose of the Auditor-General of South Africa (AGSA). She stated that AGSA has a constitutional mandate and, as the supreme audit institution of South Africa, it exists to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.
Ms Tsotetsi mentioned that the role of AGSA is to reflect on the audit work performed to assist the Portfolio Committee in its oversight role of assessing the performance of the entities taking into consideration the objective of the Committee to produce a Budgetary Review and Recommendations Report (BRRR).
Ms Tsotetsi proceeded to present the 2018-19 audit outcomes for the DOD, the DMV, the Armaments Corporation of South Africa SOC Ltd (Armscor) and the Castle Control Board (CCB). The AG’s annual audits examine 3 areas. The first is fair presentation and absence of significant misstatements in financial statements. The second is reliable and credible performance information for predetermined objectives. The third is that there is compliance with all laws and regulations governing financial matters. Members were informed that AGSA expresses five different audit opinions, which are: unqualified opinion with no findings (commonly known as a clean audit); financially unqualified opinion with findings; qualified opinion; adverse opinion and disclaimed opinion
Ms Tsotetsi explained each type of audit opinion in great detail. She first explained that a clean audit is when an auditee:
- produced credible and reliable financial statements that are free of material misstatements.
- reported in a useful and reliable manner on performance as measured against predetermined objectives in the annual performance plan (APP)
- complied with key legislation in conducting their day-to-day operations to achieve their mandate
A financially unqualified opinion with findings is when an auditee produced financial statements without material misstatements or could correct the material misstatements, but struggled in one or more area to:
- Align performance reports to the predetermined objectives they committed to in APPs
- Set clear performance indicators and targets to measure their performance against their predetermined objectives
- Report reliably on whether they achieved their performance targets
- Determine the legislation that they should comply with and implement the required policies, procedures and controls to ensure compliance.
A qualified opinion is when the financial statements which were handed by an auditee had the same challenges as those with unqualified opinions with findings but, in addition:
- They could not produce credible and reliable financial statements
- Had material misstatements on specific areas in their financial statements, which could not be corrected before the financial statements were published.
An adverse opinion is when an auditee had the same challenges as those with qualified opinions but, in addition had so many material misstatements in their financial statements that the AG disagreed with almost all the amounts and disclosures in the financial statements.
A disclaimed opinion is when an auditee had the same challenges as those with qualified opinions but, in addition, they could not provide the AG with evidence for most of the amounts and disclosures reported in the financial statements, and the AG was unable to conclude or express an opinion on the credibility of their financial statements.
Ms Tsotetsi added that there are no outstanding audits in this portfolio. She informed the Committee that this year they are showing four auditees and no longer five auditees as the special defence account (SDA) has been incorporated into the defence financial statements.
Ms Tsotetsi addressed the audit outcomes of portfolio over five years. She mentioned that there was a regression in the overall audit outcomes of the portfolio. The Castle Control Board (CCB) regressed to an unqualified opinion with findings as there was non-compliance identified in relation to material corrections to the financial statements submitted for audit purposes. The audit opinion for the Department of Defence (DOD) remained qualified with findings due to a slow response in addressing misstatements reported in the prior year and inadequate monitoring and review over compliance with legislation. The Department of Military Veterans (DMV) remained unqualified with findings; this was mainly due to compliance with laws and regulations not being monitored as well as adequate controls and systems not being implemented over performance reporting.
Ms Tsotetsi said that Armscor also remained unqualified with findings due to non-compliance in relation to material corrections required for the annual financial statements submitted for audit purposes, and inadequate processes to validate performance information received from a third party.
Ms Tsotetsi informed the Committee that both Armscor and CCB achieved unqualified opinions only because they corrected all misstatements identified during the audit.
Ms Tsotetsi informed the Committee on the reasons for the qualification of the DoD audit, these were:
- The Department did not disclose capital work in progress as required by the Modified Cash Standard (MCS) and some capital assets were incorrectly classified as inventory.
- Sufficient, appropriate audit evidence could not be obtained for intangible capital assets due to inadequate record management systems.
- The Department did not resolve the issue relating to completeness of commitments for the 2017-18 financial year.
- Sufficient, appropriate audit evidence could not be obtained on goods and services and investments relating to sensitive projects. This is due to the inherent limitation on sensitive projects due to the sensitivity of the environment and the circumstances under which the related transactions are incurred and recorded.
- Irregular expenditure recorded was not complete due to inadequate systems to prevent, detect and record irregular expenditure.
Ms Tsotetsi referred to the disregard for compliance with legislation by all components of the portfolio. The top five non-compliance areas, were:
- Quality of financial statements (DoD, ARMSCOR and CCB)
- Prevention of unauthorised, irregular and fruitless and wasteful expenditure (DoD and DMV)
- Payments to suppliers not made within 30 days (DoD and DMV)
- Sufficient and appropriate evidence for consequence management could not be obtained (DoD and DMV)
- Non-compliance with procurement and contract management processes (DoD)
Ms Tsotetsi mentioned the status of internal control, and highlighted that in terms of oversight, action plans, review and monitor compliance, regular reporting, proper record keeping and governance, both the DoD and DMV required intervention and are of concern.
Ms Tsotetsi then referred to the financial health and financial management of the DoD. She emphasised to the members of the Committee that material uncertainty exists whether CCB can continue to operate in the future. She added that although CCB reported a surplus in the financial statements due to the in-kind donation of assets received from the DMV, a material uncertainty exists that may cast significant doubt on the entity’s ability to continue as a going concern.
Ms Tsotetsi informed the members of the Committee that during the 2018-19 financial year, the DOD transferred R1.6 billion from the SDA account to partly finance the compensation of employee shortfall of R2.8 billion. The high amount of personnel expenditure is of great concern as the Department may not be able to procure or service key equipment due to limited resources. She added that the payables of R689 million exceeded the payment term of 30 days as required in treasury regulation 8.2.3. This amount, in turn, exceeded the R4.2 million of voted funds to be surrendered by R686 million as per the statement of financial performance. Therefore, the amount of R686 million would have constituted unauthorised expenditure had the amounts due been paid on time. She finalised her point on this issue by stating that there was a significant increase in the DMV’s total accruals outstanding from R147 million in the prior year to R193 million this financial year. These outstanding accruals could put a strain on the Department in the following year and could result in the Department exceeding the voted funds.
Ms Tsotetsi then informed the Committee that there has been decrease in fruitless and wasteful expenditure over two years by entities within the portfolio. It is reported that in the 2017-18 year, there was R61 million wasteful expenditure, whereas in 2018-19, it had decreased to R37 million, which she commended. She explained to the Committee that the majority of the disclosed fruitless and wasteful expenditure for the current year was caused by payments for a leased property not fully utilised by the DoD, which resulted in wasteful expenditure of R35 million.
Ms Tsotetsi then addressed the issue of irregular expenditure incurred by entities in the portfolio. She informed the Committee that irregular expenditure has increased from R898 million in 2017-18 to R3.6 billion in 2018-19. She asked that the Committee take note of the fact that the irregular expenditure disclosed is not complete as the DoD did not identify and disclose all irregular expenditure incurred. This resulted in a qualification. She added that the majority of the irregular expenditure relates to the increase of compensation of employees without the necessary authority in the DoD environment amount to R2.9 billion (prior year was R142 million). She notified the Committee that the balance of irregular expenditure which amounts to R704 million related to non-compliance with procurement and contract management processes. Of this amount, R691 million emanated from irregular expenditure incurred in the DoD environment.
Ms Tsotetsi stated that there is an improvement in supply chain management (SCM) compliance in the 2018-19 financial year.
The most common findings on supply chain management in the DoD were:
- Goods and services were procured without following procurement processes as prescribed by treasury regulation 16A.
- Goods and services were procured from suppliers who did not meet the pre-qualifying criteria as required by the preferential procurement regulations.
- The preference point system was not applied in the procurement of goods and services.
- Employees of the Department which had interests in suppliers doing business with the Department did not declare such interests.
- The Department accepted proposals from suppliers who did not submit their declaration of interest.
Ms Tsotetsi referred the Committee to the issue of fraud and the lack of consequences. She mentioned that of the investigations concluded in DoD, DMV and ARMSCOR in the past two financial years, 75% of these investigations took longer than three months. The majority of the instances related to procurement processes not being followed.
Ms Tsotetsi explained that the root cause of the problems was the lack of consequences within the portfolio when procedures were flouted. She first highlighted that there is slow or no response from the DoD, the DMV and ARMSCOR in improving key controls and addressing key areas. Management (accounting officers and senior management) does not respond with the required urgency to the Auditor General’s messages on addressing risks and improving internal controls. She said that the second is inadequate consequences for poor performance and transgressions. If officials who deliberately or negligently ignore their duties and contravene legislation are not held accountable for their actions, this could result in recurring instances.
Ms Tsotetsi provided recommendations to the Department and its entities:
1. Implement consequence management by performing investigations, monitor status of investigations and ensure that action is taken where investigations have been finalised.
2. Implement audit action plans to address audit outcomes.
The Committee was advised to:
1. Monitor the implementation and progress of action plans to improve audit outcomes during oversight
2. Monitor actions taken against transgressors with regard to irregular and fruitless and wasteful expenditure incurred.
Ms Tsotetsi explained the recent expansion of the AG’s mandate, which includes its ability to refer material irregularities to the relevant public bodies for further investigations; to take binding remedial action for failure to implement the AG’s recommendation for material irregularities; and to issue a certificate of debt for failure to implement the remedial action if financial loss was involved.
Ms Tsotetsi defined material irregularity as any non-compliance with, or contravention of, legislation, fraud, theft or a breach of a fiduciary duty identified during an audit performed under the Act. Of which the impact is a material financial loss, the misuse or loss of a material public resource or substantial harm to a public sector institution or the general public. She added that a material irregularity was identified during the audit and the accounting officer was notified accordingly. By the date of the audit report, the process of evaluating the response from the accounting office was not yet completed. This material irregularity will be included in the following 2019/2020 auditor’s report.
The Chairperson thanked Ms Tsotetsi for the presentation and stated that it is important that the AG can now take remedial action on its findings. He opened the discussion to the Members of the Committee.
Questions from MPs
Mr S Marais (DA) also thanked the AG’s office for the presentation. He first referred to slide 10 and the second bullet point of the presentation, which referred to intangible capital assets. He asked if it was the intellectual property (IP) that there was a question mark on, or relating to the designs of the assets. He stated that he was asking this question because in the past years, there was the question of who owned the IP, as Armscor would give the impression that it belongs in their financial statements and so would Denel, whereas it actually belonged to the DoD. He asked if this is one of the recourses of that.
Mr Marais also addressed the audit process of the AG. He asked if the officials of the DoD had acknowledged the criticism that the AG has raised and whether the Department has taken accountability. He also asked if the Department applied the recommendations that the AG had given it. He mentioned that he often struggled to communicate with officials of the Department and he wanted to know if she experienced the same difficulties.
Mr Marias said that the AG has found two main causes of the audit findings, which are management and systems. It is clear that management is critical. He stated that it seems that the AG has been more lenient towards the executive, rather than management in regard to assurances. He added that the graph on slide 14 should illustrate that the assurances received by the AG from both should be similar as the executive gets their assurances from senior management. He stated that this sounds contradictory.
Mr Marais asked about the systems at the point that the Committee needs to be concerned. Can this be rectified or are the system deficiencies a result of senior management. If it is about senior management, the AG must share in confidence its concerns about senior management with the Committee. He reminded the Committee that the secretary and Chief of Defence are both at the end of their terms, and he wants to know if there is a regression in management accountability and whether it is linked to the end of their terms.
Mr Marais then refereed to the criticism by the AG of the money shifted from the special defence account to human resources. He said that the Committee has been informed that there will be a R3 billion overspend on HR, and the concern of the Members of the Committee is whether they will again use the money from the SDA.
Mr Marais referred to slide 25 and asked what the AG has done to report the issue of senior management not reporting directly to the AG’s office. He added that clearly the AG has highlighted that there is a lack of accountability and capacity in the senior management. He said that it is important for the Committee to know what the issues are with senior management and that the success of oversight for the Committee relies on senior management’s willingness to communicate their challenges effectively.
Mr JJ Maake (ANC) stated that he wanted the presenters to give the Committee certain clarifications. He asked what does the AG mean when it refers to the term ‘misstatements’.
Mr Maake then referred to slide 10 and asked if Ms Tsotetsi could give a description on typical assets of the Department and for her to provide examples on how the assets of the Department differ.
Mr Maake referred to slide 14 and stated that it would be important to understand whether the expansion of the AG’s mandate has had an effect on the relationship with the AG and the executive authority. He asked if the AG could give an example of when it has issued a certificate of debt to the executive authority, and what the process is of taking remedial action on a member of the executive authority.
Mr ML Shelembe (DA) referred to page 13, which is titled fruitless and wasteful expenditure and asked if there is a lease contract with the property that has been mentioned on page 13, and if there is, what is the duration of that contract with the Department.
Mr Shelembe then referred to page 21, and asked Ms Tsotetsi if the accounting officers and senior management of Armscor do not respond to the letters including the AG’s recommendations for improvement of internal control, does the AG have documents or evidence that can prove that the AG did in fact send messages to the senior management of Armscor, if it did not respond.
Ms AJ Beukes (ANC) referred to page 6 under qualified opinions, and asked what the main reasons for the DoD not correcting its financial statements after it had been briefed by the AG on the management report. She asked if the DoD has to correct its financial statements after the briefing of the report or before it has been briefed by the AG.
Ms Beukes then referred to page 7, which mentioned that the SDA is no longer regarded as a separate entity, she asked if the DoD was aware of this before the AG conducted the audit or only after the audit had been done.
Ms Beukes mentioned page 27, which spoke of the process of evaluating the response from the DoD. She asked who in the AG is responsible for evaluating the response.
The Chairperson stated that there will be another round of questions, so that Members can gain clarity on outstanding issues. He referred to slide 12 which speaks of the compliance with legislation and he mentioned that he hoped that once the AG finds irregularities, it makes recommendations to the DoD through a written letter that stipulates what needs to be done to address the issues that it has raised. He asked who then polices both the executive and management to ensure that there is implementation. He addressed this issue because the AG has once more told the Committee that there has been a lack of changes by management from its recommendations
The Chairperson referred to the issue of assurances on slide 14, and stated that the audit units must play a strategic role in the implementation of recommendations from the AG. He asked why the internal auditors of the DoD cannot detect irregularities before the AG audits the Department. He stated that this indicates that the audit committee is not conducting its job. He added that both the AG and the internal auditors are guided by the legislation which prescribes the role of both the AG and the internal auditors. He asked why the DoD is still being affected by this challenge and to what extent is the AG assisting the internal auditors with this issue.
Mr L Van Vuuren from the office of the Auditor General South Africa answered the Chairperson’s question. He explained that the Chairperson’s question is about the role of internal auditors, management and the executive and how this ultimately impact on the outcomes. He informed the Committee that the role of internal auditors has been described by the Public Finance Management Act (PFMA) which states that internal audit is in the direct control of the audit committee. He added that there is an issue of capacity of internal audit within DMV and the DoD.
Mr Van Vuuren mentioned that internal audit must have a plan, and this must be an external risk plan that it identifies. It should also focus on issues of compliance. He stated that it is important that it capacitated and that it is effective. Most importantly, once internal audit issues reports, management should act on that. He stated that this is where the role of internal audit ends and where management should then step in. It is the duty of management to take the reports, and then take action on this. He stated that the AG does communicate the internal audit findings to management in the DoD and all of this is done before the auditing of the Department is concluded. The AG also conducts internal audits in DMV and DoD. By the time the Department concludes the audit, management is aware of the findings that the AG has mentioned.
Mr Van Vuuren addressed the initiatives that the AG has to assist the portfolio with, one of which is called the Status of Records Review. The AG will conduct a Status of Records Review twice a year and will then sit with management and highlight the key issues. He stated that if members were to look at the Status of Records Review, most of the issues identified on the document have been highlighted during the course of the year to management as well as in the interim report. If the Committee looks at the qualifications of the DoD, most of these qualifications come from previous years. It is management’s responsibility to come up with an action plan and to then to act on this, in order to change the audit outcomes of the Department. However, there are other role plays and that is why the AG has listed assurance providers. There is the audit committee, executive authority. He added that the Portfolio Committee has a role to play and that is why the AG’s office has made a recommendation to the Committee to monitor on whether there is action plans and to monitor the implementation of these plans and whether the commitments of management in the action plans actually address the audit findings that have been identified.
Mr Van Vuuren mentioned that internal audit is mentioned in the PFMA as is control of the Audit Committee. He added that internal audit must have a risk-based plan and that it is capacitated and effective.
Mr Van Vuuren said that when a material irregularity has been identified, a recommendation is made to the accounting officer who then has twenty days to respond. The accounting officer then notifies the AG who evaluates that response. If the AG is not satisfied with that response, the Department moves onto the next step, which is that the AG makes a recommendation on the audit report, which is binding. The accounting officer must then execute this order. If it not executed sufficiently, then the AG must take remedial action, which is also binding. The last step of the process is the issuing of a certificate of debt, which is issued in the name of either the accounting officer or accounting authority, as this individual has the legislative mandate to take action on the recommendation of the audit report. If the board is it at fault, then the certificate of debt will be issued in their name. He added that the PFMA does not place responsibility on the AG to collect that debt, therefore it is the responsibility of the executive authorities of the department concerned to collect the debt. It is also their duty to follow the process as it unfolds, as well taking steps to ensure that the process indeed followed through.
Mr Van Vuuren asked Ms Tsotetsi to address the other questions.
Ms Tsotetsi first addressed the question on intangible assets. She stated that intangible assets referred to by the AG relates to the software that was bought by the DoD in the current year as well as the previous financial years. She added that it is not in relation to the intellectual property (IP), which is monitored by the AG, and all the information was obtained. However, the AG was not able to obtain sufficient information on intangible assets to support the amount represented in the financial statements.
Ms Tsotetsi answered the question on whether the DoD accepts responsibility in implementation of the recommendations. She stated that in the interactions between the AG and DoD, the AG has given its recommendations to the accounting officer and to some extent the DoD does accept responsibility as it has addressed some of the issues highlighted by the AG. During the audit process it became clear that not all the recommendations have been implemented by the DoD.
Ms Tsotetsi then referred to the question on findings. She stated that the AG rated the executive authority differently from senior management because there are certain commitments that the executive authority will make on what they will do to support a department on the implementation of the recommendations. She added that the AG recognised that the commitments given by the executive authority in the DoD were different to senior management, hence that the rating of the assurance provided is different.
On system deficiencies, Ms Tsotetsi stated that when it comes to the qualification that relates to intangible assets, which was caused by the record management system, the DoD can address this. What is required is that there is a process that contains the financial statements on documents.
On senior management, Ms Tsotetsi said that the critical issue is that once senior management has implemented the action plan, the AG monitor it for implementation because sometimes when this plan is not implemented, it will not prevent the deficiencies that are in the system going forward. Hence it will result in the system facing issues in the future.
Ms Tsotetsi answered the question of transfer of funds from the special defence account to fund HR. She mentioned that at this moment, the AG cannot state whether monies will be transferred from the special defence account. The AG is aware that there is a shortfall in the budget. She added that last year there was an amount of R1.6 billion that was transferred from the special defence account, but the DoD would be better placed to answer this question.
Ms Tsotetsi then referred to the question on whether the AG has reported to senior management in regard to the expanded mandate and the Public Audit Act (PAA). She stated that because the AG identified material irregularities in the DoD and had given the accounting officer 20 days to respond to this, the AG did receive a response that it was evaluating during the period when it was conducting the audit report.
Ms Tsotetsi referred to the question of the meaning of the word ‘misstatement’. She mentioned that this word is the correct word and it means that the amount is not correctly disclosed or reflected in the financial statement.
Ms Tsotetsi added that on credible financial reporting, the AG is has found that some entities within the Department had material misstatements. The DMV submitted financial statements that reflected the accurate picture of their financial statements, hence the AG stated that it did not find a financial misstatement.
Ms Tsotetsi then answered the question on invention qualification. She mentioned that the modified cash standard, which is a standard that the Department uses to prepare its financial statements, makes a distinction on what should be classified as an inventory and what should classify as assets in the financial statements. She added that the AG identified certain assets within the DoD which missed the definition, which means that these are assets used as part of the operations of the Department and will be used for over one financial year. The modified cash standard requires that significant spurs should be classified as assets. In the DoD, some of these significant spurs were not properly classified as assets and therefore the AG has noted this difference in its report and has mentioned that this classification is not correct.
Ms Tsotetsi added that on the SDA limitation, it is correct that the AG is qualifying the DoD financial statements on this limitation. The environment around the state defence account is sensitive and therefore during the audit process, the AG cannot obtain all the documentation of the transactions within that environment. As much as the AG understands the sensitivity of such information, if the AG cannot obtain this information, it must give a qualified opinion. She agreed with the Chairperson that this issue will continue into the foreseeable future, mainly because the Constitution requires that the AG must audit all institutions that receive money from the government. So, the AG has to audit that environment with the limitations involved but the AG must highlight the limitations.
Ms Tsotetsi then addressed the question on fruitless and wasteful expenditure on the lease contract. She mentioned that the AG does not have information on the duration of the lease, but it can find that information and submit it to the Committee through the Chairperson.
Ms Tsotetsi responded to the question of slow response by management. She mentioned that during the audit process, the AG has a number of engagements with the senior management and accounting officers. In all the engagements, there is communication of the findings issued by the AG and the DoD also presents the statements of records, which highlight the gaps of internal controls of the DoD and its entities. She added that this process is to assist the accounting officer to implement the AG’s recommendations. In the end, if the DoD does not implement the recommendations or it implements them slowly, the AG will highlight this in its audit report.
Ms Tsotetsi then responded to the question of the reasons on not correcting misstatements. She stated that when the AG issues findings to management, they are given the opportunity to respond. Once the AG receives the response from management, they evaluate this response and at the end of the process, the AG will issue management a full report on the audit findings. She added that the DoD should respond to why it has not yet corrected the financial misstatements.
Ms Tsotetsi moved to the question of SDA, and whether the DoD was aware that special defence account was a separate entity at the time of preparing its financial statements. She informed the Committee that the DoD was fully aware of this as this clarification was given in 2016-17 financial year and the Department was given two more years by National Treasury to deal with that issue. She added that in this financial year (2018/19), the DoD produced financial statements which incorporated the SDA.
Ms Tsotetsi addressed the question on modified cash standard. She stated that the DoD is aware of the modified cash standard because it is a standard that the DoD uses to prepare its financial statements. It is prescribed by National Treasury for all national departments to use the modified cash standard for the preparation of its financial statements.
Ms Tsotetsi concluded.
The Chairperson stated that the question on the lease agreement will be addressed to the DoD as the lease is between the Department and the owner of the building. He asked if there were any follow up questions.
Questions from MPs
Mr Marais followed up on the audit of the SDA. He stated that in the past it has been reported that there were different auditors that audit the different sections of the SDA: those which are highly classified and those which are not classified in terms of the sensitivities. He asked if that is still the process and if so, does that not give assurance to the AG. He mentioned that he does not know if the AG trusts its own officials and that is part of the reason for qualification. He added that if an ordinary individual looked at this, he would assume that there is a veil of secrecy in the entity. He asked if Ms Tsotetsi could put this into context for the Committee.
Mr Marais also asked if the AG only reports to management. He added that it would be strange if it does, as the AG has identified management as a problem.
Mr N Matiase (EFF) first mentioned that there has to be an amendment of the Public Audit Act to give the AG greater powers to act on its findings. He added that the process of amendment of this Act ought to be finalised, as it will enable the office of the AG to act on its findings.
Mr Matiase referenced the PFMA, section 1 which defines what fruitless, unauthorised and irregular expenditure are. He added that the definition of both is not clear and that the Act is not clear on consequence management. He stated that members of the Committee should spend time analysing the definitions provided in the Act on each of these words.
Mr Matiase addressed the issue of incompetency of officials. He stated that this can be addressed at another meeting. He asked if the office of the AG will at any point inform the Committee on who it has identified as culprits and what has been done. He added that when the AG presents to the Committee, it must bear in mind that most Members do not understand the processes of the AG. He asked that AG must be clearer and more concise when presenting its findings. He added that this would allow Members to take the information to the police station to charge any of the alleged culprits. He asked that the AG provide the Committee with this information so that there can be consequences for the alleged culprits.
Mr Maake agreed with Mr Matiase with the fact that the AG does not inform the Committee on its findings of irregular expenditure within the DoD. He added that this does not assist the Committee. He asked how the AG works on instances where there is non-compliance in relation to material corrections in the DoD. He also asked what action does the AG take and how does it correct an unqualified statement. He said that is not good enough from the Department
Mr Maake requested that the AG provide the Portfolio Committee with the reports from meetings between the AG and the senior management in the Department. He added that the AG does not need to provide the reports on meetings that deal with the special defence account.
The Chairperson mentioned that Mr Matiase’s raised an important legislative issue. The PFMA is quite clear. He stated that he is unsure whether accounting officers or senior manages find the Act blurry. He added that it gives provision on what the officers should do it if there is irregular or fruitless and wasteful expenditure. He asked what the difficulty is of following the prescripts, as the Act defines what exactly needs to be done. He mentioned that there is no will from accounting officers to implement what they are prescribed to implement by the legislative regulations. He asked what the AG has done about this issue.
Mr Van Vuuren addressed the question of the Chairperson. He stated that with the amendments of the Pubic Audit Act, the intention was not to override other legislation. The PFMA and Municipal Finance Act (MFMA) are still valid. The sections of the Acts which direct accounting officers to take action on irregular and wasteful expenditure, state that the officers must first prevent it, secondly they must detect it, thirdly the officer must expose it and lastly the officer must take the appropriate action if it happens.
Mr Van Vuuren then addressed the question on irregular expenditure. He stated that the details of irregular expenditure can be found on page 325 of the audit report provided to the Committee. He added that the Committee can request the details from the accounting officer, as the accounting officer is required to have a full register of the irregular expenditure within the Department. This register should also include the details of the irregular expenditure, and what action has been taken.
Mr Van Vuuren informed the Committee that in the report, it states that there are investigations in process, and it is because of this that the AG has mentioned that there is a slow response by the DoD on consequence management.
Mr Van Vuuren added that the Committee has the ability to take action where it has not been taken. He added that not at all irregular expenditure meets the definition of material irregularity and, in that case, the expanded mandate of the AG cannot be effective. It is only when a case of material irregularity has been found that the AG can take action. He repeated that the sections of the PFMA and MFMA direct the accounting officers to take action if a material irregularity is found.
Mr Van Vuuren addressed the question on the access to the AG’s reports. He stated that the Committee can request these reports from the DoD accounting officer. He also encouraged the Committee to communicate with the accounting officers on the action plans and their implementation. He added that the AG will provide the Committee on the feedback on the risk areas that the AG has found.
Mr Van Vuuren moved to the question on how the AG audits the SDA. He stated that the AG still has a team of auditors that have top-secret clearance that audits the SDA as these are matters of National Security. He added that the Department will not allow the AG to audit certain areas of the SDA without top-secret clearance. He added that the AG does not have access to all the information. He asked that the Committee engage with the Chief of Defence intelligence, who could give the Committee information on the SDA.
Mr Van Vuuren addressed the question on whether the Department reports on the irregular expenditure. He asked the Committee to look at paragraph 32 and 33 on page 324 of the DoD annual report and stated that the AG did report on non-compliance and irregular expenditure. He added that the AG did report that the leadership of the DoD did not comply with the recommendations of the AG. Also, that management did not produce reports on the acts that it has taken. He mentioned that the audit report does outline the actions of the management of the DoD.
Mr Van Vuuren then addressed the question of whether the AG only reports to management. He stated that the AG does not. In fact if management does not take action, the AG’s office will report the issues to the executive authority. He mentioned that there is also an audit committee (required by the legislation) that the AG reports to the audit committee and the committee has full access to the AG’s management and audit reports. He added that the audit committee makes recommendations to the accounting officer and still places the onus on the accounting officer to act.
The Chairperson thanked the Department for the presentation. He mentioned that the Committee would be briefed by the Department of Military Veterans (DMV) when the Committee reconvenes at 2.
The meeting was adjourned until 2.
Presentation by the Department of Military Veterans on the DMV 2018/19 Annual Report
Lieutenant General (retired) Derrick Mgwebi, the Acting Director General of the Department of Military Veterans the annual report to the Committee.
Lt. General Mgwebi first mentioned that the purpose of the presentation is to report to the Committee on the annual performance of the DMV. He cited the legislative mandate derived from the Military Veterans Act 18 of 2011: To provide national policy and standards on socio-economic support to military veterans and their dependants, including benefits and entitlements to help realise a dignified, unified, empowered and self-sufficient community of military veterans.
Lt. General Mgwebi summarised the approved budget structure, which included; programmes for administration; socio-economic support and empowerment; and stakeholder management. Within each programme, there are a variety of sub-programmes.
Lt. General Mgwebi said that there are several areas within the Department where intervention is required. He emphasised that there is urgent intervention required in leadership, and financial and performance management within the Department. He added that the Department has identified interventions for remedial action, these include:
• Filing of senior vacant posts
• Functional Governance Structures
• Creation of a Service Delivery Model to inform structural re-engineering
• Enabling Policy Environment and certainty
• Ensuring alternative options to provision of ICT enablement in light of challenges with regard to SITA as a statutory service provider.
• Strengthening institutional arrangements and capacity of the Department to have a national foot print
Lt. General Mgwebi gave explanations of the material variances from amounts voted (after virement) per programme. Within administration, there was an overall R138.1 million (98%) spend vs a final appropriation of R140.1 million. He added that there was a notable pressure on the cost of employees due to a misaligned approved organogram.
Despite the Socio Economic Support spend of R334.7 million (99%) vs a final appropriation R336.8 million, cost pressure on education support and healthcare and wellness persists due to increased demand for these benefits.
There was a less than expected spend on the Empowerment and Stakeholder Management Branch by R80.5 million (46%) that was mainly driven by less than expected performance in the provisioning of Skills and Development to military veterans and their dependants.
Lt. General Mgwebi then briefed the Committee on the overall annual performance analysis for the 2018-19 financial year. Targets had been set for 16 performance areas. Of these, nine targets were achieved, which constituted 56% overall achievement. He added that the administration programme planned to achieve seven targets and five targets were achieved, which constituted 71% achievement. The Socio-Economic support programme planned to achieve four targets. Two targets were achieved (50%). The Empowerment and Stakeholders Management branch planned to achieve five targets but only two targets were achieved (40%).
On the human resource status of the three programmes, he stated that within the administration programme, there is a 15% vacancy rate. In the socio-economic support programme, there is 10% vacancy rate. And in the empowerment and stakeholder management programme, there is a 28% vacancy rate. The total percentage of vacancies in all three programmes currently stands at 18%, which he admitted is a concern for the Department.
The Chairperson stated that discussion can take place.
Questions from MPs
Mr I Cebekhulu (IFP) stated that there are a number of students (who are dependents of military veterans) enrolling in Technical and Vocational Education and Training (TVET) with bursaries from the Department. He would like to know what faculties they are in.
Mr Cebekhulu also asked if the Department could give the number of dependents of military veterans that are under financial assistance from the Department.
Mr Cebekhulu’s final question addressed the expenditure within the Department. He stated that there was a virement of R7.2 million which was meant for certain allocations, but it was not spent. He asked the Department to explain what purpose the funds shifted were used for.
Mr Cebekhulu addressed the issue of R4.2 million that has been shifted, he asked what it has been allocated to, especially looking at the need of empowering the skills development of the Military Veterans so that they cannot rely on the Department for assistance.
The Chairperson asked from clarification from Mr Cebekhulu on whether the students he referred to are the dependents of the Military Veterans
Mr Cebekhulu indicated that he is indeed referring to the dependents of the military veterans.
Ms M Modise (ANC) stated that she does not have a question but rather a statement. She first mentioned that it is quite clear that the Department is facing several challenges. She added that the Department does not have any leadership and that there is clear instability in the Department. She asked why vacancies have not been filled. She indicated that did she not understand why the Department was not able to implement skills development programme.
Ms Modise said that it is strange that the only thing that the Department achieved was the burials of military veterans. She advised the Department to perform is functions more efficiently. She added that the Portfolio Committee should assist the Department with the filling of vacancies, otherwise this will continue to cause instability to the Department.
Mr Shelembe referred to the concern raised by the AG that it was unable to achieve sufficient audit evidence that disciplinary steps were taken against the officials that incurred irregular fruitless and wasteful expenditure as required by the PFMA. He asked why there is a delay in implementing consequences management, as this creates perceptions that the management is afraid to implement consequences.
Mr Shelembe cited the quarterly report briefing by the DMV, which stated that housing and the database of the Military Veterans are the two biggest challenges of the Department. He asked what progress has been made to address those challenges. He informed the Committee that it has been reported that data for only 45% of the military veterans have been captured and verified on the database by the end of March 2019. The Department mentioned that it would finalise the database by the end of December 2019. He asked if the Department could give an update in this regard.
Mr Shelembe mentioned that targets set by the Department have not been met in consecutive years, regarding the housing of beneficiaries. He asked where the balance of the funds allocated for the planned construction of 1 000 homes had been shifted to. He added that it is disappointing that only 417 houses of the planned 1 000 were built by the Department.
Mr Shelembe also asked to be updated on the status of the three staff members who have been placed on suspension and whether there any financial implications.
Mr Shelembe asked when the Committee will see all provinces having their own offices so that military veterans can have the offices closer to them. He stated that it is important that military veterans’ homes should be built near the workplaces.
Mr Shelembe mentioned that the dependents of the military veteran’s struggle to receive their bursary funds. He asked when the Department will be able to correspond efficiently with the military veterans on their complaints for the release of funds.
Mr Marais first thanked Lt. General Mgwebi for the presentation. He mentioned that in the first programme there has been money that has been appropriated, and this leads to the question of why corporate services has increased so dramatically, from an initial R54 million to R72 million. He stated that this a drastic increase, and that it seems that this has taken away from programme empowerment and stakeholder management.
Mr Marais asked what the situation with office accommodation is, as there has been a substantial shift in the funding of office accommodation. He stated that the Department cannot afford to budget without utilising the funds.
Mr Marais then referred to Programme 2 (socio-economic support). He stated that 7 million was taken away from the funds for database and benefit management. He stressed that a database and the benefits management is crucial and without the database, the Department does not know who the military veterans are; and the Department will not know who qualifies for benefits. He emphasised that the Department needs to improve its database systems so that it can accurately capture the details of the military veterans.
Mr Marais pointed to the fact that R37 million had been taken from the socio-economic support programme, which is where the housing and bursary programme is situated. He added that if the Department has taken money away from this programme, it is obvious that it will not be able to deliver. He told the officials of the Department that it should be established which provinces did deliver on housing for the military veterans.
Mr Matiase thanked Lt. General Mgwebi for the presentation. He expressed his concern on the expenditure patterns of the Department. He mentioned that it is concerning that the Department has recorded underspending in all of its programmes, especially in light of the outcry of the DoD and DMV on budget allocation from National Treasury. He added that both the DoD and DMV have asked the Portfolio Committee to mediate with National Treasury. He asked what the justification would be for the Committee to ask Treasury to allocate more funds to the departments, when there is underspending that has been reported.
Mr Matiase stated that the Department takes pleasure in the shifting of funds. He mentioned that the constant shifting of funds and virements could suggest that there is poor planning on the part of the Department. He asked why there would be occurrences of shifting of funds and virements in the Department. He added that it seems that the shifting of funds has become a trend within the Department.
Mr Matiase then mentioned that the AG’s report illustrated a lack of compliance on the part of the DMV. He added that there is an amount of R1.4 million, which was initially meant for internal audit, that was shifted from internal audit to somewhere else. He asked what their explanation is for this, and why the Department would take such an amount from internal audit. Especially because internal auditors are the eyes and ears of both the public and the Portfolio Committee on the activities of DMV, which the office of the AG alleges borders on non-compliance, financial offences and transgressions. He emphasised that he does not understand why the Department would weaken internal audit on this basis. He asked that the Department explain to the Committee on this particular issue.
Mr Shelembe asked when the Department will conclude the process of migrating the social relief distress programme from the Department of Social Development to the DMV. He added that once this is done, it will put an end to the shifting of funds. He asked what concrete proposal should be submitted for the vacancies of senior managers in the Department. He mentioned that the Department should inform the Committee of its concrete plan to fill in vacancies of senior managers, instead of asking the Committee for solutions. He emphasised that this should not be an ongoing issue within the Department, as it is an urgent issue to fill vacancies at the senior level of the Department. He mentioned that this would make it easier for the Committee to recognise weaknesses within the Department.
Mr Matiase stated that the Committee is unsure of the Department’s planning model. He mentioned that he does not know what social impact the policies of the Department have had. He added that the Committee does not see short, medium- or long-term outcomes from the Department. He said that the Department seems content with the fact that it has not been able to adequately implement its own policy decisions. He informed the officials of DMV that as public representatives, the Committee is interested in the outcomes, as well as the social impact of the polices that the Department stated it will implement and the policies that the ruling party had campaigned for. He asked that Lt. General Mgwebi should in the future take the Committee into his confidence on the impact of the Departments policies directed on social upliftment.
The Chairperson stated that he has no questions at the time. He asked that Lt. General Mgwebi to respond to the questions.
Lt. General Mgwebi asked that his colleagues assist in the answering of the questions.
Ms Xolisa Morolo Acting Deputy Director General stated that she will deal with the question on funding of education programmes. She stated that the Department is funding any field that students approach them for but the majority of students on the bursary are based in the humanities. She added that that there are several students studying in both engineering and medicine. She mentioned that the Department will provide the Committee with a breakdown of the number of students that were funded and the different faculties they are enrolled in.
Ms Morolo then addressed the question on housing. She mentioned that the shifting of funding is due in part to the fact that there was no alignment with the building of houses in the provinces and the number of military veterans that are situated in those provinces. She added that provinces are building homes for the military veterans in areas where in terms of the Department’s needs register, it does not have a high number of military veterans that have registered on the databases. She added that in provinces where there are no housing projects currently, there are no available houses for military veterans. She stated that the Department has tried to mitigate against this by creating a breakdown of the need’s analysis of the military veterans who state that they have applied for housing assistance and then the Department crossmatches this with the provinces. The Department of Human Settlements (DHS) will then begin to build houses where there are projects. She stated that the Department has created steering committees in the provinces that are intended to fast-track communication with DHS on housing policy initiatives.
Ms Morolo stated that the shifting of funding is due to the fact the Department has had to fund its education support programme as there was a substantial budget shortfall.
Ms Morolo stated that the shifting of funds from the database funding, was done by the Department as the Department had anticipated that it would have a system that would be procured and implemented to enable it to deliver efficiently in the absence of human resource capacity. She mentioned that one of the challenges was the dependency on State Information Technology Agency (SITA) systems and because of this the Department had to find an alternative solution for its systems.
Ms Morolo raised the issue on slow response in terms of queries by military veterans. She stated that the Department acknowledged that it is slow in addressing the challenges because of the misalignment of staff versus the benefits provisioning. She added that there is an element of misunderstanding in response to questions versus getting the answer that the client was anticipating. She mentioned that the Department is trying to improve their method of responding to the queries of the military veterans, as well as improving the service delivery method. The Department will in the future create a footprint in the provinces
Ms Morolo touched on the question of DMV moving Social Relief of Distress (SRD) to the Department of Social Development (DSD). The DMV has entered into a memorandum with DSD and it is prepared to assist the DMV with a number of issues from the social perspective. She added that the DMV is looking to ensure by the end of the financial year that it has moved the rest of the military veterans that have received support from the Department. She mentioned that when the Department receives new applications for the grant benefit, it refers them to the DSD, so as to not clog the process. She informed the Committee that it will be clear for the Department by the end of the 3rd quarter on what will be remaining on the benefit to strengthen the support of the aim and benefits.
Lt. General Mgwebi emphasised that the SRD, which the Department took on was not a benefit but rather a gap that was identified by the Minister for the Department to intervene. In interacting with the DSD, it became clear to the Department that some of the programmes within the DSD can accommodate the military veterans. He added that the memorandum that the Department has signed, has created standing committees that engage with both departments on these programmes. The SRD will be shifted from the DMV to the DSD and then the funding will also be shifted to the DSD, and the DMV will monitor the programmes.
Lt. General Mgwebi touched on the issue of housing. He mentioned that one of the weaknesses that the Department has identified is that the provinces were expected to invoice the Department before its officials arrived in the provinces. He explained that when a military veteran has been allocated a home, he/she has one month to settle in the home and then must send the Department a happy letter, which informs the Department on their satisfaction with the home. He further explained that this happy letter is first sent to the department responsible for human settlements in the province, and then that department is mandated to invoice the DMV. He added that this process was not clearly defined for all parties involved but now the DMV has made it clear to all parties. The DMV is now able to receive the invoices from the provincial departments.
Lt. General Mgwebi stated that the Department assists a child who is enrolled in a private school, but the private school must be tax compliant. If it is not compliant, the DMV does not pay. He stated that the challenge with private schools is that they do not respond in a positive manner to the DMV as their understanding is that they should be dealing directly with the parents of the children. He added that the issue of tax compliance has led to children being removed from the school. He added that at times, the banking details of the schools are not clear; and if that is the case, the Department has difficulties with the payment of school fees. He admitted that there is a weakness in the Department’s website as well as the Department’s communication with the parents. He informed the Committee that the Department is working hard to rectify this issue.
The DMV Chief Financial Officer, Mr S Ndlovu explained that the Department conducted a virement of about R7 million mostly from programme 1 to 3. This virement was necessitated by the lack of performance on programme 2, meaning that there was a declaration of savings on programme 3 of about R7 million so that the Department could fund cost-pressure areas. He explained that the cost-pressure areas include other corporate services, where the Department pays for SITA services. He informed the Committee that the Department is presently contracted with SITA who provides the Department with critical Information Technology (IT) support systems as well as the synchronisation of the servers. He added that the Department is guided by National Treasury prescripts, which mention that the Department cannot shift more than 1% of its appropriated budget.
Mr Ndlovu then addressed the issue of shifting of funds. He mentioned that during the year the Department monitors spending against the budget. The Department has spending targets that it sets for each month and each quarter and for the year. He admitted that the Department is expected to spend 100% of its allocated funds. He added that each month the Department submits a mid-year monitoring report to the Treasury. Internally the Department has constituted a committee meeting that monitors spending against the Department’s budget. He added that it is during those meetings and the monitoring report, that decisions taken on issues on funds being moved. The Department follows the applicable prescripts and then shifts the funds to where there will be performance, rather than re-prioritising its activities and identifying cost-pressure areas. He gave an example of delivery of 417 houses versus a target of 1 000, which was an underperformance by the Department. However, invoices were not forthcoming from the provincial departments of human settlements. He mentioned that the majority of the houses were delivered by the Gauteng province, however invoices have been delayed and the Department is currently carrying accruals. The DMV is currently carrying R28 million worth of accruals, mainly related to the Gauteng accruals. He added that the Department has been engaging with the provinces and has created systems that will assist in closing this matter. Due to the lack of invoice submission, there was a cross-pressure measure mainly on health care provision where the DoD submits their invoice late at times, which creates a cost-pressure that the Department needs to pay. The majority of funds earmarked for housing, were then shifted to mitigate the cost-pressure on housing.
Mr Ndlovu answered the question of the funds shifted from internal audit. He admitted that the Department did shift a total of R1.4 million of which R1.1 million was earmarked for capital expenditure under internal audit, however the Department was aware that it would not spend R1.1 million on capital expenditure. R289 000 was moved from goods and services and those funds were shifted to the total administration, within the administration area.
Mr Ndlovu added that the Department had earmarked R2.5 million to spend on the database. Because the Chief Director and Director of the database posts were vacant for the majority of the year, operating expenditure had not moved as the Department had planned. The Department realised that those funds would not be utilised by the end of the financial year, so those funds were shifted to cost-pressure areas.
Mr Ndlovu then addressed the issue of office rental. He said that the Department is aware that not all provincial offices are operational. It is has noted that at the end of last year, it was only HQ and three of the provincial offices that had been procured. The Department recognised that the rest of the funds would not be utilised, so it shifted them to cost-pressure areas. He stated that he can give further details on what had been shifted and will provide a written report to the Committee.
Lt. General Mgwebi stated that in the previous 2017-18 year there were 154 businesses owned by military veterans that were provided with access to empowerment opportunities. The new annual report indicates that in the 2018-19 financial year there were 308. He added that it has been difficult for the Department to identify why it has not met its target. He added that because of problems with the registry of military veterans on the database, there has been an issue with providing military veterans with access to empowerment opportunities. He added that the Department is analysing the performance indicator but admitted that is not a reliable indicator for the number of businesses that have been provided access to employment opportunities, as well as identifying what field each is in and how well the businesses are performing.
Lt. General Mgwebi stated that the Department takes note of the issues of leadership and is mindful of systems and control. He admitted that the Department needs to work to improve both these areas so as to prevent some of the weaknesses raised during the discussion.
Lt. General Mgwebi said that the skills development programme mentioned in the presentation does not necessarily refer to the DMV officials but rather to the skills training of military veterans. He acknowledged that the Department failed to empower military veterans to be self-sufficient so that they do not fully depend on the SRD.
Lt. General Mgwebi addressed the question on consequence management. He stated that management tried to deal with the problem of irregular, fruitless and wasteful expenditure which was identified in the previous 2017-18 financial year. He added that there is a financial mismanagement panel that was established by the Department in 2017-18, but the individuals who were at the helm shortly resigned. He added that there was disagreement within management on how to resolve this issue. The Department has looked at which individuals should be appointed to the panel and what their role is in the organisation. This will assist in the Department prescribing what each individual’s role in the panel’s role is. The Department has tried to solve the issues within management by working with National Treasury to established what actually happened so that it can take consequence management. This will lead to the Department establishing what actually happened per irregular instance and then deal with it accordingly according to guidance of National Treasury regulations. He added that the CFO has guaranteed that the Department would be better placed to conduct a progress report by November
Lt. General Mgwebi mentioned that the Department’s officials who have been appointed to the financial misconduct panel are the individuals who will deal with this particular issue. They are being assisted by external parties. This will assist with the process on how to deal with issues around irregular, fruitless and wasteful expenditure. He admitted that in the past there were no consequences taken against individuals with management, but this will change.
Lt. General Mgwebi then addressed the question on the two individuals that have been suspended by the Department. He mentioned that the Department has appointed the Chairperson of the disciplinary Committee, from another province and has appointed an official who deals with evidence. The two suspended officials have been charged and will appear before the disciplinary committee in due time. He added that the officials have been suspended with full pay. He mentioned that another financial implication is that their absence has made it difficult for the Department to ensure that their functions are performed. The Department has reached out to the DoD for assistance and support and have been provided with officials that are performing the functions of the suspended officials. He mentioned that the Department is not paying these officials for their work, as they belong to the DoD.
Lt. General Mgwebi addressed the issue of provincial offices and stated that the Department is working with the departments of public works and at this stage there are still only three provinces with offices. He added that the departments responsible for public works are currently building offices in the Free State and the Western Cape, which will place the number of offices built at five. He informed the Members that the Department is also engaging the DG of public works to try and assist the Department with this issue. He stated that the Department cannot complete address this matter without the assistance of the department of public works.
Lt. General Mgwebi addressed the question on underspending on programmes. He mentioned that the Department has been in discussions with National Treasury on the service delivery model. The National Treasury told the DMV that it will find it difficult to fund the Department because the service delivery model is not clear to them and that the Department must develop it. Once the Department has the structure approved by the Department of Public Service and Administration (DPSA), the Department will receive funding from it to improve its service delivery model. He added that there is an official from National Treasury that is working with the Department on the structure of the service delivery model and DPSA so that when the structure is finalised, the DPSA will assist the DMV. He acknowledged that until the structure is in place and the model is accepted, it will be difficult to ask the Committee to ask National Treasury to allocate the Department more funds. He also added that the Department needs to create clear policies and to set targets, so that National Treasury would be willing to offer them increased funding. He informed the Members that National Treasury is always willing to assist the Department with funding.
Lt. General Mgwebi informed the Committee that the post of the DG was advertised last year, and people did apply. The list of individuals who did apply was submitted to the Minister and she is currently reviewing it. The post of DDG has been advertised and the process went to interviews, but with the advent of the 6th Parliament and the amalgamation of departments, there was a directive sent by the Minister of Public Service to Ministers of other departments that the posts of the DG’s and DDG’s should be held in abeyance for the interim. He added that the Department had hoped that this would have been concluded by the end of September. With the Chief Director and the posts below that, the Department is working hard to fill these posts and that is doing very well in that regard.
Lt. General Mgwebi referred to the strategy map and stated that the Department does have information that shows the social impact of its programmes. He admitted that this was not well articulated during the course of the power point presentation.
The Chairperson asked if there are any follow up questions from the Members.
Questions from MPs
Mr Shelembe mentioned that he had hoped that the Department would give the Committee advice on how it can assist the Department on the assistance of children that are funded by the Department. He added that is referring to individuals who have exhausted all avenues to gain assistance from the Department. He asked the officials to explain what an individual who has not been assisted by the Department should do. He mentioned that the Department must improve its communication strategies with the military veterans, so that the veterans are aware of where they can receive assistance for any queries.
Mr Maake referred back to an incident in the meeting where a delegate within the meeting wanted to ask a question to the officials of the Department. He suggested that the individual should communicate with an official from the Department before they depart. He also suggested that if he wants to address a question to the Portfolio Committee, he should write a letter to the Chairperson.
The Chairperson asked for clarity from the Department on the action it is taking. He mentioned that he is satisfied that the Department will indicate in November on its progress on actions being taken in line with the prescripts of the PFMA, to deal with irregular expenditure. He also added that the Committee appreciates that the Department has decreased irregular expenditure, but it would be more ideal if the Department decreased it to 0%. He stated that the Committee will remind the Department to provide this report in November.
The Chairperson asked the Department to clarify what other sources of revenue, besides the Departmental revenue has it received. He also asked that the Department explain the Department’s interests on land revenue and what it stands to gain with that revenue.
Mr Ndlovu stated that the DMV is not a department which normally generates revenue however there are instances where the Department may be receiving money in the form of revenue. He listed an example of when the Department receives a credit note from a service provider for an expenditure that would have happened in the previous financial year. The Department has nothing to offset it against, so it declares it as revenue. He added that there are instances where the Department advertises bids and it may charge a handling fee. These are the types of revenue that the Department can generate. He pointed out that there has been a particular instance of R53 000 revenue which is related to instances where the Department manages garnishee orders on behalf of the justice system. This is a case where some of the Department’s officials have judgements. As this costs the Department money to handle, it normally charges a management fee of 5% for the value of that garnishee order. All of this is recorded as revenue, but the Department does not utilise it, rather, it surrenders it to National Treasury for the National Revenue Fund.
Mr Ndlovu stated that in the instance where R1 000 was paid in interest on land, the Department had failed to pay the service provider on time. The service provider then charged the Department interest, which it then had to record as fruitless and wasteful expenditure. He added that this is how such expenditure is usually recorded.
Lt. General Mgwebi added that the Department has a website and call centre that he will share with the Members of the Committee.
The Chairperson thanked the presenters for their presentation and the members of the Committee for their participation.
The meeting was adjourned.
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