Audit outcomes: Department of the Premier Annual Report

Meeting report

Presentation by the Auditor-General South Africa

The Auditor-General South Africa (AGSA) took the Committee through a presentation on the performance of the Department of the Premier.

Discussion

Ms M Maseko (DA) asked for clarity on the material irregularities particularly on certification of debt and how that can be corrected in order for irregularities to not occur in the future.

AGSA stated that when a material irregularity is noted through the audit, there is a notice that would be given to the accounting office to take appropriate steps through investigation to recover the money. If the money is recovered there is no debt certificate issued. Therefore, the basis to issue a certificate is if a material irregularity is identified, then there will be an investigation and the accounting office will write a notice on the matter. Moreover, if the account officer does not take appropriate steps, they would have to come forward to the material irregularity committee to account orally for the matter. Thus, if no further action is taken then that’s when the certificate of debt is issued.

Ms Maseko asked if the system of implementation and issuance of certificates was effective. To what extent was the system going to work in order to curb irregularities of expenditure in the future.

AGSA stated that before a certificate is warranted, usually a first notice will be issued that has a tenure limit for 20 days for the account officer to respond. Thus, if there is no progress the officer is given an additional 20 days, which ultimately makes its 40 days. If the accounting officer does not cooperate within the confines of those days, that is when the debt certificate is issued to the accounting officer. For example, if the material irregularity is included in the audit report, there will also be a follow up to see if appropriate action is taken, which emphasises accountability and oversight for the accounting office to be accountable.

Mr C Dugmore (ANC) asked for clarity about consequence management in the case involving an official that was allegedly soliciting kickbacks, and later was found guilty of fraud and corruption. When did this official leave the Department and how much money was involved in kickbacks? He also asked for clarity on the procurement processes and whether the Department of the Premier is already in breach of the normal processes. Lastly, he asked the AGSA to talk more about the procurement of legal services

AGSA stated that the Department does believe that the summons were materially defective. They fail to disclose a legitimate course of action on which to hold the Department liable for the damages claimed. Therefore, in that regard there is a degree of uncertainty that might affect the financial position of the Department in future. Moreover, in terms of the fraud and corruption, the individual was within the Department but at the time of the issuing of the report they had since left. The investigation is still ongoing to determine how much money was solicited.

Mr M Xhego (EFF) asked about the requirements of the Broad-Based Black Economic Empowerment (B-BBEE) Act and its material non-compliance in the audit report.

AGSA stated that the Department was supposed to get certification within the 2018 financial year but was unable to obtain it for the issuing of the financial year report. Therefore they were non-compliant in that regard as every Department has to have a B-BBEE certificate.

Mr R Mackenzie (DA) asked for clarity on the Provincial Forensic Services investigation into the soliciting of kickbacks by a former official of the Department in connection with a 2017/18 contract. He wanted to know when AGSA became aware of this act in their four meetings per year. Did it occur in the Department of the Premier or in others and what steps were being taken as to address this?

AGSA replied that they learned of the situation in 2018 within the IT contract. Investigation were launched immediately, the contracts that the individual was also involved in were evaluated. The IT contract is the only area the said individual was implicated.

Mr Mackenzie asked why the internal monitoring controls could not pick up irregularities before AGSA did.

AGSA stated that the act of fraud specifically involves the circumvention of controls. However, the irregularity was picked up by the supplier of the Department. The person involved made sure that he followed all control processes and thus changed some details in some of the transactions.

Mr Mackenzie referred to page 15 of the Annual Report and asked if the money that could have been lost to fraudulent practices was included in the departmental financial results.

AGSA replied that it was not included because it was still being investigated by the Department and the South African Police Service (SAPS).

Ms N Nkondlo (ANC) sought clarity about the B-BBEE certification. The Department had earlier pronounced that compliance was an administrative nightmare as it is overseen by the national Department of Trade and Industry.

AGSA stated that regulations are made and set in Parliament and therefore it is the prerogative of the Department to make sure that legislation is implemented as mandated by Parliament

Mr D America (DA) asked for clarity on whether depreciation will be credited accordingly, and the rate of depreciation will be at par with the asset register. Also, noting that Treasury regulations were currently being revised, what impact will they have on future audits?

AGSA replied that in terms of the regulations the Auditor-General would have to come back to the Committee as it was unclear at this stage.

Mr Alan Winde, Western Cape Premier, noted that the Standing Committee on Accounts is imperative for financial and risk management and thus critical in a democratic dispensation. He was looking forward to developing a culture of accountability and proper governance within the organisation.

Mr Mackenzie asked for clarity on the Annual Report from page 90 about the fraud and corruption and thus what was the amount involved and whether disciplinary action has been taken

An official from the Department of the Premier stated that the matter has been forwarded to forensic services, which consisted of two separate cases. The one matter has been referred to SAPS, and the other involved the bid specification committee with a requirement of R4.3 million rand. Once the recommendation was finalised the total amount that the committee recommended was R4.3 million rand, but the final amount that was issued to a superior level was R10 million rand. R6 to 7 million rand was spent as opposed to the initial R4.3 million. The sum of R10 million was not spent.

Mr Mackenzie asked whether the implicated individual was able to spend that money or receive a higher amount than stipulated.

An official from the Department of the Premier stated that the committee determined the R4.3 million and the chairperson signed off the amount on the minutes. Another authority issued a note of R10 million under the false assumption that the committee had agreed upon the sum of R10 million and not the agreed R4.3 million that was designated in an act of deception. Therefore, those responsible (accounting) for issuing the R10 million did not know the initial amount.

Mr Mackenzie asked if the senior person that had signed off on the amount was still employed by the Department.

A Departmental official stated that the individual had resigned before their contract expired. The matter was still under investigation and had been reported to SAPS as aforementioned. The Department was doing all it could to collaborate with the relevant authorities as the matter is of importance

The Chairperson asked for the name of the person. The Committee needed to know.

Ms N Nkondlo (ANC) stated that since the matter was still under investigation, the identity of the individual should not be revealed. Also, because this was an open meeting, such matters should be confidential as the verdict of the case had not been declared by the relevant authorities.

Mr Dugmore asked if the implicated person was in a senior managerial role.

Mr Mackenzie wanted to know whether the implicated individual was present in the meeting and how such cases could be avoided going forward.

A Departmental official stated that the said individual was not present in the meeting and all the specification of the minutes and every page moving forward will be inspected to make sure it corresponds with the agreed stipulation, so that such cases do not occur again.

The Chairperson said that once the Committee reconvenes again there will be further discussions on the matter with more information on the identity of the person

Mr Dugmore alluded to the CFO report that indicated than an amount of R7 million was spent. He asked if the Department could elucidate whether this was fruitless expenditure and what the content and the nature of the service provider was.

A Departmental official replied that it was in relation to technical services. However, the Department would furnish the Committee with further details.  

Ms Nkondlo asked if the R4.3 million was the market value or the project budget itself was that amount. She was struggling to comprehend or make sense of how that amount was exceeded. She wanted an explanation on the role of the bid specification as indicated in the annual report. Moreover, if the agreed amount was R4.3 million and the senior person responsible for approval of the amount overstated the initial mark, it shows that there are problems of internal control within the Department supply chain management space- there are no checks and balances. Also, once proper procedure is followed, the identity of the said individual must be revealed in the interest of transparency.

The Chairperson stated that there will be further investigations into the fraud and corruption allegations by the Committee. Members would want to probe into specificities of the matter.

Mr Xhego referred to page 133, noting the significant under spending. He wanted to know about its implications in relation to future outcomes.

A Departmental official replied that page 136 of the report provides all the details in relation to the matter and the R184 million was in reference to 10.1 of the financial statements. The indicated sum relates to a case where the Department is the defendant in a 39 property damages claim in Mossel Bay due to poor conditions. The people involved were liable and negligent in the matter by allowing the properties to deteriorate. The paperwork will be sent to the Committee.

Mr America asked why there was consistent under spending within the Department.

A Departmental official stated that page 168 to 169 of the report provided substantive detail as to why under spending was prevalent during the financial year.

Mr Dugmore asked about the procurement of legal services through the state attorney, which is a deviation in reference to the property case where the Department is the defendant in the property claims.

A Departmental official said the briefing of advocates and state attorneys to litigate on cases outside their areas specialty are usually difficult. This is one matter that needs further attention and had resulted in non-compliance in procurement of legal services. However, a committee has been established to get quotes from legal representatives that could help the Department.

Ms Nkonzo referred to page 186 of the report and asked about the damages to vehicles and expenditure of non-recoverables.

A Departmental official replied that damages to vehicles refer to unforeseen accidents. In such cases the Department makes assessments to see who was liable for damages. If it was not the employee of the Department, then it is written off. In relation to vehicle accident costs where officials of the Department were not negligent, there is a departmental framework to deal with such eventualities.

Premier Winde indicated that the Department’s unqualified audit report was as a result of the collective effort of the whole Department.

The Chairperson concluded the proceeding.

The meeting was adjourned.