The Joint Standing Committee on the Financial Management of Parliament met for a briefing on Parliament’s Annual Report for 2018/19 by the Auditor-General South Africa, the Committee Content Advisor and the Committee Researcher, in preparation for the meeting at which the Acting Secretary of Parliament would present the report.
The Auditor-General (AG) informed the Committee that Parliament had received an unqualified audit with no findings, good financial statements and a good performance report – a clean audit. The financial statements were correct in all respects but, while there were no findings, some statements had to be adjusted in the annual report. There had been no irregular expenditure in the 2018/19 year but an amount had been carried forward from the prior year and it was currently R336 000. Parliament had to investigate those irregularities and apply consequence management.
The key concern was that Parliament had realised a deficit, attributable to the post-retirement employee benefit obligation and exit gratuity paid in terms of proclamation 48. More Members had left Parliament either before, or as a result of, the 2019 general election. The entire post-retirement benefit and exit gratuity was funded on an annual basis by the National Treasury (NT) via a direct charge and so no risk was raised about the going concern assumption for Parliament.
The AG also reported on the progress made with the 16 auditees identified for investigation of material irregularities under the additional powers of the AG. The AG had found a known loss of R2.51 billion and a R0.3 billion estimated loss from 12 auditees. A total of 28 material irregularities had been identified from the 12 completed audits and Accounting Officers were investigating and preparing consequence management. One case had been referred to a public body for investigation.
Members were concerned that the services rendered by Parliament were not up to scratch. What does the AG suggest Parliament should do to address this? What advice could the AG offer regarding the budget for the Office Supporting Democratic Institutions? It was funded from Parliament’s reserve fund; what would happen if the reserves were depleted? What cost-cutting measures does the AG suggest?
The performance of Parliament had improved steadily over the years; it increased from 45.87% in FY2015/16 to 78.57% in FY2018/19 and this was despite Parliament’s declined operational budget over the same period. Parliament had a cash reserve of R282.3 million in the 2017/18 financial year. That amount had since decreased to R148.1 million as the Parliament Budget Office and the Office for Institutions Supporting Democracy were not funded from the fiscus but through those reserves. The depletion of those reserves posed a financial threat to Parliament. The material irregularities from 2017/18 had not been dealt with during the period under review. The failure of Parliament to act on those material irregularities showed a lack of consequence management. By the end of FY2018/19, an amount of R52.3 million had been donated to Parliament for strengthening public participation and representation. The MyParliament App had been installed on the electronic devices of Members of Parliament and they had been trained in its use. However, the printing and stationery costs remained significantly high.
Members asked whether the AG’s Office still believed that Parliament should get a clean audit. Why should Parliament carry people from provincial legislatures? Why should the legislatures not carry that obligation themselves? Why can the NT allocate funds for the legislatures so that they did not come out of Parliament’s budget? Why were former Executive Members entitled to 48 business class flights per annum when former Members of Parliament were only entitles to four economy class flights per annum? Could costs not be cut there? The Committee needed to know to what extent insourcing of services had produced a saving.
The Committee Researcher noted that a performance indicator had been set for the Parliamentary Budget Office, but there was no mention of performance indicators for the Office for Institutions Supporting Democracy or the Treasury Advice Office, or for the Executive Authority, even though they had been allocated budgets for 2018/19. The risk management process was not fully mature due to the fact that the risk management policy, risk management framework and risk management strategy were still in the development stage. The internal audit unit had conducted an audit which identified internal controls as needing attention. Parliament should advise National Treasury that it needed a bigger budget because its reserve funds were reducing.
Members asked whether the repairs and maintenance work of nearly R1 million had been completed or it was still happening. Were the electronic devices given to Members not fruitless and wasteful expenditure as people had not been properly trained and so many did not use the devices? A Member wondered whether Parliament was in the same state as state-owned enterprises as it also seemed to need a bail-out.
The Chairperson informed the Members that the co-Chairperson of the Committee had sent apologies and indicated that she was happy for Ms Mabe to chair the meeting alone.
Presentation by Auditor-General on Parliament’s 2018/19 audit outcomes
Ms Sharone Adams, Business Executive, Auditor-General’s Office, informed the Committee that she would be giving a report on the results of the new approach of the Office of the Auditor-General South Africa (AGSA), following the briefing by the Auditor-General (AG) to the Committee. She would detail some of the irregularities found in the 16 selected auditees.
Ms Adams indicated that Parliament received an unqualified audit with no findings, good financial statements and a good performance report – a clean audit. Although the financial statements had no material findings, some statements had to be adjusted in the annual report. There was no irregular expenditure in the FY2018/19 but an amount of R336 000 of such had been brought forward from the previous year. There should be an investigation into those irregularities. For internal control, the AG considered the ethical and Human Resources perspectives – posts filled and action plans.
The key concern was that Parliament had realised a deficit for the current year as well as prior years. This was attributable to the post-retirement employee benefit obligations and exit gratuities. Also, more payments were made to former Members as per Proclamation 48 in FY2018/19 compared to the prior year. This was due to the increase in the number of Members that had exited the Political Office Bearers’ Pension Fund before, or as a result of, the 2019 general elections. It should be noted that the post-retirement benefit and exit gratuities were funded on an annual basis by the National Treasury (NT) via a direct charge and thus no risk was raised about the going concern assumption for Parliament.
The way forward was for Parliament and AGSA to continue with proactive and continuous engagements to limit vulnerability to risk areas.
Ms Adams reminded the Committee that, following the Public Audit Amendment Act (2019), AGSA would, henceforth, include a paragraph on material irregularities and any progress made on the matters identified, in the audit report. In FY18/19, implementation in the selected 16 auditees would focus on material irregularities. The Accounting Officers (AOs) and Accounting Authorities (AAs) had to begin preparing for implementation because a certificate of debt could be personally issued to the Accounting Officer and this was a serious matter.
There was a known loss of R2.51 billion and a R300 million estimated loss from 12 of the 16 auditees. There were 28 material irregularities (MIs) identified from the 12 completed audits. After being notified about the MIs, the AOs and AAs investigated the matters and either indicated what action had already been taken or that they committed to take based on their legal obligations. Certain AOs and AAs had not responded while some had acted or had action plans which were deemed inappropriate for their legal obligations. Two AOs and/or AAs were instructed on how to proceed while one had been referred to a public body for investigation. The AG would follow up on the indicated remedial measures.
The AG was currently deciding which auditees would be included in the following year. That was important for the parliamentary committees as they would have to be aware of any reported MIs and in terms of their oversight role, the Committees would have to request details, including follow-up action. The Committees would have to determine if the action was appropriate and ensure that the determined action was taken, including consequence management.
Ms N Mahlo (ANC) appreciated the presentation and said it was very informative but had very small font; she requested a larger font in the future. She asked about the overpayments listed on slide 18 and the recovery process through the State Attorney. Who is responsible for following up with the State Attorney’s Office, the AG or the Committee? Ms Adams had indicated that AGSA had the authority to do follow-ups.
Ms Mahlo noted that on slide 22, under Preventing Material Irregularities, reference was made to a new method to detect noncompliance by the implementers. Regarding the procurement processes in Parliament, did the AG see those issues?
Ms Mahlo expressed that she was glad that Parliament was doing well because it was the highest body in the land and needed to be respected; so it must be a role model. She was happy to be part of the Committee and would not be happy if things did not go well. She appreciated that Parliament had a clean audit but said the institution should maintain ties with the AG for further improvements. She was pleased that the Auditor-General had powers to do certain things. Where there were wrong things, Parliament should be told.
Mr B Radebe (ANC) apologised for being late and said he was at another meeting; he had no intention of undermining AGSA. He appreciated the five years of clean audits but he was concerned about the inadequate services rendered by Parliament. The turnaround time to reimburse Members what was unreasonably long – far longer than the targeted two days. How did AGSA advise the management on resolving these matters?
Mr Radebe asked about the budget. What advice could the AG offer regarding the budget for the Office Supporting Democratic Institutions (OSDI)? It was funded from the reserves; what would happen if the reserves became depleted?
The Chairperson agreed with Mr Radebe’s concerns. She was also concerned that money was being paid for work done despite the poor quality of deliverables.
Ms Mahlo added that she did not understand the 66.7% for a permit and said that it seemed to be an irregularity.
Ms Adams apologised that she may have not clearly indicated the irregularities. She explained that the irregularities shown in the slides were not applicable to Parliament but were information and a progress report on the new process of the AG, in terms of audits which had found material irregularities in 12 of the 16 selected auditees. There were no irregularities in Parliament in 2018/19; they were only found in other entities and departments.
She added that on slide 22, she had simply highlighted that when any irregularity was discovered it should be investigated and dealt with immediately. Parliament did not have any irregular expenditure in 2018/19; the institution had to set the standard for other bodies as it was the oversight body.
Ms Adams told Mr Radebe that the AG did not focus on service delivery, except in terms of ensuring that key issues for the institutions were included in the targets. She noted that “other BRRR Committees” in Parliament were also asking about service delivery and its impact; AGSA was having discussions about the matter. The AG was looking at how the auditors could report differently on the predetermined objectives.
In respect of the budget office of the OSDI, Ms Adams explained that the Money Bills Amendment Act (1996) stated that OSDI had to play an oversight role. The budget office for OSDI funds had to come from the administrative side of Parliament. Parliament did not have to return any funds and if there was excess money for the year, Parliament was able to retain it. Parliament had to go to the NT and indicate that funding was needed for the Parliamentary Budget Office (PBO); this funding was part of the budget vote and had to come from the voted funds. An option was to request that OSDI should have its own budget vote. She had attended a session with other budget offices. She also suggested that research should be done on other budget offices in parliaments around the world.
Ms Adams agreed that PARMED was a major issue. According to the rules of Parliament, when any Member resigned or retired, Parliament had to pay 67.7% of the medical costs. The liability was that there was an X number of Members currently in Parliament. Based on that number, the AG would estimate the total cost of medical aid in the future. The calculation was based on an assumption of how long each Member of Parliament would live; this would determine what the medical aid was going to cost in the future because Parliament would be liable for it until the former Members died. The R1.2 billion was the amount that Parliament could be required to pay out in the future. The funds had been held to pay out claims from the former Members. However, one did not even know how much the claims would be.
Ms Adams repeated that the questions relating to irregularities were not applicable as the irregularities mentioned were from other departments and entities.
Follow up questions and comments
The Chairperson agreed that the biggest concern was the liability of R1.2 billion. What does the AG suggest Parliament do to address this?
Ms Adams replied that there was a conversation in the PBO and they were in talks with NT. There was an opinion that Parliament should not bear the costs for former Members from all provincial legislatures; it should only be carrying the costs for former Members of Parliament. This was currently the conversation so the Committee should ask the budget office.
The Chairperson asked about the Finance Minister’s request in the mini-budget speech that all entities and departments look into cost-cutting measures. That was something to be considered in the Budget review. What should the Committee look at in terms of cost-cutting measures?
Ms Adams agreed that everyone was impacted by cost-cutting. If one looked at the Parliament budget and the key components driving the performance statement, the salaries of Members, salaries of staff and travelling were the major expenses. Travelling costs presented the best cost-cutting opportunities. The Committee could also look at more efficient ways of holding meetings. Some people were looking at not giving salary increases to staff, and the same would apply to Members. The other big cost in Parliament was the transfer payments to political parties which were based on the number of Members; Parliament could consider lowering these allowances.
Mr N Singh (IFP) stated that he was Chief Whip and Treasurer-General of his party and if Parliament lowered the funds it would be quite difficult, especially as the political parties wanted more money; the smaller parties felt that Parliament was supporting them enough for administration expenses. One of the challenges that parties experienced was the fact that the main business was law-making but the parties, including the ANC, could not even afford to hire lawyers. What kind of legal support do Members have in Parliament? Other parliaments, such as that of Germany, had three or four support staffers for every Member; in SA there were only four support staffers for 15 Members. The strategic plan of Parliament had to address this. The constituency allowances were also a problem – they were not enough for parties to open offices. Administration of the funds by the PBO had to improve.
The Chairperson explained that she had been asking for advice about where to cut costs. The AG was merely advising and not making official proposals.
Mr Singh said that he thought that the National Council of Provinces (NCOP) could cut costs. He recalled a joint meeting between the National Assembly (NA) and the NCOP where some people had walked in five minutes before the end of the meeting. Flights had been cancelled on the previous day and five people missed the meeting because of this. These people would have flown in but often did not even ask a follow-up question. He suggested that the video conferencing rooms, V454 and V475, should be considered because they were never used for that purpose. The NCOP Members could get their mandates via a video conferencing as it was the permanent Members who would present and engage. These were some of the ways through which Parliament could cut costs.
Briefing by the Committee support staff on Parliament’s performance in the 2018/19 Annual Report
Mr Xolisile Mgaxaji, Content Advisor, and Samuel Hlekiso, Researcher for the Committee, briefed the Committee on the 2018/19 Annual Report.
Briefing by the Content Advisor
Mr Mgaxaji noted that the AG had touched on most of the issues contained in his brief.
The performance of Parliament had improved steadily over the years; it increased from 45.87% in FY2015/16 to 78.57% in FY2018/19 and this was despite Parliament’s declined operational budget over the same period. For the Client Satisfaction Level target, Parliament had planned to achieve 75% but had only managed to achieve 67.1% satisfaction. The target measured client satisfaction in the area of institutional support services – including household, catering protection services, artwork and safety. These had all shown a decline in the performance according to the client satisfaction survey. Parliament had aimed to take 2.4 days to reimburse Members for payments due to them. However, it took an average of 2.53 days due to lack of capacity.
Parliament had a cash reserve of R282.3 million in FY2017/18 but this amount had decreased to R148.1 million by 31 March 2019. It was concerning because the retained income or reserves were being depleted because the PBO and the Office for Institutions Supporting Democracy (OISD) were not funded from the fiscus but through these reserves. The depletion thus posed a financial threat to Parliament. The Committee should ask whether the management of Parliament had plans to mitigate this potential threat. The material irregularities from 2017/18 were not dealt with during the period under review. The failure of Parliament to act on those material irregularities showed a lack of consequence management.
At the end of 2018/19 financial year, an amount of R52.3 million was donated to Parliament for deepening public participation and representation.
In its endeavour to contain costs, Parliament had introduced the MyParliament App to cut printing and stationery costs as all documents could be sent electronically to Members through the app. By the end of March 2019, Parliament reported that 302 Members of Parliament had the app installed on their mobile devices and had been trained to use it. The app would be installed for all Members in the Sixth Parliament. However, the printing and stationery costs remained significantly high – for the FY2016/17, it amounted to R14.4 million; it was R15 million and R15.7 million for the 2017/18 and 2018/19 financial years, respectively.
Parliament had made transfer payments to political parties amounting to R454.3 million in 2018/19. However, the approved budget for transfer payments to political parties at the beginning of the 2018/19 financial year was only R438.7 million.
The Chairperson stated that, following the Content Advisor’s presentation, she did not understand how Parliament had received a clean audit. She might have been misled by the Content Advisor’s articulation but it sounded as if there were some very serious issues that had to be addressed. Did the AG’s office still believe that Parliament should get a clean audit?
Ms Adams stated that the AG’s office was satisfied based on the work that it had done, evidence it collected and the conclusion that it had come to for FY2018/19. The Content Advisor was highlighting risks and spending patterns that Members could raise with management directly. She pointed out that under the accounting system used by Parliament (GRAP), the PARMED obligation had to be disclosed according to the GRAP reporting framework. If that obligation was not declared, Parliament would get a disclaimer.
The Chairperson noted that the Content Advisor had stated that there was no obligation for Parliament to carry that liability.
Mr Singh stated that clarification was required on two issues, including the PARMED one. For a number of years there had been a discussion around the fact that Parliament made a contribution to former Members who had been in Parliament for a specific time period. However, Parliament also made a contribution to former members of provincial legislatures. Why should Parliament carry people from provincial legislatures? Why should the legislatures not carry that obligation themselves? Why can the NT allocate funds for the legislatures so that they did not come out of Parliament’s budget?
The second issue was flights for former Members of the Executive where, no matter how long one was a Member of the Executive – it could be just for a weekend special, one was entitled to 48 business class flights per annum, plus flights for one’s spouse. When Members of Parliament left, they only got four economy class flights per annum and none for their spouses. The cost of those flights was carried by Parliament. Other Committees were looking for fairness by a reducing the Executive Members’ access to flights and increasing the number of flights for Members of Parliament, while capping the flights at ten years after leaving the Executive or Parliament. This was a cost-saving measure.
He added that the Committee needed to know to what extent insourcing of services had brought a saving.
Briefing by the Committee Researcher
Mr Hlekiso presented his report. He noted that, in 2018/19, Programme 1 had one performance indicator although it had three offices in its establishment. A performance indicator was set for the PBO but there was no mention of performance indicators for OISD and the Treasury Advice Office, or for the Executive Authority – even though they had all been allocated budgets for 2018/19.
Mr Maseko’s presentation covered much the same ground as the two previous presentations.
Governance issues that raised concerns
The risk management process had not fully matured due to the fact that the risk management policy, risk management framework and risk management strategy were still in the development stage. The internal audit unit had conducted an audit which had identified internal controls as needing attention. Management needed to:
-strengthen the performance management and reporting system to ensure quality reporting, thus enhancing the delivery against strategies and plans;
-normalise labour relations;
-enhance the institutional image in the eyes of key stakeholders; and
-pay special attention to the quality and contents of the in-year monitoring reports of the Accounting Officer and the quarterly performance reports of management.
There should a recommendation that Parliament needed more money because it was using its reserve funds.
Mr M Moletsane (EFF, Free State) referred to point 2.6 of the Content Advisor’s presentation: “Of the total amount spent, R973 000 was spent on repairs and maintenance of buildings.” He asked whether the repairs and maintenance work had been completed or it was still happening. He pointed out that the cost of printing would not be reduced because material was still being printed and only one person out of 15 was using a laptop. Members were not using digital devices; some left the equipment at home for kids to play with. Training only entailed being shown how to open the App and being given the access code. However, the older people did not know how to use the app. It was fruitless and wasteful expenditure if people were not properly trained.
Mr Moletsane stated that Parliament was being very harsh with the state-owned enterprises (SOEs) and not allowing them to use state funds. He wondered whether Parliament was in the same state as SOEs because it also needed a bail-out. He concurred with the Chairperson: the AG had made such a rosy presentation that he wondered how accurate it was. However, he had heard the Business Executive say that some of the things did not fall within the audit. The AG just checked receipts and balanced the books but the researchers could see the challenges.
Closing remarks by the Chairperson
The Chairperson thanked the researchers for the presentation and was looking forward to the presentation scheduled after plenary.
The meeting was adjourned.