DIRCO management report on 2018/19 audit findings: follow up with Deputy Minister

Meeting report

This meeting was a continuation from a meeting held on 30 October 2019, when DIRCO Chief Financial Officer, Mr Caiphus Ramashau, was to present the DIRCO response to the Committee's Budgetary Review and Recommendations Report. The presentation focused on the DIRCO audit action plan to resolve the Auditor General South Africa (AGSA) audit findings for 2018/19 and the recurring negative findings since 2013/14. The Committee was displeased with the DIRCO presentation of the 30 October 2019 and said that the presentation did not speak to the agenda.

The Chairperson requested the Committee Secretary to remind them of the decision taken in the 30 October 2019, by reading the conclusion of the minutes.

The Committee Secretary read from the minutes that the Chairperson was tempted to stop the proceedings after noticing that the presentation from Mr Ramashau was not in line with the agenda. Mr Ramashau’s presentation was mired with allegations against the former Minister of International Relations and Cooperation, Ms Maite Nkoana-Mashabane and other "mishandling" by department officials. Due to time constraints, the Committee felt that they could not engage and respond to the matters raised in the presentation without the DIRCO Director General, Mr Mahoai, who should account for some of the issues alleged. The Committee decided to reconvene on 5 February 2020 with the hope that Mr Ramashau would present an audit action plan for how DIRCO intends to resolve its recurring negative audit findings and resolve the allegations raised by Mr Ramashau. The Chairperson noted the plight of DIRCO’s challenges and stressed why it was important to summon the Director General, the Chief Director: Supply Chain Management, the Acting CFO and other officials, who were absent in the previous meeting.

The Chairperson requested Mr Mahoai and his team to present the correct presentation.

Mr M Chetty (DA) reminded members that Mr Ramashau was requested to appear before the Committee on the 6 November 2019 and recalled that no one from DIRCO had come to that meeting. It was later understood that Mr Ramashau was abroad but to date, no apologies were received from him. Mr Chetty asked for clarity.

Mr Kgabo Mahoai, DIRCO Director General, confirmed that he knew of the 6 November 2019 meeting and he had availed himself for the meeting. He noted however that the agenda item was subsequently cancelled upon arrival, after the DIRCO Parliamentary Liaison Officer (PLO) told the Committee that Mr Ramashau would not be available for the meeting. When questioned if Mr Ramashau had actually sent an apology to him, he said that he faintly recalled that a request for an apology from Mr Ramashau was sent.

In response to Mr Mahoai, the Chairperson clarified that an apology is submitted – not requested. She mentioned her displeasure with Mr Ramashau’s apology that was sent by SMS on the morning of that meeting. The Chairperson took issue with Mr Mahoai’s efforts to cover up for Mr Ramashau and stressed how much money and resources were wasted in preparation for that meeting.

Mr B Nkosi (ANC) requested reasons for Mr Ramashau’s inability to attend the meeting despite having knowledge of it.

Ms T Msane (EFF) asked if the entire DIRCO management team was not briefed of the intention of the meeting that Mr Ramashau was to present to the Portfolio Committee.

Mr D Moela (ANC) felt that Mr Mahoai was partly responsible for the problems at DIRCO, and that he undermined the Committee. He agreed that a report be submitted on why Mr Ramashau could not attend that meeting.

Mr Chetty believed there was a level of disrespect given towards the Portfolio Committee when an explanation of non-attendance was not submitted. He believed that Mr Ramashau was notified in time for the meeting and he could have been courteous enough to submit an apology in ample time prior to the meeting. He highlighted the carelessness of Mr Ramashau’s late apology, given the amount of money and resources used for DIRCO to attend the meeting. These were signs that DIRCO does not take wasteful expenditure seriously and he reminded Members of the plight of many South Africans who do not have basic housing and jobs. Secondly Mr Chetty criticised the careless manner in which the presentation was titled. He also recalled how certain DIRCO officials behaved upon arrival and those who had left abruptly while on oversight visits to New York. He suggested that there needs to be consequences for wasteful expenditure to deter officials from wasting public funds.

Mr T Mpanza (ANC) said that based on the happenings at DIRCO, the management team is failing. He spoke of Mr Mahoai’s lack of leadership as the DG, and his inability to keep Mr Ramashau accountable as a manager working under his leadership. He agreed with the suggestion that Mr Mahoai must submit a report explaining why Mr Ramashau could not attend the meeting, which must include an action plan on consequence management for his non-attendance. The report must be submitted in the next meeting.

Mr Mahaoi said that Mr Ramashau’s absence from the meeting came as a surprise to him. He had arranged with Mr Ramashau to fly directly to Cape Town from London to present to the Committee. Mr Mahoai said how despite being frustrated, it was beyond his control that Mr Ramashau decided not to attend the meeting.

Mr Nkosi asked Mr Mahaoi not to respond on why Mr Ramashau could not attend the meeting. He insisted that Mr Ramashau explain and account for his absence at that meeting. This is because it had become clear to Committee members that Mr Mahaoi seemed to be covering up for Mr Ramashau.

Mr K Meshoe (ACDP) suggested that consequence management be implemented against Mr Ramashau because he suspected traits of insubordination. He suggested that other members of the DIRCO management team submit input that can strengthen the case of insubordination against Mr Ramashau.

Ms Msane agreed saying that this was not the first time that Mr Ramashau went against the instruction of the DG. She felt the Portfolio Committee would be rendered toothless if nothing is done to resolve the challenges at DIRCO, particularly those levelled against Mr Ramashau. She strongly emphasised her displeasure at the possibility of serving in a Committee that would fail at resolving this.

Despite the suggestions for Mr Ramashau to explain his absence, Mr Moela insisted that Mr Mahoai must still account for his lack of management and leadership as the DG, given the veracity of the matters against Mr Ramashau. He proposed that DIRCO management and other guests excuse themselves from the meeting while the Committee privately caucus on the way forward with the matter.

The Committee agreed and the Chairperson closed the meeting for the caucus.

[Caucus held for 15 minutes]

The Chairperson called the DIRCO management team and all guests back into the meeting. She requested Mr Mahaoi to allow Mr Ramashau to present the report titled 'Briefing to the Portfolio Committee: Mr C Ramashau, ACMA, CGMA, CFO & DDG, 30 October 2019’.

Mr Mahoai said that his team will respond to the concerns raised by the Portfolio Committee and that each manager will respond to concerns that relate to his or her directorate at DIRCO. He then handed over to Mr Ramashau to present the report.

Mr Ramashau explained the presentation format and said that the presentation was an extract from the DIRCO finance management report which spoke to the AGSA audit findings. Despite being named as the author in the title of the report, Mr Ramashau said that he did not author the report. The report he is presenting is not the CFO’s report, but a collaborative effort of all the senior DIRCO managers under the guidance of Mr Mashaba, Director of Supply Chain Management at DIRCO.

Mr Nkosi expressed his concern with Mr Ramashau’s efforts to recuse himself from the report that he was meant to present. Mr Ramashau cannot recuse himself from the report because his name appears as the author of the report, and the content of the report should speak to the finance status of DIRCO, a responsibility which is managed by Mr Ramashau as the CFO. He lamented Mr Ramashau’s statement and efforts to recuse himself from the report as unacceptable.

The Chairperson said that there will be no arguments on who will present the report and insisted that Mr Ramashau present it as the CFO. She requested Mr Ramashau to present the same report he presented to the Portfolio Committee on 30 October 2019, titled ‘Briefing to the Portfolio Committee: Mr C Ramashau, ACMA, CGMA, CFO & DDG, 30 October 2019’.

DIRCO Audit Action Plan presentation
DIRCO Chief Financial Officer, Mr Caiphus Ramashau, said the report covers the response to the areas identified in the audit findings of the Audit General report for the 2018/19 financial year. These areas are:

Management of Cash and Cash Equivalents
The current model for transferring funds between missions and head office was performed manually and was inconsistent with the requirements of the modified cash basis of accounting to which DIRCO had migrated. During the 2018/19 audit, AGSA noted that inadequate reconciliations were performed, inadequate internal controls were implemented which management concurred with and attributed these to, amongst others, capacity constraints within the cash and bank management unit and also to the lack of an integrated financial management system. Amongst the remedial actions to be taken, was for the Finance Branch to develop a cash equivalent standard operating procedure. This included analysing all missions that had contributed to the finding with a purpose of clearing accounts and to identify the root causes for the differences. The responsible person was Chief Director: Financial Management and it was to be done by 15 November 2019.

Misstatements of Financial Statements
The annual financial statements submitted by DIRCO to AGSA contained material misstatements, notably on cash and cash equivalents; irregular, fruitless and wasteful expenditure and on movable assets. The Finance Branch did not have requisite skills to prepare financials. DIRCO concurred with AGSA’s findings and attributed them to a lack of a financial management system and to capacity constraints within head office and missions. Amongst the remedial actions to be taken was to address capacity constraints. This included conducting a skills audit and subsequent training for head office and missions, which was the responsibility of the Deputy Director General: Corporate Management and it was to be done by 30 January 2020. The DDG should also develop a financial practitioner competency framework by 30 January 2020.

Supply Chain Management (SCM)
The Supply Chain Management remained a concern raised by AGSA in consecutive financial years. Management concurred with AGSA’s findings which, amongst others, were attributed to deviation approval requirements for SCM not being met by head office. DIRCO had requested a condonation which National Treasury granted on condition that it met the requirements of the Public Finance Management Act (PFMA). As a result, DIRCO did not comply with the conditions as only one supplier, Open Water, was invited to bid.

AGSA found internal control deficiencies and had found a contract to be irregular. Mr Ramashau stated that Mr Mahaoi had not taken the necessary steps to ensure that all conditions stipulated by Treasury were adhered to prior to the award finalisation. The proposed interventions for management to take were to include transactions in the irregular expenditure register, to develop a deviation checklist and for SCM and internal audit to check on compliance before approval by the DG.

Further, it was found that a functionality criterion was not used in the evaluation process. The request for a quote for catering for diplomatic corps was not issued using correct procedures for functionality requirements. Instead the request was evaluated only on price and BEE without functionality assessment.

Another finding was the SCM Chief Director did not enforce controls to monitor laws/regulations compliance.

The AGSA report identified irregular expenditure on the Execujet account. This deviation was recommended by the CFO and approved by the Director General, despite it not being approved by Treasury as required. These deviations included: Charter flight to Algiers - R1 771 800; Charter flight to Addis Ababa - R774 000; Charter flight to Addis Ababa – R1 275 085.

This was identified as an internal control deficiency by the DG. He did not take the necessary steps to ensure that all the conditions stipulated by Treasury were adhered to prior to the award finalisation.

Another audit finding was the use of an SA Air Force flight in contravention of the Ministerial Handbook - Swift Flite. The Minister had taken a trip for a political party gala dinner which was noted as an official trip even though it did not meet the requirements of an official trip. This deviation was approved by Mr Mahoai. Nor did he ensure the expenses incurred by the Minister were in line with Executive Members benefits.

Asset Management
The audit findings concluded that the asset register was incomplete; that assets in the Fixed Asset Register (FAR) could not be physically verified or they did not have barcodes to confirm their existence; obsolete assets were still recorded in the FAR; that audit findings of previous financial year had not been addressed and that discrepancies were noted on the submitted annual financial statements.

Mr Ramashau explained that the SCM Chief Director had not implemented adequate asset management controls that included reconciliations between physical assets and what was accounted for on FAR. The root causes of the problems were attributed to, amongst others, no electronic Asset Management System and there were capacity constraints within the Asset Management Unit. The proposed interventions included implementing an electronic Asset Management System known as NetTrace so as to conduct bi-annual Physical Asset Verification and to conduct intensive Asset Management training with relevant officials.

Diplomatic Bag Contract
The Diplomatic Bag Contract was a current contract that was awarded for one year to the value of R9 921 050. The contract was thereafter varied for R763 204.25 for a month at 7%. DIRCO approached Treasury for further variation for three months, from 1 September to 30 November at R 2 292 105.63 at 23%.

A new contract was then instituted as New Bid DIRCO 04/2019 which was advertised on 26 September 2019 and was subsequently closed on the 17 October 2019. It was to be evaluated by 31 October 2019 and adjudicated by the second week of November 2019.

New York Pilot Project
DIRCO had identified New York as a priority area for the acquisition of a Chancery in the 2012/13 financial year. This was due to its strategic importance as a multilateral mission and because it had a UN seat; the high cost of rental; and South Africa’s intention to increase its presence in the UN and Security Council.

The lease agreement for the Chancery in New York was subsequently terminated in April 2014, and DIRCO decided to enter into a month-to-month holdover lease agreement until it could acquire property and afford the cost for relocation.

During the period 2013 to 2015, two attempts to purchase an existing building in New York failed due to the fast pace of the property market in the city, the lengthy decision making processes to acquire immovable assets, the cost of properties available and the inevitable premium placed on properties when bought by a foreign government.

Treasury approved in 2014 that DIRCO could enter into financial leases, and in 2015 that DIRCO may pursue a lease-to-buy and operational lease transactions in terms of Regulation 13.2.4.

A terms of reference for “Appointment of a Development Partner for the Design, Construction, Operation, Maintenance and Finance of suitable and sustainable office and residential accommodation for the RSA diplomatic missions in Manhattan, NYC” was developed in March 2016

The terms of reference were recommended by the Bid Specifications Committee and subjected to a risk and legal review prior to approval by the Accounting Officer in March 2016, and the bid was advertised in the Tender Bulletin for 6 weeks. The bids received at the closing date were evaluated by the Bid Evaluation Committee and a recommendation made by the Bid Adjudication Committee was approved by the Accounting Officer in May 2016.

Mr Ramashau confirmed that DIRCO appointed Simeka / Regiments Joint Venture as the preferred bidder subject to the successful conclusion of a lease agreement and a due diligence process.

In June 2016, a property located at East 43rd Street and Second Avenue was approved by the executive. This property consisted of 3 townhouses together with rights to be demolished and the land used for a new Chancery. However, problems arose which required Simeka / Regiments to pursue alternative sites which DIRCO made requests to Treasury on November 2016, and it approved on 15 December 2016.

In March 2017, the executive approved an alternative property located at 211-215 East 38th Street and Third Avenue. This property consisted of a brownstone building to be demolished and the land used for a new Chancery. After the necessary permissions were granted by Treasury, DIRCO made a payment of USD 9 million to the preferred bidder, of which USD 4 million was used as a deposit to secure the land. The purchase price of the land was USD 47 850 000.

On 16 October 2017, 17 months after the preferred bidder was appointed and USD 9 million was spent, Treasury informed DIRCO of perceived irregularities on the appointment of the preferred bidder:
- The evaluation criteria was not sub-divided to allow BEC members to score objectively;
- Lephuthing Investments was incorrectly disqualified;
- Simeka failed to disclose that they are in joint venture;
- The joint venture agreement quoted a different company registration number;
- The joint venture was appointed whereas the bidder was Simeka Group.

DIRCO responded to these concerns with evidence however in January 2018, Treasury indicated that the unresolved procurement issues precluded it from issuing a Treasury Approval: III for public-private partnership procurement to DIRCO. Treasury advised DIRCO to decide if it would continue with the land transaction and incur irregular expenditure, or cancel the transaction which would result in fruitless and wasteful expenditure. While this was happening, the preferred bidder, Simeka addressed legal communication to the Accounting Officer as of January 2018. In June 2018, the seller of the land reminded Simeka that the final date for payment was 2 July 2018, thereafter the land and deposit would be forfeited.

DIRCO decided to review its decision to appoint the preferred bidder and instituted court proceedings in the Gauteng High Court in October 2018 to set the appointment aside and recover the USD 9 million paid. Simeka responded and instituted action proceedings against DIRCO in October 2018. It requested the High Court direct DIRCO to honour its obligations in the tender award, or alternatively it would claim damages of R598 million plus interest for loss of profits and out of pocket costs. The matter remains under judicial consideration.

Mr Ramashau thanked the Chairperson for the opportunity to present.

Discussion
The Chairperson thanked Mr Ramashau for the presentation. She then diverted attention to Mr Mahoai, and asked how this presentation, which had damning information about the former Minister of International Relations and Cooperation, the Director of Supply Chain Management and Multichoice, amongst others, was leaked. She questioned Mr Mahoai on why he would approve the release of this report, and accept that Mr Ramashau present this report on 30 October 2019 and in the current meeting.

She briefly discussed the issues identified during the New York oversight visit where they saw two buildings that they thought would be the new Chancery, only to be informed that the address for the development of the Chancery was a parking lot.

She was glad that the AGSA Parliamentary Liaison Officer was present and must be furnished with a copy of the presentation. She insisted that AGSA must be informed of the contradictions presented in the report, versus what AGSA had identified in its audit findings.

She said that the advocate involved in the legal matter of the New York Pilot project must be present in the Committee meetings. She was shocked when the Committee was informed that the Chief State Law Advisor had been part of the New York Pilot Project legal matter from the onset, as they had not been informed.

The Chairperson asked if the Supply Chain Management team was present, and said that they were also implicated in the report.

The Chairperson said that, given that this presentation was a repeat of the previous meeting, Mr Mahoai must be able to respond to the matters raised as he has had three months to prepare responses. Parliament has a responsibility to hold government officials accountable in instances when they squander public funds. She cautioned that the Portfolio Committee will, if they must, submit these issues to the Standing Committee of Public Accounts (SCOPA) without fear or favour.

Mr Chetty requested that DIRCO respond to the questions posed in the previous meeting, before the Committee ask new questions. Committee members agreed to his request.

Mr Mahoai referred to slide 21 on the former Minister’s trip for a political party gala dinner that was approved by Mr Mahoai despite not meeting the requirements of an official trip. Mr Mahoai said that this occurred when the Minister was supposed to go on an official trip to Zambia to the Organ Chair of the Southern African Development Community (SADC), followed by a trip to Namibia to the SADC chair, which were later changed, despite arrangements for the trips being finalised. It was later agreed that since the delegates that the former Minister was going to meet with, were scheduled to be in South Africa in the later weeks, the former Minister would meet with them then. Mr Mahoai stated that he had made follow-ups with the Chief of Staff to ascertain what happened with this AGSA finding as he was under the impression that due processes were followed. He had requested the Chief of Staff to put these matters in writing so that he can follow-up on them and manage the sensitivities of the matters. Mr Mahoai submitted that given that DIRCO had made efforts to resolve the matter prior to the AGSA audit findings, he does not agree with the audit findings and the internal control deficiency outcome and intends to challenge it. He offered to furnish evidence to the Portfolio Committee on this.

The Chairperson asked how DIRCO’s internal management report landed in the hands of the Portfolio Committee for presentation.

Mr Mahoai said that this happened without his knowledge, and he noted that he was in the process of inquiring with Mr Ramashau.

The Chairperson probed further and asked what Mr Ramashau’s intentions were when he decided that he would present an extract of the management report to the Portfolio Committee, without Mr Mahoai’s approval as the DG.

Mr Ramashau replied that he had received a letter from the Minister and Mr Mahoai requesting that he present to the Portfolio Committee on the work of DIRCO. He noted that at the time, the only report he could present was an extract of the management report, which had enough information to speak to the intention of the meeting.

Mr Ramashau insisted that although he was requested to present, the report was written in his absence. He had submitted a copy of the presentation to Mr Mahoai and based on that assumed he was aware that he would present the report with its current information.

The Chairperson again expressed how displeased she was. She reminded Mr Ramashau that the intention of the 30 October 2019 meeting was to report a response to the Committee's Budgetary Review And Recommendation Report about DIRCO, and not on internal issues reported in the management report. She argued that Mr Ramashau had used the New York trip to deflect attention from his shortcomings as a CFO, and used the management report to shield himself.

The Chairperson then turned to Mr Mahoai and insisted that he provide evidence to support his claims, and to respond to the issues raised in the previous meeting. The Chairperson insisted that these be submitted before the end of the meeting. She asked Mr Mahoai to particularly focus on slide 21 of the presentation, and provide details on how the matter will be resolved.

Mr Mahoai replied that it was difficult to respond in this meeting as the matter is still under review with AGSA.

Mr Nkosi raised a procedural point. He argued that Mr Ramashau had denied responsibility for the report, and yet he still presented it, and said that he had sent the report for approval to Mr Mahoai prior to presenting to the Committee. He suggested that DIRCO should rather provide the Committee with a finalised report, and felt uncomfortable with taking a decision on a report that was not final.

Mr Moela agreed. He said that the DG and CFO are undermining the Committee because there is too much back and forth. He suggested that if Mr Mahoai cannot manage and lead a department, he must consider the possibility of resigning from his role as the DG, and face consequence management.

Mr Chetty asked if the DG and the Minister were given a proviso on the matter. He questioned if the DG and CFO had read the report prior to the meeting. He referred to slide 18 when making this statement.

Ms B Swarts (ANC) asked if the Ministerial Handbook allows the Minister to use charter planes for meetings. She asked Mr Ramashau if he did not author the report, then who did. She agreed with the Chairperson’s suggestion that the DG should submit evidence and responses before leaving the meeting.

Mr Mpanza noted that the Committee cannot deal with a report that no one can admit they wrote. He suggested that since the same issues consistently arise, the mediation committee of Parliament must be called in to resolve the matter. He reminded the Committee that there are other outstanding matters that have still not been resolved. Lastly, the outcomes of the report must state the consequence management steps that will be followed to resolve matters.

The Chairperson allowed Mr Mahoai to respond.

Mr Mahoai replied that he wanted to clarify the issue about the presentation made on 20 October which he maintains came to the Parliament without his knowledge. This is the report they had come to respond to. With the managerial report they are not challenging the Auditor General but rather they are raising matters. He requested that the report be withdrawn but for DIRCO still to account for some of the matters which have already been put forward in the managerial report.

The Chairperson noted that the report DIRCO came with is synonymous to dry bones without meat.

The Chairperson asked if they have any other responses except for the presentation.

The Director-General noted that they do.

The Chairperson asked if the document they have which Members do not have is their source document.

The DG agreed that it is their source document including the letter mentioned earlier.

The Chairperson asked if the Minister should write a letter to DIRCO Management asking them to state why the Minister should keep them in their positions.

DIRCO Director-General Mahoai replied that he would say because he is fit where he is and that he is able to discharge all his duties and hence does not deserve to be fired.

DIRCO CFO Ramashau replied that his age does not allow for retirement. He noted that he ensures that all the spending is in compliance with legislation. He believed that his work should be measured by his ethical conduct.

DIRCO SCM Chief Director Mashaba replied that he brings with him 19 years of experience in supply chain and that he is qualified for the job. He will ensure that the current irregular expenditure will be dealt with although it is impossible to eliminate.

DIRCO Legal Advisor replied that she has been performing to the best of her ability and is committed to continuing doing such.

The Chairperson noted that the Chief Director said that the irregular expenditure is difficult to regulate. She would not keep such a person. They are lacking consequence management. The Department is in a bad state and yet all of them are saying they are capable. Each time the audit report comes it shows a lot of irregular and fruitless expenditure. She asked if their performance has yielded good results for DIRCO.

The Chairperson said that the Committee is going to write to the Minister letting her know that the Department is lacking capacity and that the Committee cannot be subjected to mediocrity. The programme for this meeting was sent in the previous year and yet "they did nothing". Also, it seems no one including the presenter knows how the managerial report presented got to Parliament, which is absurd.

The Chairperson noted that the former Minister is taking them to court for allegations made against her. She wondered what the Department is going to say in court if they are failing to respond now. She remarked that this meeting was a waste of time. She asked DIRCO Management to send their source document and the empirical evidence they had mentioned. She suggested that they adjourn the meeting and wait for the report from the Auditor General which the Committee thinks will be a more credible report than the managerial report.

The meeting was adjourned.