Department of Cooperative Governances Annual Report audit outcome & 2018/19 Local Government audit outcomes: AGSA briefing, with Deputy Minister

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Cooperative Governance and Traditional Affairs

19 February 2020
Chairperson: Ms F Muthambi (ANC)
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Meeting Summary

The Department of Cooperative Governance admitted it was facing challenges in managing the Community Work Programme (CPW) because money was being paid to deceased people, government employees, and inappropriate entities.

The AG made it clear the problems that besieged the programme were broader than the audit findings even though it had been encouraging the Department to do checks and balances in terms of timesheets, record-keeping, LAs, etc. The AG contended it could only deal with the administrative challenges, but not with the model itself or with systematic challenges because the Department was responsible for them. It further informed the Committee the matter of payments to deceased people was part of the audit process and recommendations had been provided to the Department. It said it was advising the Department on the basis of what it has picked up during the audit.

The Department of Cooperative Governance had received a disclaimer with findings from the AG on the audit outcomes for the 2018/19 financial period. The audit report indicated financial statements had not been submitted within the legislated date period. The submitted set of financial statements had contained basic accounting errors. Even after the audit, the quality of the final submission had contained misstatements.

The AG further reported that the bulk of the irregular expenditure incurred was related to CWP and to payments made on expired contracts. It had also happened as a result of the contravention of SCM legislation.  There was a lack of discipline to ensure compliance, which had led to an increased irregular expenditure. Fruitless and wasteful expenditure related to non-attendance of training by the CWP participants. The increase had been due to the 2018/19 fruitless and wasteful expenditure which had been identified but which had not been investigated. Unauthorised expenditure to the tune of R1.123 million related to disputes and claims on ranking of kingships and had been referred to the National Treasury and to Parliament.

The Public Audit Act also identified six material findings. The accounting officer of the Department had made a commitment to strengthen internal controls to avoid the re-occurrence recurrence of payments to the inappropriate entities in future. The matter had been referred to the Hawks and the SIU. There would also be investigations carried out to assess the exact magnitude of losses that had resulted from payments to deceased participants and government employees to recover financial losses from implementing agents. The Department would institute disciplinary steps against relevant officials. These investigations would further examine prior and current year project management fees that had resulted in losses from payments for project management contracts entered into between the implementing agents and the Department over the contract period.

In addition, the AG had come up with four steps on closing the gaps regarding preventative controls: planning, capacity and skills, effective standardised processes, and oversight. These steps would be ensuring proper planning for procurement processes when appointing implementing agents; empowering employees with the necessary means such as resources, effective policies and procedures; putting in place automated systems to adequately manage and monitor the implementing agents adequately; and ensuring the audit committee was influencing a comprehensive audit action plan and internal audit plan to enhance operating effectiveness of internal controls.

Members remarked that the problems of the Department, especially irregular expenditure, were stemming from projects to be done out by implementing agencies and Public Works Department and that the occurring problems were not related to the core function of the Department; commented the CWP had been found wanting in terms of implementing agents that had flouted the laws; and suggested the AG should be given powers to institute recommendations to implementing agencies that were found to have transgressed; wanted to understand why the AG was in existence if it did not have the power to jail people who were stealing government money; and wanted to find out how the Department had performed during the previous five years and what the AG had observed in the implementation of the audit action plans because the same problems had kept on presenting themselves, year after year.

Meeting report

Briefing by AGSA

Mr Mthokozisi Sibisi, Deputy Business Executive: AGSA, focused his presentation on the financial audit findings of the Department of Cooperative Governance. The Department had achieved a disclaimer with findings. The Public Audit Act identified six material irregularities:

  • CWP payments to deceased participants
  • Payments to government employees
  • Payments to the wrong entity
  • Utilisation of advance payments
  • Prior year project management fees
  • Current year project management fees

He further indicated financial statements had not been submitted within the legislated date. The submitted set of financial statements had contained basic accounting errors. Even after the audit the quality of final submission had contained misstatements.

The most common findings on supply chain management had concerned deviations not properly supported, local content requirements not met, payment made for goods not delivered, and proper procurement processes not followed. The Department had received a departure from National Treasury. This would, in effect, exempt all SCM non-compliance identified relating to the CWP programme in the audited financial year 2018/19. He also reported effective internal controls were not in place for approval and processing of payments. Payments had not been made within 30 days or an agreed period after receipt of an invoice. Disciplinary steps had not been taken against the officials who had incurred or permitted irregular expenditure.

Mr Sibisi stated the bulk of the irregular expenditure incurred had been related to CWP and to payments made on expired contracts. It had also been the result of the contravention of SCM legislation.  There had been a lack of discipline to ensure compliance, which had led to an increased irregular expenditure. Fruitless and wasteful expenditure was related to non-attendance of training by the CWP participants. The increase was due to the 2018/19 fruitless and wasteful expenditure identified which had been and which had not been investigated. Unauthorised expenditure of R1.123 million was related to disputes and claims regarding the ranking of kingships. The matter had not yet been resolved, but had been referred to the National Treasury and Parliament.

Mr Sibisi identified four steps for closing the gaps on preventative controls: planning, capacity and skills, effective standardised processes, and oversight. With regard to planning, there should be proper planning for the procurement process when appointing the implementing agents to prevent non-compliance when contracting to avoid irregular expenditure. Regarding capacity and skills, the people employed should be empowered with the necessary means such as resources, effective policies and procedures. These systems would enable them to manage and monitor the CWP programme effectively.

Concerning effective standardised processes, the entity should make use of automated systems in place to adequately manage and monitor the implementing agents. Pertaining to oversight, senior management should ensure action plans incorporating all issues where non-compliance was likely to arise in order to prevent non-compliance. The audit committee should influence a comprehensive audit action plan and internal audit plan to enhance operating effectiveness of internal controls.

In addition, he took the Committee through commitments made regarding material irregularities issued to the Department of Cooperative Governance. On payments made to the wrong entity, the accounting officer would strengthen controls to prevent similar incidents in the future and had reported the matter to the Hawks and SIU for further investigation. Regarding payments to deceased participants and government employees, an investigation would be conducted to assess the exact magnitude of loss that had resulted from payments to deceased and Persal participants to recover financial losses from implementing agents. The Department would institute disciplinary steps against relevant officials.

Concerning the utilisation of advance payments, a detailed workshop with all NPOs had been conducted to highlight the weaknesses in internal controls identified during the process of clearing the suspense account. A checklist would be developed to ensure that information was checked and reconciled immediately when the NPOs made their submissions.

Pertaining to previous and current year project management fees, an investigation would be conducted to assess the exact magnitude of the loss that had resulted from payments for project management for the contract entered into between the implementing agents and the Department over the contract period and recover the financial losses from implementing agents.

Discussion
Deliberations with AGSA

The Chairperson requested Members to focus only on issues related to the work of the AG and not to ask questions that would need a response from the Department.

Mr C Brink (DA) remarked the problems of the Department, especially irregular expenditure, were stemming from projects to be undertaken by implementing agencies and the Public Works Department. This had been re-occurring since the 2014/15 financial year up to now. The problems were not related to the core function of the Department. He then wanted to know if there have been any steps taken to recover lost money and any steps had been taken to deal with the influence of senior managers on officials in terms of flouting rules.

Mr Sibisi explained the recovery of money had been part of the process the AG needed to follow up on because there had been a commitment made by the Department on how it would recover lost money.

Mr K Ceza (EFF) commented the CWP had been found wanting in terms of implementing agents that had flouted the laws. The powers of the AG in dealing with transgressors should be clarified because it was not acceptable to pay money to deceased people. He went on to state there should be consequence management in place because it was impossible to understand  why the Department could not submit financial documents when they were needed by the AG for auditing. He suggested the AG should be given powers to institute recommendations to implementing agencies that were found to have transgressed.

Ms Sedikela Mabatho, Corporate Executive: AGSA, admitted the Department had challenges with the CWP because of payments made to inappropriate entities and people. An investigation was being carried to determine what internal controls could have been put in place to avoid such re-occurrences. The AG was encouraging the Department to perform checks and balances in terms of timesheets, record-keeping, etc, but what had been underpinning the problems of the programme was broader than audit findings. However, HHHHHthe model itself and systematic challenges should not be considered because that was the responsibility of the Department. The AG would deal only with administrative challenges. She further explained recommendations were usually given to the Department. The management then had to follow prescripts in the appointment of implementing agents and monitoring of work contracts. Challenges had been identified in the management of the implementing agents in terms of verifying the beneficiaries, checking time sheets, managing contracts, record-keeping, etc. Now the AG would check to see if those administrative matters had been strengthened to minimise material irregularities.

Ms P Xaba-Ntshaba (ANC) asked why the AG could not advise the Department of Cooperative Governance about the corrupt CWP because it was paying money to deceased people, knowing very well the money would go to the middle man, who would then not even bother to verify the status of the beneficiary or inform the Department about the deceased beneficiary. She then wanted to understand why the AG existed if the he did not have the power to jail people who were stealing government money. Paying money to a deceased person was a criminal offence.

Ms Mabatho enlightened the Committee the process of sending someone to jail took long. The AG had to follow the prescripts of the law. The accounting officer had to be afforded enough time to do his or her work of acting on the remedial actions suggested by the AG. The AG could not just act because that would lead to many legal cases. She said the AG audits and then sends the audit report to the accounting officers of the relevant government department to implement the audit action plans that have got time frames. The accounting officer then had to make sure all internal controls were tightened and implement consequence management. The AG would then engage the Department later to see if the audit action plans had been implemented as per the agreement between the Department and AG. If nothing had been done by the Department, there were remedial actions which needed to take place in order to address the challenges. Failure by the Department to implement remedial actions would then force the AG to issue a certificate of debt. The AG did not have powers to jail any person.

Mr Sibisi informed the Committee the matter of payments to deceased people was part of the audit process and recommendations had been provided. The AG does advise the Department on the basis of what the AG had picked up during the audit.

Ms M Tlou (ANC) remarked that the disclaimer was showing a weakness in internal controls, and indicated it was not clear how financial losses were going to be recovered because the CWP had flouted the rules.

The Chairperson wanted to find out how the Department had performed during the last five years and what the AG had observed in the implementation of the audit action plans because the same problems had kept on presenting themselves, year after year. She also indicated the troubles of the Department were a result of a lack of consequence management and capacity within the Department. She also said action should have been taken immediately regarding payments made to an inappropriate entity. She stated she would be surprised to find that the person responsible for such a wrong act was still with the Department because it appeared the Department was enjoying life comfortably as if nothing had happened.

Mr Sibisi made it clear that at the request of the Department the AG had looked at the audit action plans and provided feedback to the Department on areas the AG was concerned about. The AG was still looking at those matters to see if the Department was addressing the root causes. A detailed feedback would be given to the Committee at the end of February 2020 when the AG had been able to determine if the Department had adhered to the audit action plans. Concerning the skills capacity, he stated there had been an observation to understand if some of the errors the AG has picked up were within the capacity of the finance unit of the Department.

Ms Mabatho added that the achievements on audit action plans were only visible when the audit outcomes saw the light of the day. The financial periods of 2016/17 and 2018/19 had shown deterioration in the observation of audit action plans. The National Treasury had allowed a condonation amounting to R151m during the 2018/19 period on irregular expenditure. The disclaimer was a result of how the Department was managing the implementing agents. Record management had not been done to the satisfaction of the AG compared to previous years. Action plans had been simplified so that the Department could see what needed to be corrected, especially in the five qualification areas.  The AG team would be finished after a week to see if the Department had worked on the action plans. She also pointed out incredible financial statements were a concern for the AG. If the system of collating financial information was not correct from the beginning, even if the CFO and team had received the right expertise, the financial statements would remain hard to believe.

Mr Casspar Kruger, Manager: AGSA, further revealed the AG was on phase one with regard to correcting actions on material irregularities and had already communicated with the accounting officer. The response the AG had received from the accounting officer would be attended to. If the material irregularities were found not to have been corrected, the AG would issue a certificate of debt when all avenues had been exhausted.

Mr G Mpumza (ANC) remarked the PFMA was clear on accounting officers being required to develop adequate systems of accounting. He then wondered why the AG was not insisting on automated management systems because manualised systems were open to abuse. He wanted to know the point at which the AG in his audit would make an intervention because government money was being wasted.

Deputy Minister Parks Tau stated the Department was cognisant of the issues raised by the Members. This was necessitating the Department to address leadership challenges in order to deal with accountability between the implementing agents and the Department and within the Department itself. He also admitted the CWP model needed to be reviewed in its entirety and that it was necessary to rethink how it should function because it had to complement the work of the municipality and strengthen SLAs.

The meeting was adjourned.
 

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