Non-Tabling of Annual Report: Department of Water and Sanitation

Public Accounts (SCOPA)

11 March 2020
Chairperson: Mr M Hlengwa (IFP)
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Meeting Summary

13 Nov 2019

Non-Tabling of 2018/19 Annual Reports: SAA & Department of Water and Sanitation, with Deputy Ministers

The Standing Committee on Public Accounts (SCOPA) was briefed by the Department of Water and Sanitation (DWS) on the non-tabling of its Annual Report, and condemned what seemed to be an abuse of section 65(2) of the Public Finances Management Act (PFMA) that allowed for a delay in the submission of annual reports. The Chairperson was adamant that non-submission was non-compliance, and would not be tolerated by the Committee.

Members were concerned about the Minister writing letters for an extension on the day the Report was due. They questioned whether the Department would be able to meet the next deadline when they had failed to meet their own extended deadline. They expressed alarm at the number of vacancies in the Department. There was an Acting Director-General of the Department of Human Settlements, an Acting Director-General of the Department of Water and Sanitation, and an Acting Chief Financial Officer of the Department of Water and Sanitation. That on its own was a breeding ground for instability. The Committee asked for a report on the permanent appointments to these vacancies by 11 May.

Giving reasons for the non-submission, the Department explained there were significant differences of interpretation between the Auditor-General of South Africa (AGSA) and the Trans Caledon Tunnel Authority (TCTA) over the nature of the supporting documentation required to substantiate payments made by the TCTA on behalf of the government of South Africa to the Lesotho Highlands Development Authority (LHDA) and the Lesotho Highlands Water Commission. The difference in interpretation had led to an initial limitation of scope audit finding, which would have resulted in a disclaimer audit opinion.

Members probed the Department and asked why it had struggled to obtain the supporting documentation required for the AGSA to do its job when it had South African delegates on the Lesotho Highlands Water Commission. It was alleged that the TCTA had not requested, nor received, financial reports from the Commission in over three years. It had previously reported that the TCTA did not have direct access to the records of the LHDA, or any oversight over the activities of LHDA’. In fact, when the AG had requested the documents, the TCTA had had to call in a favour with the Commission in Lesotho to obtain the records required for audit purposes. Members found that declaration horrific, and asked why the provisions of the Public Finance Management Act were not being applied. The Department explained that South Africa could not impose the obligations of the PFMA on Lesotho, which was not obliged to adhere to South African laws. Furthermore, the agreement between the two countries was pursuant to a Treaty signed in 1986, which had different principles. Members insisted that where South African money was being spent, the PFMA should be the guiding legislation. If the Treaty conflicted with the PFMA, then it needed to be reviewed.

During discussion, it emerged that the South African representation on the Lesotho Water Commission was virtually non-existent, as it had many vacancies which had not been filled since the previous election cycle in May last year. It was also found that the TCTA had managed to get clean audits over the past few years because they had not been audited by the AG, but by private audit firms which used smaller sample sizes, allowing alarming issues to slip through the cracks.

The Committee warned that if the Department continued down the path it was headed, it could end up like Eskom. There were always alternatives available for energy, but there was no alternative to water, which was fundamental for human survival.

Meeting report

Chairperson’s opening remarks

The Chairperson said he found it unacceptable that the Department of Water and Sanitation (DWS) had failed to fulfil its own commitments. The provision of section 65(2) of the Public Finances Management Act (PFMA) that allowed the Department to inform Parliament that it would not submit its Annual Report was not open ended. The clause was for the purposes of explanation, and as far as the Committee was concerned non-submission, was non-compliance. A dangerous precedent had been set and the DWS and South African Airways (SAA) had to be reined in, otherwise everyone else would assume non-submission was acceptable. That posed a huge risk to oversight and accountability, and potential floodgates could be opened by the Department’s behaviour.

The Committee had met previously, and the Department had tendered an explanation. At the same meeting, Alexkor and the National Student Financial Aid Scheme (NSFAS) had submitted their reports, but the DWS and SAA had not. The Committee had indicated to the DWS that the Legacy Report of the Fifth Parliament contained an outstanding matter about the finances of the Department that had been undertaken by the Select Committee of Public Accounts (SCOPA). A failure to submit compounded the problems faced by the Department, and necessitated scrutiny of the Department in a manner that had never been done before.

The state of the Department’s finances was a historic matter, so the Chairperson hoped Mr Mbulelo Tshangana, the Director-General, appreciated the seriousness of the Department’s non-submission, as it could not be viewed in isolation. What also needed to be considered was the fact that a hearing had been scheduled for the present day to bring the aspects of the hearing to their logical conclusion. That would have enabled the Committee to assess whether progress had been made, but the non-submission placed them back at square one. The Chairperson reiterated how unacceptable this was, as SAA had recently tried to rely on section 65(2) of the PFMA to offer a technical explanation as to why they had still not submitted. He rejected those technicalities.

The Chairperson welcomed the presence of the Auditor General of South Africa (AGSA) and the National Treasury (NT), as well as the other stakeholders present.

Officials in acting positions

The Chairperson asked how long Mr Frans Moatshe, Acting Chief Financial Officer, Department of Water and Sanitation (DWS), had been acting in the position.

Mr Moatshe said he had been in the acting position for two years.

The Chairperson asked that this should be noted. The vacancy ought to be filled, as it created an environment for instability, because those in acting positions did not do their jobs properly. Often they were apologetic and not willing to call out transgressions, particularly where there was ambition to be appointed to the position in a fulltime capacity.

He asked Mr Tshangana how long he had been acting as Director General.

Mr Tshangana said he had started in August last year. He had been the Director-General of the Department of Human Settlements (DHS), and Ms Lindiwe Sisulu, Minister of Human Settlements, Water and Sanitation, had appointed him as Director-General of the DWS.

The Chairperson asked if there was an Acting Director-General in the DHS, or whether Mr Tshangana would be wearing both hats with the merger of the two Departments.

Mr Tshangana said he had delegated one of his Deputy Directors-General to act in the DHS. The acting arrangements in the DHS could be done only by delegation. It was a matter the Minister was attending to.

The Chairperson asked if the Ministries or Departments were merging. 

Mr Tshangana said the Ministries were merging, while the Departments remained separate.

The Chairperson said they were saddled with a situation of an Acting Director-General of the DHS, an Acting Director-General of the DWS, and an Acting CFO of the DWS. That on its own was a breeding ground for instability. He asked Mr Tshangana to ensure that the position of the CFO be permanently filled. He asked what steps had been taken to fill that vacancy.

Mr Tshangana said the post had been advertised, and there was a shortlist. He expected the post to be filled in a month or two.

The Chairperson said they required a report on the matter by 11 May 2020.

DWS on non-tabling of the Annual Report

Mr Tshangana said upfront that he did not want to give excuses for non-submission. As Accounting Officers, they wanted to account for why submission had not taken place. It did not sit well with them, as all the other departments had submitted their Annual Reports. He assumed the DWS would be called back to the Committee to discuss substantive matters once the Report had been submitted.

He explained that the purpose of the presentation was to provide SCOPA with an explanation for the Annual Report for the Department – the main and the Water Trading Entity (WTE) accounts -- not being submitted as legislated. They would also present a timeline towards the submission of the annual report to Parliament.

There were significant differences of interpretation between the AGSA and the Trans Caledon Tunnel Authority (TCTA) over the nature of the supporting documentation required to substantiate payments made by the TCTA on behalf of the government of South Africa to the Lesotho Highlands Development Authority and the Lesotho Highlands Water Commission. The difference in interpretation had led to an initial limitation of scope audit finding, which would have resulted in the disclaimer audit opinion.

The main account and the WTE financials were tabled in one Annual Report. The TCTA implemented projects on behalf of the WTE. As a result, the financials of the WTE were linked to those of the TCTA.

There were material adjustments made to the TCTA financial statements, which impacted on the WTE. The audit work required to validate these adjustments had been assessed as substantial, and could not be completed by 31 October 2019, as initially anticipated.

This delay therefore affected the WTE’s ability to adjust its financial statements, as they were based on the TCTA financial models, resulting in the WTE’s inability to submit the adjusted financial statement to the AGSA.

Because WTE was part of the Department’s Annual Report, the Department had therefore been unable to table its Annual Report.

Mr Tshangana said that the DWS Annual Report would be tabled in Parliament on 20 March 2020.

Discussion

The Chairperson said the Committee had been down the road before, where the DWS had set deadlines which were not met. There would be doubt until the Department submitted, because the substantive challenges did not lie with submission, but rather with the reasons for the non-submission.

Ms B van Minnen (DA) found it unfortunate that the Minister was not present, because it was a serious matter. The current report was seven months overdue, and next report was due in five months, so would the DWS hand that report in on time? She was also concerned about letters requesting extensions that had been written on the day the report was due. Was the Department committed to getting it done?

What were the terms of reference for the review of the TCTA, and how would the review ameliorate the situation? The real issue was the oversight of the authority in Lesotho. How did the DWS propose the Treaty be set out so that oversight could happen?

Mr Tshangana said the Department was determined not to repeat what had happened with its non-submission. The DWS already had an operational working meeting with AGSA, as the intention was to document the lessons gathered from the current audit. The TCTA had been audited by the AG for the first time this year, and had garnered lessons from the process. Part of the problem was the nature of the institutional arrangement, where TCTA played in the capital markets, the Water Commission sat in Lesotho, while the Lesotho Highlands Development Authority (LHDA) was responsible for the implementation of the project, as well as the Department and the WTE. The Department had been struggling with the art of perfecting that complex institutional arrangement.

The AGSA was clear that the Department had to follow the money, as the TCTA paid for the project in Lesotho. Therefore, the TCTA and the Commission had to increase their capacity to provide oversight over the project in Lesotho. It was a similar case regarding concurrency in the national and provincial Departments. The national Department would refute responsibility for the execution of certain budgets, yet they were the transferring officers to the provinces, so the national Department had to ensure they provided proper oversight over those responsible for implementing the project. That was the lesson for TCTA and the DWS, who had to provide thorough oversight. The Director-General of the Departments and the Director-General in Lesotho needed to meet regularly. There was an agreement to meet every second month to discuss operational and strategic issues for phases one and two of the Lesotho Highlands Water Project. Phase two was scheduled to start soon. Lesotho’s Principle Secretary for Water also needed to join the meetings, as phase two could not be implemented without Lesotho signing the ‘No Objection Rule,’ as required by the funding institutions.

The AG, through the audit, had asked serious questions. The executive management of the TCTA and top management of the Department had agreed that the modus operandi in dealing with the investment in Lesotho had to change. The money had to be followed, and the capacity of the Water Commission needed strengthening. The Commission was an extension of the Department. They had to provide oversight to the LHDA, which was tasked with implementing the project.

Mr Tshangana did not think the Department would need a further extension. It was determined to meet the timelines as per the statutory requirements. The AG and the DWS had met the previous week for an initial engagement into what had gone wrong during the last financial year, and those mistakes could be prevented going forward.

Two weeks ago, Minister Sisulu had instructed the DG and Mr Percy Sechemane, Chief Executive Officer (CEO): TCTA, to come up with terms of reference for reviewing the institutional arrangement. They were of the view that the separation between the TCTA and the Water Trading Entity (WTE) was artificial. The TCTA depended on the WTE, and vice versa. The question was whether it was desirable to continue with that institutional arrangement almost 30 years down the line, when the two could be constituted into one institution. That would create a water infrastructure management agent. Consequently, the TCTA would have a stronger balance sheet and a bigger footprint, and would be able to participate properly in the capital market.

The Minister had asked for options on how to manage the project. Mr Tshangana said managing the Lesotho project was easy, as oversight could be provided, the money could be traced, and capacity could be increased. The real issue was the artificial separation between the TCTA and the WTE. There were few national government departments that were still managing two accounts, and it had been suggested that the Department be unbundled, where the WTE would be removed from the national Department so the focus could be placed on the main account. However, those were all strategic conversations which were taking place within the Department with the advisors in the Ministry and other specialists in the sector. The terms of reference were still being formulated, and the Minister would be presented with a discussion document. The Minister had given five months for a complete proposal to be compiled. The terms of reference could be presented to the Committee once they had been finalised.

Discussion

Mr B Hadebe (ANC) found it unfortunate that SCOPA was at the tail end of events, meaning Members could conduct post-mortems only once things had already gone wrong, and could only advise how to prevent similar situations going forward. He referred to the presentation from the DWS on 13 November 2019, where a significant difference over the nature of the documents required to substantiate payment had been cited. He hoped the current presentation would communicate if the Department had addressed all the challenges between the TCTA and the AG.

Moving forward, was the DWS clear about what supporting documents it needed to submit for audit processes, as stipulated in Article 10 of the Treaty and the Memorandum of Understanding (MOU) that had been signed? Although they were in the process of establishing new procedures, there were current measures in place set by the AGSA for the Department to account properly. In the previous report of 13 November, the DWS had stated that ‘the TCTA did not have direct access to the records of the LHDA or any oversight over the activities of the LHDA.’ Mr Hadebe felt that was an attempt to justify why the DWS did not have records or invoices, as highlighted in the significant difference with the AG. Had the DWS sorted out the issues, and did it know what to expect or how to deal with those issues moving forward? That would avoid a repetition of their non-submission.

Mr Tshangana said the question was very relevant, as it spoke to the heart of the problem. The reality exposed by the AGSA was that the DWS had adopted a very minimalistic approach. The Commission was an extension of the Department in Lesotho. The investment was paid for by the South African government, and Lesotho was hosting the water dam project on behalf of South Africa, so the money had to be traced. That was what the AG had been communicating all along. Over the years, the TCTA had always received clean audits, but perhaps the previous auditors had not asked the hard questions the AGSA had begun to ask.

The Chairperson interjected to ask who the previous auditors were.

Mr Tshangana said they were from the private sector, and he would submit the names.

Mr Hadebe said the question was relevant, because according to the information before the Committee, the TCTA had not received nor requested the Commission for cost funding reports for the past three years. It was baffling for Members to hear that the TCTA had been receiving clean audits, yet the mechanism for accounting for the monies transferred had been absent. The Chairperson had asked a very important question.

Mr Tshangana asked Members to bear in mind that there was a company in Lesotho responsible for the project which was not audited through the PFMA, and therefore different audit standards were used. He repeated, however, that the Commission in Lesotho was an extension of the Department, and any information required from the company could be sourced through the Commission. It was responsible for oversight over the implementing company in Lesotho, but there were different standards. The TCTA had every right to write to the Commission to request information – that had been clarified. However, over the years the TCTA had focused on the audit, and the company in Lesotho would be audited by the board in Lesotho that was managing the company. There was a CEO, CFO and an executive management on the board that was managing the LHDA in Lesotho.

The South African government had invested in the LHDA, and Mr Tshangana agreed with the AGSA that the reality was that strategies needed to be adopted to account for the money in the company in Lesotho. Since the Commission provided oversight over the company, it should not be difficult to obtain the records. Over the years, the TCTA had focused on what they had control over. The same question was relevant to the Department, as the Commission represented the Department in Lesotho, so the Department had every right to request the chief delegate of the Commission in Lesotho to request information from the LHDA.

Ultimately, there were lessons to be garnered from the audit exercise by the AGSA. It would not be difficult to access the information. He admitted there may be a challenge with the audit standards between the two companies, but they would find a way to deal with it.

The Chairperson asked who the auditor was. If the Commission was an extension of the Department, then who were the individuals who were part of the Commission in Lesotho? The issue to be addressed was the inability to provide information over a period of 18 months. Who was the representative, because SCOPA needed to know the value chain of communication and the transferer of information? He again asked who had audited the Department. There may be no PFMA obligations in Lesotho, but whoever audited the TCTA needed to do so in accordance with the PFMA. It was telling that the AGSA had unearthed all these issues.

Mr Sechemane said he wanted to correct something. He said the Department’s representatives made up half of the Commission. The Lesotho Highlands Commission consisted of two parties -- South Africa and Lesotho -- with a 50/50 membership representation. Each country representative represented the interest of their country. It was important to understand that it was only the South African representation on the Commission that was an extension of the Department. The representatives on the Commission dealt with matters through consensus. Every issue could be finalised only once the two countries reached an agreement via their respective representatives.

The Chairperson said the 50% representation was South African, and the Committee wanted to know who they were.

Mr Sechemane replied that 50% of the Commission had South African representatives, and those Commissioners reported to the Ministry, as Mr Tshangana had stated. That was the flaw the Minister wanted Mr Tshangana and Mr Sechemane to address.

The Chairperson asked Mr Sechemane to state who the South African Commissioners were.

Mr Sechemane revealed that some of the positions were vacant, but Mr V Nhlapo headed the South African delegation.  

The Chairperson asked how many people were supposed to be on the Commission.

Mr Sechemane replied that the Commission was comprised of three South African delegates and three Lesotho delegates.

The Chairperson repeated his question as to the identity of the South African delegates.

Mr Sechemane replied said that besides Mr Nhlapo, there was a vacant position, as Mr B Nkosi had resigned to become a Member of Parliament. The third delegate was Mr J Claassens, who worked for the TCTA.

The Chairperson asked in what capacity was Mr Claassens employed by TCTA.

Mr Sechemane replied he was the Head of Projects, but the previous Minister made the decision to place him on the Commission, as he had been with the project since 1986.

The Chairperson asked which Minister it had been - was its Ms Nomvula Mokonyane or Mr Gugile Nkwinti – he was trying to follow a systematic approach.

Mr Sechemane responded it was neither of them, but a Minister from before their time. He listed the technical members who reported to the Department, who were alternate members to the Commission. They were Mr P Swart, who was a chartered accountant representing South Africa, and was responsible for the finances; Mr L Tromp, who was responsible for the technical aspects, and was about to go on pension; and Mr S Mabuda, Chief Director: Planning, DWS. There was a mirror of this structure from the Lesotho side.

The Chairperson said the entire complement was bound by the PFMA, and in representing South Africa’s interests they needed to approach matters with the PFMA in mind.

Mr Sechemane replied that it was not that simple.

The Chairperson said the consensus they should be driving in terms of the financial management should be in line with the PFMA. That should have been established as a principle. The merits and demerits could later be debated about how strong they would be in convincing the Lesotho representatives to comply with the PFMA.

Mr Sechemane said he had a different principle, because there were other realities. The PFMA had come in 1999, but the principles governing the Commission dated back to a 1986 Treaty between South Africa and Lesotho, which therefore predated the PFMA. He was not saying they should not realign…

The Chairperson interjected to say that that was fundamentally the problem. The Commission was dealing with consensus in a vacuum when there were laws present. If the PFMA could not be the principle, then what else could be the principle? 

Mr Hadebe referred to the Treaty which allowed the TCTA to request information from the Commission at any time to facilitate accuracy and reliability of reporting. He repeated his earlier question: when last had the TCTA received or requested cost to funding reports, as it had been alleged that they had not done so in three years. Payments had been made, but it was unclear what the money was being spent on.

Mr Sechemane said he did not want to appear defensive while explaining. The question mentioned the past three years, so he wanted to give the historical background of how things were done before. The introduction of the AGSA had highlighted that things needed to change to ensure alignment to the PFMA. The TCTA has been working with the AGSA to ensure it met their standards and requirements. In accounting standards, it was acceptable for the AGSA to accept work done by a different audit firm.

The Chairperson said that was common cause.

Mr Sechemane said the AGSA was not comfortable with the standards of the auditors of the LHDA. The AGSA followed a strict methodology.

The Chairperson said that was what he liked about the AGSA.

Mr Sechemane had asked the AGSA for its standards, so that when South Africa engaged with the government of Lesotho through the Commission, they could inform them of the minimum standards required. Going forward, they would be able to meet the minimum standards. He added that the TCTA was audited by Ernst and Young (EY).

The Chairperson asked for how long they had been the auditors.

Mr Sechemane said he could get the records. The AGSA had said they ought to trace the money so they could submit adequate reports. The TCTA had started looking at how things happened in South Africa. The model TCTA followed was to look at the budget and provide the funding, as stated in the treaty. On the 18 months’ reporting period, he said the businesses in Lesotho were different from those in South Africa. In South Africa, the emphasis was on the water aspect, while the Lesotho component focused on water and hydropower. He felt the distinction was very important, because as the water entered South Africa from Lesotho, it first had to generate power via the Katse power station. The costs of everything was where confusion arose. The Commission had to separate the costs to ensure the South African taxpayer was not paying for the energy generation in Lesotho that was part of the project. It made sense to let Lesotho generate electricity as part of the water coming to South Africa. The LHDA took a long time to process the reconciliation, but the AGSA was correct that those timelines needed to be shortened. Going forward, the TCTA would close all gaps because they were audited on an annual basis, yet the LHDA took more than a year to carry out a proper reconciliation.

Mr Hadebe said his question was very specific about when last reports were requested. It had been alleged that for the past three years, nothing had been received.

Mr Sechemane said Mr Swart had only looked at items amounting to R1 million. The agreement between the two countries, as stated in the treaty, was that they would look at only large figures. He explained that before payments were made, Mr Swart signed off in Lesotho. All the costs had not been looked at in over two years. Once the reconciliation had been done, then monies would be exchanged if there was over- or under-payment by either country.

The Chairperson asked Mr Sechemane to answer the specific question: When was the last cost to funding report received? What had become fundamentally clear was that there had been deviations from the treaty, and a side-lining of the PFMA in substitution for other operational norms. The PFMA was the baseline principle in terms of the outlook that needed to be carried by the South African delegation on the Commission. It was not negotiable, and the Treaty ought to have been amended to comply with the PFMA. When was the report last received?

Mr Hadebe said the delay in the submission of the Annual Report had been because the AGSA had asked for proof, because weekly and monthly payments were made.

Mr Sechemane said the South African delegation certified before payment was made.

The Chairperson said Mr Sechemane could also indicate if there was no response to the question.

Mr Sechemane said the last report had been received in October 2019.

The Chairperson asked Mr Hadebe to note his follow-up question.

Mr A Lees (DA) said the issue was about the delays in getting the audit opinion. The AG had submitted the signed audit report on 21 February. What was the audit opinion for the WTE, and hence the DWS? Was it a disclaimer? It seemed to Mr Lees that the Department had come to a new understanding of what was required, and what would be changed but had not been changed yet. If that was the case, Mr Lees assumed the audit report was qualified.

Mr Tshangana asked to be guided by the Chairperson, because he felt the discussion had begun to evolve into substantive issues that were in the report itself. He was of the opinion that the present meeting was for the Department to report on the process issues that had led to the non-tabling of its Annual Report.

Ms N Mente (EFF) interjected on a point of order, and said Mr Tshangana should answer the question and not tell Members how to direct questions. The point was that South Africa had paid money which was unaccounted for. According to section 40 of the PFMA, a failure to execute fiduciary duties was a criminal offence. Therefore, Members could not be told how to direct questions.

The Chairperson said Mr Lees’s question was relevant. Mr Tshangana had opened the door by saying there had been non-submission of audit reports to avoid a disclaimer. The issue of the audit outcome was also central to the delay in submitting the Annual Reports. A preventative step had been undertaken to avoid a disclaimer. That contextualised the rationale behind the decisions taken, and was not an assessment of the substantive issues.

Mr Tshangana had stated in the presentation that if the information was not forwarded to the AGSA in October, the DWS would have ended in a disclaimer. The issue of limitation of scope had already been flagged, and if there were issues with the limitation of scope, a disclaimer was likely. Currently, both the TCTA and WTE had received qualifications in the audit report. It would have been worse if they had not forwarded the information as requested by the AGSA in October.

Mr Lees said Mr Tshangana had correctly stated in the previous presentation that a late submission or qualified audit opinion could be viewed as an event of default. That was why the Department had tried to fix it but had failed, and still received a qualified audit opinion. The event of default would have affected the R22 billion worth of borrowings involved in the default. Had the Department established that a default would not occur? The lenders were now aware there had been a qualified audit.

The Chairperson allowed the question, because the audit outcome would not be amended, and therefore it was common cause. The Committee took exception to the delays caused so the Department could look good, as SAA had done. The Department had not submitted because they would have gone under, which set a precedent for everyone with a potential disclaimer to avoid submission. That hid the challenges.

The Chairperson was worried about Ernst and Young. How was it conducting audits when the AGSA had immediately picked up the problem in its audit exercise?

Mr Tshangana said there were two parts to the questions.

The Chairperson said if there was an area Mr Tshangana felt was substantive and covered in the Annual Report, he could indicate this.

Mr Tshangana said the issue was the inter-linkages between the two institutions. The sample size audited by the AGSA was bigger than that audited by EY. The TCTA had been caught by surprise, which was why it did not have the information -- it had not expected the AGSA to ask for that information, and knew the consequences of not providing it. A lot of energy had been put into making sure it received a good audit outcome. It knew the consequences of TCTA not getting a good audit in the market, which would be an increase in the cost of borrowing. It wanted to avoid that at all costs, because it ultimately affected the taxpayer. It was optimistic that once it submitted all the documents, the outcome would at least be a non- qualified audit, but it had received a qualification, and not a disclaimer as it had feared.

The Chairperson said the substantive matters about the qualification would be dealt with at the hearing, and not at the present meeting. 

Mr Sechemane said funders viewed the qualification as a cross-default. As soon as the AGSA had finalised the report, he had engaged with the lenders who had a good relationship with the Department. The AGSA operated differently. The TCTA had tried to get the information required by the AGSA from the LHDA by relying on the relationship South Africa had with Lesotho. If the AGSA picked up an issue, it asked for information and based on that, would check the sample size to see if it aligned with the information provided. One of the issues was that the AGSA wanted to check the sample size once the TCTA had given them the records they had asked for. That had taken place in December, when the colleagues in Lesotho had done a favour by sending the information requested by the AGSA. However, the TCTA could not give the AGSA all the required information, which had led to one of the qualifying matters. Mr Sechemane had engaged with the funders by asking them not to punish the TCTA for the cross-default. It had to tender explanations and plans to address the problem. The TCTA was working with the AGSA to ensure information was sent from the Commission in Lesotho.

Mr Japie du Plessis, Chairperson: Internal Audit Committee, DWS, added that the AGSA did not issue the report on time for the Department to get a better audit opinion. The AGSA had written to the Audit Committee to inform them they would not issue the report at the end of July. It was their first-time auditing of the TCTA, and had they issued the report for the WTE, it would have been a disclaimer. The TCTA had received a clean audit for many years, and had taken the figures included in WTE’s annual financial statements, which had been accepted. However, the AGSA had opened the Department’s eyes in a letter in which they stated they would not issue the report at the end of July. He had agreed with that decision so the AGSA could continue with the audit at the TCTA, after which they would have released a report.

Mr du Plessis wanted to make it clear that it was not the Department, like SAA, which had asked the AGSA to delay the release of its Report. The decision had come from the AGSA once it began the audit of the TCTA, warning that it would receive a disclaimer.

The Chairperson whether Mr du Plessis’s assessment was that the delay had arisen because of AGSA? That was the implication of his statement. The Committee wanted to get to the root cause of the non-submission.

Mr du Plessis said it was not because of the AGSA. The AGSA had written to the Audit Committee informing them that there had been several findings in the TCTA figures which the Audit Committee had used in their annual financial statements. The AGSA’s suggestion had been to delay the issuing of the WTE report at the end of July, because it would be a disclaimer. The Audit Committee had agreed with that because the WTE would get a better audit opinion. The audit report had recently been issued in February, and it had been qualification on the financial side, with findings of non-compliance.

Mr Andries Sekgetho, Business Executive: AGSA, concurred with the initial statements by Mr Tshangana regarding what had gone wrong. Part of the audit process entailed continued engagements and communication with those charged with governance. The letter referred to by Mr Du Plessis was merely an execution of the responsibility to continuously engage. It was not a result of the AGSA having decided to delay the release of the report, thereby impacting on the timely delivery of the Annual Report of the DWS. Everything as initially discussed by Mr Tshangana was true in terms of the shortcomings that had been identified and the engagements that had subsequently ensued, but the engagement with the Audit Committee was merely a notification.

Mr Lees did want an Eskom situation with the water, but felt the DWS was heading in that direction. The Lesotho Highlands Water Project was only a part of the solution -- long term planning was required to prevent problems like Eskom from arising down the line.

Ms N Tolashe (ANC) asked the Chairperson to ask Mr du Plessis to withdraw his contradictory statements, especially the explanation from Mr Sekgetho.

The Chairperson asked Mr Du Plessis to withdraw.

Mr du Plessis said he had a letter that the senior manager had written to the Audit Committee. 

The Chairperson asked him to forward the letter to nkabinde@parliament.gov.za for the record, so it could be sent to Members. A determination would be made once it was received.

Ms Tolashe felt the explanations from Mr Tshangana and the AGSA had been interesting, but it failed to reveal the cause of the non-submission. As far as she knew, the reason for the present meeting was the non-submission, and everything else would be dealt with at the hearing. If Members were satisfied, they could say so, but she was not satisfied that the pertinent question had been answered. The Department had said they had received information from the AGSA and thereafter it had submitted, but she was not convinced by that explanation -- which had been tendered multiple times before. There was meant to be a meeting on 31 December, because the Department had said it would be ready to submit. Unfortunately, Parliament had been closed, yet presently the Department was giving the same excuses. It was clear Members were not going to get any explanations they had not heard before, so if everyone was satisfied, could the Chairperson adjourn the meeting? The other issues could be dealt with at the hearing once the Annual Report was made available, because sometimes it was hard to separate substantive issues from issues of non-submission.

On the Commission in Lesotho, Mr Sechemane had mentioned that some of the Commissioners in Lesotho were retired, another had left to become a Member of Parliament, and another was acting. She therefore asked him to admit that the South African delegation was non-existent, and for Mr Tshangana to mention in confidence whether the group existed or not.

She requested information on the auditors, and the Chairperson read the listed of auditors that the Department had used:

  • 2011/2012-2013/2014 – Deloitte and SizweNtsalubaGobodo
  • 2013/2014-2017/2018 – Ernst and Young
  • Current – AGSA

Mr Sechemane said he wanted to correct Mr Lees, as the presentation in November had been made by the TCTA. The AGSA had said that unless the TCTA provided the information from Lesotho, it would receive a disclaimer. The TCTA had engaged with Lesotho to get the information required by the AGSA, which was why it had moved from a disclaimer to a qualified opinion with findings. There was room for improvement.

On members of the Commission, he said they had to wait for the appointment terms to lapse. Advertisements to recruit new members had been released, as it had to be an open process. After phase one, a maintenance mode had commenced. Phase two was about to commence, and it required a lot of effort in terms of construction, so the structure of the Commission had to be strengthened before then. The process of filling the positions had been started.

The Chairperson said it was a pity the board of the TCTA was not present. Elections had been in May the previous year, so why were the vacancies not filled? It appeared there was no sense of urgency in such a crucial area, which dealt with billions of Rands.

Mr Tshangana said the difference was that previously there had been no audit report, but now that it had received the audit report, there was no reason not to submit. The TCTA had already tabled its Annual Report.

Mr Sekgetho wanted to address the perception created by Mr Du Plessis that the delays experienced by the Department were as a result of the AGSA running behind on its audit process. The audit process involved an audit plan, with key dates as to when the draft report would be issued. The draft report would be issued after the engagement, and the figures had been finalised. The WTE had had dates by which the AGSA would have met with the Audit Committee in order to finalise the process. When there were matters that could have affected the audit plan, they would have been communicated to the Audit Committee as part of the audit process. For example, a letter was written to the Accounting officer and to the CEO whenever there were issues picked up that would affect their audit. He asked to be allowed to read a paragraph from the letter sent.

The Chairperson said he should not read the letter, as it would be looked at in its entirety and a determination made. Members would address it during the hearing. He felt it required a professional discussion about communication. The fundamental issues rested with the Department, which took full responsibility. The perception created by Mr Du Plessis did not hold water,

Ms B Swarts (ANC) was disappointed about the presentation, which covered only 12 pages. Mr Tshangana had kept repeating that the Committee was aware of, or had, information. She therefore wondered what the point of the meeting was. The report was empty, and had withheld information. When Mr Sechemane was questioned about the Commission, he had said there were going to be applications, implying that there were going to be more than two people. Why had that information not been included in the presentation? The main concern had been the problems in auditing the TCTA. It was difficult to get information. The presentation in November had said the South African delegates reported to the DWS. However, the presentation just given failed to give adequate information about the relationship. There was a Head of Projects, but Members were expected to first ask what that role entailed, instead of the information being offered immediately. There was a vacant position, and Mr Tromp was retiring, but the real issue was the Treaty of 1986 and the current requirements. She hoped Mr Tshangana and Mr Sechemane would review the operations of the Treaty.

She said it was unacceptable for South Africa to pump money into a project like the LHDA, where they had no direct access to the records or could not play a direct oversight role. Those submissions had been in the presentation of November. She felt the written presentation and verbal submissions did not align. Why would the Department complain about putting in a lot of energy when it got paid to do its job?  She had been horrified when Mr Sechemane said the TCTA asked for the records from the LHDA ‘as a favour.’ Was it an agreement or a favour? Who was doing the other party a favour?

Mr Du Plessis had stated that the AGSA had unearthed new problems, because previously the figures for the TCTA had been taken from the WTE. She therefore felt the kind of presentation presented by the Department had assisted Members to understand the real problems. Overall, however, she was dissatisfied that the Department kept assuming Members were privy to information when they had flown from Johannesburg to come and give Members information. When Ms Tolashe had asked about the Commission, it had been revealed that because of phase two there were no longer three commissioners. Ms Swarts felt phase two should be halted, because phase one was such a mess in terms of the accounting. Members were not concerned about which tunnel the water flowed through, but about the Rands and cents that the Republic of South Africa was putting into the project, as well as the accounting for it.

Ms Mente said the Committee had met because of the non-submission, so Members were not apologetic for stopping a circumvention of the law through the utilisation of escape clauses in the PFMA. Section 65 did not write off the responsibility to submit financial statements. The AGSA needed to do its job, which required the financial statements. She asked Mr Tshangana if he was willing to take responsibility according to the prescribed norms and standards in section 40 of the PFMA. The norm of the TCTA was for the Commission to be its extension to trace the money, but it had been non-existent. She repeated the question asked by Mr Hadebe, and asked how often Mr Sechemane and Ms Busisiwe Shongwe, Chief Financial Officer: TCTA, had met with the Commission during the 2018/19 audit period to exchange reports.

Secondly, there were a lot of provisions in the Treaty in Article 8, paragraph 11-13, on how to consolidate the statements, both long and short term, on a monthly basis, so where had that fallen through the cracks? Mr Tshangana had said the DWS was working on a plan, but the Treaty had a directive in it which mentioned how to deal with the consolidation of financials.

She referred to the Chairperson’s indication that the election had taken place in May the previous year. It was two months from May 2020, and there were still vacancies. It was Mr Tshangana’s fiduciary duty to ensure the positions were filled. The Department’s extension to overseeing the project in Lesotho was non-existent. Mr Tshangana had said there would not be a repeat of the AGSA’s inability to receive records for the next upcoming audit, but she felt there would be a shortfall again because there was no one overseeing the finances in Lesotho.

Ms Mente said the AGSA had advised the Department of the shortcomings which had forced the AGSA to acquire more information. That had not come from the Department. Subsequently, a favour had been called in from Lesotho – would that not repeat itself? She said the DWS was the second Department after SAA to have had no money when the books were closed in the last Parliament. Members would not be apologetic in accounting for money spent in comparison to every drop of water received. If the TCTA or the Commission were non-functional, that needed to be addressed and possible solutions provided.

The Chairperson said there would be a hearing to deal with the substantive issues in the report.

Mr S Somyo (ANC) said the Chairperson’s emphasis sufficed. The presentation had indicated that the Report would be tabled by 20 March. He felt the Treaty was the bone of contention, and this fell under the responsibility of another committee. Although Article 10 of the Treaty dealt with accountability, it would need to be reviewed. The Ministerial directive of 1994 around the same structure would require the Minister to review the Treaty to align with the governance model. The Treaty needed to be reviewed. All the issues with the TCTA lay within the legal framework which resulted from the Treaty. The Director-General, from the South African side, would meet with the Permanent Secretary from the Lesotho side as a result of the failures of the structural alignment. The AG’s report would give Members details of the failures in the structure.

Mr Somyo felt it would have been appreciated if the timelines would have been modelled to synchronise with the PFMA.

Mr Lees said he had a copy of the audit report of the TCTA 

The Chairperson asked for the page numbers.

Mr Lees did not want to go into detail. He highlighted that although the audit qualification dealt with the Lesotho project it also dealt with two other issues, like acid mine drainage, for example. His point was that the Lesotho project had been dealt with at length as a reason for the delay, but those were not the only problems that had caused the qualification

Mr Hadebe needed confirmation from Mr Tshangana that issues that had led to the non-submission had been dealt with, and would not affect the next upcoming submission. Were they confident they had dealt with all issues and would not appear before the Committee explaining reasons for non-submission?

The Chairperson said the hearing would unearth a lot of issues which would form the basis for the discussion.

Mr Tshangana responded that it was unprofessional to miss deadlines, and it was not something they were proud of. The Department did not want to make a habit of missing statutory timelines. The deadline of 30 August would be met as a statutory requirement. The process had been started.

He said it was correct that the TCTA had other issues, but there were more complications with the Lesotho Highlands Project. The acid mine drainage and loan liabilities would be addressed by Mr Sechemane, and would be discussed during the hearing.

In response to Mr Somyo, Mr Tshangana said the Department accepted that the audit report was already late, and he took full responsibility. The reason the chronology had been stated was to show the linkages and how a delay with one item affected everything else. If the TCTA was not finalised, then the WTE could not be finalised. He apologised if it came across as an excuse, and took full responsibility for the delay as the accounting officer. There would be no reason for non-submission on 20 March.

Mr Tshangana said the DG and the Permanent Secretary had to meet to provide project guidance on a regular basis. He had picked up that the meetings had not been happening regularly. The two heads had to provide leadership where information was required for the AG, for example. Both teams should be managed by the accounting officers.

Mr Tshangana did not mean to come across as though the Department was trying to hide information, as that would not serve them well. During the hearing, information would be shared on consequence management, which had been an issue raised by SCOPA, and by the Committee on Water and Sanitation. Consequence management was important because one could not deal with misconduct like irregular expenditure and fruitless expenditure until it was linked to the person who caused it. For the present meeting, the Department had responded to the question of non-submission and had not got into the details of the actual report. He did not intend to appear as though information was being kept hidden.

He said the Treaty had been passed in 1986, and many years later its efficiency needed to be reviewed. The review of the Treaty needed to be done by both countries, which would take time. What could be done within the Department’s control to trace the money? The fact was the Treaty did not need to be reviewed for the money to be traced. He and Mr Sechemane needed to put measures in place to account for the money. The National Treasury had already raised questions about strengthening the Commission. The positions for the Commission had been advertised.

He said the Ministerial directive of 1994 could be dealt with at the hearing.

On the legal framework, the rule in South Africa was that if there was a conflict between legislation and the PFMA, then the PFMA took precedence. Therefore, the PFMA took precedence over the Treaty that was in direct conflict with it. The Lesotho government was not obliged to comply with the PFMA, although he did not think there would any problem with that, as it promoted accountability and value for money. The Commissioners needed to do their work, for which they would be held accountable.

Mr Sechemane said the big issue was twofold. First, in terms of the working relationship between South Africa and Lesotho, the expectation was that South Africa needed to report annually in line with some of the conditions of the Treaty. Although there had been no money lost, the Lesotho counterparts took more than a year to report. South Africa needed to align with Lesotho so it could meet its accounting deadlines. Mr Lees had been right about the other issues that impacted the findings, but Lesotho was the biggest one that led to the delay. Some of the issues not touched on were what Ms Swarts had referred to, but ultimately the AG had informed them that the structure needed to be updated to allow for the release of information when requested. The AGSA’s job was to audit the South African aspect, so they could not get involved with Lesotho’s side – that needed to be addressed by Mr Tshangana and Mr Sechemane.

The Chairperson said he had received a letter which would be circulated to Members. His initial reaction was that the AGSA had been correct on the issue raised. 

The Chairperson said a Committee Bill needed to be produced to amend section 65(2) of the PFMA, as it was too wide. The DWS and SAA were evidence that it could be abused and lead to a floodgate of non-compliance. The Committee would like to be appraised of the five-month review so that the Portfolio Committee on Water and Sanitation could be given an informed assessment.

The Chairperson said the TCTA Board should be present at the next meeting, as they would be called to account.

The update on the filling of the CFO vacancy was due on 11 May.

The Chairperson stressed that in everything, the PFMA could not be second to the Treaty. It was the yardstick measure of oversight, accountability and the work of the Committee, so any treaty inconsistent with it ought to be updated. If not, there would be delays when the AG wanted to do its work, which would lead to non-compliance. The interactions must be anchored in the PFMA, and the consensus pushed should be derived with the PFMA in mind.

On the filling of the vacancies on the Commission, he asked for the process to be detailed in writing and sent to the Committee the following week.

He said the AG had the responsibility to audit government departments and entities. If that responsibility was delegated to a private company, the standards followed by the AG needed to be clearly communicated to those to whom the responsibility would be outsourced. That would avoid shortcomings being discovered when the AG stepped in.

Once the report was received on 20 March, a hearing would be scheduled. This would be a continuation of the enquiry Parliament had held for Water and Sanitation.

The Chairperson said the Committee would not allow the DWS to fail, as there was no alternative to water as there was for electricity. If the DWS did not get their affairs in order, they ran the risk of becoming another Eskom.

The meeting was adjourned.

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