The Auditor-General of South Africa briefed the Committee on the requirements of the Broad-Based Black Economic Empowerment Act, and made it clear that all spheres of government, public entities and organs of state must report on their compliance with the Act in their audited annual financial statements and in the annual reports required under the Public Finance Management Act (PFMA).
Members asked if AGSA were going to adjust the scope of their audit now that Covid19 had had an impact. With regard to sampling, they were told AGSA would need to do a 100% compliance check before granting B-BBEE certification. However, the Chairperson complained that the R85 000 for the certification was too expensive.
The Provincial Forensic Services reported on its investigations into fraud and corruption cases, and the recommendations arising from the investigations. As at 30 September 2019, the caseload of all departments was 32, of which 25 were in progress and seven had not yet been attended to. It confirmed that it was the Department of Education which had the most outstanding cases.
AGSA: requirements of Broad-based Black Economic Empowerment Act.
Ms Sharonne Adams, Business Executive: Auditor General of South Africa (AGSA), said that in the case of the 2018-19 audit, the focus would be on the selection of material strategic objectives and auditing. They would seek the reliability of the reported performance, such as whether the information was valid, accurate and complete, and would assess the usefulness of objectives and indicators to determine whether they were consistent, measurable and relevant. In determining whether a strategic objective was realistic, they would assess:
- Whether it related to the core function of the department/entity;
- Was of significant public interest;
- If the outputs were of significant importance to the public, such as the provision of basic services.
It was a requirement, in terms of section 13G(1) of the Broad-based Black Economic Empowerment (B-BBEE) Act, that all spheres of government, public entities and organs of state must report on their compliance with the Act in their audited annual financial statements and in the annual reports required under the Public Finance Management Act (PFMA). Against this background, it was therefore the AGSA’s responsibility, in terms of the Public Audit Act (PAA), to audit and report.
The Committee was told that in terms of the AG directive, the audit report would reflect an opinion or material findings on the financial statements, reported performance information, and compliance with key legislation. It was through this responsibility that AGSA’s office audited the compliance with s13G (1) of the B-BBEE Act, but at this stage, any finding would be limited to the management report.
Ms Adams told the Committee that the AG had reported compliance had been found in 91% of the management reports in 2018-19.
Ms M Maseko (DA) raised a question about the reliability of information on learners, and what exactly the AG would see as motivation to make sure they achieved the desired outcome. She also asked if there was a common indicator which they used for auditing every year.
Ms Adams responded that there were customised indicators based on inputs such as the nominator and the denominator, and these were the indicators they used to ascertain if the information was reliable. She added that they did not dictate the indicators to the department, but audited according to the department's indicators.
Ms D Baartman (DA) asked if they were going to adjust the scope of their audit now that Covid19 had had an impact. She also emphasised that the AG must come with their report before they went to SCOPA, and inform them about the auditing they had done. She also asked why they needed B-BBEE certification when it was part of their audit report, and why they used samples for audit and not for certification.
Ms Adams said they were going back to the drawing board and would look at their strategic plan. They were fully aware of that as they approached their audit. Regarding certification, she said they would need to do a 100% compliance check before granting certification. Responding on the sampling issue, she commented that for an audit there were different methodology processes, and these should not be conflated with compliance issues.
Mr M Xego (EFF) complimented the AG and the director general (DG) for advising the Committee that they would curb the issue of double payments by departments in terms of the B-BBEE certification process.
The Chairperson, however, complained that the R85 000 for the certification was too expensive.
Provincial Forensic Services: Investigation of fraud and corruption cases
Conflict of interest allegation
Mr Ruthven Janse van Rensburg, Chief Director: Provincial Forensic Services (PFS), said the PFS had investigated allegations of a conflict of interest when an official had formed part of the procurement panel that had appointed his/her previous employer as a service provider. The whistle-blower had been unsure whether or not the official had declared any possible conflicts of interest.
A full investigation had revealed that the allegation was unsubstantiated. The official had left his previous employer approximately six years before the procurement process, and there was no direct or circumstantial evidence to indicate that the official had any business, commercial or financial interest in the service provider, and had not undertaken any activities for financial gain that may have given rise to a possible conflict of interest at the time that the contract was concluded. There was no evidence of any family or close personal relationships between the official and any of the company representatives involved in the procurement of the contract. Further, the investigation revealed that the officer had informed the manager and other officials of the previous employment at the service provider.
During the investigation, it had been noted that paragraph 2.5.1 of the accounting officer’s supply chain management (SCM) system provided that the appointment of a quotation committee (QC) was discretionary when dealing with procurements valued between R10 001 and R500 000. The practice of a QC seemed inconsistent in different business units. It was therefore recommended that the Department consider establishing criteria or factors to be considered in determining whether a QC should be appointed, thereby avoiding any arbitrary decisions in this regard, and to bring clarity and consistency. It had also been recommended that the reasons for deciding one way or the other be recorded in writing, in order to form part of the audit trail. The Department of the Premier (DotP) had advised that this recommendation was implemented.
It had further been recommended that the Department ensure that all officials participating in the SCM process sign formal declarations of interest for every procurement process, as this had not been done in this instance. The DotP had confirmed that all QC, Bid Specification Committee (BSC), Bid Evaluation Committee (BEC) and Bid Evaluation Committee (BAC) members sign formal declarations of interest during meetings. It was also recommended that the Department define the term ‘Software-as-a-Service,’ and include it within the SCM delegations, as there appeared to be much confusion around which procurement.
Unethical/corrupt conduct allegation
In this case, the PFS had investigated an allegation from a whistle-blower of possible unethical and corrupt conduct by an official. It had been alleged that a senior official had approached a service provider ("service provider A") who had been awarded a contract, to solicit a bribe. The investigation revealed that this official had approached the service provider with a request to use the resources of a previous service provider (service provider B), whose contract with the Western Cape Government (WCG) had ended, to which service provider A had agreed. The whistle-blower had reported the incident to the PFS shortly after the official had approached and invoiced service provider A for commission. The PFS had further established during the investigation that the official chaired the Bid Specification Committee and had altered the official procurement documents, which had resulted in the approval of a R10 054 800 contract, rather than the initial R4 309 200 which had been approved. This had led to an order being issued to service provider A for R10 054 800.
During the course of the investigation, the PFS had registered a criminal matter at the Directorate for Priority Investigations (Hawks) for further investigation. The official had terminated his employment with the WCG before the expiration of his employment contract in April 2018.
The PFS had made the following recommendations:
- That the Accounting Officer consider whether or not the Department, as a result of the prima facie forgery and uttering by the official, was deprived of value for money, which may necessitate the institution of a civil claim and/or whether irregular expenditure arose from these actions. The DotP had responded that the Department had conducted an internal investigation and concluded that the expenditure did not amount to irregular expenditure.
- In connection with different interpretations highlighted in the report, Legal Services provided advice and/ or clarity regarding the correct process to be followed when goods or services were procured utilizing a "piggy-back" process. Such advice should include the process to be followed when a government contract was expanded, varied, amended or extended, as the DotP Accounting Officer's systems did not reflect any. The DotP had responded that it had been alerted to a draft National Treasury Instruction (NTI) on piggy-backing, which had been submitted to Provincial Treasury for comment. It had commented on the draft instruction, in conjunction with Provincial Treasury. The implementation of the recommendation would be held in abeyance, pending receipt of the final NTI, which would determine the rules that apply to piggy-backing going forward.
- That the Department implement a practice in which the minutes of the various procurement committees should depict all deliberations, and that each page of the approved minutes and recommendations be signed by the chairperson of the specific committee. The DotP had responded that SCM had implemented the following: all minutes now included the full item/service description, quoted amount, quotation number, Centre for e-Innovation (CEI) Ditcom number, and all members of the committee were to initial each page of the minutes, the quotations that were served before the committee, and the BSC recommendation.
Cases investigated in Q1 and Q2 of 2019/20
As at 30 September 2019, the caseload of all departments was 32, of which 25 were in progress and seven had not yet been attended to. The outcome of finalised cases across all departments was 18. The recommendations and current status in all departments indicated that nine disciplinary hearing recommendations had been made, while 21 control/other recommendations and one civil recommendation had been made. There had been outcomes in eight finalised disciplinary action recommendations in all departments.
The PFS had recommended criminal action (SAPS cases) in four cases finalised during the two quarters. In another case, a criminal matter had been reported with SAPS, and the PFS had filed a supplementary affidavit with SAPS following its investigation.
Ms Maseko queried if the Department of Education had been the one with the highest number of cases that had not implemented the recommendations, and if so, had there been no consequence management.
Mr Janse van Rensburg confirmed that it was the Department of Education, which had several outstanding cases. He suggested different ways of following up on why the Department had not been implementing the recommendations, such as presentations of the audit report to the Committee.
The Committee considered and adopted its draft minutes of 28 February, the 4th quarterly report for the 2019/20 financial year, and the annual activity report for the 2019/20 financial year.
The meeting was adjourned.
- Provincial Forensic Services: Investigations undertaken in Quarter 1& 2 of 2019/2020 financial year
- AGSA presentation
- PFS: Investigation outcome: fraud and/or corruption (case reported to SAPS)
- Annual Committee Report of the Public Accounts Committee (PAC) for the 2019/20 financial year
- Western Cape Provincial Parliament Quarterly Report of the Public Accounts Committee
- Investigation outcome: investigation concluded with no adverse findings, but recommendations were made.
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