DMRE Budgetary Review Recommendation Report

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Mineral Resources and Energy

10 November 2020
Chairperson: Mr S Luzipo (ANC)
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Meeting Summary

2020 BRRRs

The Committee convened to consider its draft Budgetary Review and Recommendation Report (BRRR) for Vote 26 & 29) for 2020. The audit process had not yet not been finalised for several entities within the energy portfolio. Members pointed out that considering some of the entities who still have outstanding audits, the “overall picture” as presented by the Auditor-General might change, especially relating to irregular expenditure and fruitless and wasteful expenditure. The Auditor-General had emphasised that where audits had not been finalised, this did not necessarily mean that the entities in question had not submitted their financial statements on time. The delays arose from Covid-19 issues and disagreements between the audit teams and the management of these entities. According to the Auditor-General, various factors had contributed to the delays in finalising the audits of the entities.

Members discussed their common concern that none of the entities for which the Department is responsible had appeared before the Committee to discuss their recent performance and that the Auditor-General had been unable to sign off on the audits of several entities before the BRRR for 2020 had been compiled. This was not an acceptable state of affairs.

Members were particularly concerned about the case of an employee who incurred fruitless and wasteful expenditure on travelling that dates as far back as 2012. This reflected badly upon both the Department’s Human Resources function and on the Auditor -General who had not picked up this anomaly over eight years. An amount of over R500 000 was involved.

The Committee considered the draft report in outline, and the recommendations in detail.

The draft report was adopted by the Committee, with representatives of the Democratic Alliance reserving their rights.

Meeting report

The Chairperson welcomed everyone present and declared the meeting open upon being satisfied with number of Members in attendance. He explained the purpose of the meeting, which was to deal with the report that had been drafted in terms of Budgetary Review and Recommendations Report (BRRR) process. After noting apologies, the Chairperson handed over to the Committee secretary to present the draft report.

Budgetary Review and Recommendation Report of the Portfolio Committee on Mineral Resources and Energy (Vote 26 & 29)

Mr Arico Kotze, Committee Secretary, took the Committee through the [draft] report and gave an overview of the structure of the report. The first part of the report deals with introduction and gives background on the requirements of the Money Bills Act. It summarises the mandate of the Portfolio Committee on Mineral Resources and Energy, the purpose of the BRRR and the method followed by Committee in writing the BRRR. There is an overview of the performance of energy and that of mineral resources. The body of the report has been divided into two parts, one dealing with energy and the other with mineral resources. The report covers non-financial and financial issues. The Committee had a briefing by the Auditor-General of South Africa (AGSA) on the audit outcomes for the two departments. The next part deals with the Committee’s findings and observations from the AGSA briefing and that of the Department of Mineral Resources and Energy (DMRE).

The audit process had not been finalised for several entities within the energy portfolio. These were: the companies in the Central Energy Fund Group (CEF Group); the SA Nuclear Energy Corporation Group (NECSA); the National Energy Regulator of SA (NERSA); the National Radioactive Waste Disposal Institute (NRWDI); and the SA National Development Institute (SANEDI). Members had pointed out that considering some of the entities who still have outstanding audits, the “overall picture” as presented by the AGSA might change, especially relating to irregular expenditure and fruitless and wasteful expenditure.

The AGSA pointed out and emphasised that where audits had not been finalised, this did not mean that the applicable entities had not submitted financial statements on time. The AGSA acknowledged that there were challenges between the audit teams and the management of these entities. According to AGSA, various factors contributed to the delays in finalising the audits of the abovementioned entities. These included: requesting additional information which led to delays, COVID-19 issues which impacted, delays in board meetings, and differences [of opinion] between the audit teams and senior management of the entities. AGSA confirmed that NRWDI’s audit had been signed-off on Friday, 30 October 2020. The Committee commended the South African Diamond and Precious Metals Regulator on its improved audit outcome and on obtaining a clean audit.

The Committee was concerned that the Department of Mineral Resources (DMR) and the Council for Geoscience (CGS) had regressed [in audit opinion] due to non- compliance with key legislation.

The AGSA commended the Department of Energy (DOE) on an improved audit outcome. According to the AGSA, the audit outcome improved due to the Department disclosing irregular expenditure. The Committee stated that it was encouraging to notice that the fruitless and wasteful expenditure has decreased from the previous financial year (R118m) to R90, 706 for 2019/20. Most of the disclosed fruitless and wasteful expenditure for the current year was caused by storage costs for geyser units with various suppliers by DOE (R90.118 million).

The Committee was further pleased to see that irregular spending had also decreased to R48,8m in 2019/20 (in 2018/19 it was R192,8m). The Committee raised concerns regarding the regression and non-compliance relating to supply chain management (SCM) processes. About assisting the Department and entities with non-compliance on SCM, the AGSA stated that non-compliance cannot be rectified. The AGSA stated that they do discuss with management the new pronouncements coming through, which the Department needs to be on the lookout for, so that they can comply. Some entities do have a checklist, so prior to procurement process, they go through the checklist to ensure that they comply. The AGSA also share best practices by other departments and entities, which are doing well in this area. According to the AGSA all SCM findings should be investigated.

The Committee expressed concern regarding the outstanding audit reports of the CEF Group, NECSA Group, NRWDI and SANEDI. The Committee’s view was that the AGSA has failed the process, as far as the outstanding audit statements are concerned, as they must always ensure that financial statements are submitted and audited timeously. According to the DMRE, a significant part of the financial year was dedicated to managing the merger [between the two departments, which have been under one Minister since May 2019] and putting in place transitional arrangements.

The Department stated that the merger process affected filling of critical vacancies, where a decision was taken not to fill vacancies in anticipation of excess capacity post-merger. The new DMRE will be conducting a reorganisation exercise after the merger, aimed at ensuring optimal service delivery. The Committee commended and applauded the empowerment of women in the Department, as well as the establishment of a Gender Based Violence (GBV) subcommittee. The Committee raised concerns regarding the performance of the Energy Policy and Planning branch, which only managed to achieve two targets, and there was also underspending of R7, 6m.

The Committee congratulated the Department on its efforts in electrifying households, where they had exceeded set targets. The Committee further commended the Department on their approval of licences to 50 percent of Historically Disadvantaged South Africans (HDSAs). The Committee was encouraged with the accelerated rollout progress of the renewable energy programme.

Regarding the budget cuts and the slow progress of projects, the Department stated that financial results are also shared with National Treasury (NT). So, when the NT makes requests for budget reductions, they are already aware of projects which are moving slowly. The Department also reports to National Treasury on a monthly basis. On budget cuts relating to service delivery programmes, the Department stated that at times there are ‘push-backs”, but they discuss extensively with NT and come up with a collective agreement. The budget for the solar water heater (SWH) programme for 2019/20 was R62,8m. According to the Department, the actual number of missing solar water heaters (SWH) has not been ascertained. However, it is actual components or parts which are missing from the units. Currently, litigation is ongoing, as a full working unit is needed for installation. The manufacturer thus must give a full unit, as this is what the Department has paid for. The Committee enquired as to the reasoning behind a feasibility study being conducted during the period under review (when the project is already being implemented) and the Department stated that this was a carry-through from the previous financial years, which was performed because of the delays experienced.

The Committee raised concerns regarding the amounts underspent in compensation and goods & services of R256m. According to the Department, R208m of this relates to transfers, and a big part of this relates to the non-grid programme. The Committee pointed out that the Department incurred irregular expenditure of R8.555 million in the New Nuclear Build Programme (NNBP). The Department stated that they have accepted the irregular expenditure, but noted that it has to go through its due processes, one of which is the investigation and for it to be condoned by NT. Some actions need to be taken, and this process might spill over to the next financial year.

Regarding fruitless and wasteful expenditure, the Department informed the Committee that an investigation is currently underway. The Department acknowledged that there were delays relating to the non-grid programme, specifically relating to procurement delays, and the lockdown contributed to some of these delays. Because of the hard lockdown, the various bid Committees could not meet. However, the Department confirmed that the bid has been concluded, contracts are being drawn up and allocations are being attended to by the specific branch. The Department confirmed that there should be no further delays in the administrative part of the programme. The branch has been requested to inform the service providers that the implementation should happen speedily. On creditor payments, the Department stated they do discuss these matters with AGSA and that they do share their calculation methods with them.

The Committee again raised concerns regarding the slow submission (perpetual postponement) of legislation to Parliament. The Department stated that since the merger of the two Departments, the branch has now moved with speed to finalise and process legislation to be tabled to Parliament and also assured the Committee that a number of pieces of legislation will be tabled before the end of the financial year, i.e., Gas Amendment Bill (A/B), Nuclear Waste Management Bill, these will be before Cabinet in two weeks’ time. With regard to the ERA [Electricity Regulation Act] and NERA [National Energy Regulator Act] Bills, the Department foresees delays on the processing of these, especially the ERA Bill, as these relate to current issues relating to the restructuring of Eskom, the need to regulate this space in term of the new structure etc.

Regarding the R500k of fruitless and wasteful expenditure incurred by an employee of the Department, the Department stated that this is currently a legal matter, which is handled by the State Attorney working with the Department’s Chief Director: Legal Services. At the time the matter was first investigated, the employee had been seconded from the Gauteng (Braamfontein office) to work in the head office in Pretoria. The Committee were very displeased with the wasteful expenditure of R 551 000 which was recorded under travel claims for the employee. This wasteful expenditure has been happening since 2012. Members questioned as to why no disciplinary action has been instituted against those involved. According to the Department, once the investigation is finalised the Department will implement consequence management. The Committee pointed out that this should not have happened and emphasized that this is clearly a failure of Human Resource management in the Department. The Committee reiterated that these are matters of the internal disciplinary processes, which the Department failed to institute since 2012. The Committee noted its concern that the AGSA only reported on the above-mentioned wasteful and fruitless expenditure during the period under review (2019/20), when the incident occurred since 2012/13 financial year.

According to CGS, contingent liabilities calculations have been performed by them for many years and they have never had a problem in this regard, neither in the method of calculation or accounting standards which have been used. What made this situation peculiar for the year under review is: the service provider who is providing actuarial expertise to the CGS, requires particular information which is consolidated for them to do the calculation. The transition involved the transfer of derelict and ownerless mines from CGS to another entity of DMR, meant that they had to depend on 2nd hand and tertiary sources of information in order for them to consolidate their calculation. The quality of information provided was further affected by the national lockdown. With the report being finalised much later, this is where this anomaly has occurred.

Recommendations

The Committee recommended that the House request that the Minister of Mineral Resources and Energy should:

-  Ensure that there should be the required urgency by management in responding to the AGSA’s requests relating to addressing risks identified and improving internal controls that will improve the audit outcomes of both the Department and its entities.

-  Ensure and emphasize that there should be regular and timely reviews of performance information by senior management to ensure that valid, accurate and complete reporting is done to minimise reporting errors.

- Provide feedback on the implementation and progress of action plans to ensure improvement in the audit outcomes of the portfolio.

- Address the non-compliance with key legislation which remains a challenge especially in Supply Chain Management (SCM), which has led to irregular expenditure and fruitless and wasteful expenditure being incurred.

- Develop intervention to ensure that management implement the necessary controls and checks in place to ensure that annual financial statements prepared are of a good quality.

- Focus more on gold and coal mines when devising a strategy to achieve the zero-harm goal.

- Identify all activities that are likely to be negatively affected by level one regulations and develop a mitigation plan to address these.

-Present the findings of the legislative reviews that were performed during the last financial year, as well as the programme of action before the Committee.

- Present a medium-term plan to deal with the obsolete ICT system, which was identified by the internal audit, as posing risk to the sustainability of the Department’s operation.

- Present on the licensing regime, including the SA Mineral Resources Administrative Database (SAMRAD) system, to evaluate turnaround time and efficiency in relation to revenue collected.

- Provide a comprehensive report relating to the incident of the employee who incurred fruitless and wasteful expenditure on travelling. The report should detail how the cost was incurred, how the Department intend addressing the issue and who was responsible for this loss. The aim of the information requested is to ensure that the wasteful expenditure does not flow into the next financial year.

- Ensure that the outstanding audits are finalised by 30 November 2020. Engage the National Treasury regarding the financing of the ICT system as to minimise risks to the Department’s operations.

Discussion

The Chairperson gave a way forward regarding the manner the report should be engaged, in the same breath Chairperson shared some issues that should be considered around findings and observations that should change if the Committee agrees. The wording, for instance the part where the report says “members” should be taken out. Chairperson opened the floor to the members to engage the report.

Mr K Mileham (DA) remarked that, firstly he wished to raise process concerns. Normally there gets to be full presentation from all the entities before a Committee considers its BRRR. Covid has indeed made things difficult, impacting on the AGs not able to finish some of its audits, but it is a difficult position for the Committee to adopt budget review and observation report in absence of presentations from the entities [for which the Department is responsible]. Another concern around entities is what has been highlighted around findings from the AG. In as much as AG often does a good job, this time around AG has not fulfilled its functionality resulting to the audit/annual report process not being finalised [before the Committee has considered its BRRR for 2020]. The Committee should point that out and clearly state it is not acceptable.

The Chairperson noted the concerns shared by Mr Mileham. He said the Committee experienced time constraints whilst dealing BRRR, as the process should have been done by August. The issue of entities [not presenting themselves and their reports] was as a result of time pressures, as such the Department should consider them when presenting. Indeed, it is a norm that all the entities should present.

Mr M Mahlaule (ANC), registered his support and echoed the views shared by Mr Mileham regarding the point concerning the AG’s failure and that, they should be reflected in the report. In the interest of progress, the Committee should look at the introduction of the report, where the dilemma of approving BRRR needs to be considered. Considering why this time around it is not as normal to approve because of prevailing issues also highlighted by Mr Mileham, it is a task that should be undertaken as the Committee should not hold back. The introduction to a large degree protects the Committee in taking a decision of approving the audit report.

The Chairperson said he was raising a point with extreme caution, that, the audit report is rendered by a credible institution. In addition, the concerns which have been raised by Members are valid as such the AG should take this point, so that in future they do not make presentations and findings that question its credibility. A case in point was the case of the [irregular expenditure concerning the travel expenses of an] employee that dates as far back as 2012. All these past financial years AG has been auditing the DMR as a portfolio, only to discover eight years later, there is an anomaly. The big question is what more the Committee may not be aware of. Therefore, questioning the AG report is welcomed as there has been findings that are as late as eight years, whereas if all was done accordingly it should not take that long to discover whatever was an issue. The other issue is a blanket approach that some of these reports were submitted on time but due to Covid 19 challenges they could not be finished. There should be specifications indicating which of the entities could not submit on time as opposed to applying same approach as if all of them could not submit on time. In that way those entities can correct their mistakes. There are technical concerns to note on how the report was submitted and that speaks to the concerns raised by the Members. This audit outcome indicates there is a full portfolio that is not accounted for and that is a cause for worry. This raises a question in the way the portfolios operate and how will the performance be measured when there would have been allocations given to the entities where there is no authority control.

Lastly, looking at the report, the employee observation is a major cause of wasteful expenditure, based on the amount. This reflects badly to the management and this indicates a human resource failure. The Committee should make a recommendation as the wasteful expenditure should have been avoided. As it makes no sense to leave a person for eight years not to account and only eight years later, the Department is now looking at dealing with a matter that was basic. The Chairperson moved that Members engage on the recommendations

Ms V Malinga (ANC) said that she found the recommendations in line and, as such, she supported them.

Mr Mahlaule also supported the recommendations.

The Chairperson said the Department should be requested to make a proper presentation in dealing with the licensing regime. The AG had made mention of concerns on losses made, this will assist in identifying the turnaround time and how much is collected as the revenue by the Department. The Department must also account on what happened to the employee, what has the Department done and what action has been taken. Also does the matter needs a state attorney or does it not. Why did it take eight years, how will they rectify that matter? Who were responsible for that error? This should be attended as it has been presented to this Committee. It may recur and Members (as part of this Committee) may be blamed for not having actioned or followed up on this matter with such an anomaly. 

Mr Mahlaule agreed with the Chairperson regarding the two issues, and revenue collection as it was flagged by the AG. There should be a recommendation, even around the traveling costs issue, as it makes no sense for someone to claim over half a million for traveling.

Ms P Madokwe (EFF) said there should be a part where timelines form part of the recommendations, as the reports were incomplete.

Mr S Kula (ANC) said the report should be adopted as it is. A caution to the Members is that, when there have been agreements on decisions taken in these Committee meetings, Members should cease from distancing themselves [from matters agreed by the Committee] when they are in the House.

The Chairperson responded that the Committee is a committee of Parliament. It is up to parties in the House whether to accept or not to accept recommendations. The system is designed for Committees to make recommendations not decisions, as such it is only natural for Members, when meeting their principals in their political parties that they are representing, to perhaps turn against what the Committee may have agreed upon.

The report was adopted wit amendments.

Mr Mileham registered that the DA reserved its rights in this regard.

The meeting was adjourned.

 

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