DCS audit outcomes: AGSA input

This premium content has been made freely available

Justice and Correctional Services

01 December 2020
Chairperson: Mr G Magwanishe (ANC)
Share this page:

Meeting Summary

Video: Portfolio Committee on Justice and Correctional Services
2019/20 Annual Reports

In this virtual meeting, the Auditor-General of South Africa gave a presentation on the audit outcomes of the Department of Correctional Services for the 2019/20 financial year.

The audit outcome for the Department remains qualified, unchanged for the last four consecutive years. The Department incurred some R1.04 billion in irregular expenditure which increased from R159 million in the previous 2018/19 financial year. The Auditor General was unable to find evidence to verify if the Department had investigated the irregular expenditure. This is due to the Department not having an adequate system for identifying and disclosing all irregular expenditure. The Department incurred R518 000 in fruitless and wasteful expenditure, mainly due to interest paid on late payments and travel cancellations. Most of these cases were not investigated by the Department. The lack of consequence management was one of the top five non-compliance areas. There was insufficient evidence that disciplinary actions had been taken against officials who had incurred irregular expenditure.

The Committee was unanimous in its concern over the irregular, fruitless and wasteful expenditure revealed by the audit and that this poor performance was not new to the Department. Members said the Auditor-General’s findings reflect that the majority of the Department’s challenges are recurring issues which go unexplained year after year. Until those who are responsible are held to account, these problems will persist.

Another key concern was the Auditor-General’s finding on the reliability and usefulness of the performance information provided by the Department.

The Chairperson concluded that there is nothing particularly difficult about the recommendations made by the Auditor-General over the past years. It is either the Department lacks the competence to implement recommendations or it simply does not want to implement them.

The Committee asked the Auditor-General and parliamentary researchers to provide details on the audit performance of the Department while it was still a stand-alone department, prior to being merged with the Department of Justice. This will help to demonstrate if the current model is working.

The Committee decided to take up the questions and concerns raised by Members on the following day, when it was to receive a presentation from the Department on the 2019/20 Annual Report.

Meeting report

The meeting was scheduled for the Committee to receive a presentation by the Auditor-General South Africa (AGSA) on the 2019/20 Annual Report for the Department of Correctional Services (DCS).

Apologies were read for the Minister who was attending a National Caronavirus Command Council meeting and Deputy Minister Nkosi Phathekile Holomisa who had an engagement in the Eastern Cape. The Department was led by Mr Arthur Fraser, National Commissioner, Department of Correctional Services.

Apologies were also received for two Committee Members. 

Presentation by the Auditor-General

Mr Yongama Madolo, Senior Manager, Auditor General of South Africa (AGSA) reported that the DCS had received a qualified audit opinion for the 2019/20 financial year. It has received the same result for the last consecutive four financial years. Similarly, to the previous financial year, the basis for the qualified opinion is irregular expenditure. The Department did not have an adequate system for identifying and disclosing all irregular expenditure incurred, as a result the AGSA could not confirm the completeness of irregular expenditure disclosed in the financial statements.

Material audit findings were noted relating to the reported percentage of overcrowding in correctional centers (which exceeded approved capacity) and the number of new bed spaces created by upgrading of facilities annually (which was not consistent with the planned targets). The AGSA found a lack of accurate and complete records to support the reported achievement. Both findings relate to Programme 2: Incarceration.

In general the Department was found to have failed to manage procurement and contracts, they failed to prevent irregular expenditure, and they did not implement planned monitoring systems on performance.

The AGSA identified consequence management as one of the top five non-compliance areas. The AGSA was unable to obtain sufficient evidence that disciplinary actions were taken against officials who had incurred irregular expenditure as required by the Public Finance Management Act (PFMA). This was credited to a lack of proper and complete records. The same challenge was noted in the previous financial year.

The AGSA concluded that DCS senior management and the accounting officer had provided limited to no assurance, while the executive authority, internal audit unit and audit committee had provided some assurance.

Financial health

The DCS incurred R518 000 in fruitless and wasteful expenditure during the 2019/20 financial year; 69% of these cases were not investigated. The sum was R3 million in the 2018/19 financial year. None of these cases were investigated.

The DCS saw an increase in irregular expenditure from R159 million in 2018/19 to R1.04 billion in 2019/20. The AGSA reported that 50% of this amount relates to cases identified in the current year relating to the prior year, non-compliance with the State Information Technology Agency (SITA) Act and competitive bidding processes not being followed. The AGSA was unable to get enough evidence to verify if investigations were done regarding the 2019/20 irregular expenditure.

Material irregularity

Ms Mbali Tsotetsi, Senior Manager, AGSA, explained that the AGSA identifies material irregularity as any non-compliance with or contravention of legislation, fraud, theft or breach of a fiduciary duty which results in a material loss. If any material irregularity is identified, the AGSA can either refer the matter to a relevant public body for further investigation or take binding remedial action (which may lead to issuing a certificate of debt to the accounting officer). Although the AGSA identified cases of non-compliance with key legislation, it was unable to determine if the impact had resulted in any material loss and therefore could not report any material irregularities to the DCS.

Having completed the audit, the AGSA concluded that the root causes of the findings relate to:

-Slow or no response to improving key controls and addressing risk areas

-Inadequate consequences for poor performance and transgressions

-Instability or vacancies in key positions

The AGSA has implemented additional efforts, such as an early warning system to alert accounting officers and authorities on key risk areas, and a new series of guides which will enable oversight structures to assess if the most important preventative controls are implemented.

Remarks from the DCS Internal Audit Committee

Ms Jane Masite, Chairperson, Internal Audit Committee, DCS, told MPs that the audit committee concurs with, and supports the AGSA’s findings and recommendations. Although some improvements were noted, the Department still has a lot to do in order to turn around. Senior management needs to develop a robust action plan which is informed by the root causes identified by the AGSA. The internal audit committee also recommended that the consequence management system needs to be assessed to determine if it yields the desired impact. Currently, the rate of recoveries remains limited, thus, the benefit of the system needs to be tested. The DCS’s accounting officer is aware of these recommendations.

In addition, the audit committee recommended collaboration between the enforcement unit, the Department’s investigation unit and human resources to enact consequence management. Consequence management is not only about punishment but requires the DCS to understand why it continues to face the same challenges. The audit committee is exploring the possibility of forming a disciplinary board to complete the cycle of consequence management. This is based on observations made in other departments which have a similar structure. The audit committee has also approved the strategic risk-based plan which includes some of the key areas identified by the AGSA. The audit committee will provide quarterly reports on progress.

The Chairperson asked what the average level of experience is for senior executive officials.

Ms Masite responded that the range is normally between five to seven years.

Discussion

Mr W Horn (DA) said the AGSA had reported having implemented an early warning system which should enable DCS to address issues. However, issues regarding irregular spending continue to occur and have not been dealt with adequately. How does the early warning system work and why is that the system has not brought the necessary results? He said it was interesting that the AGSA concluded that no investigations were done concerning irregular expenditure in the 2018/19 year and that there was sufficient evidence of any disciplinary actions in 2019/20. What does the AGSA mean it could not find evidence? In practical, terms it should be easy to determine if misconduct was investigated and, if consequence management followed. if any individual was found guilty during the disciplinary process. Does the AGSA mean there was no record or report of an investigation or disciplinary hearing?

Mr J Selfe (DA) posed similar questions as Mr Horn. The AGSA’s findings are recurring issues which in some cases are easily resolved. An example is the fruitless and wasteful expenditure incurred as a result of interest paid due to late payments. How difficult is it to create a system which ensures payments are made on time? This is an issue that goes unexplained year after year. Has any consequence management been taken and has anyone been held to account regarding this matter? Until people are held accountable, this issue will continue to persist as it has over the last couple of years.

The Chairperson proposed that the Committee adopt a conversational approach. Most of the questions posed by MPs would be better answered by the DCS. Both the AGSA and DCS will be required to answer immediately to questions pertaining to themselves in order for the Committee to engage substantially.

Dr W Newhoudt-Druchen (ANC) echoed Mr Horn and asked what the AGSA means it could not find sufficient evidence of any disciplinary actions in the 2019/20 year. Does this mean the AGSA will never be able to find evidence to further investigate? To the DCS, she asked why can the AGSA not get the verification of evidence.  She asked if the AGSA believes the DCS will be able to achieve the recommendations as stated. This is particularly important because the areas of concern which have been raised emanate from 2016. What assistance does the DCS need from the AGSA or any other bodies to implement the recommendations successfully?

Ms N Maseko-Jele (ANC) said the chairperson of the internal audit committee had stated that a lot still has to be done to turnaround the DCS; this includes the implementation of robust action plans. As mentioned by fellow MPs, the DCS’s challenges date back as far as 2016 or even further, therefore, plans have already been in place.  What kind of plans will help remedy this situation? The AGSA also recommended that the Committee provide oversight into the implementation of action plans. What kind of support should the Committee provide to officials? She asked the AGSA what reasons the DCS has provided to explain why no resolutions have been achieved. Why has the Department failed to enact consequence management? Is this because some of the implicated individuals are friends with senior management? It cannot be that every year the DCS does not do any investigations. Does the DCS have the willingness to these resolve matters? In the view of the AGSA and Internal Audit Committee, what is the attitude of officials in terms of resolving issues?

The Chairperson asked the AGSA to explain what it means when it says it received limited/ no assurance from senior management and the accounting officer and some assurance from the executive authority.  What was the expectation and how was this not met? This question is at the core of the issues raised by MPs, particularly Ms Maseko-Jele. The AGSA stated that it has problems with the usefulness of performance information and compliance with key legislation. Given this problem, why should the Committee believe the report the DCS is about to present? It is a significant disclaimer that there are no effective systems for addressing irregular expenditure and no reliable reporting of performance achievement. Why should the Committee waste time listening to the Annual Performance Report if there are clear issues concerning the reliability of the DCS’s information as well as errors identified by the AGSA. Why should Parliament allow the Department to report to South Africa when its information may not be true or lack basis? The (annual) report shows liquidity problems but AGSA’s report shows the possibility that the DCS may not be able to pay creditors. This would effectively make the DCS insolvent. As mentioned by other MPs, very little progress has been made towards consequence management relating to millions of Rands in irregular expenditure. He said he has no time to listen to action plans which officials develop, knowing very well they have no intention of implementing. The Chairperson of the Internal Audit Committee stated that the average senior executive has five to seven years of experience, in some cases more. It cannot be that individuals with this level of experience still have to be told how to do basic clerical tasks. Therefore, DCS officials need to answer if they are fit for purpose. Over R22 billion is allocated to the DCS. Given the current financial challenges faced by the country it is important to ask if this money is safe in the hands of people who fail to do basic clerical functions. There is nothing particularly difficult about the recommendations made by the AGSA over the past years. It is either the DCS lacks the competence to implement recommendations or it simply does not want to implement them. In that case, there will be a strategic misfit between the country and the Department

Response from the AGSA

Mr Lourens van Vuuren, Business Executive, AGSA, said that the AGSA does a status of records review where it looks at key controls and follows up on the previous years’ findings. The majority of this is done during the planning stages of the audit. It then meets with senior management and the accounting officer to highlight key areas needing attention. This provides management an opportunity to receive a formal report which enables them to address any issues which need correction. An in-term audit is done, whereby the AGSA selects various transactions across the country following which, it issues a report to management. This gives management the advantage of knowing what is happening on the ground.

Two areas of significant audit findings are supply chain management and performance information. Supply chain management typically should have controls in place to ensure that when procurement occurs, it is within the relevant rules and prescripts. In a decentralised environment, management plays a critical role in providing necessary training and in ensuring that internal audit focuses enough on specific transactions to highlight any cases of non-compliance. Planning and the monitoring of large contracts are crucial aspects of maintaining sound procurement processes. This requires an additional training element for those in supply chain management. Systems also need to be in place to quickly identify irregular expenditure and to accurately manage performance information.  

Various factors such as senior management, the accounting officer and executive authority play key roles in providing assurance. Senior management is expected to ensure that policies and procedures are effectively implemented and documented on a daily basis. It is also important to ensure that vacancies are filled and consequence management is enacted where necessary. The Department is therefore expected to have mechanisms like the internal audit which focus on the implementation of key controls, this is one of the tools the accounting officer can use.  A risk-based approach should be followed. There is quarterly reporting process for performance information which ideally should be reviewed by the internal audit committee and referred to senior management in the event that of any inaccuracies.

The Chairperson asked Mr van Vuuren to specify what the AGSA’s expectations were of these key role players. Did the role players’ contributions meet the AGSA’s expectations?

Mr van Vuuren replied that the role of the executive authority is to give strategic leadership and to exercise oversight. In the event that there are negative audit outcomes, the AGSA engages with the executive authority and presents recommendations to ensure execution and monitoring of audit action plans and the pursuit of consequence management where needed.

The Chairperson said Mr van Vuuren was giving an academic response when he wanted a response relating to the findings which had been presented. What made the AGSA arrive at the conclusion that the executive authority had provided some assurance?  What had the AGSA expected and what kind of assurance was found?  He urged Mr van Vuuren to provide the same level of detail concerning the senior management and accounting officer. The Committee cannot be expected to make recommendations to National Assembly when it only has partial understanding of the problems being dealt with.

Mr van Vuuren replied that the AGSA expects the accounting officer to perform the functions defined in the PFMA. This includes ensuring that proper systems of financial accounting are in place and appropriate actions are taken in cases of non-compliance. The accounting officer is expected to ensure that the action plan is effectively executed, regular feedback is received and if not, appropriate consequence management is enacted against officials who did not implement the plan. The same is expected in the area of performance information.

The Executive Authority is expected to ask for regular feedback from the accounting officer. The AGSA expects to see what agreements are taken between the Minister and accounting officer, what further actions need to be taken concerning matters like the filling of vacancies. The AGSA also expects to see evidence of the engagements between the executive authority and the accounting manager. 

The Chairperson asked Mr van Vuuren if he is suggesting that the accounting officer did not provide all of the requirements stipulated in the PFMA to the executive authority. What does providing some assurance by the executive authority mean in light that the accounting officer did not do such?

Mr van Vuuren said what could change the situation is a clear demonstration that the executive authority held the accounting officer to account and assisted in providing intervention in areas such as filling vacancies.

The Chairperson said this is scenario the AGSA would expect in future. The report and questions posed by MPs are based on a historical account. The Committee appreciates Mr van Vuuren’s forward thinking, however, the report specifically stated that the executive authority provided some assurance. What does the AGSA mean by some assurance and what were the issues?  

Mr van Vuuren replied that by saying the executive authority had provided some assurance. The AGSA had essentially concluded that Minister Lamola could have provided more oversight on the repeat findings from previous years.

Mr Madolo responded specifically to MPs questions concerning consequence management. He said the DCS uses a register to compile cases of irregular expenditure. However, there is no specific report which gives an executive summary of the cases. The register also does not have key information reflecting the status of the audit, i.e., if an investigation is underway or has been concluded. This is why the AGSA has been unable to give a conclusive picture and in effect, reported that there was inadequate evidence of investigations in the 2019/20 year.

The AGSA had proposed providing specific assistance to the accounting officer and DCS concerning supply chain management, performance information and consequence management issues. This would be provided through processes such as the status of records review. However, the AGSA found that key information was unavailable and was still being prepared up until the final audit. In such a case, the DCS does not benefit from the interim audit measures the AGSA has set in place which are intended to act as an early warning system to prevent repeat findings. The primary reason the AGSA is unable to provide conclusive information on whether or not investigations have been completed is due to the reporting.

Discussion

The Chairperson said that there were outstanding questions posed by Mr Selfe to the Department. He said the Committee was about to attend a meeting of the House and therefore had two options; to use the remaining time to hear preliminary answers from the DCS, or to allow the DCS to incorporate its answers in its annual report briefing which was scheduled for the next day.  

Ms Maseko-Jele said she was happy about the follow-up questions posed by the Chairperson to the AGSA. She requested for the AGSA to check its responses as they give a hopeless situation. Some of the proposals given by the AGSA are interventions the Committee would have expected to have been implemented already. She quoted recommendations calling for controls, increased training, improved planning, contract management and basic leadership as examples of such interventions. The Committee expects departments to give an accurate account of the situation on the ground. The Committee cannot continue dealing with the same issues year after year despite the monitoring mechanisms which have been put in place. She requested that presentations should be direct and illustrate the reality of what is happening within the Department.

The Chairperson agreed with Ms Maseko-Jele’s summary. The Committee does not need diplomacy from the AGSA but rather a clear indication of the state of affairs in the Department. This will allow the Committee to have a better understanding of the issues at hand.  

Dr Newhoudt-Druchen asked for clarity on the DCS register of cases of irregular expenditure. The AGSA had previously recommended that a register be kept. Does this mean the recommendation was not implemented or that the register does not contain any information? Did the accounting officer not benefit from the AGSA’s recommendation or does the accounting officer not know how to follow through with recommendations? She requested a more detailed response from the AGSA explaining what it expected from the register.

Mr van Vuuren responded that each case of irregular expenditure should be recorded in the register followed by information regarding who was involved, when an investigation was initiated and concluded and what sanctions were imposed. In the case of the R1 billion which has been identified as irregular expenditure by the DCS, the AGSA would expect that there are hundreds of individual transactions which require a case by case account detailing the status of investigations.   

Mr Madolo added that in the 2018/19 year, the AGSA had reported that no cases were investigated. This was easier to determine because over 90% of these cases had been identified by the auditors (during the audit). From there on, the AGSA was able to ask specific questions concerning each case. With the additional R1 billion incurred in the 2019/20 year, the AGSA needs DCS’s management to provide a case by case breakdown of the transactions as well as the investigation files in order to verify if what is listed on the register is accurate. The AGSA was unable to perform this task.

The AGSA has additional processes such as the status of records review and interim audit which are intended to assist the Department prior to performing the final audit. However, the AGSA is only able to provide inputs if the information is made available by the DCS on time. In some cases, this would allow the DCS the opportunity to address certain issues before the final audit which would reduce the number of recurring challenges. Overall, this points to the DCS’s timing issue.

Ms Maseko-Jele said based on the AGSA’s response, the Committee still has questions for the DCS concerning why it has cases of irregular expenditure registered but fails to provide reports to the AGSA. The DCS will have to provide a report on this matter.

The Chairperson said it is important for the AGSA and researchers to assess the audit performance of the DCS when it was still a stand-alone department, prior to being merged with the Department of Justice. This would demonstrate if performance has improved or deteriorated and if the current model is working. He asked the AGSA if this was possible.

Mr van Vuuren responded that the AGSA would be able to provide a summary of the DCS’s audit performance over the last ten years.

The Chairperson asked if Mr Selfe would agree to having his questions addressed in the following meeting.

Mr Selfe agreed and said one would then expect a high level of specificity from the DCS and not general responses. He also asked the DCS to explain why it has released former Nelson Mandela Bay councillor, Mr Andile Lungisa who was convicted of assaulting a DA councillor. It seems extraordinary that Mr Lungisa has been granted parole after serving only one month of his two year sentence.

The Chairperson said Mr Selfe’s question would be directed to the Minister and the parole board. For now, the Committee would be dealing with the annual report. However, if the DCS’s Acting-Director General has further information, he will provide it in the following meeting.

He said the Committee may need to consider meeting after the House sitting scheduled for the following day. This will allow more time to reflect on both the AGSA and DCS’s presentations and to decide on the interventions needed. The Committee is scheduled to adopt the Budgetary Review and Recommendation Reports (BRRR) on Friday, 4 December 2020 and therefore, may not have enough time to deliberate on DCS matters.

The meeting was adjourned.

Download as PDF

You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.

See detailed instructions for your browser here.

Share this page: