Department of Premier Audit outcomes & 2019/20 Annual Report

Public Accounts (SCOPA) (WCPP)

26 January 2021
Chairperson: Mr L Mvimbi (ANC)
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Meeting Summary

Video: Public Accounts Committee, 26 January 2021, 08:00

Western Cape Government 2019/20 Annual Reports

The Committee was briefed by the Auditor-General of South Africa (AGSA), the Western Cape Department of the Premier (DoTP) and its audit committee, on the Department’s audit report for the 2019/20 financial year. The meeting took place on a virtual platform.

Overall, Members were pleased with the performance of the Department during this financial year and commended the officials for receiving a clean audit for the fifth consecutive year. Officials from the Department indicated that they had placed emphasis on good governance standards and on improving their performance. However, they believed that their ability to fulfil their mandate had been strained because they had inadequate resources. Members questioned whether it was the case that the Department had not planned adequately to spend diminishing resources, rather than having inadequate resources.

Members asked why the Department had seemingly changed its procurement policy from the preferential procurement policy (PPP) to the economic procurement policy (EPP), expressing concern that there was a non-alignment between the Department’s policy and the law of the country. The Department explained that the provincial governing party, the DA, had resolved during its 2020 policy conference that race should not be used as a proxy for disadvantage. It had further resolved that economic injustice should be used as a proxy for disadvantage. Thus, the Department had implemented the resolution of the governing party.

The Department indicated that a claim for damages had been instituted by 89 plaintiffs against the Premier of the Western Cape, the Mossel Bay Municipality (MBM) and the National Home Builders Registration Council (NHBRC). The claim had arisen when cracks had appeared in the buildings, streets and pavements in the CMU Park development. Ground movement had eventually caused severe structural distress in certain buildings, and the collapse of some units. The Department had stated its intention to defend itself in the matter, and hoped that it would not be a long and protracted issue.

Meeting report

The session conducted by the Committee and the Auditor-General of South Africa (AGSA) at the beginning of the meeting, was closed to the public

Mr Alan Winde, Premier of the Western Cape, said he was pleased with the progress made by his Department in achieving its performance targets in the 2019/20 financial year. The Department had improved its spending, from 96.9% in the 2018/19 financial year, to 98.6% in the 2019/20 financial year, despite the pressure caused by the pandemic. He thanked his officials for their work.

Dr Harry Malila, Director-General: Western Cape Department of the Premier (WC DoTP), said the Department had improved its governance standards and performance over the years. It was committed to delivering its mandate to the people of the WC.

The Chairperson indicated that the Committee would first discuss Section C of the annual report.

He opened the floor for the discussion.

Discussion

Mr C Dugmore (ANC) said he was surprised that the Deputy Director-General had attended only one of the four quarterly meetings. He asked if there was an explanation for his absence.

In its report, the Department had referred to inadequate resources as one of its risks. He asked if the Department had difficulties working with a diminishing budget, as opposed to it having inadequate financial resources. He raised this point, as the Department had also reported under-expenditure. He also asked if the Department wanted a bigger budget, and if it had struggled to accomplish certain targets with its current budget.

At a previous meeting, the Committee had indicated that the Department had not provided concrete implementation plans for the WC safety plan. Whilst the plan had been published, it had not gone into much detail. This was concerning, as the DoTP had to play a coordinating role in assuring a safety plan was implemented. He asked the Department for more details on the plan and how it would be implemented.

When did the Department intend to finalise the appointment of an environmental commissioner? The provincial constitution mandated the provincial government to make the appointment. He asked whether the Department viewed the non-appointment as non-compliance.

The report made reference to its Economic Procurement Policy (EPP), which would be used in its procurement. He asked what the implications of this were in terms of the Preferential Procurement Policy (PPP), which was a law of the country. There appeared to be a non-alignment with the law of country, which was a governance risk. He asked the Department to provide a copy of the policy.

Mr D America (DA) congratulated the Department on its fifth consecutive clean audit.

He indicated that he had two questions. Firstly, he asked whether disciplinary processes would be taken against whistle-blowers who provided false information – or made false accusations – about an individual. Secondly, he asked whether a gift of under R300 should be disclosed and whether that gift had to be recorded in the gift registry.

Ms N Nkondlo (ANC) commended the Department on recording no corruption during this financial year.  

She asked whether there was an Occupational Health and Safety (OHS) expert/practitioner in the Department, and if it could provide an indication on the profile of the OHS representatives.  

She asked what the Department was referring to when it spoke about “staff exists,” and what it was referring to when it referred to a broader economic transformation policy (ETP) for the province. Had this policy factored in how to bring about inclusive growth? What role would black small, medium and micro enterprises (SMMEs) play in this policy, as their role had been minimal so far?

What were the criteria for the Department on entering into partnerships with the private sector, and what would not be deemed as acceptable for it not to enter into a partnership with a company? There should be criteria of incentive grants and investment schemes in support of broad-based black economic empowerment (BBBEE). She asked why this had not been applicable in the WC.

She asked for clarity on what the Department meant when it referred to OPEX.

DoTP’s response

Premier Winde said the provincial government had reintroduced an amendment bill to deal with the constitutional provision of appointing an environmental officer. This action indicated that the Department did not view the non-appointment as a risk.

During its 2020 policy conference, the Democratic Alliance (DA) had resolved that race should not be used as a proxy for disadvantage. It had further resolved that economic injustice should be used as a proxy for disadvantage. Using race as a proxy for disadvantage had not worked for the country.

Dr Malila said that the Department did believe that it had inadequate resources. Several provincial and national departments had complained about inadequate resources. With the finite resources the Department had received, it had had to redirect focus from some of its key activities. It did not have the necessary funds to fund the structure of the Department -- for instance, it could not keep certain posts. Thus, inadequate resources did pose a risk. However, the Department was pleased that the AGSA and the audit committee had acknowledged in the report that it had spent its money wisely. Internally, the Department had processes in place to delegate resources. If it were not for Covid-19 related expenditure, its expenditure levels would have been higher. There were two items where the Department had underspent, and these were related to committed expenditure. These items had been honoured in the new year.

He explained that the Department had had to shift its budget spending from operating expenditure to capital expenditure. The Department referred to operating expenditure as OPEX. 

The Committee would hear more on the WC safety plan during the Premier’s State of the Province Address. The Department had worked with the City of Cape Town on the plan. The plan placed emphasis on violent crime, and it had also worked with the WC Department of Health on how to prevent these crimes.

The Department had a policy in place that stated that all gifts above R350 must be disclosed, but prior approval must be obtained. All gifts below R350 must also be disclosed, but did not require prior approval.

Many of the health policies had to be activated this year by the provincial government, mainly because the province had experienced the second wave of coronavirus infections.

Mr Drikus Basson, Chief Financial Officer: DoTP, said that gifts under R350 must be disclosed on the gifts register, and there must be approval attached to that; although no prior approval was required if the gift was under R350. There were different amounts that were approved at different levels, according to the gifts policy.

Underspending documented in the report had occurred in the 2018-19 financial year, and not in this financial year. “Staff exists” formed a significant part of the underspending reported.

The Department had had to shift its capital expenditure to operating expenditure because they had moved from hardware services to a cloud-based services platform. Capital expenditure was also affected by a delay in the networking equipment.

The Department’s procurement was aligned to the PPP Framework Act of 2000 and other regulations. There were several objectives within the BBBEE Act, one of them being preferential procurement from enterprises that were owned or managed by black people. The economic procurement policy was a new policy, and the implementation was a few months in the making. This policy looked at sectors that needed to be promoted in order to stimulate growth. This mandate was driven by the WC Department of Economic Development and Tourism (DoEDT). Treasury had also had a role in the forming of the EPP.

Most of the processes relating to incentives formed part of the Provincial Treasury’s mandate, which was why the DoTP had listed them as non-applicable, as it was not a part of its mandate. He suggested that the Committee invite the Provincial Treasury to brief them on the EPP and what the province was doing in terms of BBBEE.

Mr Almo Geldenhuys, Director: Departmental Strategy, DoTP, said that the Department followed the directives of the OHS Act when dealing with OHS related matters. The Act stated that where an institution had more than 20 staff members, a representative that would look after the health and safety of employees should be employed, and a committee needed to be formed. The Department relied heavily on its health representatives to execute the functions that ensured that the workplace was free of hazards and risks. Representatives were elected in their respective business units and were trained in accordance with the provisions of the Act. Their main function was to be the eyes and ears at the operational level, and to advise where the Department needed to look at OHS risks. At the moment, Department had 46 representatives. They had been doing excellent work in managing the pandemic and had assisted by conducting hazard and risk assessments in their units, and by putting together plans to mitigate them. All OHS related decisions were taken by the OHS committee which, according to the Act, must meet four times a year. The Department of Community and Safety had a transversal responsibility to guide and coordinate OHS matters in the WC government.

Adv Ruthven Janse van Rensburg, Chief Director: Provincial Forensic Services, DoTP, said that there has to be a balance between distinguishing the important needs of an effective whistle-blowing system -- in pursuit of good governance and anti-corruption -- and an individual’s rights. With regard to good governance, whistle-blowing was more often than not the only chance an organisation like the WC government had to uncover corruption, as it was hidden. He believed that the WC government struck the balance well. The whistle-blowing policy explained the requirements for protective whistle-blowing and stated that the whistle-blower would be protected from reprisals. This was important, as often whistle-blowers were in danger.

The policy further stated that someone who reported false information intending to hurt another individual, had committed an offence in terms of the Protected Disclosure Act. Operationally, the provincial forensic services had certain controls to manage the situation where a person’s rights were affected and implicated. The intake process made provision for certain verifications before registering a case for actual forensic investigation. Information shared by a whistle-blower was confidential, to protect the rights of the persons implicated. Allegations and the findings from investigations were only investigations communicated to the relevant head of department. If it happened that a false allegation was made, the person affected by it could lodge a criminal case with the police. If the whistle-blower’s identity was known, and he/she was an official of a department in the WC government, they would be in breach of the code of conduct and a disciplinary action was possible.

Dr Malila mentioned that generally, the governance committees were well represented and dod report to the Executive Council (EXCO)

Mr Lucas Butler, Deputy Director General: Legal Services, DoTP, mentioned that he had missed the EXCO meetings because they had most likely coincided with his leave time, but he would check his diary and revert back to the Committee.

The Chairperson asked that the Committee discuss Section E of the report.

Mr R Mackenzie (DA) said it was important for officials to tender reasons for why they had missed a meeting.

He asked why the Department had not spent all of the allocated funds for computer systems. Why had there been a virement from money allocated for computer systems?

He asked what the difference between business advisory consultants and contractors was. He requested a list of the contractors used by the Department, and also about the operating leases and property payments. What were the Department’s operating payments?

Was there an update on the matter concerning the JF van Niekerk park, and did it pose a threat of being a potential liability?

There had been a property damage claim of R149 million against the Department. He asked what the claim had been for.

Mr Dugmore asked if the Committee could be reminded about who the plaintiffs were, and the name of the property involved. As the matter had dragged on for some time, he asked what remedies the provincial government had to ensure that the matter could be brought to a close.

Mr America asked what the age evaluation was for dormant debt to be written off. Why had irrecoverable debt of R196 000 not been considered for being written-off?

He asked for clarity on whether a contingent asset was considered as an asset that would revert back to the Department at a future date.

In an instance where irregular expenditure was not condoned, was it expected that the Department should be liable for expenditure it had not condoned?  

Ms Nkondlo expressed her disappointment that the question on BBBEE had not been answered by the officials.

In all of the programmes, there were “staff exists.” She asked if the DG could explain why this was the case.

She asked what the Department meant by long outstanding debt cases which had remained dormant where recoverability remained doubtful.

Referring to the CMU Park, she asked what the probabilities were of this case proceeding, and if there would soon be closure on the matter.

What had the Department meant by “total prior arrears?”

There had been an increase in irregular expenditure in the Department.

She asked for details on the cases of fruitless and wasteful expenditure in the Department.

Mr P Marais (FF+) was disappointed by the President’s statement that black businesses must benefit from the vaccine rollout. Government should be concerned with improving the welfare of people, by ensuring that they received their vaccine shots, instead of worrying about profiteering. BBBEE should not be a consideration in this matter.

Department’s response

Mr Butler said that the civil matter was a claim for damages instituted by 89 plaintiffs against the Premier of the WC, the Mossel Bay Municipality (MBM) and the National Home Builders Registration Council (NHBRC). The plaintiffs were all residents and property owners in the development known as CMU Park. The claim had arisen when cracks appeared in the buildings, streets and pavements in the development. Ground movement eventually caused severe structural distress in certain buildings and the collapse of certain units. All of the defendants were defending the action against them. The claimants had failed to cite the Member of the Executive Council (MEC) responsible for Environmental Affairs and Developmental Planning (DEADP). However, they had vaguely alleged that the DEADP had received and evaluated approvals of all applications for land use changes associated with the subject properties. There was no connection between the Premier and the alleged vague conduct by the Department which had allegedly caused the damage. As the plaintiffs had cited the Premier as a defendant, it meant that the quantum of the claim had to be reflected as a contingent liability in the financial statements of the DoTP.

The Department believed that the summons was vague and did not disclose a cause of action, and it was currently awaiting a hearing date for the exception to be argued. All three defendants had filed exceptions to the summons. The plaintiffs were yet to respond to a second exception filed. Recently, the court had found in favour of the NHBRC’s exception, and the order was made with costs. The plaintiffs could remedy their summons and make the necessary changes to ensure that the defendants were happy with the contents. Then the three defendants would plead, and the matter would become a protracted action in the high court. If the plaintiffs did not remedy the summons, the Department would apply for the claim to be dismissed. He assured the Committee that the Department was trying to deal with the matter, and it would update them if there were any developments.

Mr Basson apologised to the Members for the answer he had provided on the EPP. He said that the specialists of the EPP did not reside in this Department. The WC DoEDT would be advised to brief the Committee on the EPP.

On the question of virements, he said that virements could happen at any time of the year. There were also final virements that could happen at the end of the financial year. Once the Department finalised the virements at the end of the financial year, they were required to show underspending on earmarked allocations. Virements and underspending were not the same thing.

He explained that there was a difference between business advisory services and contractors. For example, if he were to purchase a bus ride for paid interns, the bus company was not giving a business service, nor was it providing an advisory service -- instead, it was simply being contracted. Audit committee members were also remunerated under business and advisory services.

The Department had spent most of the money allocated for computer services to pay for the broadband project. The State Information Technology Agency (SITA) had received R365 million from the Department for its services. Microsoft Ireland licensing had received R117 million. Most of the money spent on contractors was spent on audio-visual (AV) equipment, the employee wellness and health contract, and the transport of interns. Much of the operating lease expenses went towards the purchasing of photocopy machines for the Department. Some of the property expenses included R800 000 spent on cleaning services, gardening and restaurant management fees at the George office. Operating expenses included money spent on printing and publications, as well as resettlement costs for staff.

Referring to what factors the Department used when writing off old cases, he said that it depended on the details of a specific debt matter. If the Department placed a debtor in mora, and the debtor had acknowledged its debt, the Department then had three years to recover the debt. If it was unsuccessful by year two, it then issued a new notice to the debtor. Irrecoverable debt was the debt the Department would have difficulty in sourcing from the debtor – and this included old cases. Not all old debts were irrecoverable. There was no specific age for the debt that the Department would target.

When the Department considered writing off debt, it looked at the quantum of the debt and in terms of its policy, any old debt under R3 000 was written off as it would be considered uneconomical to pursue the money.

With regard to contingent assets, he said that if an employee of the Department took extended sick leave because they had a medical complaint, in terms of the pillar application system and the guidelines provided by the health risk manager (HRM), that employee had to provide evidence to support their medical complaint. This evidence was tested to evaluate whether the temporary disability of the person rendered them unavailable to work or not. After the HRM had completed the investigation, he/she may either indicate that the evidence sufficed, and the Department would then approve the leave. However, if the HRM found that the employee was not sick, the Department then had to recover some of the paid leave, and those amounts were considered as contingent assets – as they were contingent on the final word of the HRM.

There were two scenarios where the Department would not condone irregular expenditure. One was if it was due to gross negligence or wilfulness on the part of the employee, and then the amount became recoverable from the employee. The other was if one did business with a company which was not tax compliant. The Department would not be able to condone that expenditure until that company showed that it was tax compliant.

Referring to “staff exists,” he said that staff did leave for better opportunities, and it ordinarily took the Department three months to replace the staff member. As it budgeted for 12 months for each employee, if an official resigned within nine months, the Department would make savings, or it would be recorded as underspending.

Explaining the principle involved in the prior period regarding areas of fruitless, wasteful and irregular expenditure, he said that when the Department detected a case of fruitless or irregular expenditure, it would look at whether it had to do with a contract that had been in operation for a number of years. If they found that to be the case, then in terms of the template of the annual financial statements, the Department had to declare the old amounts as well. In this case, ICAS Southern Africa, which assisted the Department with the vetting of new employees, was involved. There had been duplicate invoices that the Department had to pay, and which were classified as fruitless, wasteful and irregular expenditure. The company -- to the extent it had been a mistake in their system – had repaid some money to the Department. The Department was liable for mistakes made by its employees.

Fruitless, wasteful and irregular expenditure had amounted to R9 000, whereas the previous year it had amounted to R46 000. In some of the years, the amount had rolled over into the following years. Once the Department finalised matters that had taken place during the 2018-19 financial year, the number should be less.

There were two cases of valid expenditure that had occurred. The first had amounted to R252, where persons had rented vehicles in Johannesburg and had had stone damage to the windscreen. The second related to R1 300 damage to a rental vehicle which would be recovered from the service provider via the travel agency.

Mr Mackenzie asked whether the expenditure incurred under operating leases had gone only towards purchasing photocopy machines, or had that just been an example he had used.

Mr Basson said that 90% of that amount was dedicated to purchasing photocopy machines for the DoTP. He would confirm the details in writing.

Dr Malila mentioned that the form of acquisition – whether one leased an item or bought it outright – was decided by the Department. The Department would provide further details to the Committee in writing.

Mr Mackenzie asked that the Department keep an attendance list for committee meetings.  

Ms Nkondlo suggested that the Department should add notes next to certain columns in their reports to assist the public and Members to understand what was being said.

Dr Malila thanked the Members for the discussion, and said that the Department was committed to good governance.

Premier Winde also thanked the Members, as well as the officials in his Department.

The Chairperson thanked the audit committee for the report, and also thanked the AG for their input. He asked that the officials be excused, as the Members had to consider their resolutions.

Committee resolutions

He asked Members if there were resolutions that should be proposed to be adopted by the Committee.

Mr Mackenzie suggested that the Department should provide a briefing report on the expenditures under consumable supplies, such as consumable stationery and the operating leases. Also, the Committee should determine whether it was best value for the DoTP to purchase photocopying machines outright, or lease to them.

He asked for a breakdown of the claims against the Department, and how much money had been spent by the WC government on legal fees on the CMU Park matter.

Ms Nkondlo supported Mr Mackenzie’s second proposed resolution.

She suggested that there be a joint sitting with the Standing Committee on Economic Development, which would consider the EPP.

Mr Dugmore commented that the auditing of the Department had cost R6.5 million. He asked for clarification on what the average cost for an audit was , as this amount seemed excessive.

He asked that Department provide information on whether it had met the Cape Higher Education Consortium. In addition, had all the funds allocated to the Consortium been spent? What had the expenditure been on, and had the Department received value for money with its allocation?

He voiced his concern that the DoTP had referred the Committee to the WC DoEDT, as the DoTP was the one department that provided transversal advice.

Mr America said that the audit costs for this report were actually R650 000.

The Chairperson said that the Committee would request for clarity on the audit costs for all Departments.

Mr Mackenzie agreed with the Chairperson.

Ms D Baartman (DA) said that the Committee had already asked the WC DoEDT about the PPP. She suggested that the Committee ask for the relevant information, and then invite the respective committees.

Mr Mackenzie asked what the Library Business Corners mentioned in the report, referred to.  

The Chairperson said that the Committee would request a reply on this.

As briefings from the AG were only to inform the Committee, he suggested that it should not spend too much time on them. He cautioned Members from posing questions that sounded like they were attacking officials.

The meeting was adjourned.

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