The Committee convened on a virtual platform to be briefed by the Auditor-General and the Audit Committee on the outcomes for the Western Cape Department of Transport and Public Works as well as Government Motor Transport for the 2019/20 financial year. The session with the AG was closed to the public. The Department achieved its eighth clean audit outcome.
Members wanted clarity on certain disclosures in the Annual Report. They asked for the Department’s plan with regard to succession within the Department.
Members requested more detail around the risks that have been identified by the Department. They wanted clarity around the sanitisation protocols for the fleet managed by the Government Motor Transport.
Members wanted to know the difference between formal and informal bids. Do the illegal land occupations and protest actions form part of the operational risk?
They also wanted to know if the Department was using the current Broad-Based Black Economic Empowerment Policy or its own discretion when it came to contractors.
[The session between the Committee and the Auditor-General of South Africa at the beginning of the meeting was closed to the public.]
Mr D America (DA) expressed his absolute delight and congratulated the Department for its outstanding audit outcome. He wanted to know what measure has been put in place to ensure that the Department retains critical skills. How will it ensure that those skills are available in the future in order to deliver on its mandate?
Looking at the general economic climate, the Department has highlighted struggling industries in the environment in which it operates. He requested more clarity on the identification of the risks that have been identified.
He asked about the sanitisation protocols and cost breakdown for the fleet of vehicles that is managed by GMT. He also wanted to know the difference between a formal and informal bid.
He mentioned the list of outstanding debts of clients, noting that there a quite a number of departments that owe the Department money. What is being done to recover those debts?
Ms N Nkondlo (ANC) congratulated the Department on achieving a clean audit, taking into account the current economic environment.
She asked about an emerging risk that was identified by both the Department and the Government Motor Transport (GMT). She wanted to know which areas seem to be the biggest challenges in terms of the type skills required by the Department. Are those skills part of the National Critical/Scarce Skills List as identified by the Department of Higher Education? What measures are in place to try and recruit those skills? She asked the Department to elaborate more on how it has attempted to mitigate the risk identified as ‘violent and criminal acts’? She also asked if the illegal occupation of land, along with service delivery protests, form part of the operational risks.
She asked if the Department has taken a decision not to apply the current BBBEE policy and instead utilised discretion.
Ms Jacqui Gooch, Head of Department, Western Cape Department of Transport and Public Works (DTPW), indicated that the Department has a number of programmes related to attracting skills:
-The Sakha Isizwe Bursary Programme, which brings in young people to study in the built environment sector fields (engineers, quantity surveyors)
-The Professional Development Programme, where graduates who have been appointed by the Department are provided support and exposure so that they can register with their relevant professional bodies as soon as possible. This would enable the talent to be embedded within the Department
-A programme called ‘Learning from Leavers’, where those close to retirement age share their knowledge and experience through video clips, with other members of the Department. This is done in conjunction with the Knowledge Management team, allowing for transfer of knowledge. She said there is also an Internal Bursary System for employees so they can be better suited for opportunities that come up within the Department.
She recounted that in the past, the Department ended up competing with the private sector. However, the pandemic has meant that some private companies had to reduce salaries, providing an opportunity to attract that talent.
She said that the types of skills that are required by the Department could also present a risk. With regards to the physical side of work, it is not easy to fill those posts and the Expanded Public Works Programme (EPWP) helps with some of that.
She said that the construction sector, within the last couple of years, has been in a downturn and this poses a risk for industries linked to it.
Concerning the transportation side of things, the limitations imposed by the COVID-19 regulations (related to capacity of a vehicle) had an impact on the work of the DTPW.
Regarding debts owed to the Department, she said the GMT uses an accrual accounting system. So the outstanding amounts represent a snapshot in time, not months and months of unpaid debt. Most of the invoices were paid within the necessary timeframes.
She explained that criminal/violent acts represent a strategic risk for the Department. She cited examples where protest action led to GMT being targets for stoning. She also expressed concern for the safety of staff when they are in the areas that have protest action.
She said land invasions have been listed in programme two’s risk register in order to help the Department formulate a response.
With regard to BBBEE, she said the Department was required to follow Provincial Treasury’s instruction, in terms of approach. She said close on 74% of infrastructure spending has been directed for BBBEE levels one and two, with close on 65% going to level one BBBEE level-one compliant companies.
Mr Yasir Ahmed, Chief Director: Acting Head of GMT Trading Entity, added that when there are service delivery protests, GMT vehicles are targeted and GMT has had to respond in order to prioritise protect the client’s assets. He also said Emergency Medical Services personnel are also targets of criminals.
In the year under review the entity did not have specific expenditure on sanitisers. However, as at the beginning of the current financial year, the entity is tracking sanitiser costs separately and will be able to account for that at the end of the financial year. A circular was sent out on 25 March 2020 informing clients that vehicles would be sanitised regularly to ensure the safety of personnel and users of vehicles.
Adv Chantal Smith, Chief Financial Officer, DTPW, said that formal bids refer to what is traditionally written tenders, with the extensive tender documentation and the proof required. Informal bids refer to the quotation system, which involves picking up the phone and getting three quotes, which are then confirmed in writing. The internet-based purchasing system is used throughout Provincial Treasury.
Regarding BBBEE she said that the pre-qualification and the sub-contracting arrangements are not needed, as the sector itself is organised in such a way that facilitates sub-contracting. The Department undertakes an empowerment impact assessment in order to determine exactly which portion of the work is capable of being sub-contracted.
The Chairperson asked how the Department’s procurement policy differs from the BBBEE policy.
Ms Nkondlo wanted clarity on pre-qualification. Is the CFO referring to the CIDB grading system? Is the province taking that as the pre-qualification criterion?
Advocate Smith said that the Department is not referring to a provincial procurement policy but rather to a specific policy stance taken with regard to the uniform implementation of preferred procurement in the province. She said it is not a general procurement policy; the provincial policy does not address the CIDB. The pre-qualification and 30% sub-contracting requirement are discretionary aspects of the Act.
She said that Provincial Treasury Instructions indicate that this province will not apply pre-qualification. The 30% sub-contracting rule will not be applied unless an empower impact assessment is done, which the Department generally does. The infrastructure sector has been set up to pre-qualify itself through the grading system. If a contractor is in a particular class of work, or a particular level, then there is only certain work that the contractor can do, and the Department can engage with the said contractor.
Ms Nkondlo said that she was asking the BBBEE question more on the infrastructure side of things. Her understanding of the pre-qualification requirement in the Act mentions particular groupings, whereas the grading is about the level at which a company operates. The pre-qualification speaks to economic status and the grading system does not necessarily do so. How is this harmonised?
She sought clarity on whether the number of fraud cases is worrying to the Department. Is there a system challenge or are there control challenges at GMT related to the fraud and corruption environment?
Ms Gooch said that the number of cases in the Department’s annual report, as well as GMT, were exactly the same (they were the exact same cases, captured on both annual reports). It is not necessarily a ‘doubling-up’ of cases. There are cases that have been carried over to the year under review. There are controls in place. The Department referred a number of cases referred to the Provincial Forensic Services; the referrals came about as a result of the controls that are in place.
She said that given the nature of the environment of the Department, the potential risks that have been identified are fraud risk as well as bribery. Not every investigation yields an outcome of fraud. Sometimes, the outcome is an irregularity. Some reports from the PFS indicate this. The Department works with SAPS, Hawks and others to address those issues.
Mr America asked clarity on page 195 of the GMT report (notes 35.2.4 and 35.2.5). He asked if those disclosures could be contextualised. He congratulated the Department for achieving zero irregular expenditure. On page 245, he noted that there is no variance between the budgeted amount and the expenditure. He wanted clarity on this.
He asked about services rendered in kind to other departments. He had asked the Auditor-General about this and received a technical but detailed response as to why these were not quantified. He wanted more clarity on this.
He said that there is significant over-collection with regards to motor vehicle licenses. What is the expectation or anticipated collection rate this financial year? He asked for clarity on transfers to municipalities.
Ms Nkondlo sought clarity on the investments held by the Department. What prompted the spending shown on page 158? What are the big areas of spending when it comes to PPE? Regarding claims against the Department, she noted that no provision has been made. Is this because the matter has not been concluded?
Ms Gooch said that the disclosures that have been made are a GAAP requirement. She said the Department spent 99.9% of its budget, leaving a balance of R10 million, on a budget of R8.58 billion. After many of the virements were done, one would see the numbers equating at that level.
Concerning the motor vehicle licence collection, she said that the Department is optimistic that it will break even this financial year. It does not anticipate an over-collection. It will depend on what will happen in March.
She said that the Department’s arrangements with the district municipalities, as agents to deliver on the road maintenance programme, provide for an advance to be paid so that they can purchase materials, amongst other things. She said these are not transfers in the usual context, but ultimately payments to the district municipalities to deliver on the roads agency function for the Department.
Mr Riaan Wiggill, Director: Fleet Finance, GMT, said that contingent liabilities are not recognised on the entity’s balance sheet because according to GAAP 19, there is uncertainty about the amount, the timing of that event, or whether is it will be realised. This means that it would be inappropriate to recognise that on the balance sheet. This is why it is merely disclosed as a disclosure item on the financials.
With regards to interest earned on investments, he said that from a cash flow perspective the entity has estimates for the financial year in order to determine when cash will be needed in the financial year. If cash will not be needed in the financial year and there is no cash immediately needed, it will be prudent to invest the cash at a higher rate. The provincial treasury is informed; it gets quotes from financial institutions. The one that tenders the highest interest rate will have the cash invested into.
With regards to architecture expenditure, he said that the accounting standards involved were GAAP 31 and GAAP 1. The approach and positioning of the strategy for the entity contained expenses that did not meet the recognition criteria according to GAAP 31 and 1; that is why there is an increase in that expenditure.
Ms Gooch clarified that PPE in the Department’s context does pertain to protective equipment but rather plants, property and equipment.
Mr Wiggill indicated that 752 vehicles were disposed at a cost of R57.4 million.
The Chairperson asked how the Department achieved zero irregular expenditure.
Ms Gooch said that the Department has a group of committed people who know what the rules are and who are committed to following the law. They are people who know what they are doing and understand the rules of the system they are operating in.
The Chairperson asked the Minister what life would be like after the clean audit.
Mr Bonginkosi Madikizela, Provincial Minister, DTPW, said that one of the keys to success has been that he does poke his nose into areas that are the Accounting Officer’s competencies. He said that he has a responsibility to ensure that the policies of this government, in line with the national government, are implemented. Even though there are challenges, transformation is something that needs to be addressed. If one looks at the scarce/critical skills, black people are in short supply because government is competing with the private sector – which pays much more than government. He said that there is a partnership with the Department of Higher Education to ensure that more learners receive bursaries so they can be part of the future of the Department.
The Chairperson thanked everyone.
The meeting was adjourned.
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