The Auditor-General of South Africa presented a grim picture of the financial management at four state entities whose annual reports were discussed at a virtual meeting of the Standing Committee on Public Accounts (SCOPA). Committee Members expressed their concern at the lack of accountability, even at the ministerial level, despite adverse audit outcomes being repeated year after year.
The Compensation Fund had received a disclaimer for the past five years. It had consistently been unable to provide transparent and reliable financial statements. The absence of supporting documents made it difficult for the AGSA to effect consequence management and to pinpoint individuals at fault. Many findings cut across from as early as 2010. The Fund did not just require support, but also immediate intervention.
A Member said individuals needed to be called to account, because there we no systems in place. Another said the failure was on the political side. Surely the Portfolio Committee (PC) should be doing more. Though SCOPA had a role to play, little had been achieved by the PC or the Ministers that had presided over this entity over time.
A major issue at the Unemployment Insurance Fund (UIF) was that information communication technology (ICT) governance not being adequately and effectively maintained. Repeat missteps would continue to impact on other material findings. Management did not ensure adequate controls, as highlighted in the audit qualifications.
A Member said his colleagues would recall the chaos at the UIF's offices in Pretoria, with e-mail backlogs of over 400 000, and two-thirds of calls going unanswered. These matters were under the same Minister as the Compensation Fund,
For three years, there had been a regression to unqualified audit outcomes at the National Skills Fund (NSF). Of particular concern to Members was that there was no evidence that consequence management was taking place. Both SCOPA and the AGSA said that disputes with the AGSA’s findings that were taken to National Treasury (NT) had hindered their process, and in future the entity should work together with the AGSA and not dispute their findings.
SITA had also regressed to unqualified audit findings. A significant contributing factor was that irregular expenditure had increased by at least R1.34 billion, though this figure was likely to be higher as the information was incomplete due to insufficient documentation being submitted at the end of the financial year. The AGSA recommended key interventions.
SCOPA agreed that there needed to be a response from the President’s Office on why he was retaining Ministers who were irresponsible in the spending of taxpayers’ money. The Presidency should give a review of the situation, especially on Ministerial matters. The PC would look at its programme so that this could be scheduled and prioritised. Members agreed that urgent attention was required.
Compensation Fund Annual Report
Ms Kgabo Komape, Business Executive: Labour Portfolio, Auditor- General of South Africa (AGSA), introduced the AGSA team and the programme.
The Chairperson said that the Compensation Fund and the Unemployment Insurance Fund (UIF) had not tabled their annual reports, which was noted.
Ms Michelle Magerman, Deputy Business Executive, AGSA, took Members through the presentation on the Compensation Fund (CF). For the past five years, the Fund had received a disclaimer. In many instances, there was insufficient evidence of the amounts disclosed in its financials. Matters which resulted in the disclaimer included revenue and receivables from non-exchange transactions, consequence management and expenditure management. There was non-compliance in the financial statements submitted. Leadership and financial and performance management were of concern. There had been no significant movement or progress in the previous ten years.
Ms Komape said that the CF had consistently been unable to provide transparent and reliable financial statements over 10 years. The entity had been stagnated, which was key information. The absence of supporting documents made it difficult for the AGSA to effect consequence management and to pinpoint individuals at fault. Many findings cut across from as early as 2010. The Fund did not just require support, but also immediate intervention. On this basis, the AGSA had decided they were unable to give a decision on the CF and had thus given a disclaimer. The AGSA believed that what they were asking of the Compensation Fund -- to provide transparent and reliable financial statements -- was achievable and not extraordinary.
The Chairperson said the presentation was a confirmation of their withheld fears, and the long road ahead.
Mr M Dirks (ANC) said individuals needed to be called to account, because there we no systems in place for this. He understood why the AG had given the disclaimer, and appreciated this. The AGSA’s report was clear.
Mr A Lees (DA) said what was really concerning was that there had been little improvement over ten years. No one had faced criminal charges or jail time. The number of high-level management position changes was alarming. The accounting officer should have faced charges by now. The AG had done an excellent job for 10 years, and the failure was on the political side. Surely the Portfolio Committee (PC) should be doing more. Though SCOPA had a role to play, little had been achieved by the PC or the Ministers that had presided over this entity over time. It appeared that either nothing was done or nothing was achieved over the last 10 years. SCOPA was a last resort for the AG, so Members of the PC had a huge responsibility. It needed to find a way to ensure accountability, consequence management, and that the situation was changed. The Compensation Commissioner’s website, as an example, had been inaccessible for three years. A major state entity in principle was functioning as a corner café in practice.
Ms V Mente (EFF) asked, “At what point does it stop?” She wanted to know how the AGSA had continued to audit the Compensation Fund, even though it had not provided the required documentation. What had the AGSA reported to the PC, with the absent documentation? Was it not possible to decline auditing until all the documents were provided? She did not recall a list of names of offenders being provided to the Standing Committee on the Auditor-General, for example, yet this was critical for consequence management. Disclaimers were insufficient. They could not continue to go against the Constitution and the financial regulations of the country – there needed to be a point at which this stopped. This matter was deeper than simply rands and cents, it was also about service delivery.
Mr S Somyo (ANC) agreed that the report indicated dysfunction beyond the AGSA, and there was a “bigger problem.” He asked if the need for urgent intervention was prescribed? What was the National Treasury's response to this advice?
Ms N Tolashe (ANC) said the matter was devastating. When it came to investigations, 26 cases had been closed, which frustratingly meant they would not find out more. They needed to hear more about the blatant abdication of officials' responsibility. The Department and its committee needed to be called to give an account. Though she agreed that the accounting officers needed to take responsibility, she asked for more information about the responsibility of the political head. The Committee needed to be taken into confidence that the President had the tools to ensure his Ministers were performing, and if the AG’s report was included among those tools. Ministers were coming in and out, and nothing was being said or done about them. There needed to be a response from the President’s Office on why he was keeping Ministers who were irresponsible in regard to the spending of taxpayers’ money. The Nelson Mandela Bay Municipality, as an example, was hard at work at addressing corruption, and if it was possible for a municipality, it was possible for a Ministry. A mess had taken place, and they needed to do something in a radical way.
Ms B Swarts (ANC) asked if the AGSA could share how long the Commissioner, the chief financial officer (CFO) and the chief audit executive had been with the Fund. What action would the AGSA take against the Fund?
The Chairperson acknowledged Members’ frustration at the non-accountability over a period of ten years. The reported disclaimers were an indictment on Parliament, yet the situation persisted.
Ms Komape responded to question about when the situation at the Compensation Fund would stop. She said the audit report for the Fund had a paragraph which alluded to the fact that if it was not for the legislation -- which mandated auditing by the AGSA -- the AGSA would have walked away from reporting on the Fund. There was thus no exit opportunity. The AGSA was committed to not walking away and to auditing the Fund because of its legislated obligation, whatever the case might be. However, the AGSA had been engaging the relevant stakeholders, including the Minister. With the amended Public Audit Act (PAA), there were matters still being discussed. The biggest challenge was the absence, or non-submission, of documents, which had hindered the material irregularities process, consequence management and holding the transgressors liable. The AGSA was doing its best to activate consequence management as far as possible.
Ms Komape acknowledged the scope for the AGSA to provide support in bringing individuals to report to the PC, and to provide an account of the transgressions in the Compensation Fund.
She said the urgent intervention required was not prescribed, but was recommended to the Minister by the AGSA. The AGSA would not dictate to the government, whether it be a Minister, Director General or Commissioner, though they certainly advised that action needed to be taken urgently. In instances where they had limitations, there was an opportunity to investigate these matters quickly, instead of rolling them up in a list of investigations. The AGSA was also working an update to its amended mandate. At the leadership level, there was a commitment to act. The AGSA was hoping that at their next meeting with the National Treasury's leadership, they would be clear on whether action had been taken.
Referring to the duration of employees' contracts, Ms Magerman said the Commissioner had served for six years. The previous CFO had served for one year and three months. The internal audit executive served for five years. Most executives had been with the Compensation Fund since about 2015, when the turnaround strategy had been initiated.
The Chairperson reiterated the view that the Presidency should give a review, especially on Ministerial matters. SCOPA would look at the programme so that they could schedule this and prioritise it accordingly.
Ms B Zibula (ANC) said that since there had been eight years with little progress, could this matter not be reported to the Special Investigating Unit (SIU)? Could the Chairperson not write a letter in this regard?
The Chairperson said this would be included in the intervention and roadmap ahead.
Unemployment Insurance Fund Annual Report
Ms Nnana Sekoati, Senior Manager, AGSA, took Members through the presentation of the Unemployment Insurance Fund (UIF) audit outcomes.
She said the UIF had collected R15 billion in last financial year, as opposed to R14 billion the previous year. There were key compliance findings in annual financial statements. A major issue was information communication technology (ICT) governance not being adequately and effectively maintained. Repeat missteps would continue to impact on other material findings. Management did not ensure adequate controls, as highlighted in the audit qualifications. A key concern led to the recommendation for a systematic investigation into accurate financial reporting at the UIF.
Ms Komape said that ultimately there was much potential at the UIF. The biggest challenge was adhering to financial management and preparing the financial statement. Financial statements were being submitted too close to the deadline. The monitoring of unlisted companies needed to happen earlier. The UIF needed to continue on the momentum they had, and continue to proactively monitor the performance of their investments to know if their money was well positioned, way before the financial year ended. They were submitting reports too close to the end of the financial year. Special reports had been published in October and December 2020, which the AGSA had hoped the UIF would have used to address red flags. Discipline, especially around financial management and deadlines, was critical.
Mr Lees appreciated the AGSA’s focus on the financial aspects. He said his colleagues would recall the chaos at the offices in Pretoria, with e-mail backlogs of over 400 000, and two-thirds of calls going unanswered. These matters were under the same Minister as the Compensation Fund, so similar comments applied regarding the chaos. There had been no consequence management and little urgency in dealing with this. While both the Compensation Fund and the UIF were massive in their own right, perhaps they could be dealt with in a similar way.
Mr Somyo agreed with Mr Lees that the narrative with the UIF was similar to the situation at the Compensation Fund. There was much justification for the President’s assignment to the SIU. This was appreciated. Though they were still in early stages of the investigation, the SIU should provide a level of enforced accountability. He asked the AG about the high level of material irregularity at both entities. Would this warrant enforcing accountability and consequence management, based on the audit outcomes?
Ms Komape said Mr Somyo’s assessment was correct. The UIF was initially not listed as part of the entities, and they had been included for the first time in the 2021 financial year. It would thus also be assessed for the possibility of material irregularity, as they were facing the Public Finance Management Act (PFMA) for the first time in the 2021 financial year.
National Skills Fund Annual Report
The AGSA presented the audit outcomes of the National Skills Fund (NSF) for the 2019/2020 year.
For three years, there had been unqualified audit outcomes, which was a regression. A disclaimer of opinions had been expressed. Material misstatements had occurred which had led to the disclaimer of opinion. There were concerns with the credibility of the financial statements submitted. Drivers of internal controls were not ideal (not in place) and required intervention. Root causes needed to be addressed, to avoid repeat findings. There was no evidence that consequence management was taking place.
Ms Komape said that with the NSF, their biggest challenge was with the skills development expenditure. As part of the evidence, what the AGSA was requesting was simply proof of the money, and where it ought to have landed. They did not just want an invoice from a service provider, or a report from the NSF project manager. Rather, they asked for a demonstration that one had been received and where it was intended to go. Previously, there had been a dispute with the AGSA’s findings, which was taken to NT, and it had clarified the same principle as the AGSA. The explanation from management was that they were waiting on the matters.
Ms Mente asked for clarity on the explanation from management to the AGSA -- that it was comforting for them not having the necessary documentation to prove their expenditure. This was especially when it came to projects directed for skills development, where money was clearly spent and disclosed in the NSF’s financials, but there was no documentation for this. It was incredibly painful to see that a large sum of money was spent, but there was no documentation. What was NSF’s response to AGSA?
There was a distinct and systematic collapse of state entities, where money was moving in and out with little accountability. What would be NT’s response to the matter of not having any documentation for financials reflected? Which law made provision against this? She commented that the system, starting with the NSF, showed worrying parallels with the disclaimer for the Compensation Fund.
Ms Tolashe said there were serious similarities, especially with the situation of fruitless and wasteful expenditure. It was a pity that the AGSA had been made to go back to ask Treasury about matters that were “obvious and known,” such as spending on the fiscus. The impact of this was the hindrance and delay of work. The Ministers should appear before the Committee in the presence of other attendees, not just to get an explanation, but to advise on the progress the Ministers were making. She expressed her appreciation of the work the AGSA was doing, and urged SCOPA Members to become increasingly vigorous in their work. They had a huge responsibility, and “heads should roll.” They were not doing their work if the reports from the AGSA were as problematic as they were.
The Chairperson shared Ms Tolashe’s irritation. When SCOPA had met with the Minister regarding SCOPA issues and the NSF, a suggestion at the time was that a full-scale investigation might be required. This would be kept on the radar as they moved forward.
Mr Dirks said the report's findings were very disappointing. Non-compliance made their task straight-forward, and they were united with SCOPA on the factual issues. Together, they would need to decide on the way forward. Ultimately, their work would come to an end. History would record that they had failed, because they would have failed to play their oversight role decisively if they did not act. As SCOPA, they needed to be firm and decisive. There needed to be consequences for transgressions. This was not a political matter, but simply about good and clean governance. If they did not do this, they would become complicit and see these issues recur.
Ms Komape said that there were three to four matters where the NSF had disagreed with the AGSA. On all of them, National Treasury had clarified that they and the AGSA took the same stance. On the skills development expenditure, AGSA had been following an audit process. Therefore, from an accounting perspective, it was impossible to dictate how the matter needed to be audited. When the AGSA discussed this with the NSF, the NSF had said that in the main, the audit team ought to accept the project manager’s reports. This should serve as sufficient audit evidence. The AGSA said this was not necessarily the case. It required evidence, which they could obtain from the service provider and the evidence did not need to be on site. What was a challenge was that it became the responsibility of the AGSA with the service provider, but this would not work -- AGSA did not have a mandate to access the service provider. If this process ought to work, the NSF needed to take the lead. The AGSA teams could not be left to deal with the service provider on the ground. There needed to be an undertaking by the NSF, so that when the AGSA indicated in their reports that a service provider was not giving the required evidence, the entity could also appreciate where AGSA was coming from.
One of the key commitments given to the AGSA was that in the 2019/2020 financial year, there was no audit report that would be recalled, but rather that it would be appropriated to be finalised. The NSF had also committed to working on their project visits so that they were able to support the AGSA on the ground, where their own officials had taken the lead in ensuring that the service provider gave the evidence. If it so happened that the evidence was not there, the NSF could appreciate what the AGSA was given or not given. Ultimately, there was an appreciation and a commitment that the NSF would obtain the pertinent information required. Site visits would not only be by the AGSA themselves, but the NSF would take accountability so that when conclusions were drawn, there would not be someone who felt this opinion was inaccurate or unfounded. If there were disputes, it remained the responsibility of the NSF to ensure that the money went to where it ought to go, which was into the hands of the learner.
State Information Technology Agency Annual Report
Ms Zolisa Zwakala, Corporate Executive, AGSA, presented audit outcomes of the State Information Technology Agency (SITA).
SITA had regressed to unqualified audit findings. Compliance was also an issue, as there were material misstatements, which had been highlighted in the prior year by the AGSA. Weaknesses in information technology (IT) governance and controls were highlighted. Values reported could not be aligned if key material adjustments were made. There had also been many acting roles and vacancies. Procurement and contract management was another highlighted issue -- for example, quotations had been awarded to bidders who had not obtained the highest score. Irregular expenditure had increased by at least R1.34 billion, although this figure was incomplete due to insufficient documentation that was not submitted at the closing of the financial year, which meant irregular expenditure was likely to be greater. Drivers of internal controls needed to be managed, and there were five areas which required intervention under leadership, finance, and performance and governance. There were many areas of concern – especially effective oversight, policy and procedures. It had been an unusual year for SITA, and key interventions were recommended. Record keeping, monitoring, compliance and IT required regular feedback on implementation plans.
Mr Somyo said that all the reports they had received indicated distress. With SITA, it appeared there was a collapse of governance and administration, because AGSA's intervention was designed to take any entity from a state of disarray to some form of ordinary functioning. In this particular instance, it was the other way around. Entities were designed to assist government as a core function, though they themselves were bearing witness to the depth of the problem. When the AGSA needed to audit the expenditure on COVID-19 expenditure, for example, there was a reported lack of unity between the entities.
The Chairperson thanked the AGSA team for the briefing. These matters were fundamentally depressing, though the AGSA had done very thorough work which empowered them, especially for the hearings going forward.
The meeting was adjourned.
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