DMRE Audit Outcomes; with Deputy Minister

Meeting report

The Chairperson informed Members that although the Portfolio Committee had submitted its Committee programmes to Parliament, due to unforeseeable circumstances, things had changed and the new instruction which was given to this Committee was that the Budgetary Review and Recommendations Report (BRRR) needed to be finalised within two days. As the Committee was not permitted to meet outside of its allocated dates, it had only Tuesday and Friday available to adopt the BRRR before the end of the week.

He noted in the Auditor-General’s (AG's) report and from the correspondence from the Speaker’s office, that there was a request from the Minister that three entities needed extensions. Those three entities were the South African Diamond & Precious Metals Regulator (SADPMR), the Central Energy Fund (CEF) and the South African Nuclear Energy Corporation (NECSA).

Minister Gwede Mantashe had submitted his apology, as he had to be at the African Energy Conference.

Dr Nobuhle Nkabane, Deputy Minister of Mineral Resources and Energy, was present on the platform.

The Chairperson suggested dividing the meeting into two parts. Firstly, the Committee would receive a briefing from the Office of the Auditor-General, then the Committee would engage with the Office before it moved on to the Department.

AGSA on DMRE 2020/21 audit outcomes

Ms Lufuno Mmbadi, Senior Audit Manager, AGSA, briefed the Committee on the BRRR for the Department of Minister Resources and Energy (DMRE).

She provided an overall picture of the audit outcomes. Overall, there were no qualified or adverse audit opinions for the DMRE, with the exception of one entity -- the South African Nuclear Energy Corporation (NECSA) --  whose audit outcome had remained unchanged as it had received a disclaimer audit opinion with findings. She said there was a regression trend in the number of clean audit opinions for the Department’s entities.

The Department had failed to investigate fruitless and wasteful expenditures. She emphasised that it was vitally important to implement the AG's recommendations and to ensure consequence management.

She expressed concern over the overall regression in supply chain management (SCM) of the Department’s entities, and reiterated the need to strengthen training amongst those entities and to conduct proper investigations if irregular incidents were picked up.

The latest amendment to Public Audit Act (PAA) had introduced material irregularity. The Auditor-General’s office had adopted a phased in approach to implement material irregularity in its audit. But the Office had discovered that no entity had implemented the material irregularity in their internal audits.

Ms Mmbadi informed the Committee that a summary of the audit outcomes had been published on the Department’s websites and those of its entities. The total of unaccountable expenditure amounted to R63 million.

In terms of governance, the Auditor-General’s office provided a breakdown of the aspects that it covered. Those aspects included assurance, internal control and the status of the  information technology (IT) environment.

The recommendations for both the Department and the Portfolio Committee had been provided in the presentation respectively.

Discussion

Mr M Mahlaule (ANC) sought clarity on the outstanding audit conclusions which both NECSA and the Central Energy Fund (CEF) had accused the AG's office of delaying. He remarked that the AG seemed to be under the impression that Parliament had received presentations from those two entities from 2016 to 2018. However, he reminded the AG's office that this Committee in fact had not received any tabling from those two entities. Thus, he wanted to know whether it was the AG's office that had delayed the financial statements of those two entities, or if those two entities were not telling the truth.

He observed that the Department had received some adverse findings on the basis that it had failed to charge interest to people who owed money to the state. He wanted to find out if suppliers charged the DMRE interest in the event that the Department failed to pay within the 30-day required period.

Mr K Mileham (DA) expressed his concern on the CEF and NECSA, in particular with the lack of assurances and quality control at NECSA which had been consistently flagged in the AG's report. He thus asked the NECSA management what the management had done to address the problem.

Ms V Malinga (ANC) believed that the AG's office should apologise to the Committee for not completing its auditing work on time.

She found it unacceptable and concerning that a ministry that was in charge of overseeing entities had incurred fruitless and wasteful expenditure to the extent reported. She wondered how the Department could still monitor its entities, given its own poor performance in curtailing irregular expenditure. She flagged the lack of consequence management in the Department, and urged it to think how it could be a good role model, leading by example.

She also raised her concern over the assurance role that NECSA senior management should play, questioning whether it was not the responsibilities of the entity’s chief executive officer (CEO) and the board to make sure of assurance at the entity.

Ms P Madokwe (EFF) found it a recurring pattern, that lack of consequence control was always being mentioned in the AG's reports. She thus wanted to know who was responsible for what, and what the consequences were for those that did not adhere to the relevant policies and regulations. If the people at those entities were not doing their jobs, she questioned why they did not remove those "chiefs" and replace them with people who were willing to do the job.

Although she commended the Department for its progress in reducing fruitless and wasteful expenditure to R63 million, that amount was still a lot of money. No matter how small the amount was, there must be a policy in place to ensure consequence management on those who should be held liable for the loss.

She mentioned the gaps within the Department and its entities’ information technology (IT) controlling governance. As many governmental departments were going online, she asked whether the shortfalls identified in the Auditor-General’s report would be attended to. She also asked the Department to elaborate on the details of the interventions which it took to address those gaps.

Mr J Lorimer (DA) also sought clarity on the details of the IT problem issues at the Department. She asked the Department to give an indication on when or by which date its management team would implement this recommendation regarding the IT problem.

The Chairperson remarked that given the guiding nature of AG's reports, it would be a disservice if the Committee did not express its disappointment at the AG's long turnaround time. It was unacceptable that there were situations for delays. He recalled that the delay issue had been raised last year already during the tabling of the BRRR. He remembered that the AG's office that time had been hiding behind the excuse of COVID-19 challenges to justify its delay. He found it unacceptable that this delay had happened again this year, despite of the easing of restrictions. He reminded the AG's office that the delay had a detrimental effect on the Committee’s oversight work. For now, he could not remember the last time that the Committee had reviewed NECSA’s financial performance.

The Chairperson did not believe the reason provided by the Auditor-General that it could not finalise reports because of the lack of information from one entity. If this trend was to carry on, the AG's credibility would drop, and it was setting a bad example for entities. This would be the second, if not third, financial year that this Committee had not received any financial report from NECSA and the CEF. Furthermore, he did not understand why the financial reports of those two entities had not become a priority for the AG's office, given the delays in the previous two financial years.

He asked the Office of the AG to clarify its mandates in the event of entities' non-compliance. For instance, although the AG's report had recommended disciplinary measures, if they did not happen, what could the AG do to follow up?

AG's response

Ms Mmbadi apologised to the Committee, and acknowledged that AGSA had made a commitment that the office would have finalised all the audit outcomes for those outstanding entities. In future, she guaranteed that AGSA would make arrangements and bring audit outcomes even for those entities whose audits had not been finalised yet.

She said that the tabling of annual reports was the Minister’s responsibility once audit report had been provided. The AGSA had completed audits for the South African Diamond & Precious Metals Regulator (SADPMR) and NECSA, but the time period did not fall within the legislative timelines. The Office had still not yet finalised the audit for the CEF group, but was busy with it now.

She explained that for AGSA to be able to provide audit opinions, it needed sufficient time and audit evidence to do that. She acknowledged that the office had had experienced some challenges in this regard for the past two years. When the office did audits for a group structure such as the CEF group, it needed all the financial statements of the entities in the group to be consolidated to the holding company before it could do its audit. So far, there were still entities in the CEF group whose financial statements were outstanding, so it was unable to finalise the audit.

Ms Mmbadi responded to the question on the interest being charged to the state. Legislatively, in the event that any amount was being owed to the state for a long period of time, there was interest to be charged, with the rates determined by the Minister of Finance. However, AGSA had picked up instances where not all outstanding amounts had been charged interest.

AGSA did not identify instances where the government had been charged by suppliers for not making payment within 30 days.

She responded to Mr Mileham that AGSA had brought NECSA’s audit outcomes of the prior year and of now. It showed that the entity had a disclaimer audit opinion for the prior year, and a disclaimer again in the current financial year. His question had been directed more at the entity itself on how NECSA was addressing the recurring disclaimers.

She said that the Member’s question on how the DMRE's fruitless and wasteful expenditure and its lack of consequence management were setting a bad example to its entitles, was more directed to the Department.

She clarified that AGSA referred to assurance providers as executive committee members and CEOs, as well as accounting officers/authorities, directors-general, board members, etc. Legislatively, the accounting officer/authority, depending on the types of entities, was responsible for the investigations and recommendations and implementation of disciplinary actions.

Ms Mmbadi elaborated on the question on the IT control interventions after the former Department of Mineral Resources and former Department of Energy had merged into one governmental department in this financial year. As the system had become one entity after the merger, there were instances where the integration of the two departments’ systems had not taken place. For instance, the security issues had not been dealt with efficiently, and she had recommended that the Department should fast track its IT controls. This finding had been communicated to the Department around July/August.

Ms Dineo Masheane, Engagement Manager responsible for the CEF audit, summarised three reasons that explained the delay of the audit opinion for the CEF group. Firstly, PetroSA had submitted its financial statement only on 1 July, having missed the deadline of 31 May. Secondly, the main subsidiary of PetroSA had delayed providing its financial information. Finally, there was ongoing concern around the uncertainty of the financial information of PetroSA. All of these factors contributed to the delay of the audit opinion.

Follow-up questions

The Chairperson gave each Member a one-minute time limit to pose follow up questions.

Mr Mahlaule commented that the responses by Ms Mmbadi and Ms Masheane would not suffice. Members understood how the audit process worked, and that missing information of an entity in the CEF group could result in the delay of audit. Their question was more about the continuous delays of audits, and their frustration on the matter because it negatively affected their oversight work on the CEF.

The Chairperson agreed with Mr Mahlaule, and said that this Committee had committed to do thorough work. He urged AGSA to prioritise this Committee’s work and catch up on the entities that it had left behind. He found unease with Ms Masheane’s response. His understanding of audit authority was that it should not wait for an entity until the completion of an audit.

He reminded everyone present that the Committee was also confined by the rules and procedures of Parliament, and could thus deal only with things that had been tabled in Parliament. The Committee would therefore still have to discuss how to tackle the three outstanding entities that had not tabled their financial statements. He criticised the CEF for its dismal financial performance, even though he was not an auditor himself.

The Committee Secretary read the letter from the Minister to the Speaker of Parliament requesting an extension on the tabling of the annual reports for the 2020/21 financial year for the SADPMR, the CEF and NECSA.

The Chairperson remarked that those three entities were not on the virtual platform because they had not met the set deadline, and asked the Committee Secretary if there were any options available after the BRRR process.

The first session of the meeting was adjourned.