COGTA Audit Outcomes

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Cooperative Governance and Traditional Affairs

09 November 2021
Chairperson: Mr F Xasa (ANC)
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Meeting Summary

Annual Reports 2020/21

In a virtual meeting, the Portfolio Committee on Cooperative Governance and Traditional Affairs met with the Auditor-General of South Africa (AGSA) to discuss the Budgetary Review and Recommendations Report of the Department of Cooperative Governance and Traditional Affairs and its entities for the 2020/21 financial year.

The presentation from the Auditor-General revealed that the Department of Cooperative Governance and Traditional Affairs continued to have high levels of fruitless and wasteful expenditure and that the Department received a qualified audit opinion for two consecutive years, which the Auditor-General linked to the management’s inability to implement proper and timely record keeping controls. The Auditor-General also raised a concern with the accounting officer‘s inability to take appropriate action in relation to payments made to non-qualifying government employees on the Community Work Programme (CWP). 
 
The Committee raised concerns with the Department’s continuation of incurring high levels of fruitless and wasteful expenditure and the Department’s inability to manage the Work Programme, which has resulted in irregular expenditure related to payments made on expired programme’s contracts, as well as the irregular appointment of some Programme implementing agents. 
 
The Committee further expressed its concern that the issues have not been resolved and that there is an audit finding relating to the lack of disciplinary steps taken against staff behind the irregular, fruitless and wasteful expenditure. The meetings that the Committee has held with the Department on the issues of the CWP’s have yielded no positive results because the Committee is still experiencing challenges with the Department failing to deal with its concerns.

Meeting report

Opening Remarks by the Chairperson

The Chairperson opened the virtual meeting, welcoming the Members, delegates from the office of the Auditor-General of South Africa (AGSA), and other guests. He introduced the meeting agenda and asked for it to be adopted.

The agenda was adopted.

He then handed over to the Auditor-General of South Africa for its presentation.

Auditor-General South Africa (AGSA) on the audit outcomes for the Department of Cooperative Governance and Traditional Affairs (COGTA) and its entities

Ms Aphendule Mantiyane, Assistant Manager, AGSA, outlined the portfolio audit outcome. She said that there was an improvement in the number of clean audits but there was an increase on R2 billion for irregular expenditure during the 2020/2021 financial year. The audit outcomes for the past two years were presented and revealed that the Department of Cooperative Governance (DCOG) is the only entity that received a qualified audit outcome with findings in PPE, Goods and Service, Expenditure Management, and Consequence Management. She said that some of the reasons for the fruitless and wasteful expenditure included government employees unlawfully benefitting from CWP’s (Community Work Programme). The recommendations to DCOG, by the Auditor-General, were presented and have to be implemented by the Accounting Officer by January 2022.

On supply chain management, she said that it regressed, and that the findings should be investigated. On governance and internal controls, assurance about the financial statements has been provided by both COGTA departments and the entities under the departments. The overall status of internal controls was good but interventions are required in DCOG for the qualifications identified in the audit.

She outlined the status of the IT environment, with DCOG being an area of concern, and the recommendations were outlined. Three main root causes were presented, along with the recommendations, including the importance of the Accounting Officer in implementing the recommendations where there were findings. 

See presentation attached for further details

Discussion

Mr I Groenewald (FF+) highlighted that the CEO of MISA was arrested, along with ten other people in the Department, but the Auditor-General’s presentation stated that MISA received a clean audit, their statements are credible and assurance was good in terms of the financial statements throughout financial statements.  

Mr K Ceza (EFF) asked on the agreed timeframes and budget spent on investigations by DCOG related to unauthorized, irregular, fruitless and wasteful (UIFW) expenditure in the CWP cases. What mechanisms have been implemented to minimise the investigation period, and harsh punitive measures implemented against corruption by DCOG, as highlighted by the Auditor-General that there should be more preventive measures than reactive measures? He noted that the Auditor-General is concerned about the lack of consequence management within DCOG, and asked on the restrictions towards achieving consequence management as well as the monitoring mechanisms to strengthen and in-source participants within the CWP to effect change. He asked on the number of government employees that benefitted from the CWP, why prosecutions have taken so long on the matter, and on the measures in place to ensure that appropriate action is taken against non-qualifying government employees who benefitted from the CWP. He also asked how the funds used by DCOG, through the implementing agencies, to benefit participants will be redirected, because the participants cannot be blamed for sleeping under tress when they should be working while there no encouragement or motivation.

On the goods and services in the CWP, he asked what the DCOG is doing towards ensuring that those responsible for delivering the goods are held accountable, because the matter speaks to the ongoing outsourcing of services. The State needs to learns to perform functions without outsourcing services, and understand that the goods and services uplift communities.

On the R2 billion irregular expenditure, he said that the increase from the previous year was too steep, especially because there were no preventative or investigative measures in place to hold people accountable. He also said that, if there is no value for money, then the expenditure is in vain, which could have been avoided. It is confusing that there is no improvement because the same issues are discussed on irregular expenditure. 

Mr M Mabika (DA) raised concerns on the CWP issues that started in the 2018/2019 financial year, and questioned why the issue appears in the year under review instead of the previous years, so it can be resolved. He also raised concerns on the recommendations provided by the Auditor-General and asked whether these recommendations are meant to change the situation in the Department around because the recommendations outlined what the Accounting Officer should do, as if the Accounting Officer does not know what to do. For example, if the Department is unable to prevent fruitless and wasteful expenditure, the question is who should have ensured that fruitless and wasteful expenditure is prevented? He said that issues such as the Department failing to pay service providers in 30 days should not be a concern because the Accounting Officer should be aware of them. He asked when the Auditor-General starts acting within its power instead of giving recommendations, because the same issues will arise in the next audit outcomes. When will a change come, instead of the same issues being brought up, because consequence management is not evident from the Department? This is worrisome.   

Mr C Brink (DA) said that it is clear that there is failure and disappointment that the issues that were identified by the Auditor-General still have not been resolved by the political leadership and management, especially COGTA. DCOG received a qualified audit outcome with the same findings in relation to the CWP, which is a mess, as well as the financial statements. An explanation is owed to the Committee by the Department on why there has not been an improvement, why the CWP issues are not yet resolved and why the same findings are still being presented for the past three financial years. He said that there has to be an account to the failure or else the entire exercise is a useless. He asked whether any of the matters were included in the performance agreements of COGTA officials and whether it is part of the Director-General’s performance agreement to achieve an unqualified audit. Are there similar provisions in the same performance agreement and will they be implemented?

Ms H Mkhaliphi (EFF) said that the report tabled by the Auditor-General shows that there is no improvement in the Department, so the political head of the Department should give an explanation to the Committee on the matter. She asked for clarity on the issue of staff components because the Department is not following proper human resource procedures when hiring staff members, and asked the Auditor-General whether the matter was discovered because money would have been wasted by the Department. How are decisions taken when identifying a person to add to the Department, because every decision that is made has to be accounted for?

She also noted that there are a lot of resignations from the Department, from people who have worked in the Department for a long period; she asked for clarity on the reasons for the high number of resignations, especially if the people could assist in resolving the issues within the Department.  

Ms D Direko (ANC) said that DCOG is like the black sheep of the family, because the DTA and other entities are performing well. The audit outcome from the past three years shows that CWP is a major issue, even though the Auditor-General has been making recommendations. The Department has to do something about the issue because contractors cannot be appointed without following proper procedures where government employees appear on the projects. A post-audit plan was promised by the Department to address the issues, so it is surprising that the issue of the CWP still appears in the current financial year.

On the recommendations by the Auditor-General, she said that recommendations are directed to the Accounting Officer. She also asked what the Auditor-General will do to address the matter, which is recurring because in 2019/2020 the Public Audit Amendment Act was adopted, where the Auditor-General was given more power to deal with matters.

The Chairperson noted that the Committee stresses on the repeat findings, and said that a way has to be found to address the matters. Certain matters will not be allowed to continue, especially with the experienced issues in local government, so COGTA will have to lead by example. The Chairperson said that progress on the issues that have been raised is expected all the time, particularly those raised by the Auditor-General. Specific matters have been closed by the Auditor-General after engagements were held with the Department but there is no clear explanation on what informed the closure of the matters and what it means. Does it mean that the matters relating to material irregularities are closed? The Chairperson asked on what can be done by the AG to ensure that COGTA leads by example, and that effective oversight is conducted by the Committee.

Mr G Mpumza (ANC) commended DTA for maintaining a clean audit. He noted that the AG mentioned that there have been slight improvements, while there have been regressions by DCOG. He said that the Public Audit Amendment Act gives the AG authority to issue a certificate to the Accounting Officer. Why has the Auditor-General not issued a certificate to the Accounting Officer so that the irregular expenditure of R2 billion is recovered?

On governance and internal controls, he noted that the Auditor-General’s presentation stated that the Accounting Officer and senior management are not providing assurance for the financial statements. He asked why this is not being done, and whether there is a lack of capacity to perform the functions. He also noted that the AG reflected that the internal audit provided some assurance, and asked whether the internal audit does not have the capacity to give accurate assurance. The report shows that the procurement of PPE’s was not compliant with the procurement laws and policies; the report also shows that the reasons for the deviation were not justified. He asked why the situation happened, and whether there are incompetent officials in the procurement office.

The Chairperson said that the Committee will be meeting with the respective Department officials, so that they will respond to any questions from the Committee.  

Responses

Mr Tshepo Shabangu, Senior Audit Manager, AGSA, said that the Public Finance Management Act (PFMA) and the Municipal Finance Management Act (MFMA) are meant to enhance good governance and clean administration in the public sector. The two legislations contain extensive guidance on what the law requires from the Accounting Officers and Auditees with regards to compliance with the laws and regulations, as well as consequence management in the event of financial misconduct. The Auditor-General received an extension to re-enforce the Public Audit Amendment Act and to ensure that the public bodies conduct investigations in line with their mandate as well as to take binding remedial actions to mitigate irregularities. The Auditor-General is also expected to issue a certificate of debt for failure in implementing the remedial actions if there is a financial loss. The implementation of the material irregularities is a long process because in DCOG the issues were raised during the 2018/2019 financial year, and the process was to inform the then Accounting Officer, who gave a commitment to address the issues. The commitments were assessed on whether the Director-General was taking appropriate action. He said that the new senior management of DCOG is working really hard to resolve old challenges of the Department. The issuing of the certificate of debt is a long process, which also allows the parties involved to state their cases and provide progress reports on what is being done.

He highlighted that one of the material irregularities is already at the recommendation stage, and the Director-General is given six months to implement the recommendations that are given by the Auditor-General. On the MISA CEO arrest in 2019, he said that the Auditor-General is aware of the arrest, but said that it was connected to the old Amathole District contract for toilet installations. So, the MISA audit was simply based on the performance in the financial statements and compliance with laws and regulations. The court case did not affect the audit outcome of MISA.

On the CWP, Ms Mantiyane said that, at the end September 2021, the contracts between the Department and the NPO’s came to an end, and the Department gave a commitment that it would reconcile and account for each and every transaction that was incurred for the past three when the implementing agents were appointed. Any amount owed to the Department would be recovered from the retention balances, which are withheld in the invoices from the NPO’s. She said that the main issues with the CWP annual financial statements relate to the lack of record keeping under ‘Goods and Services’, and that the Department is required to physically verify the assets and reconcile to the records. At the end of the contract the Department would be able to transfer the assets from the old implementing agents, but the processes and controls that are put in place by the Department to ensure the credibility of information is not questionable. The Auditor-General requires the Department to be intentional about the exercise of transferring assets because it is a long process and it requires funds. Asset management is an area of concern for the Auditor-General, which is why non-compliance is assessed to establish whether communication is improved to the Department on what needs to be done to ensure that this area of concern is resolved.

On the lack of record-keeping, she said that it would take a while for the Department to address issues from the previous years, but the people that are responsible for approving payments in the Department should not make payments if there are no supporting records, to avoid false claims on invoices submitted by NPO’s.

On the reasons for irregular expenditure being addressed during the year under review instead of 2018/2019, she explained that the contract was awarded to the NPO’s, with the approval that the Department would make use of the transfer policy. However, after considerations, Treasury concluded that it is inappropriate to make use of the policy because NPO’s are not government institutions. This led to the Department accounting the expenditure as goods and services, which resulted in challenges for the Department during procurement process, because the contracts were awarded under a different policy. She said that non-compliance was only identified in the year under review because of a high court judgement that concluded that the processes of awarding of contracts were unconstitutional and invalid. The Department then had to qualify all the expenditures for the past years.

On the powers of the Auditor-General, she said that the purpose is not to take away the responsibility of the different oversight role players, so the Department is required to investigate the reasons behind this irregular expenditure by following the necessary processes. The next stages of resolving irregular expenditure would be established by Treasury, and the processes will be pursued by the Auditor-General in the upcoming financial audit.

On the government employees that benefitted from the CWP, she said that there is a finding that is still an allegation based on the database and analysis that was conducted through the audit processes. Further investigations need to be conducted o the specific details of who benefitted from the CWP. This is why it was concluded that the Accounting Officer was not taking appropriate action to resolve the matter. She said that the implementation of the remedial actions will be followed up by the Auditor-General. On the lack of consequence management and timelines, she said that the Department was not implementing enough procedures for consequence management and was not following the necessary prescripts, which is why the Auditor-General was unable to confirm that disciplinary action was taken against people that committed and incurred irregular expenditure. On the material irregularities that were closed, she explained that the material irregularities will no longer be reported on because it was officially closed based on the procedures that were performed by the Auditor-General. Part of the considerations that were made was when the PAA amendments were made and were effective from 2018/2019. The purpose of the amendments was for government to recover the financial losses that were incurred and that stakeholders are taking the necessary actions to ensure that the material irregularities do not recur. The material irregularities were determined by the Auditor-General to add no value.

On DCOG, she indicated that the Auditor-General is at a stage where the Accounting Officer is encouraged to take appropriate action. On the action against officials that incurred expenditure, she said that when the finding was raised a process still had to be followed by management to investigate and during the process some information was sourced and provided to resolve some of the issues. Some of the findings were that the goods and services that were paid for by the Department could not be confirmed, and the Department was able to clear the balance under pre-payments. The remainders of the balances are in the process of being reconciled by Departments because the contracts have ended. The Auditor-General requires updates from the Department on the matter.

On the assurance provided, she said that most of the issues are legacy issues but without an overall improvement there is no improvement. The reasons for some non-performance in this area are because some of the issues require time to understand the root causes and to develop adequate action plans. The Department has the skills and capacity to perform functions and to ensure that there is no regression in the issues.

On the ongoing issues, Mr Shabangu said that the challenge is that the issues will always be raised until they are resolved and the material irregularity route will be pursued to determine whether a certificate of debt will be issued.

Follow-up Discussion

Mr Groenewald said that the Auditor-General’s explanation on MISA still receiving a clean audit outcome from 2015/2016 to 2020/2020, despite the CEO suspension, was unsatisfactory. He asked whether the Auditor-General is not supposed to go back and report in a new financial year, and how the matter is being addressed.

Mr Ceza raised concerns on the R700 million of MISA and the Amathole District. Surely the amount is recorded under expenditure? The money should have been part of the audit. Otherwise, the Committee will be manipulated while COGTA is being protected. He asked the Director-General’s if there is anyone demanding money against the available resources in the Department, and if there is appropriate action being done to recover the CWP financial losses and material irregularities.

Mr Shabangu responded that MISA has been clean since the 2018/2019 financial year. He committed that the Auditor-General will look back into the issue, and provide feedback to the Committee at a later stage.

Ms Avril Williamson, Director-General, DCOG, said that many of the issues in the Department are legacy issues that started from 2015, and the Department is determined to table annual reports that are credible and submitted on time. Irregular expenditure is unfortunate because it does not come from the current financial year. She said that the Committee should note that there was a total of six material irregularities, and valuable progress has been made on four of them. Out of the two remaining ones, one has been removed and the other is related to CWP participants and double dipping, which still needs to be satisfied. The Department should be given an opportunity to conduct investigations and report back to the Auditor-General. The Department is also dealing with issues around culture and the mindset of staff members within the Department, and training is being done to ensure that the staff knows what to do. Some of the questions, such as those on interventions, mechanisms and controls in place, will be adequately responded to in the afternoon session when the political heads are present.

The Chairperson said that some of the questions asked by the Committee may require further engagements with other Department officials

Ms M Tlou (ANC) asked that the Director-General responds to the question relating to payments made to contractors every month end. 

Ms Williamson said that the Department has a relationship with the implementing agents, so payments are made directly to these agents. The Department has also decided to pay CWP participants directly so any other contractors receive payments from the implementing agents, not from the Department. She said that this is a challenge for the Department because, when the implementing agents default on payments and invoices, they inform the contractors that the Department has not paid them. The policy and implementing framework into the CWP payments is clear to ensure compliance, and if payments are no made by the Department, it then means that the necessary documentation was not received.

The Chairperson said that there are a number of issues that are being recognised and that the Department should expect the questions to be repeated by the Committee.

Mr Hadebe asked on the material irregularity that was issued, and the time it takes to issue a certificate of debt, because there is an understanding that the Accounting Officer should be given enough time to address the matter. He asked if there are specific timeframes in the conclusion of the material irregularities or whether it is case dependent.

Ms Tlou said that the payments to contractors are related to the municipal consumer debt, which is a problem in urban areas, especially the metropolitan municipalities and cities.

On the issuing of the certificate of debt, Mr Shabangu explained that the certificate is issued once a conclusion is reached that there was material financial loss incurred and that the remedial action to the Accounting Officer is not being implemented. A notice of intention to issue the certificate is given to the Accounting Officer, who has 20 days to make a written representation to the Auditor-General. Once the representation is received, the Auditor-General will assess whether the certificate of debt should be issued. If the certificate has to be issued, the matter is escalated for the Accounting Officer to make an oral presentation to the Advisory Committee, which is external. He said that there are efforts to fast-track this process.

The Chairperson said that the process of the issuing of the certificate of debt should not take away the need for the Committee to conduct oversight in the Department to determine whether recommendations are being implemented. Constant improvement has to be ensured in the Department. The Chairperson highlighted that the timeframes of the Committee will be different from the timeframes of the Department and the Office of the Auditor-General.

The Chairperson then thanked everyone for attending and participating in the meeting.

The meeting was adjourned.

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